Articles - New Bankruptcy Law May Hurt
Katrina Victims
The world remains horrified at the tremendous destruction caused
throughout the Gulf Coast recently by Hurricane Katrina. An unknown
number of people are dead and thousands more are homeless, jobless and
completely destitute. It may be months before the city of New Orleans is
inhabitable again, and in the meantime, most residents of the city will
have little or no income. This is a problem, as most people will
continue to have payments due for credit cards, auto loans and
mortgages. A number of people will probably be forced to file for
bankruptcy as their debts continue to pile up with no income to offset
them. Unfortunately for them, recently passed legislation may make it
difficult, if not impossible, for them to have their debts wiped away
through bankruptcy.
The Bankruptcy Abuse and Consumer Protection Act, signed into law by
President Bush last April, makes it more difficult to file for
bankruptcy than in the past. New, stricter guidelines, which take effect
next month, require proof of income for six months prior to filing as
well as credit counseling. The documentation requirements of the new law
are fairly strict, and even hold attorneys who represent bankruptcy
filers liable for incorrect information filed on their clients’ behalf.
These will be huge obstacles for hurricane victims, many of whom have
lost their homes and contents. Along with their furniture, clothes and
other possessions, victims of the storm have also lost vital paperwork
outlining their debt obligations and income. Without this paperwork, it
will be virtually impossible to file under Chapter 7 of the Federal
code, which allows the courts to wipe out most consumer debts. Instead,
filers will have to file under Chapter 13 and establish a repayment
plan. This will undoubtedly create an undue burden on thousands of
largely uninsured hurricane victims as they try to pay the bills for
personal belongings that no longer exist.
Congress has taken note of this situation and a number of Democrats
are attempting to pass new legislation that will assist victims of
Hurricane Katrina with bankruptcy filings. It appears at present that no
Republicans are willing to support this legislation, so anyone who has
suffered a loss from the storm should try to gather financial
information together as best they can and prepare for a long and
expensive day in court.
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