Current Status of Bankruptcy Law and Proposed Changes


There has been a steady increase in the number of personal bankruptcy filed over the last few years. Studies reveal that close to 1.5 million personal bankruptcies are now being filed annually. There are various factors that have contributed to the rise in the bankruptcy filings. Perhaps the greatest influence has been the availability of credit cards. Because this has been a lucrative industry, credit card companies now authorize credit cards for individuals that perhaps in the past would not have qualified. A spiraling effect often results, where the credit card debt becomes too large to handle and debtors borrow against credit cards simply to pay other credit cards. By maintaining "good" credit, additional credit cards are forwarded to the debtors.

The financial institutions in the credit card industry assert that bankruptcies are often filed by individuals that use credit cards planning on filing bankruptcy. In fact, often the opposite is true. Debtors often borrow on credit cards to pay other credit cards in the hopes of somehow avoiding bankruptcy. Nonetheless, because of the strength of the lobbies of the financial institutions, Congress has proposed major revisions of the Bankruptcy Code. It is likely that changes proposed in 1998 would have passed except that Congress was involved in the impeachment proceedings. Although a significant number of bankruptcy Judges and attorneys pointed out numerous problems with the proposed law, nonetheless, the House approved the bill by an overwhelming majority. However, the bill was never signed into law and one has now been resubmitted virtually identical to the prior one. One of the most significant changes is a "means" test. The Court would develop a formula and then based on a debtor's income, the Court would determine the amount debtors would need to repay. However, critics believe that such a formula fails to take into account the various situations of various individuals. The Means formula is similar to one utilized by the IRS in determining repayment plans. The bill also contains other changes, such as limiting a debtor's ability to restructure car payments. It is likely that the Bankruptcy Law will change this year.

There has been a steady increase in the number of personal bankruptcy filed over the last few years. Studies reveal that close to 1.5 million personal bankruptcies are now being filed annually. There are various factors that have contributed to the rise in the bankruptcy filings. Perhaps the greatest influence has been the availability of credit cards. Because this has been a lucrative industry, credit card companies now authorize credit cards for individuals that perhaps in the past would not have qualified. A spiraling effect often results, where the credit card debt becomes too large to handle and debtors borrow against credit cards simply to pay other credit cards. By maintaining "good" credit, additional credit cards are forwarded to the debtors.

The financial institutions in the credit card industry assert that bankruptcies are often filed by individuals that use credit cards planning on filing bankruptcy. In fact, often the opposite is true. Debtors often borrow on credit cards to pay other credit cards in the hopes of somehow avoiding bankruptcy. Nonetheless, because of the strength of the lobbies of the financial institutions, Congress has proposed major revisions of the Bankruptcy Code. It is likely that changes proposed in 1998 would have passed except that Congress was involved in the impeachment proceedings. Although a significant number of bankruptcy Judges and attorneys pointed out numerous problems with the proposed law, nonetheless, the House approved the bill by an overwhelming majority. However, the bill was never signed into law and one has now been resubmitted virtually identical to the prior one. One of the most significant changes is a "means" test. The Court would develop a formula and then based on a debtor's income, the Court would determine the amount debtors would need to repay. However, critics believe that such a formula fails to take into account the various situations of various individuals. The Means formula is similar to one utilized by the IRS in determining repayment plans. The bill also contains other changes, such as limiting a debtor's ability to restructure car payments. It is likely that the Bankruptcy Law will change this year.