House Passes Bankruptcy Bill; Overhaul Now Awaits President’s Signature
By STEPHEN LABATON / Published: April 15, 2005

WASHINGTON, April 14 - The House overwhelmingly approved a major overhaul of the nation’s bankruptcy laws on Thursday, completing Congressional action on the measure and sending it to President Bush.

The 302-to-126 vote adopted the first significant revision of the bankruptcy laws in 27 years and is the culmination of years of intensive lobbying by the nation’s largest banks, credit card companies and retailers, who have complained about what they say is a rising tide of abusive bankruptcy filings.

It is a victory for Mr. Bush, who supported the measure, and a setback for civil rights, labor and consumer organizations.

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Bankruptcy bill bad for debtors
Boomer Bucks by Barbara Whelehan • Bankrate.com

Editor’s note: On the afternoon of April 14, 2005, the House passed the bankruptcy bill, clearing the way for President Bush to sign it into law.

The bankruptcy bill that the Senate passed earlier this month is a good news/bad news bill. It’s good news for big business, and mostly bad news for financially troubled consumers.

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provisions in new law (in a nutshell):

ONE: a “means test”: consumers with income greater than the median level in their state (us median income level is $65,093) with a disposable income of $100 that can be used to repay $6,000 in 5 years *MUST* file chapter 13.  these are the same guidelines used by the IRS for tax evaders.  severely limits allowable expenses: $200/month for food, $800/month for housing and utilities.

TWO: money contributed to 529 college savings plans more than 2 years prior to filing are exempt.  money contributed to 529 college savings plan more than 1 year but less than 2 years is subject to a $5,000 limit on assets that the credit card companies can access.

THREE: 40 months of home ownership, even in states where homesteads were exempt, is required to exempt your home from assets available to creditors.

FOUR: up to $1 million in retirement savings can be shielded

FIVE:  unlimited money can be protected by placing it in state-sponsored asset protection funds.  (available in 5 states)

hmm, i wonder who’d benefit from all of those provisions.  how many of the individuals filing for bankruptcy have access to millions of dollars they can stash in funds?  and if they did...wouldn’t they then have enough money to pay back their debts?  just a thought.

their stance on the law (in a nutshell):

proponents of the new bill say:
people should be responsible and not charge more than they can afford to pay back.

opponents of the new bill say:
yes, people should be responsible with their debt; however sometimes life throws you unforeseen curves, such as high medical costs, lost jobs, divorces, etc. a harvard study found that over half of all bankrupcties were due to medical bills.  (see previous entry here) the new law may remove a safety net for folks who find themselves in this situation and could mire them in debt for life.

proponents of the new bill say:
the number of bankruptcies has dramatically risen in the past 10 years.  over 1 million people filed for chapter 7 bankruptcy relief last year.  half of that in 1994. some 70% of filers currently go with chapter 7 because it essentially wipes the slate clean, even though it does remain on their credit reports for 10 years.

opponents of the new bill say:
the most basic change in the past 10 years has been in the marketing to consumers: credit is being offered to more high-risk consumers, so higher default numbers are no surprise.  (think of how many credit offers you get in the mail...then think of how much those companies are spending to send these mass mailiings out.  with discover card, i get an offer by mail at least 3 to 4 times a week.)

proponents of the new bill say:
the new law will lower costs for consumers, because currently they are forced to pick up the difference on unpaid debts

opponents of the new bill say:
the stance that the new law will lower costs for consumers is false.  the average interest rate has declined over the past 10 years.  between 92 and 95, the spread between credit card interest rates and risk-free six-month treasury bills declined and has remained constant through 2001.  at the same time, profitability of credit card issuing banks has remained at near-record levels.  banks are not losing money.