In April 2005 President Bush signed a bankruptcy reform bill into law. This new bill, which will make it more difficult for individuals to clear their debt in a bankruptcy, goes into effect on October 17th 2005. Bankruptcy filings have taken a sharp rise in America as debtors hurry to file before the stricter regulations kick in.
Under current law, those filing a Chapter 7 bankruptcy are able to liquidate almost all of their debt, excluding certain exempt debts such as federal student loans. Credit cards are usually first on the list for debtors who want to wipe out a debt completely. In Chapter 7 bankruptcies, the debtor turns over their non-exempt assets, which are used to pay at least part of the money back to the creditors. However many people who file Chapter 7 don't have many assets; and often times creditors walk away with nothing.
Under a Chapter 13 bankruptcy, debtors pay back some or all of their debt under a 3-5 year payment plan. It's a less severe bankruptcy, and debtors keep all of their assets.
The new bankruptcy laws are designed to force more people to file Chapter 13 and pay back at least part of their debt. New regulations will restrict who is allowed to file Chapter 7.
The law's intention is to prevent people from abusing the bankruptcy system. Credit card companies and other creditors are the driving force behind this new law. The hope is that it will keep them from continually losing out as Chapter 7 filings force them to release their claims on owed debts.
That's exactly why many people are against the new laws. Their argument is that credit card companies are receiving enough in huge interest charges and finance fees. This forced increase in Chapter 13 bankruptcies will kick an estimated $1 billion back to the credit card company in the first year. That's money coming directly out of the pockets of those in such dire financial straits that they have gone the bankruptcy route.
If you're considering bankruptcy, now may be the time to act. Call up a bankruptcy lawyer and discuss your options. Chances are that there is no way to speed up the process and get it completed by the time the new changes roll into effect, but it's worth asking. And even if you're required to abide by the new regulations, it's worth knowing what you will be up against.
If you would like full coverage of the new laws, check out the American Bankruptcy Institute’s web site at http://abiworld.net/bankbill/
27th Aug 2005
