Tuesday, April 26, 2005

New bankruptcy laws

The firm I intern for in SF helped a woman file for bankruptcy this Friday and the lead clerk commented while we were filing at the court in Oakland that there will be a rush to file for the next six months before the new bankruptcy rules take effect. The former rules were favorable to debtors, but because of abuse, the current administration has managed to push through a new set of laws which turn things around. If you are a creditor, this is a good thing, as a lot of people are taking advantage.

Here's an excerpt from an article on that subject.

Perhaps the most significant change is not found in specific provisions of the Act, but rather in the dramatic change in attitude toward those who are in debt. In the past consumers who filed bankruptcy were viewed as being in need of relief from the burden of debt, and were usually treated with empathy. The entire bankruptcy process reflected the attitude that Debtors needed help, essentially viewing them as victims of unfortunate circumstances and giving them the benefit of the doubt. The Bankruptcy Reform Act turns that view upside down. The overall tenor of the new law is confrontational, with debtors being, at best, viewed as responsible to varying degrees for their plight due to mismanagement and greed, and at worst, being opportunists who criminally abuse the system for financial gain. Harvard Law Professor Elizabeth Warren testified before Congress that “virtually every consumer provision aims in the same direction. The bill increases the cost of bankruptcy protection for every family, regardless of income or the cause of financial crisis, and it decreases the protection of bankruptcy for every family, regardless of income or the cause of financial crisis.” While it remains to be seen what effect these changes will have on Bankruptcy Judges and Federal Appeals Courts, and consequently on Debtors, it is fair to say that the pendulum has swung dramatically toward favoring creditors.

It is true that both Debtors and Creditors use loopholes in the current law to take “unfair” advantage of each other. Most experts agreed that the playing field needed to be leveled. While we will not know the true effect of the Act for several years, it appears that the Bankruptcy Reform Act has missed the mark and will make it significantly more difficult to obtain a “fresh start” in what may become a relatively hostile environment. [Excellent materials are available from www.nacba.org and www.abiworld.org]



Anonymous Murray said...

Wally, I didn't know that the "troll" was you. Since I'm a fine connoisseur of sarcasm and thrive on finding hypocrisy in the righteous, I appreciate your effort here.

6:14 PM  

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