shewolfnm wrote:How hard is it going to be for people who have honestly had a harship in their lives that has taken all of their finances down to zero to file for bankruptcy?
Is this law going to just be aimed at irresponsible debt?
It is going to be more difficult, but not impossible. The primary effect of the new law will be the increased costs upon parties trying to file their cases, to produce appropriate documentation justifying they need the relief and pay higher attorneys fees necessitated by all of the additional work. TT
bankruptcy judge calls new federal law 'meat-ax approach'
Last Update: 10/15/2005 6:51:41 PM
JACKSON, Miss. (AP) - A federal bankruptcy reform law taking effect this month is bad law, said the judge who oversees court cases for north Mississippi residents overwhelmed by debt.
"There could have been some reform to better the system, but this is a meat-ax approach rather than doing it in a studied way," said U.S. Bankruptcy Judge David Houston of Aberdeen.
Congress changed the "gem of our bankruptcy system" so much that there'll be "a subculture of people that will owe a lot of money and just move away," Houston said in a recent interview.
The new law takes effect Monday. It imposes restrictions aimed at preventing people from using the bankruptcy court to dodge debts they could actually afford to pay.
The "gem" in the current system, Houston said, is the Chapter 13 bankruptcy provision, which lets people with large debts reorganize their finances with court oversight to repay some or all the money over an extended period to creditors.
While Congress intended to steer more debtors to take the Chapter 13 route, Houston said the reforms could have the opposite effect - meaning more debtors will run away from creditors and they won't get the money due them.
The law imposes disincentives for people to repay debts over time in a court-monitored process to ensure creditors get their money, he said.
"That's one of the sad parts of the legislation. It's going to (hurt) the Chapter 13 program," Houston said.
He said in Mississippi about $50 million a year is paid in Chapter 13 bankruptcies.
"I fear that will be impacted by the new legislation," he said.
The changes Congress enacted impose unnecessary costs for bankruptcy filings and limits people's access to the court system, said Columbus attorney Gawyn Mitchell, who specializes in representing bankrupt clients.
"The middle class and poor - they're getting hammered with this law," Mitchell said. "It just makes it a lot harder and more expensive. It's going to place a greater burden on the poor to file.
"It's going to make it harder and more expensive for poor people to get relief," Mitchell said. "I don't see creditors getting more money from this either. I see no benefits."
Backers of the new law don't see it that way.
It should get people in debt to repay more of what they can rather than having their financial obligations erased through bankruptcy, said U.S. Rep. Roger Wicker, R-Miss., who represents much of north Mississippi.
"Bankruptcy should be the option of last resort, not a convenient means of walking away from debts. The new law is designed to end this practice, while still allowing those persons who genuinely need bankruptcy protection to receive it," Wicker said in a statement.
However, measures the Republican-controlled Congress enacted last spring will likely cause more debtors to avert creditors' efforts to get paid, Houston said.
The purpose of the law is to encourage financially distressed debtors to be placed in Chapter 13 bankruptcy. However, Houston said the new law could actually push people into the Chapter 7 route - the "throw-in-the-towel bankruptcy" that lets them give up assets and have their debts forgiven.
"I think we'll have more Chapter 7 bankruptcies or have folks just drop out," Houston said.
Chapter 7 bankruptcies give debtors a fresh start by erasing their debts after they give up certain nonessential assets to creditors to pay whatever possible but not the full amount owed.
The new law also requires unnecessary paperwork and credit counseling for those in bankruptcy proceedings, Houston said. The fees for this will be costly for work and advice that aren't helpful for the court and debtors, he said.
The new law requires more documentation by bankruptcy lawyers to verify information clients give them. This will result in lawyers charging higher fees to represent insolvent clients who need the court to erase their debts or get a plan to pay money they owe.
"You could be too broke to go into bankruptcy," Houston said. "It's going to price a lot of people out."
Mitchell said many attorneys are ending their bankruptcy practice because of the new requirement they must verify for themselves everything their clients tell them about their financial plights.
"A lot of people are going to find this unattainable and so tedious they can't do it," said Mitchell, noting no other law has such a verification mandate on attorneys.
With about 95 percent of his practice being bankruptcy cases, Mitchell said, he'll continue this but might get out if he finds it too difficult to independently confirm what his clients say.
Houston is former president of the National Conference of Bankruptcy Judges. He said he knows no one with expertise in bankruptcy law who supports the changes.
"It's a lot more far-reaching than people realize," said Houston, noting the law could have "a lot of little gremlins" yet understood. "It's going to take years to sort it out."
In the aftermath of Hurricane Katrina and Hurricane Rita, Democrats in Congress have introduced bills not to impose the new bankruptcy restrictions on people devastated by the calamities.
"With all the disasters, the timing (of the new law) is awful," Mitchell said.
In passing the reform, Congress adopted a needs-based test that's considered the backbone of the new law. This will help determine whether debtors can afford to repay some or all of their debts, such as from credit cards.
Supporters of the new law said it should force more bankruptcy filers capable of repaying their debts to do so and not have them relieved so easily.
"I believe bankruptcy provides legitimate relief for some overburdened Americans. Unfortunately, some individuals have taken advantage of current law to avoid their financial obligations," Wicker said.
