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New bankruptcy law has supporters
Fans are sure the law will slow down debt relief filers
The new bankruptcy law went into effect in October 2005 and substantially changed the way the courts handle debt relief. So far, the law seems to have little effect, but the legislation still has its ardent supporters who are confident that the bill will eventually slow debt relief filings to a crawl.
Continued below
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New debt relief law inspired clogged courts but may not change much else
The bankruptcy bill passed in 2005 by Congress made some huge changes to the way that bankruptcy is handled by Federal courts. In part one of this article, we covered some of the reasons why the law’s fans think it will work - changes in homestead exemptions, tighter restrictions for lawyers, and mandatory credit counseling among them. But there are more reasons why many people still think that this law was a good idea. We will look at a few more of them below:
- It’s easier to evict deadbeat tenants - In the past, renters who were facing eviction could delay the action by filing for bankruptcy. Under the new law, landlords have greater latitude in evicting tenants, who will no longer be able to engage in such delays. Whether or not it is a good thing to put debtors on the street with no place to live is certainly debatable.
- Last-minute spending - Debtors will no longer be allowed to spend like crazy and buy luxury items just before filing. The new law puts a $500 cap on luxury spending within 90 days of the filing. Any spending in excess of that amount will have to be repaid even if the remainder of the debtors obligations are discharged.
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- Filers must produce better proof of income - Income tax forms will have to be provided in court, making it harder to hide income. Hiding income is one of a number of cheats that have been used by filers in the past; it is hoped that this will keep filers more honest.
- Harder to file again - The law makes it much harder for anyone to file for bankruptcy a second time. Under the old law, filers could file again in six years; the new provisions will not permit another filing for eight years after debt is initially discharged.
So far, these new provisions, which seem tough on the surface, have hardly been a factor. The mandatory counseling is often little more than a conference call on the telephone or a survey conducted on the Internet. Most filers, 97% of them, have demonstrated that they have no ability whatsoever to repay their debts. Few of them have houses large enough for the homestead exemptions to be an issue; certainly fewer are actually buying houses to hide their money. It is difficult to say if lawyers are abiding by the new rules or not; They are still dealing with cases from the old laws as they were swamped with calls right before the new legislation took effect.
We still believe, as do most analysts, that this law is not particularly effective and that it will mostly hurt poorer people who now have to take additional steps before their debts can be relieved. If you are looking for a fresh start, you can still get it. It just takes longer than it used to.
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