New Bankruptcy Laws Now in Effect
The number of bankruptcy claims soared over the last month or so, just before the new bankruptcy laws came into effect on Monday.
The new policy is aimed at reducing the number of people who file bankruptcy with the intent of evading personal debt.
Up until now, the number of bankruptcy claims in the United States has increased by 19% from the same period last year, with upwards of 9,000 Americans filing daily.
The number of claims increased here in Canada as well, in spite of the fact that there have been no recent changes in the laws here, but most likely as a result of individual economic situations.
The new 501-page U.S. policy called the Bankruptcy Abuse Prevention and Consumer Protection Act makes it much more arduous for a person to file for bankruptcy now than it was previously.
The new bankruptcy rules represent the biggest change to the bankruptcy law in 30 years. In the past, one could file for bankruptcy under Chapter Seven and Chapter 11 and still keep some key assets, but this new law will see that change. No longer can one simply toss their debt aside and start over, as was said to be the case prior to the changes.
Many banks and creditors have been feeling the pinch of people filing for bankruptcy of late, as many of them were not able to recover lost funds. To the creditors, the new laws are a positive move.
“We’ve got greater fairness now under the new law,” Wayne Abernathy of the Americans Bankers Association said. “Where people have the means to pay, they’re going to have to pay something.”
But, while creditors believe this is a great change to the law, many groups disagree, noting that many people who file for bankruptcy do so due to medical bills or other hardships.
“The new rules are mean-spirited and illogical,” Gary Norgaard, an Englewood bankruptcy lawyer, said. “They shifted presumption from one of a good-faith debtor in unfortunate straits to a presumption of abuse. All the presumptions of mercy go out the window.”
The new law requires people to pay back based on state minimum incomes and take classes on credit management. In addition, lawyers will have to increase their fee because of the increased amount of work involved.
“If debtors aren’t going to be able to get a fresh start, not only is it bad for our economy but it’s bad for the non-bankrupt sector,” Kenneth Klee, law professor at the University of California in Los Angeles, said. “You’re going to have people going into the underground economy, not paying their taxes; they’ll be dispirited and there will be more crime.”
The changes include: — New corporate laws in Chapter 11 — Credit counseling mandatory within 180 days of filing — Ability to pay back based on the state they reside in; if one cannot pay back at all then certain assets are surrendered — US$6,000 must be paid back within five years — The new law overrules current laws surrounding unlimited homestead exemptions in certain states
For an economy that’s already suffering, I for one think the timing of the change to bankruptcy laws was very poor.