New Bankruptcy Law 2005

New Bankruptcy Law

When the next credit card representative comes to campus, trying to market the newest MasterCard or Visa -- run away! Congress has made it more difficult for individuals to declare and extricate themselves from bankruptcy. Although the idea the new bankruptcy legislation is supposed to support, namely that consumers must become more fiscally responsible, may seem neutral on its surface and merely designed to reign in an overspent America where "the average credit card balance is $12,000. And 10 to 15% of households with credit card debt are barely able to pay it off," in fact this new piece of legislation advances a number of factional interests in Congress at the expense of other interests. (Willis, 2005) While the financial industry and credit card companies may be pleased by the 2005 legislation, consumer groups and legal action groups are not.

The image of creating a more responsible and thrifty consumer may have been the 'selling point' of the new legislation to the vast majority of the American public. Don't be seduced by credit card companies, touted the bill's advocates in Congress. However, these politicians might have been also just as apt to add -- oh yes, never get sick and require costly medical procedures, never lose your job, and for heaven's sake never care for a child with a chronic ailment. These are the main reasons that individuals fall into heavy debt and require bankruptcy, far from the image of the Gucci-touting college student. In fact, the legislation was deemed so anti-consumer friendly that CNN's personal financial advisor cautioned "if you've been considering filing for bankruptcy protection, but have delayed, you should go ahead and start the paperwork now. Once the many elements of the law take effect in 180 days (six months), bankruptcy as we know it will have changed to an unfriendly landscape," for the average, middle class American. The new law makes it more difficult for filers with a median income higher than what is deemed to be 'average' by Congress to file for bankruptcy and also more cumbersome. (Willis, 2005)

"The price of bankruptcy will go through the roof," said Brian Kimber, a West Palm Beach bankruptcy attorney. "The average consumer won't be able to do it." Currently, it is typical for a Chapter 7 filing to cost about $1,000 in attorney's fees, but at minimum with the new legislation the cost of filing for Chapter 7 could go up, on average, to the $2,000 to $2,500 ranges. (Sahadi, 2005) According to a recent April 21, 2005 AP Wire, "The law, which will take effect in six months, will force many people to work out repayment plans instead of having their debts erased," repayment plans that require financial industry insiders to understand -- thus forcing the consumer to go into more debt to pay these advisors. Thus not only will credit card companies benefit from the new laws, as the companies' will not have their debtors' debt erased. The financial services industry will benefit as well. Consumers will have to file complicated forms and take credit education courses before even getting to file -- and because the forms are more complicated, bankruptcy specialists will also benefit. Thus, these factions of big business, credit card companies, and the financial services have been given a windfall at the expense of the ordinary consumer, regardless of why he or she fell into debt in the first place. Credit education services "aren't free. Though credit counseling agencies get a cut of collected money from creditors, those 'fair-share contributions' have been cut severely, forcing agencies to rely more on fees from clients. (Sahadi, 2002)

But lawyers will not from this legislation. Under the new law, bankruptcy attorneys would be liable for any misleading statements or inaccuracies in a client's case. As a result, attorneys say, they'll have to invest far more time and effort -- in some cases hiring accountants and other experts -- to verify all the information clients give them, down to examining receipts. (Sahadi, 2005) Some firms are considering discontinuing their bankruptcy services for consumers -- just when these services may be most needed. In a cost-estimate report, the Congressional Budget Office said that complying with the provisions of the bill is likely to increase attorney costs by $150 to $500. "Some of those additional costs," the report noted, "would most likely be passed onto their clients." (Sahadi, 2005)