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Backfired Bankruptcy Bill

This article was written by in Debt Reduction. 7 comments.

Earlier this year, a new bankruptcy bill was signed into law, making it more difficult for consumers to declare bankruptcy. The credit industry loved this and spent a lot of money lobbying for the bill, as they stood to gain billions of dollars in fees. Apparently, this isn’t happening [msn].

The number of bankruptcy filings before the deadline far outnumbered expectations. The drop off following the rule change, which requires higher-income filers to enter repayment rather than full bankruptcy, is less then expected.

Under the old law, about two-thirds of Chapter 13 cases never completed their repayment plans; that percentage isn’t expected to change much under the new law…

Bankruptcy protection is important and should exist for those who truly need it, and filers should not be required to jump through multiple hoops — multiple hoops on fire — in order to take advatange of that protection. Of course, the problem is when people take advantage of the existence of that protection, but that’s a cost of doing business.

By the way, a similar bankruptcy bill was passively vetoed by President Clinton in 2000.

Updated February 7, 2012 and originally published December 8, 2005. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Luke Landes is the founder of Consumerism Commentary. He has been blogging and writing for the internet since 1995 and has been building online communities since 1991. Find out more about Luke Landes and follow him on Twitter. View all articles by .


avatar Luke Landes

And I’d imagine, since half of all bankruptcies are filed by individuals who have found themselves incapable of paying illness and emergency medical bills [source: news and study] that half of those last-minute filers were worried that once the law were to go into effect, it would be more difficult (and more expensive) to file.

Sure, there’s abuse of bankruptcy, but it’s on both sides… by creditors and debtors…

avatar Neo

While having some type of bankruptcy protection is definitely needed for those that truly aren’t able to get out of the problem they have created for themselves. The real problem is the misuse by those people that have no intention of changing their habits, so instead of learning the first time, they get themselves right back into the debt. Then again, why are creditors approving these high risk people?


avatar thc

The fact that there was such a surge in last-minute filings is evidence that bankruptcy was being abused. Reform was long overdue.

avatar Jonathan

Like the new header. Looks very futuristic =)

avatar mbhunter

I really have very little sympathy for the credit card companies on this one. People who had no business getting credit were getting cards.

avatar JLP at AllThingsFinancial

I think BOTH the debtors and creditors are to blame for the problem of bankruptcy. If creditors would exercise some moderation and wisdom in granting credit, people who don’t need credit wouldn’t get it. However, I’m sure the threat of a lawsuit for not issuing credit was also on the creditors’ minds.

It all boils down to personal responsibiliity.

avatar jim

I agree that both sides are to blame and I have sympathy for neither side. Creditors hire actuaries who run the numbers and they know where they can make money, they won’t give you a card if they don’t think you can pay – just ask someone with bad credit if they can get an unsecured card. Creditor card companies earn billions and they know that each new customer is worth X dollars (look at all the offers they have!).

On the flip side, if you can’t demonstrate financial restraint and put yourself in a bad position – I’m sorry, get yourself out. Read NCN’s blog (and alot of blogs out there) and see that responsible people who make mistakes will work hard to rectify them.