The new federal bankruptcy law that will take effect this fall was based on inaccurate data and could end up making it harder for many failing small businesses to recover from financial problems, law professors from the University of Nevada, Las Vegas, and Harvard said Wednesday.

"Small businesses are stalling out in record numbers. (Yet) Congress has been making it tougher for people getting in trouble to work out problems and get into business again," Harvard Law School professor Elizabeth Warren said about the new Bankruptcy Abuse Prevention and Consumer Protection Act that President Bush signed in April. Most provisions of the new law take effect Oct. 17.

The professors spoke during a conference call sponsored by the Kauffman Foundation.

The study conducted by Warren and UNLV law professor Robert Lawless concludes that Bush and Congress were provided with misleading federal statistics when they were revising the federal bankruptcy law.

The statistics used to support the new law suggested that the number of business bankruptcies was falling when, in fact, they were rising, the law professors said.

The study attributes the bad data to computer forms used to compile statistics about bankruptcy filings since the mid 1980s. The forms have a default box that indicates a filing is a nonbusiness bankruptcy unless the attorney marks it otherwise, Lawless said.

Bankruptcy court statistics suggest that business bankruptcies declined from 18 percent in the 1980s to 2 percent now. Yet, statistics from credit reporting service Dun & Bradstreet and the Small Business Administration show that the number of business bankruptcies has actually increased.

The study concluded that owners of small businesses file an estimated 260,000 to 315,000 bankruptcies each year, rather than the 37,000 reported by the government. The researchers surveyed 1,771 debtors in five states.

"It is apparent that entrepreneurs continue to use the bankruptcy system in big numbers," Lawless said. He said it was surprising "that it took so long for someone to notice that the government figures were so divorced from reality."

"Over half of new jobs created in the United States every year are firms less than three years old," said Carl Schramm, president of the Kauffman Foundation, which paid for the study. He called entrepreneurs "the vital spark plugs of our economy and its growth."

Unlike owners of large companies, owners of small businesses often are forced into personal bankruptcy, because they are held responsible for company debts, the researchers said.

That's because banks often require small-business owners to personally guarantee business loans, said Greg Garman, an attorney with Gordon & Silver.

Bill Martin, president of Nevada State Bank, agreed, noting that banks can't obtain personal guarantees from public corporation shareholders the way they can from an owner of a small or large private business.

The researchers also noted that many entrepreneurs fail their first time out, although they often succeed in creating large, successful enterprises after having to go through a bankruptcy.

"The bankruptcy law was designed to provide a fresh start such that these people could try again," Garman said.

Under the new law, many such business people will be "hamstrung" and unable to go back into business because of past debts, Garman said.

Debtors with higher than median income will no longer be able to file for Chapter 7 bankruptcy, which requires liquidation and uses nonexempt assets to pay off creditors. Under the new law, a family of four making more than $60,000 in Nevada will need to file for Chapter 13, which will require the filer to use future earnings to pay off some or all of the debt over five years.

Individuals owing more than $308,000 in unsecured debt or more than $923,000 in secured debt will need to file a Chapter 11 bankruptcy, a form of bankruptcy that allows companies to continue operating while reorganizing their finances, Garman said.

"Chapter 11 (bankruptcies) are extremely expensive and intrusive and not a good place for an individual to typically end up," Garman said.

Sen. Chuck Grassley, R-Iowa, who authored the new bankruptcy bill, defended it.

"I haven't seen the study, but the new bankruptcy law preserves the bankruptcy safety net for individuals who hit hard times, including entrepreneurs," he said in a statement.

"It only requires that people who have the ability to repay their debts do so. And, it's designed to help small businesses reorganize more quickly or liquidate, rather than squander assets in prolonged legal proceedings," he said.

Lawmakers relied on unanimous recommendations by the Bankruptcy Review Commission "and were broadly supported by the business community," he said.