Debt Consolidation and Credit Card Counseling

New bankruptcy law has requirements that Katrina victims won’t be able to meet

The Bankruptcy Abuse and Consumer Protection Act, passed into law with the full support of both houses of Congress, takes effect in October 2005. This bill, passed by both parties and enthusiastically signed into law by President Bush, does away with the supposed ease of filing for bankruptcy. The credit card companies argue that too many bankruptcy filers could actually pay but choose not to. The new law has a number of new, stringent features designed to discourage casual filers, which include these:

• Means Test - Filers must demonstrate that their income is below the median for their state. This requires six months worth of proof of income, along with prior tax returns. Those who qualify will be able to file under the rather liberal Chapter 7 of the Federal code; others will have to file under the more rigorous Chapter 13, which requires a repayment plan.
• Debtors will have trouble verifying their debts. All records, including credit card bills and who knows what else, may simply be gone.
• Attorneys are liable - The new law holds attorneys responsible for the accuracy of the information provided by their clients. Lawyers may face fines or even jail time if the information provided is not correct.
• Filings are more complicated - An attorney will almost be a necessity, as paperwork is far more complicated under the new law.

The devastation created by Hurricane Katrina has left a million people out of work, tens of thousands without homes and many more with no money at all. It is inevitable that many bankruptcy filings will come as a result of Hurricane Katrina. The problem with the new bankruptcy law as it applies to these victims is that it places undue burden of proof on the victims. The victims must provide proof of their last six months’ income in order to qualify for having their debts wiped away. Unfortunately for many, those records, as well as the records of their employers’, may simply no longer exist. Parts of New Orleans were covered with more than twenty feet of water, and there may simply be no records for these filers to present to the court.

Worse, no attorney will take the case of someone who cannot provide paperwork, let alone verify that the paperwork is accurate. If there is no paperwork, then the accuracy cannot be verified. The specter of the new law already has lawyers skittish; the storm damage will probably keep even more attorneys away from bankruptcy filings.

The storm has left tens of thousands of people with nothing, and without paperwork, most of them will have to settle for a repayment plan even though they will probably be paying for things that no longer exist. Adding to their misery will be the increased credit card payment requirements recently put into effect by the major credit card companies. It is also estimated that 60% of Hurricane Katrina victims had no flood insurance, which will only make a bad situation worse. The damage from Hurricane Katrina is going to take years to fix, and will undoubtedly cost hundreds of billions of dollars. The Bankruptcy Abuse and Consumer Protection Act will not offer much help.

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