Bankruptcy Law Changes - The Bad
The purpose of the new legislation, which President Bush
recently signed into law, is to eliminate the so-called
"bankruptcy of convenience." Supporters of the bill allege that
most personal bankruptcies are brought about by those with
compulsive drug, gambling or shopping problems, and that such
people simply don't want to pay their bills.
Studies show that most bankruptcies are actually brought about
by injury, job loss or illness. Nevertheless, the law was passed
with the overwhelming support of both parties in Congress, and
it reads like a love letter to the credit card companies. Here's
what it means for those with problem debt:
Those considering filing for bankruptcy will have to pass a
means test. This will determine if the debtors income is above a
certain threshold. Most people will qualify.
If you pass the means test, you will no longer be allowed to
file for bankruptcy under Chapter 7 of the bankruptcy code.
Chapter 7 allowed the courts to wipe away all personal debt in
order to give the debtor a fresh start.
Instead, debtors will have to file under Chapter 13, which
requires a five year repayment plan of personal debt. If you
incur debt, you will have to repay it. It's pretty much as
simple as that.
In addition, there are no provisions for illness, job loss,
accident or injury, or identity theft. If someone steals your
identity and runs up tens of thousands of dollars in debt in
your name, you will be held responsible for it.
Attorneys who represent debtors will now be held responsible for
the accuracy of the information presented to the courts in
bankruptcy cases. Because of this provision, it is likely that
many attorneys who handle bankruptcy cases will stop handling
them. Others who continue to do so will probably raise their
rates substantially in order to cover the additional liability.
Bankruptcy Law Changes - The Good
Members of Congress who sponsored the changes in the law have
rightly pointed out that the cost of bankruptcy due to
irresponsible spending runs into the billions of dollars, and
those costs are passed on to the consumer in the form of higher
interest rates on credit cards. With a lot of those costs
eliminated through the new legislation, the credit card
companies will have reduced costs, and will pass the savings on
to consumers in the form of lower interest rates.
They will not.
There is nothing good about this legislation for the consumer.
After October 2005, filing for personal bankruptcy will not be
helpful for most consumers.