President signs bankruptcy bill

CNN/Money ^ | April 20, 2005: 3:24 PM EDT | Jeanne Sahadi

[atrocitor]

NEW YORK (CNN/Money) – President Bush on Wednesday signed into law a bankruptcy reform bill that will make it harder for individuals to clear their debts through bankruptcy.

So, experts say, if you were thinking about filing for bankruptcy, you might think twice -- or act twice as quickly, since major provisions of the law will go into effect six months from the day the law is signed.

[Redcloak]

[Calpernia]

LOL!!!!

[atrocitor]

So you think it would be fair to say terminate creditors' right to say bring a 527(a) exception to discharge action after the creditors had relied on that right when they entered into billions of debt contract? Either you're being disingenuous or your sense of fairness is radically different than mine.

To answer your question about 65% of my opposition is bound up in the government changing the rules governing these pre-existing debt contracts in favor of one private party over another. If you applied the bill to only prospective debt the grotesque inequity and unfairness of the bill would be vetted. It would no longer be an issue for me.

But the bill still is stupid because it creates inefficiencies in the economy by purposely breaking the existing consumer bankruptcy system, so I would still say no but with much less energy. At least if prospective debtors knew there was not a effectively functioning bankruptcy system in place before they entered into debt contracts, it would be fair. Dumb but fair.

And I say dumb, because this country is built on entrepreneurial risk and an ineffective bankruptcy system will inhibit entrepreneurial activity. The people I deal with primarily are failed entrepreneurs who have personally guaranteed substantial business loans or leases. I want to get these people to point zero and then back on their feet as soon possible so they can be productive members of the economy again and do what they do best, create business'. This new law will prevent that.

As far regular consumers go, 70% of current Chapter 13's fail. That number will rise with all the new coerced Chapter 13 debtors, and the lawyers personal guaranty provision which give rise to more pro per filings. If you have a system with say an 80% failure rate, how can you say that system is functioning effectively? These wage earners without the recourse of a discharge are locked in an unending cycle of indebtedness which is a personal tragedy for the individual, and harmful to greater economy because that person will move from job to job to shake wage garnishments, or will simply go underground, and that person will no longer be operating at maximum productivity and that is bad for the nation.

[Walkin Man]

Thats news to me. If you have a link to this info please post it, thanks.

[Walkin Man]

Lawmakers who favor the legislation argue that it would prevent consumers from abusing the bankruptcy laws – using them to clear debts that they can afford to pay. "

Again the political parties demorat and repub don't mind turning the screws on average smalltime taxpayers what about big business? When will Congress and the President reform the business bankruptcy laws?

Short answer...never.

[steve86]

I concur with the skepticism expressed to this story (or at least to the way it was related). Additionally, why would it be so difficult for law enforcement to track down the possessor of the vehicles, especially in California where the VIN numbers are no doubt tied in to emissions checks, registrations, and insurance? Seems to me that only if a professional syndicate exported the cars right away would they have any chance of getting away with this. Much easier to steal money than anything tangible and uniquely identifiable like a car.

[GrandEagle]

I wouldn't really claim to be an expert, but I did get stuck both times we signed on on an automobile. The one I tried to pursue was when we bought a two year old mini-van with 37,000 miles on it. Turns out it had been underwater (I think). When I tried to do sometime (That is against criminal law here in Alabama - not to declare that it had been underwater), both lawyers I talked to just laughed and told me that I was just out of luck.
Regards,
GE

[GrandEagle]

Did the applications not require a signature?
One would think so. All I know is he was not as protected as he though. Anyway, glad to hear you beat it. Chalk one up for the good guys.

Scared me enough that I started checking my credit report monthly now. Joined a service that is $98.00 a year. It works for me.

Cordially,
GE

[GrandEagle]

Identity theft is probably less than 5% of bankruptcy cases.
True. If that even.
I'm just not very sympathetic the those guys.
I do agree that folks should be required to pay their debt, and that people should be responsible enough to look after themselves.
BUT, these guys will give a guy just out of college a $50,000.00 card and as long as the minimum payment is made, they will keep increasing the limit way past what could ever be paid back. This is long before kids are mature enough to learn how things really work.
I don't think that the law should be used to cover them for deliberately making bad loans.

Regards,
GE

[GrandEagle]

but what is the IRS still after him for?
Early withdrawal penalty.

wouldn't the credit card companies have to prove that he actually opened them to hold him responsible for the amount?
It appears not. To them, he did open them. They had phony, but proper credentials.

Until bankruptcy, he was trying to prove he DIDN'T open them. They refused to even entertain the idea.

Regards
GE

[GrandEagle]

If anything, losing it all should have been a huge loss (I believe theft loss is a line on the 1040),
Again, he can not prove that he DIDN'T withdraw the money. To the IRS it is not a loss.

[MrLee]

Republicans will soon regret the day they voted for this piece of crap.

[GrandEagle]

I concur with the skepticism expressed to this story
Understandably so. If I didn't know the guy so well I would be to - and I was for a while.
I don't know why the cars would be so difficult to find. I've not been privy to that part of the information and I don't know if Chuck was either. Seemed to me that even if they couldn't find the culprit, the cars would be easy to find.
Maybe the cars were re-VIN'ed (if that is a word) with VIN's from totaled cars?? Maybe they are now in Mexico? I just don't know that part.

Regards,
GE

[WOSG]

"Again the political parties demorat and repub don't mind turning the screws on average smalltime taxpayers ..."

If anything, this is a help to the 'average' person out there. People with high incomes who declare bankruptcy have greater chance of having to get debt rescheduled instead of discharged. But if your income is below the state median income where you live, your situation doesnt change much, you can discharge debts as before.


" what about big business? When will Congress and the President reform the business bankruptcy laws?"

And the reason this would be needed is ....???

You are confusing 2 different things. Consumers *voluntarily* go bankrupt to escape bills they won't or can't pay.

Businesses that go bankrupt are usually dissolved. Businesses are usually *forced* into bankruptcy by creditors when the debtor defaults, and the creditors decide the businesses assets are more return than they'd get from a non-paying business.

[WOSG]

"terminate creditors' right to say bring a 527(a) exception to discharge action after the creditors had relied on that right"

I dont speak legalese .. at least not in public.

Now, you have a point here ... But I can tell you point blank the Federal rules on options accounting negatively impacted many high-tech businesses, may indeed be responsible for a permanent lowering in the Nasdaq index and had huge financial impact on many many people.

Nothing was grandfathered. Same when real estate went through a $1 trillion correction via the 1986 tax reform and 1989 FIRRA act. Same with many tax laws.

Moreover, its not like the law is eons old. the last changes were in 1994. Bankruptcy filings doubled in the last 10 years. The economy didnt get worse, the BK Judges and rules (on a de facto basis) got looser.

This situation btw is analogous IMHO to how the immigration law has been subverted. Good lawyering on behalf of illegal aliens and hard-luck stories meet up with sympathetic judges (in the immigration case the BIA) and they tear holes right through the actual laws, with amnesty loopholes so wide it is practically impossible to deport anyone. The system has created many 'mini-amnesties' that the Congress never intended. Result: the virtual destruction of our immigration laws.

You say "70% of current Chapter 13's fail" but another way to look at it is that the debtor continue to fail to meet commitments. Sometimes that failure may be legitimate, but that certainly doesnt mean the commitment shouldnt be made. It may be that the Ch 13 filers realize they don't lose much by failing to live up to those commitments. Most BK filings are chapter 7 and will continue to be so.

"These wage earners without the recourse of a discharge are locked in an unending cycle of indebtedness"

5 years is not unending, nor is 5 years extremely different from the previous 3 year set-up. Longer in fact may be easier in some cases.

" which is a personal tragedy for the individual"

And simply stiffing the creditor is not!?!?
Oh please, as a creditor who *was* stiffed (WorldCom bonds), let me tell you the hurt is as much on the other side!
Not all creditors in BK court are mega-corps. They may be
lawyers like you (eg divorce lawyers); they may be builders,
plumbers, small business owners/partners etc.

" and harmful to greater economy because that person will move from job to job to shake wage garnishments,"

In that case repeal all deadbeat Dad laws pronto!
And for that matter, stop IRS takings as well!

" or will simply go underground,"

That's curious - those provisions only apply to folks making above the median income... the only high-wage underground jobs I know are drug dealers and whores.

" and that person will no longer be operating at maximum productivity and that is bad for the nation."

If this is such a bad thing to go through, people will act in ways to avoid the situation. Which is the point. We heard similar gnashing of teeth when welfare reform was passed,
yet that bill was a huge success that lowered child poverty. Why? Because when welfare cases were served notice that they'd have to transition to work ... lo and behold, most people did.

I suspect if you wait 10 years you'd find the main effect of this new bill was lowering the number of BK filings. The honest and hard-up people who have bills that overwhelm them and that they cannot pay will still file, and if their income isn't high they will be treated similar to current law; but the folks looking for pain-free write-offs of debt no longer get a free ride and will be dissuaded from going through the chapter 13.

last but not least, the provision to have those going through bankruptcy attend financial management classes. That is imho a positive thing.

[petercooper]

Which service do you use to check your credit report twice a month? I usually do it once or twice per year.

[TheBattman]

But if your income is below the state median income where you live, your situation doesnt change much, you can discharge debts as before

What a great criteria to judge the eligibility of a debtor to file Chapter 7 - where one dollar can mean the difference between being able to file and not...

A method that would provide a lot more "justice" would be to determine debt ratio and spending history and the person's current situation. If someone's spending/credit habits reflect a pattern of rapidly accumulated debt near the filing date, it might indicate fraud or ulterior motives. On the other hand - a relatively heavy debt load - but with no spikes, and a reasonably consistent payment history prior to the need to file would indicate a real situation - such as unexpected medical expenses/unemployment/etc.

Bankruptcy discharge should require some sort of "legitimate" need/condition. Simply basing the filing type on income vs. median for the state is completely unfair.

[WOSG]

To clarify ... "What a great criteria to judge the eligibility of a debtor to file Chapter 7 - where one dollar can mean the difference between being able to file and not" ... Well it's not that simple, and any rule that determines 'ability to repay' will have a line drawn somewhere, just like the Speed Limit ...

The bill would establish an income-based means test that uses Internal Revenue Service living expense standards to determine which of the various types of bankruptcy the debtor is eligible for. If a debtor fails to meet the income threshold, only then can the debtor file Chapter 7 bankruptcy and erase almost all of unsecured debt after a liquidation of assets. Here's what it looks like:

"A method that would provide a lot more "justice" would be to determine debt ratio and spending history and the person's current situation."

Uh, that *is* part of the equation ...

"Bankruptcy discharge should require some sort of "legitimate" need/condition. Simply basing the filing type on income vs. median for the state is completely unfair."

There is more to it than just that. The formula is similar to an IRS repayment formula that calculates expected reasonable expenses and total income and assets and on that basis figures an expected 'ability to pay' on a debt load. It also considers recent behavior as a trigger. For example, there is a homestead exemption -- BUT, if you bought your home recently ie within 3 years or so, it is severely limited. So that, just as you explain, if somebody was setting themselves up for protecting significant personal assets while stiffing creditors, they could use current loopholes to do it.

[Rakkasan1]

I think a maximim repayment amount of $100/month
is hardly mean and unfair.Cut cable TV
and DSL/cable modem and you have it right there!