Six months from now consumers, will find it much more difficult to erase debts when filing for bankruptcy thanks to President George W. Bush signing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 into law April 20th. Provisions in the new law forces debtors whose income is above a certain level, to file for Chapter 13 instead of Chapter 7, and to work out a plan to repay creditors.
The new law will also make consumers wait eight years, instead of the current six before filing a new appeal to erase debts. Under the current law, people who file for Chapter 13 repay part or all debts and retain certain assets such as homes and cars, which would otherwise be liquidated under Chapter 7. Under Chapter 7 all debts are completely erased, which gives people a new start on their finances. The new law doesn’t apply to disabled military veterans if they acquired a debt while on active duty.
The American Bankruptcy Institute said each year between 30,000 and 210,000 people – from 3.5 percent to 20 percent who eliminate their debts, would not be able to do so under the new law. It also said that 70 percent of consumers file for Chapter 7 while 30 percent file for Chapter 13.
Congress has been pursuing this bill for eight years, arguing that too many people are abusing the system, and that many are able to repay a portion of their debt; especially gamblers, men avoiding child support, and millionaires who purchase mansions in states where their assets are protected from creditors.
Critics of the bill said the new law removes a safety cushion for low-income people, single mothers, minorities, the elderly, those who have been laid off, and those with excessive medical bills. Critics also said the new law allows consumers to remain in debt for the rest of their lives.Congressional votes approving the bill were 229 Republicans and 73 Democrats.
Opposing the bill were 125 Democrats and Bernard Sanders, an independent from Vermont. low-income people, single mothers, minorities, the elderly, those who have been laid off, and those with excessive medical bills. Critics also said the new law allows consumers to remain in debt for the rest of their lives.