Are New Bankruptcy Laws Going To Help You
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Are the New Bankruptcy Laws Going to Help You?
Overview
The recent changes in bankruptcy laws present a double-edged sword. These reforms make it significantly more challenging to file for Chapter 7 bankruptcy and receive a complete discharge of debts.
Impact on Businesses
For businesses that extend credit, the revised bankruptcy laws are beneficial. They have led to a substantial decrease in personal bankruptcy claims, at least initially.
Concerns from Bankruptcy Lawyers
However, attorneys working with individuals claim that the new laws are flawed. They argue that these changes impose additional financial burdens on those already struggling, and potentially reduce the funds available for repaying small businesses.
Issues with Credit Card Companies
High interest rates charged by credit card companies often contribute to the financial distress leading to bankruptcy. Financial experts note that many people accumulate debt trying to keep up with societal pressures, without planning for the future.
Debt Patterns
Consumer credit organizations report that for 80% of clients seeking advice, debt is primarily related to credit cards, averaging $32,000 spread across six to eight cards. The new law introduces strategies aimed at reducing debt and curbing abuse.
Requirements Under the New Law
A crucial requirement under the new law is mandatory credit counseling before and after filing for bankruptcy. This is intended to inform consumers about the pros and cons of bankruptcy, though it adds another expense for those already facing financial hardship.
Common Causes of Bankruptcy
People typically file for bankruptcy not due to overspending but because of unforeseen events like medical expenses, job loss, divorce, gambling debts, or other crises.
Counseling and Means Testing
Before filing, individuals must complete credit counseling with an approved agency. Post-bankruptcy, they must attend another session. Furthermore, the court now uses a means test based on state income levels to determine eligibility for Chapter 7. Those with higher incomes might be required to file for Chapter 13, which involves repaying some debts.
Legal Obligations
Attorneys must now certify the accuracy of bankruptcy filings, increasing their workload and fees.
Pros and Cons of Declaring Bankruptcy
Advantages:
- Legal protection from creditors
- Elimination of most debt
- Potential to retain home and car
- Prevention of total financial collapse
- Opportunity for a new start
Disadvantages:
- Negative impact on credit score
- Possible repayment of some debts
- Loss of assets such as home and car if exceeding certain values
- Public record of bankruptcy
- Remains on credit history for seven to ten years
Expert Insights
According to attorney Gwen Froeschner Hart, previous bankruptcy laws offered individuals a fresh start, whereas new legislation seems more focused on creditor interests. Many credit card expenses include medical bills and essential living costs, particularly for the elderly or those on fixed incomes. Alarmingly, 33% of the population lacks medical insurance, leading them to charge prescription costs.
Broader Implications
With recent Medicaid cuts and stricter bankruptcy laws, the future remains uncertain for those hit hardest. While some argue that consumers abuse credit, it’s ironic that credit card companies actively seek new customers while advocating for stricter debt controls.
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