Thursday, April 14, 2005

The Bankruptcy Bill is about to pass

Looks like we are about to get bankruptcy reform. Anyone want to bet how much interest rates and fees on credit cards go down now that the credit card companies are sure they will get their money?

This is a good article telling what the present bill is going to do to people. Here is a sample:

”The poorest debtors would not be affected by this change. Many don’t file for bankruptcy, as they have no assets to lose. Those who do file would still be eligible for Chapter 7 status. Wealthy debtors retain major loopholes under the new bill, such as the right to keep valuable homes and retain assets in special trusts.

The changes would fall squarely on the shoulders of middle-class people facing life crises like illness, disability, unemployment, divorce, and death in the family. Democratic members of Congress unsuccessfully introduced dozens of amendments that would have helped consumers and debtors, including specific protections for the elderly, veterans, and caregivers to sick or disabled family members.

“Some single parents who manage to avoid bankruptcy themselves would have a harder time collecting child support and alimony. When noncustodial parents are forced to declare bankruptcy under Chapter 13, rather than Chapter 7, the repayment plan diverts some of their limited income from child support and alimony to credit card debts.

“Legal fees would probably rise sharply under the proposed bill, which would hold attorneys responsible if their clients filed bankruptcy petitions with missing or incorrect information. This would lead to more paperwork and higher malpractice premiums. In addition, more bankruptcy court judges would be needed, so the bill raises court fees to pay their salaries.”

The passage of this bill might mean that it is time to start getting Americans to use less debt. A program that gave alternatives to debt, training in financial management and alternatives to the super high interest rates some loans (like payday loans and IRS refund anticipation loans) just might get traction in the new environment.

If fewer people used credit cards, credit card companies might have to start competing for customer and actually lower interest rates, fees, and unannounced rate increases. The real benefit would be that fewer people might be likely to need bankruptcy. Of course, it might also mean a reduction in consumer spending which would cause a reduction in the American economy, but that is coming soon anyway.

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