New bankruptcy law is punitive and the product of intense lobbying by the credit card and banking industries. The law will make it more difficult for consumers who are in financial crisis to use bankruptcy to deal with their debts. The new law does not address the role that credit card companies play in the high rate of bankruptcy or the underlying reasons for the high bankruptcy rate.
On October 17th, a new federal consumer bankruptcy law goes into effect. According to John Ventura, a nationally-known board certified consumer bankruptcy attorney, the new law is the product of intense lobbying in Congress by the credit card and banking industries.
As a result, under the guise of cracking down on consumers who abuse the bankruptcy process, the Bankruptcy Abuse and Consumer Protection Act (BACPA) makes it more difficult for consumers who are in financial crisis to use bankruptcy to help them deal with their debts.
Explains Ventura, “During my 30 years as a consumer bankruptcy attorney, most of the consumers I worked with did everything possible to avoid bankruptcy. More often than not they filed out of desperation in an effort to try to hold on to their home and/or car. Furthermore, most of them were forced into bankruptcy, not because they used credit irresponsibly as the new law assumes, but because:
• They had lost their job and could not find a new one fast enough or one that paid a salary comparable to what they used to make
• They were overwhelmed with high unpaid medical bills, despite the fact that most of them had health insurance; or
• They had experienced the financial repercussions of a divorce. Women especially tend to be harmed by divorce, particularly when their ex does not pay them the child support and/or the spousal support to which they are entitled.
According to Ventura, some of the most troubling provisions of the new law include:
• It increases the cost of filing for bankruptcy, which will be a problem for many cash-strapped consumers. In fact, some may not have enough money to file and will lose important assets as a result.
• Although bankruptcy was originally intended to give consumers a financial fresh start, the law will put that fresh start beyond the reach of some consumers because they will have to pay more money to their creditors than they would if they had filed under the old law. Their families may suffer as a result.
• It takes away consumers’ discretion over whether to file a Chapter 7 or a Chapter 13 bankruptcy and applies a stringent means test to their income and debts in order to determine what type of bankruptcy they must file. The goal of the means test is to force as many consumers as possible into a Chapter 13, regardless of whether they can realistically afford to make payments on their debts. As a result, many consumers are apt to lose the very assets they hoped to hold on to through bankruptcy.
• Makes more debts non-dischargeable through bankruptcy. In other words, under the new law, regardless of whether consumers file for Chapter 7 or Chapter 13, they are likely to end up paying more money to their creditors than under the old law.
• Weakens the protections of the automatic stay, which prevents creditors and debt collectors from trying to collect from consumers after they file for bankruptcy. As a result, consumers who file for Chapter 13 will have a harder time holding on to their homes and cars and it will be easier for them to be evicted from their apartments and have their homes foreclosed on.
• Encourages creditors like finance companies to put liens on consumers’ household goods such as clothing, furniture, kitchen equipment, etc. despite the fact these items typically have little or no resale value, although they may have an emotional value for their owners and might cost them a significant amount of money to replace.
Ventura also notes that the new law does not address the role that credit card companies play in the high rate of bankruptcy or does it reflect the underlying reasons for the high bankruptcy rate.
He urges consumers to become better money managers, regardless of how much they make and to know what steps to take as soon as they begin having money troubles. Says Ventura, “Consumers who know what to do when they experience a financial setback and who take decisive action are less apt to damage their credit histories and their credit scores and less likely to end up in bankruptcy.”
John Ventura is a nationally-known consumer law attorney and a board certified consumer bankruptcy attorney. He has written numerous books about consumer money problems including the best selling The Bankruptcy Kit, 3rd edition and The Credit Repair Kit, 4th edition (Dearborn Trade Publishing) as well as Law for Dummies, 2nd edition and Divorce for Dummies, 2nd edition (Wiley Publishing). He has been quoted in such publications as USA Today, The Wall Street Journal, Kiplinger’s Personal Finance, Money Magazine etc. and has been a guest on CNN, CNBC, NPR, Bloomberg Television and Radio, and numerous TV and radio interview programs in major markets around the country.
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