On October 17th it will be harder for consumers who find themselves drowning in debt to get any kind of financial fresh start. In three weeks, the Bankruptcy Reform Bill will go into effect and could possibly impact hundreds of thousands of people each year.
Not surprisingly the biggest pushers of the legislation were banks and credit card companies. They claimed, and obviously Congress and the President agreed, too many people are using Chapter 7 and Chapter 13 filings to get out of paying debts they could easily afford to repay. If true, this bill could assist in lowering the interest rates for so called "responsible" consumers because the risks taken on by these financial institutions would be greatly reduced.
However, it's not true. Only three-percent of consumers filing for bankruptcy protection were shown to actually have the means to pay their bills.
It's easy to paint a picture of irresponsible consumers who have no concept of consequences running out to the malls and charging up credit cards on luxury items only to choose not to pay them and use bankruptcy to avoid payments at any point. But this would be an optical illusion as well.
The biggest cause of bankruptcy filing is actually medical expenses. With more than 30 million Americans without health care a mere visit to the emergency room could force a patient living check to check into the courts seeking protection. In fact some 2 million people in the past 5 years are under bankruptcy protection due to medical expenses.
With the state of the current economy and more Americans seeping into poverty, it seems more people will be adversely affected by this new law. Bankruptcy filings have increased nearly 200 percent in the past ten years - jumping from less than 175,000 in 1995 to more than 400,000 right now.
Instead of giving more latitude to bankruptcy judges to give filings more scrutiny and giving incentives to consumers to seek other options, Congress implemented a number of new restrictions. The primary one is "means testing." Anyone who makes a specified level of income no matter what their circumstances is basically shut out of the bankruptcy court.
Right now there is a debate getting faint attention over whether to exempt the victims of Hurricane Katrina (and now Rita) from the new enforcement. The debate is an honest one and so is the problem many of these victims will face.
It's estimated bankruptcies increase 11-percent one year after a hurricane and five years after, the rate of filings jump to 30%. The impact of a hurricane seems to last long after the storm passes - as well as the media attention.
Exempting hurricane victims seems to be a fair thing to do - but hard questions abound. How would such an exemption be implemented? By state? By zip code? How would victims prove they were actual victims? By identification which may have been washed away?
It seems the solution isn't looking at exempting specific victims because of specific tragedies The survivors or family's of 9/11 victims aren't being given the same choices. Maybe we should be looking at revising the law or focusing on the root causes of bankruptcy filings in the first place.
Perhaps it would be easier to ensure every American who wants health care can have it. Or, maybe there should be a mandatory class on consumer credit and financial responsibility taught in our public schools. Another solution could be to limit the types of solicitations banks and credit card companies can distribute on college campuses.
It seems educating Americans on their fate once they dive into the world of credit would be a better use of our energies and a more effective way to spend American tax dollars. But if politicians actually acted like they cared about the special needs of citizens rather than special interest of big business who would donate to their campaign funds?
THIS CONTENT IS FOR INFORMATIONAL PURPOSES ONLY. THIS IS IN NO WAY GIVING ANY LEGAL ADVICE OR REPRESENTATION. THE INFORMATION CONTAINED HEREIN WAS COMPILED FROM VARIOUS ARTICLES. FOR ANY LEGAL ADVICE OR REPRESENTATION SEEK YOUR OWN LEGAL COUNSEL.