New bankruptcy law helps the rich, hurts the poor, and profits the credit card companies

The Bankruptcy Abuse and Consumer Protection Act was passed into law by Congress in the spring of 2005. President George W. Bush couldn’t wait to sign it into law, and it takes effect in October 2005. This law will dramatically change the way bankruptcy filings take place in Federal courts, and it will affect both individuals and businesses. The changes are drastic, and attorneys who specialize in bankruptcy law say their caseload is up 25-50% over last year as people rush to file before the deadline. What spurred these changes? Were they justified? Will the bill prevent abuse, like the name suggests?

The bill was passed with the overwhelming support of both parties in Congress because the credit card companies have been pleading, loudly, that consumers who could afford to pay their debts were electing not to by filing for bankruptcy. The average bankruptcy filer, to hear the credit card companies tell it, is a compulsive shopper, gambler or drug user who simply runs up debts and then ignores the bills when they come in the mail. Shocked Congressmen, who like the donations provided by the credit industry, rushed to fix this “problem” so that the credit companies could remain financially viable.

Of course, the credit card industry reaps billions of dollars in profits each year and they are not in danger of going out of business. The truth is that about 3% of all bankruptcy filers are deadbeats. More than half of all filers do so because they have been victims of catastrophic illness or accident, or they are out of work and simply cannot pay their bills. A good example of this would be the citizens of the Gulf Coast who were victimized by Hurricane Katrina. It’s hard to pay your bills when you have no job, no paycheck, no bank, no checkbook and no mailbox because you no longer have a house in which to live.

These people, the working poor and middle class, are going to be victimized by this new bill. Those who won’t be hurt by it are those who are wealthy, as numerous loopholes still exist that make it possible to have debts wiped out while still shielding financial assets from creditors. In some states, such as Texas and Florida, homeowners will still have unlimited homestead exemptions, provided that they have lived in their home for at least 40 months. If that’s the case, even a $10 million mansion is safe from Visa and Mastercard.

The law should be called what it is - a great, big “thank you” to the credit card companies for their years of campaign contributions. There is a plus for consumers with problem debt, however. The old saying that you can’t get credit after filing to have your debts erased is pretty much untrue anymore. Once you file, the new law won’t let you file again for at least eight years. That means that any new debt you incur will have to be paid in full. You can probably expect new credit card applications to arrive in your mailbox about two days after your return home from court. Isn’t that nice?

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