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 firstname.lastname@example.org.
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