Three months after a new bankruptcy law took effect, the overwhelming majority of debtors seen by credit counseling agencies are filing for bankruptcy instead of using repayment plans envisioned by the law’s supporters.
The law requires debtors to see credit counselors before they file for bankruptcy protection. It is a prerequisite that banks and credit card issuers hoped would steer consumers away from bankruptcy court and into plans that would allow them to repay debts over a few years.
But so far, that is not happening.
The counseling agencies say most debtors are in such deep financial trouble that they cannot qualify for a debt-management plan
Hmm, well so much for the theory advancted by MBNA and the rest of the credit card industry that most of the people filing for bankruptcy protection were abusing the system. As the article indicates, the numbers indicate otherwise:
In the first 13 weeks after the new law took effect Oct. 17, only 4.5 percent of the 14,907 debtors counseled by MMI had sufficient income to be considered for a plan to pay back debts over a few years. Of those 669 debtors, only 42 have signed up so far for such a debt-management plan.
(…)
As of Jan. 1, the Consumer Credit Counseling Service of Greater Atlanta had conducted 12,539 sessions nationwide. “Our experience has been that virtually none of these people really qualified” for anything other than bankruptcy protection, said President Suzanne Boas.
At the far smaller Consumer Credit and Budget Counseling in Southern New Jersey, 112 people had sought pre-bankruptcy counseling as of the beginning of January. “None at this point have signed up for a debt-management plan,” said Executive Director Russell Graves. Instead, they got the required certificates confirming they had counseling and giving them the green light to file for bankruptcy protection.
The article goes on to point out that the number of bankruptcy filings has decreased, on average, from the historical average that existed before the current reforms became effective in mid-October. This is not at all surprising; the period between the time that President Bush signed the Bankruptcy Reform Act and the time it became effective was witness to an unprecented increased in the number of Chapter 7 filings. The reasons, of course, are obvious; people on the brink of bankruptcy had a strong incentive to file before the new law became effective.
What is more significant is the fact that, since the new law has been in effect, the screening procedures that it established have established something that any bankruptcy law practitioner already knows; that, with very few exceptions, people who file for bankruptcy protections have no other options. I practiced bankruptcy law on both the creditor and debtor sides, and the one thing I can say is that the system that existed prior to the passage of this bogus “reform” act,. while imperfect, worked. The reforms that have been bought and paid for by the credit card industry wiill, in my opinion, only serve to make the system more complicated and unfair.
Bankruptcy reform may be necessary; but the reform that has been enacted has accomplished nothing.
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