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Ever since the New Bankruptcy Law has come into effect, debtors find it difficult to clear up their debts. As a result, there has been a slowdown in the filing process in the second quarter of 2006. The number of filings has gone down to 142,815 from 458,991 within a year. This has raised questions as to whether the new law is doing justice to all debtors.
Financial experts are expecting long term Bankruptcy filings to settle lower but at this point of time, it is too early to speak about the percentage of the decline. According to Christopher Lundquist, President of a California based firm, "The bill didnt put any money into anyones pocket, so the question is whether distressed borrowers end up in credit counseling or there are contractual charge-offs. You may have better recoveries and lower losses".
Lori Appelbaum an analyst comments in his research note that "There are no signs of a turn in consumer credit to date". She also adds, "Losses on credit card loans are running 40% lower than historical levels". Another consultancy, Lundquist Consulting which has been collecting data on personal bankruptcy filings since 1994, says that average filings for bankruptcy in June has gone down to 2272 from 5000 per day.
The Bankruptcy Abuse Prevention and Protection Act was supported by the credit card issuers and duly signed by President George W. Bush in April 2005. The Law places a restriction on Chapter 7 Bankruptcy filing thereby stating that borrowers will not qualify for it if they earn more than the states median income or pay off at least $6000 in 5 years towards their debts.
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