 Welcome
to a crueler bankruptcy world
|
 Dear
Bankruptcy Adviser,
I didn't like that our government has made it more difficult to
file bankruptcy. Will they stop making it easy for people to get
into financial difficulty by sending unsolicited credit card offerings
without having the potential debtor actually qualify for the additional
debt before they are approved?
-- Louis
 Dear
Louis,
Your question indicates that you believe that
part of the reason many people are forced to file bankruptcy has
to do with the practices of the credit card companies. This is accurate,
but not the whole story.
While it is true that credit card
companies work within the limit of the law to encourage people to
take on debt and then pay that debt off at extremely high interest
rates, the real reasons that bankruptcy is more out of reach than
ever has to do with legislation passed by the current Congress and
President Bush.
Credit card companies felt that it was too easy to qualify for bankruptcy,
especially for so-called "abuse filers" -- people who
aren't in dire financial straits but declare bankruptcy as a way
to skirt legitimate debts they can afford to pay. Credit card companies
lobbied our country's elected representatives and asked them to
pass laws to prevent this. It was a good idea, in theory.
In practice, the laws increased bankruptcy attorneys' responsibilities.
This means that if an attorney submits a bankruptcy filing with
inaccurate information in it, the attorney is liable. Of course,
people lie to lawyers all the time (not always on purpose). This
will probably raise every attorney's liability insurance premiums.
As well, the new legislation requires the attorney to make additional
inquiries into the debtor's financial world, which creates additional
costs. This is the first domino -- when the attorney's costs go
up, the client's costs go up.
The second domino is that these increased costs have forced many
attorneys who do bankruptcy work part time to stop doing it. So
there are fewer service providers. Thus, the demand for bankruptcy
is as high as ever, and the supply is shorter -- this also raises
prices.
So many people filed bankruptcy before the Oct. 17, 2005, law change
that now collection agencies have far fewer accounts. This means
everyone still delinquent and not eligible to file bankruptcy will
receive more attention (read: phone calls and legal action) from
collectors than ever before. This is the third domino: People are
scared to file because they will be assaulted almost immediately
by collectors. People with delinquent accounts will likely face
legal action executed by the collection agency much sooner since
there are fewer collection accounts.
This vicious cycle is fueled by inaccurate information. A fellow
attorney told me that a popular radio host actually read an advertisement
stating that under the new laws you will be obligated to pay back
at least $10,000 of your debt. That's true for a small percentage
of the filing population, but the vast majority of people are still
eligible for Chapter 7 and a fresh start. Research indicates that
as many as 93 percent of people who file bankruptcy will still be
eligible for a complete wipeout of all their debt.
In short, Louis, the new laws are problematic, and
the business practices of credit card companies are dubious. The
solution is relatively simple, but not always possible: Do your
best to only take on debt you can afford.
Justin
Harelik is a practicing bankruptcy lawyer in the Los Angeles office of Price Law
Group. To ask a question of the Bankruptcy Adviser go to the "Ask
the Experts" page, and select "bankruptcy" as the topic. |
