House Passes Bankruptcy Bill

Personal bankruptcy is rising in America – some sources say 1.1 million Americans filed for bankruptcy last year – less than half did so in 1994. So, is linient bankruptcy laws to blame, as credit card companies say? Or is it consumers who just seem to want to spend, spend and spend? Or, is it the credit card companies who jack rates up to 25% when you miss a payment with an unrelated lender?

Congress seems to beleive the credit card companies and has decided to make it harder for people to file for bankruptcy. The law goes into effect in October of this year, since President Bush is expected to sign.

Understanding the Changes

Right now, bankruptcy judges decide which form of bankruptcy is most appropriate for the consumer seeking debt relief. The new bill will change this and will subject consumers to a “means test” to determine their eligibility for a Chapter 7 filing. For consumers whose incomes are higher than the median income level in their state, and who have disposable income of $100 a month that can be used to repay $6,000 over five years, these consumers would be pushed into a repayment plan under Chapter 13.

Some think the means test is “over-inclusive” and “painfully inflexible”. It follows guidelines set up by the IRS for tax evaders. It imposes severe limits for allowable expenses: about $200 a month for food and less than $800 for housing and utilities, for example. In addition, the means test will subject consumers to lengthy and expensive hearings in the courts. Additionally, attorney’s representing such consumers will be personally held liable for any false information. This of course opens the doors to higher attorney fees.

So, things are getting nasty out there for people used to easy credit. I guess credit card companies have no qualms making it easier and easier for people to get credit, like cigarette companies they want you hooked. Once they have you hooked they want you paying in some form or other for the rest of your life – with minimal legislative protection. I don’t think the consumer is innocent either – after all there is no such thing as a “free lunch”, someone somewhere is paying for that zero down – no interest until 2010 deal you have!

I think this just means people need to be more fiscally responsible and try to live within there means. Debt is good if you know how to use it, but for the rest of us try to keep it at bay as much as possible.

Again, if you have any questions let me know. I can help you understand these changes. As always remember to visit for all your home financing needs.

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