Reference -
New Bankruptcy Law - Where's the
Consumer Protection?
On April 20, 2005, President Bush signed into law the Bankruptcy
Abuse and Consumer Protection Act, a piece of sweeping legislation that
brought about the most sweeping changes in personal
bankruptcy law in the last quarter century. This bill, which takes
effect in October 2005, passed with the overwhelming support of both
parties of congress, claims, through its very name, to offer “consumer
protection.” Does it? How are consumers “protected” by this bill?
The purpose of the new legislation, is to eliminate “bankruptcy of
convenience”. Sponsors of the bill allege that most consumer bankruptcy
cases involve irresponsible spenders who have shopped or gambled their
money away and now do not wish to pay their creditors. They rightly
point out that bankruptcy costs the credit card companies billions of
dollars each year and that those costs are passed on to consumers in the
form of higher interest rates. By making it harder for those with
problem debt to file for bankruptcy, legislators say that more people
will pay their bills, the credit card companies will save billions of
dollars, and the resulting savings will be passed on to consumers in the
form of lower interest rates.
The bill is lengthy, but key points are as follows:
Those considering bankruptcy will have to pass a “means test.” If
their income is above a certain threshold, they will not be able to file
under Chapter 7 of the Federal bankruptcy code, which wipes out debt and
gives the debtor a fresh start. Instead, they will have to file under
Chapter 13, which establishes a five year repayment plan.
There are no provisions in the law for debt problems caused by job
loss, illness or other traumatic events, despite studies that show that
these are the cause of most bankruptcy cases.
Attorneys will now be responsible for the accuracy of paperwork
filed by their clients. This will probably result in fewer bankruptcy
attorneys, with those that continue to practice raising their fees
substantially in order to offset their additional liability.In short,
most consumers are no longer protected from job loss or illness by being
able to file under Chapter 7 and they will have less help from competent
attorneys due to the new liability provision of the bill. There is
little to “protect” consumers in the Bankruptcy Abuse and Consumer
Protection Act. The sole benefit for consumers resulting from this bill
will be lower interest rates and fees from the credit card companies,
who will save billions of dollars as a result of this legislation. Of
course, should the credit card companies choose to keep the savings,
rather than pass them on to their customers, then consumers will be left
with no benefit or “protection” at all.
|
