New Bankruptcy laws

Discussion in 'Credit Talk' started by Momof3, Mar 14, 2001.

  1. Momof3

    Momof3 Well-Known Member

    I am sure most of are of the changes, for those that aren't this may explain it in better detail.

    WASHINGTON, March 14 - For many Americans among the more than one million
    debtors whose financial troubles are expected to drive them into bankruptcy
    year, the route to a fresh financial start will be far more complicated
    under a bill that is now before the Senate and appears likely to become law.

    The bill would overhaul the nation's century-old bankruptcy system and
    eliminate the concept that many types of debts - notably credit-card debts
    and other
    loans that are not secured by a house or anything else of value - can be
    wiped out by a trip to bankruptcy court.

    For many debtors, the idea that bankruptcy offers a true, fresh start would

    After emerging from bankruptcy, they would still be responsible for paying
    off some of their unsecured debts, even if that meant dividing their
    between old credit- card bills and current child-support payments, alimony
    and other court- enforced obligations.

    The bill has been endorsed by President Bush and is being championed by the
    credit-card and banking industries, which say they have been harmed by a
    increase in the number of personal bankruptcies.

    During last year's election campaign, they backed up their lobbying effort
    with millions of dollars in political contributions to key members of
    and with some of the largest corporate donations to Mr. Bush. The bill,
    which has already been passed by an overwhelming margin in the House, is
    to be approved by the Senate late this week.

    About 1.3 million Americans declared bankruptcy last year, an increase of 75
    percent since 1990. Financial analysts say enactment of the bill would mean
    billions of dollars in extra profits for credit-card issuers over the next

    The bill's goal, supporters say, is to stop abuse of the system by many
    debtors who are shirking their responsibility to pay back their debts, even
    they have money to do so.

    "All of us end up paying for the unscrupulous who abuse our system," said
    Senator Orrin G. Hatch, the Utah Republican who is chairman of the Judiciary
    "People with high incomes can run up massive debts, and then use bankruptcy
    to get out of honoring them."

    The banking industry says that bankruptcies drive up the cost of borrowing
    for everyone else by $400 to $500 per person per year.

    Todd J. Zywicki, a bankruptcy specialist at the law school at George Mason
    University in Virginia, said, "I can see no good reason why a schoolteacher
    $30,000 a year should have to pay more for a mortgage or more for a new
    couch because some guy making $100,000 a year finds it inconvenient to pay

    The problem with the bill, opponents say, is that it would impose severe
    financial penalties on people who are forced into bankruptcy through no
    fault of
    their own - because of medical problems or layoffs, for example. President
    Bill Clinton vetoed a nearly identical bill last year, describing it as too
    harsh on debtors.

    Critics say the bill also does nothing to end what is perhaps the most
    notorious abuse of the system in some states: a loophole that allows people
    extravagant spending habits who are facing bankruptcy to shift millions of
    dollars of assets into a house, which can then be shielded from creditors
    what is known as the homesteading exemption.

    The bill would deny the exemption for a home bought within two years of a
    bankruptcy filing, but critics say that would simply encourage people with
    of assets to buy a mansion and then hold off their creditors for two years
    before going to bankruptcy court.

    The vast majority of people entering the bankruptcy court could only dream
    of such a home.

    Economic researchers say that nearly two-thirds of the people who file for
    bankruptcy report significant periods of unemployment before their filings.
    to a 1999 study by federal bankruptcy judges, the median income for
    Americans filing for bankruptcy the year before was $22,000 a year.

    Perhaps the bill's most important provision is a requirement that people who
    meet a certain income test - generally, that they have enough income to pay
    off at least 25 percent of their debts over five years - be barred from
    filing under Chapter 7 of the bankruptcy code, which allows people to erase
    of their unsecured debts.

    Instead, they would be forced to file under Chapter 13, which requires some
    repayment under a court-approved plan. Currently, about three out of four
    file for bankruptcy under Chapter 7. When debtors choose Chapter 13, it is
    often because they want to take advantage of the provision that allows them
    to keep their homes.

    The bill would continue to allow the unemployed or people with relatively
    low incomes to file under Chapter 7, but it would impose several new
    hurdles on them, including additional paperwork and the completion of a
    credit-counseling program.

    While the bill's sponsors say that the income test and the paperwork
    requirements would not be onerous on truly impoverished debtors, critics say
    that even
    a few additional impediments could persuade them to give up entirely on the
    bankruptcy system.

    "I fear this will end up creating an underground economy," said Lawrence P.
    King, a law professor at New York University. "People will go off the books.
    They'll ask to be paid in cash. They'll get a false Social Security number.
    They'll move.

    "In my 40 years of dealing with Congress on bankruptcy legislation, this is
    the worst I've ever seen," Professor King continued. "It's the kind of bill
    that makes you want to point your fingers at individual congressmen and say,
    `Shame on you.' "

    Opponents of the bill include many economists and lawyers who say they are
    also alarmed about changes it makes in the system of business bankruptcies.
    the bill, a single creditor could block the bankruptcy reorganization of a
    company, threatening the company's viability and the paychecks of its

    If a reorganization is delayed too long, "the only other alternative is
    liquidation," said Brady C. Williamson, a Wisconsin lawyer who led a federal
    that reviewed bankruptcy laws in the 1990's. "And that's not good for either
    creditors or employees."

    The opponents say they are also concerned about provisions of the bill that
    appear designed to benefit special interests at the expense of other
    creating the appearance of unfairness in what is being billed as "reform"

    At the request of lobbyists for the automobile industry, the bill eliminates
    rules that allow debtors entering bankruptcy to repay only an automobile's
    market value, not the full loan amount.

    The White House has refused to say if Andrew H. Card Jr., President Bush's
    chief of staff, lobbied for the change before joining the White House while
    as a senior executive at General Motors and president of the American
    Automobile Manufacturers Association. "It has absolutely no bearing on his
    role as chief of staff," said a spokesman, Scott McClellan.

    Opponents of the bill had at least a moderate victory today, when Senator
    Charles E. Schumer, Democrat of New York, forced a voice vote on the Senate
    to approve an amendment intended to prevent lenders facing bankruptcy from
    trying to sell off high-interest "predatory" loans. It was the first - and
    - amendment approved on the Senate floor in more than a week of debate on
    the bankruptcy bill.

    Copyright 2001 The New York Times Company
  2. bigboy

    bigboy Guest

    it's ugly, that's for sure

    this is not cool at all. on the one hand you've got credit card companies jacking up all sorts of fees to 'protect themselves' from cardmembers who ring up [unrecoverable] debts, yet at the same time they are marketing and issuing cards more aggressively and liberally than ever before.

    this is as sleazy as the company that pushes lard-laden, greasy food fatness on the one hand, then turns around and sells you their dietary crap on the other.


    'nuff said!
  3. Dani

    Dani Well-Known Member

    Re: it's ugly, that's for sure


    I'm beginning to draft a letter to the Virginia House of Delegates and the Virginia Senate for serious consideration on credit classes in high school. Where did you find the your article? I would like to use some points in the article in my letter and just wanted to give proper credit. Thanks.

  4. Momof3

    Momof3 Well-Known Member

    Re: it's ugly, that's for sure

    That's a great Idea. This article came from the New York Times.
  5. Dani

    Dani Well-Known Member

    Re: it's ugly, that's for sure

    Thanks, Mom.

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