New bankruptcy abuse law:
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, a bill purporting to make it more difficult for consumers to wipe out debt by virtue of bankruptcy, has passed overwhelmingly in the US Senate and smart money says it will cruise through the House before being signed into law by the president.
The bill was designed to minimize the number of people who would qualify for bankruptcy protection under Chapter 7.
In the US Bankruptcy Code, Chapters 7 through 13 outline the different types of bankruptcy relief, with Chapter 7 being complete liquidation of all assets and complete release from all pertinent debts. The new law states that those whose households earn more than the median income, which in North Carolina is just over $55,000 per year for a family of four, and can pay back a hundred bucks a month for five years would be ineligible for Chapter 7 status and must instead file under Chapter 13.
Chapter 13 is not quite as forgiving as Chapter 7. It’s called ‘consumer reorganization’ and it provides for repayment of the combined debt over a period of time, usually ten years or so.
The new law would also reduce the frequency with which individuals would be able to file for bankruptcy, allowing for a Chapter 7 filing every eight years, up from six, and disallowing Chapter 13 filings within two to four years of other bankruptcy claims.
Now, we here at YES! Weekly are not strangers to debt and we do sympathize with those buried beneath huge piles of it, specifically those who have been burdened with medical bills (which we suspect are inflated anyway, but that’s a beef for another day). But at the same time we cannot condone irresponsible spending and the accretion of a debt that exceeds one’s ability to pay it off.
In other words: if you charge it, you’re gonna pay for it.
About 1.5 million Americans file for bankruptcy every year, one of every 191 people in the country. A good-sized chunk of them have overextended themselves on their credit cards, bought homes too expensive to maintain, purchased too many automobiles and generally lived above their means. And usurious interest charges (again, a subject we’ll tackle another day) can make debt accelerate with alarming speed.
People who find themselves in this situation have made poor financial decisions, to put it mildly, and a system that allows them to wipe clean their debt sheet every six years does not encourage them to make good ones.
Bankruptcy is supposed to be a crippling procedure ‘— an ultimate last resort, not a quick-fix for somebody who bought a little too much house, a little too much car or couldn’t keep themselves away from the racetrack.
Bankruptcy law has not changed significantly for the last 25 years. For too long people have had an ‘out’ when they can’t balance their checkbooks.
The overwhelming majority of Americans pay their bills. When the new law passes, thousands more will be held accountable for their sins of profligacy.