Count down to bankruptcy reform

[Martha]

The new bankruptcy "reform" legislation goes into effect October 17. The WSJ reports today that bankruptcies are up 14% for the year. More than 68,000 filed bankruptcy from September 26 to October 1.

According to the article, bankruptcy experts say that the new means test--which requires people to file under Chapter 13 with a plan to pay all or part of their debts if their income exceeds the state median and to pass other income and expense tests--will actually effect less than 15% of filers.

We shall see. Even if you don't have to file Chapter 13 because your income is low, there are lots of hurdles put in place to make it more difficult and expensive to file bankruptcy, such as the need to get credit counseling and to provide tax returns and other paper work to support your filing. The lawyers and judges are not looking forward to this. I, for one, have opted out and won't be filing bankruptcy for anyone any more.

 

[BigMoneyJim]

Credit counseling from whom? My understanding was that all the credit counseling agencies were run by credit card companies.

 

[brewer12345]

Martha:

I think the likely result of the new laws will be that a lot of people in dire straits will either be denied BK protection or will end up in Ch. 13 and not comply with the requirements. What happens then? Does that mean that a lot of desparate people will lose their houses, cars, etc.? Or will the judges have some room to give the filers a break? Or will they just live as deadbeats, ignoring creditors since they simply don't have the money and no longer have a way to start fresh?

 

[Martha]

Credit counseling from entities approved by the US trustee's office. I understand they have been slow to approve and none have been approved in Minnesota yet.

I think that a number of people will be inititally priced out of bankruptcy because of the cost. Attorney's fees are expected to rise significantly because of the extra work involved. I think more people will end up waiting to file until it is an emergency--wages getting garnished or foreclosure sale about to occur. Then they will borrow money from relatives to file. People often borrow from relatives already to file bankruptcy.

I am not sure what is going to happen with the failed chapter 13s since I decided to not represent people in bankruptcy anymore. Right now failed 13s usually end up chapter 7. I don't think that is possible anymore.