The Checkout

How Has Bankruptcy Law Affected You?

Next Tuesday marks the one-year anniversary of the bankruptcy law, which was designed to make it harder for debtors to get out of paying their creditors by filing for Chapter 7.

First, a quick refresher, culled from my colleague Kathleen Day's April 15, 2005 account.

The law did away with much of the discretion bankruptcy judges had in deciding who is eligible to file under Chapter 7 and who should be forced to file under Chapter 13. Under Chapter 7, you can wipe out substantial portions of debt. By contrast, Chapter 13 requires some repayment of obligations over several years.

Under the new law judges have to calculate eligibility using a formula based on income and expenses for would-be filers whose annual income is above the median for the region where they live. Those required to file under Chapter 13 must make repayment for five years. Under the previous law, those payments stopped after three years, even if the debt was not fully repaid.

The new law also makes consumers who file for bankruptcy wait two to four years longer before they can file again.

In the nearly 12 months since the law passed, not all has turned out as the framers had imagined. Another provision of the law requires consumers to sign up for credit counseling before they can file for bankruptcy. The idea behind it was we would find out that many of them do have money to repay creditors.

But a study by the National Association of Consumer Bankruptcy Attorneys found that people who file for bankruptcy protection aren't, as Michelle Singletary put it in February, "deadbeats who went on shopping sprees with the intention of shirking their debts."

Here's a breakdown of their findings:

* After looking at data from six credit-couseling firms that had counseled 61,355 consumers, the association found that 97 percent of the debtors couldn't pay their debts.

* Four out of five consumers filed because of a job loss, catastrophic medical expenses or the death of a spouse. One in five were deemed to have gotten into debt due to "circumstances within their control."

* One in 30 could afford to pay off their debt using a debt management plan in which the consumer pays the credit counseling firm, which in turn distributes it to the consumer's creditors.

No surprise then that right before the deadline for filing under the old bankruptcy law, there was a surge in filings.

So, how have you fared during the past year? Have any of you considered filing for bankruptcy or filed under the new law? Did any of you decide not to? If so, drop me a line at

By Annys Shin |  October 13, 2006; 7:00 AM ET Consumer News
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it took lawmakers and credit card companies this long to realize that most Americans are hard working and are not trying to get out of their responsibilities? I think they are spending too much time in Washington and are forgetting what real life is. I am trying to file for bankruptcy. They just made the process harder so the hard working people. There are over 30 million people in America, a few thousand does not constitute overall abuse of the system. Credit card companies need more compassion. They would find that most folks would not only be able to pay their debts but that they are very willingly to do so.

Posted by: dee | October 13, 2006 11:00 AM

Michelle Singletary lets her belief in a mythical daddy in the sky warp her judgement. She routinely counsels readers to do things not in their best interest because SHE has feelings of guilt and unworthiness steming from her religous upbringing. She really needs to step back and view herself and her beliefs objectively. Currently she stubbornly defends her beliefs even if the facts don't conform to them.

Posted by: Figmo | October 13, 2006 11:24 AM

It seems to me that NACBA's February findings show that the new law is working precisely as intended. The findings examine bankruptcy filers under the first four months of the new law, and they show that new filings are down, which was what proponents of the law predicted. The figures that Annys cites as to those who are still filing under the new law show that new filers are overwhelmingly the truly needy, and not the "shopaholic deadbeats."

Posted by: Tom T. | October 13, 2006 11:31 AM

Four months is not going to be a good sample, any way you look at it, because of the surge in filings prior to the change in law; the next four months would, then be skewed.

The statistics for WHO filed bankruptcy for WHAT reasons are pretty much the same with the new law as with the old law. There never were that many people that filed bankruptcy as a "lifestyle choice"

Posted by: John D In Houston | October 13, 2006 1:14 PM

Under the new law judges have to calculate First of all you are incorrect that consumers had 3 years under the old Bankruptcy Law, they had up to 5 years so there was no change in that. What was and is ridiculous about the new law is that they require filers to participate in credit counseling when people already know that they cannot pay their debts and are forced to waste additional time going to these counseling agents which are also paid money that the consumer could be using to file their bankruptcy petition which, incidentally is quite expensive now. For consumers in a Chapter 13, there remains an additional surcharge (which it truly is) because the Trustee who is actually forwarding payments to your creditors is getting a percentage of every payment the consumer makes while in a Chapter 13 Repayment bankrupcy case. So the new law just further delays a consumer's filing date and adds more expenses (to the consumer's debt burden) because he has to pay for this counseling in advance and must complete it before he can file a bankruptcy petition, when he already knows and most likely has already been advised by creditors or legal advisers, he needs to file and is quite desperate.
So for most people in dire credit circumstances, bankruptcy is not a viable option unless the consumer is expecting a financial windfall of some type and needs a brief amount of time to delay action by their creditors.
The new law is completely ridiculous and only beneficial to creditors because they are making more money than ever and forcing consumers to pay even more money.
I am not even discussing "the legal loan-sharking" called "payday loans," which entrap many, many poor people and people experiencing emergency financial situations.

Posted by: G.Pope | October 13, 2006 1:20 PM

From the stand point of one's credit report, it's probably better to negotiate with each company (as in, close the accounts, and pay them off a bit at a time). There's not that much difference when it comes to how your credit report looks if you end up experiencing financial difficulty. If your long term goal is to turn your financial situation around, you'll be able to bouce back in a few years. I declared bankruptcy under the "old laws", and was able to go pro se. The judge (in Texas no less) was very nice and helped me get through the paperwork. If these news laws are complicating matters, I think it will just increase involuntary bankruptcies (meaning, people who don't want to be bothered with the complicated paperwork, will just stop paying their bills.)

Posted by: Marie | October 13, 2006 2:30 PM

It should be difficult to file for bankruptcy...after all, the rest of us are expected to make up for these shortcomings in one way or another. It isn't a step that should be taken lightly.

Posted by: John | October 13, 2006 3:41 PM

I personally believe this new law is outstanding. I have been a collection agent for the last ten years. In that time I have encountered many who needed to file bankruptcy, and instead of trying to just get paid, I would advise those that need it to go ahead and file. Now their are actually very few people whom qualify under my opinion: people who have no health insurance and have high medical bills outstanding & people who are disabled and are not receiving social security or disability. Other than that people need to pay the bills they generate such as credit card debt, car loans, appliance loans, mortgages, lines of credit with home depot, lowes, sears, hetchs, etc etc etc. And especially funeral debts. I have encountered thousands of people who sign for a $10-$15k funeral, for their deceased family member, and have no intention of ever paying the debt back. I have had hundreds of debtors tell me that if I wanted to get the money, then dig up the body and get it out of them. Well these maggots had options such as just cremating the body for $600 instead of ordering a $10k funeral. I know for a fact that thousands of people out there purposefully run up debt, because under the old law they knew they could just weasle thier way out of paying by filing chapter 7. Now many may say I am jaded from years of dealing with people coming up with any excuse to try & avoid paying. You may be right. But I will tell you that you are only as good as your word. When me and my ex seperated she charged up $27,000 on my credit cards in 5 days because she knew I would man up and pay the debts off even though I couldnt afford it. She was right. Instead of filing chapter-7 under the old laws I sold my condo and paid off all my debts, even though I knew under the old law I could have kept my condo, and $12k of personal assets. Now I am renting a room from a friend and only have the clothes on my back. Maybe it was the five years I served in the Army, maybe it was that I grew up in a house hold that believed that a mans word is his honor. But I am far more happy living the way I am now, even though I have to start all over again at age 35, than if I were to take the cheaters way out and file chapter on the creditors who granted me a lines of credit on my word.

Posted by: mjollnirs_thunder | October 13, 2006 4:12 PM

Those 1 out of 5 filers that gotten into debt due to "circumstances within their control" shouldn't be allowed to have all their debts wiped out. Where is the accountability? Please don't whine about the usurious interest leveled unto debtors by credit card companies. We should all know what we are getting into. Medical expenses and job loss are a whole different story but don't expect any sympathy if you gotten yourself into debt because of expensive clothes, cars and meals. Have some control.

Posted by: kungfukoh | October 13, 2006 4:30 PM

Just to be clear, Annys is echoing and agreeing with what Michelle said in February (which can be found here: ), that the majority of bankruptcy filers are NOT deadbeats. I think the way Annys quoted her makes it unclear whether Michelle thought they were or weren't, so I looked it up to be sure.

Posted by: clarifying the quote | October 13, 2006 4:53 PM

When I was in the service, I met the wife of a co-worker who was too dumb to count change. She was very young--maybe 20, maybe not--and just not too bright. She signed up for several credit cards and bought all kinds of gifts for her family. Then the bill came in. She didn't know that they charged interest! I am serious! She talked about it constantly and thought it was really unfair because the cc companies hid that information. I don't know if she ever declared bankruptcy, but she should have been declared terminally stupid and had a flag on her name that said 'CASH ONLY'. The credit card companies started preying on college students when I was in school. I got one and my limit was one hundred dollars a month! A far cry from now--'your new limit is now 25 thousand dollars!' I agree about the medical v. clothes, cars and meals. When my husband and I were first starting out, going out for dinner was rare, and new clothes were rarer. I STILL have stuff that I had 20 years ago! And I wear them! Say what you will, but wool coats are a good investment;)

Posted by: jane | October 13, 2006 8:04 PM

the reasons corporations tightened bankruptcy laws was because downsizing, outsourcing, and internationalization of businesses was making it impossible to stay middle class.

Three million jobs went overseas in the Computer Industry. Most factories opened up manufacturing overseas and shut down US based factories. Hoover laid off 3,000 last year, and moved operations to another country when it had it's most profitable year ever. Capitol ONE, the credit card company that has such snappy commercials laid off 3,000 people in Fredericksburg VA and shipped customer service to Bangalore. In fact if you wanted to do the United States people a would bring back _all_ customer service jobs to the United States to give your country brothers and sisters something to do now that their factories are all overseas.

Drive through North Carolina, it's only 3 hours away. Check out all of the furniture factories and textile mills that are closed. I wonder who bought all of the houses that were for sale 7 years ago?

Wood is still cut in the United States and shipped to Indonesia, where the wood is shaped, shipped to New York City and assembled by temp workers.

Ah life is good. Leave it to Beaver is dead, and Batchelor Father is what happens when you can't afford to get married.

Posted by: what most of you are ignoring is that | October 13, 2006 10:29 PM

1 in 5 got into debt due to circumstances under their control. That means that 4 out of 5, 80% got into trouble because of circumstances out of their control.

The world has changed. Used to be the government took care of people now it takes care of a class.

Your seniors are paying for the Iraq occupation, with a $30 a month payment subtracted from the monthly meds allotment under medicare, while your citizens that make more than $200,000 a year get tax breaks. This was the same year that Bush ruled that you couldn't by meds from Canada or Mexico because it made the US Pharma Companies compete with foreigners.

You know like _illegal_ aliens, or outsourcing. What you all don't seem to realize is that in exceptional circumstances the _judge_ should be able to disallow some repayments, it's called discretion.

Debtor prisons have made a comeback, you just don't know it. Work and slave to make your company a better place? Retire from any company with 30 years and a pension? That was a reality in the 50's through the 70's, not now. Your country is being gutted and sold to the highest bidder. Land of the Free? Land of the Free Ride for Elitist International Monied. And George is sending out invitations. Big Tobacco paid it's fines right, no, Bush exempted them.

Posted by: perhaps you've not noticed | October 13, 2006 10:45 PM

all the breaks.

Your citizens are losing their place in line.

Posted by: you're corporations are getting | October 13, 2006 10:54 PM

I lilke how the Democrats fought for the rights of the little guys, and not the big credit card companies. Oh, they didn't? Oh.

Posted by: RL | October 16, 2006 2:48 PM

G Pope...I couldn't agree more regarding the "payday loan (shark) companies". PLEASE, PLEASE, PLEASE DO NOT GO TO THE LEGAL EXTORTIONSISTS. If you don't have the money today, you're not going to have it in a week...all these extortionists are going to do is charge you rediculous "fees" to separate you from your hard-earned money. Talk to creditors...make payment arrangements. Need your car fixed? Ride the bus for a week if you whatever it takes (legally...LOL) to avoid these legalized loan shark extortionists!!!

Posted by: rt | October 16, 2006 5:25 PM

to perhaps you're not noticed: I agree with everything except regarding the tax breaks for those who make more that 200K...if you look at the tax code, INDVIDUALS who make 200-300K per year, pay 35% in federal taxes alone; those who make 500K or more pay 50% of federal taxes alone (not including Social Security, state, etc). Those who make 40K pay around 13% FEDERAL taxes, plus the others. It's the corporations that are getting most of the tax breaks. It sucks, but if you increase corporate taxes, they're just going to pass it on to consumers. A luxury tax would be nice because it would target those who buy, well, uh luxury items. I'm a physician (and I trained 15 years to get to the point where I'm making a good living and I have my patients lives in my hands...pretty awesome responsibility)...I haven't seen all these tax breaks; I pay close to 50% in total taxes (after deductions...hmmm, do I have a crappy accountant?...I don't know LOL)
Anyway, INDIVIDUALS who make a good living do pay taxes. It's not the amount of taxes that's going into the coffers in Washington, it's the WAY it's being spent; Washington beuracrats on both sides (Dems and Repubs) spending OUR money without any thought or care how it's being spent. If the money were managed better (not wasted on stupid crap), we could easily insure that seniors could get their meds and healthcare, schools could educate our kids, police could protect us, fire departments could help us, we could help those who NEED help, and we would have plenty so that our military and intelligence agencies could defend us. And yes, I'm a Democrat and I think GW has gotten us into a mess and panders to the religious "right", but there is corruption on both sides and money MIS-management, not lack of funds, is to blame for the financial woes in Washington.

Posted by: rt | October 16, 2006 6:06 PM

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