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Upcoming changes in federal bankruptcy
law will make recovery that much more difficult for the victims of Hurricane Katrina.
The new law requires consumers filing for bankruptcy
to jump through numerous hoops including filing mounds of paperwork on a strict
schedule, proving they lack the capacity to repay certain creditors, and requiring
them to take a credit counseling course before they can even file. People
who have lost everything may be trapped by a system that gives virtually no leeway,
regardless of the circumstances. Natural disasters such as Katrina typically spark
an upsurge in bankruptcy filings as consumers reach the point, often months after
the disaster, where they can't pay their bills. The old
bankruptcy law contained a provision that loosened filing rules for people who
had been through a hurricane or flood. Early this year, a congressional easing
was defeated in a party-line vote to have a similar provision included in the
new bankruptcy law, exempting victims of natural disasters from some of its more
onerous provisions. The new law goes into effect Oct. 17. Consumer
advocates and legal groups are now calling on Congress to waive some provisions
for anyone affected by the hurricane. "Bankruptcy is
an important safety net that families hit by unforeseen circumstances depend on,"
says Travis Plunkett, legislative director of the Consumer Federation of America.
"The federal government should be bending over backwards to help Katrina's
victims get back on their feet, not throwing up new barriers to bankruptcy. The
new law's harshest provisions that impose the biggest hurdles to bankruptcy should
be permanently waived for the victims of Hurricane Katrina." Laws
have been introduced in both the House and Senate to protect Katrina victims from
the new law. The bankruptcy law isn't the only barrier that
hurricane victims must surmount if they want to file for bankruptcy at some point.
Not only are many courts in Gulf Coast districts closed, but victims and lawyers
are spread all across the country, and many lack the means to communicate with
each other or find out what they need to do. Several legal
associations have offered pro bono help to Katrina victims, so eventually there
will be aid available to at least some of the victims who need help sorting out
options. The Federal Reserve, Federal Deposit Insurance Corp., National Credit
Union Administration and Office of the Comptroller of the Currency all have asked
financial institutions to delay delinquent-fee notices to credit bureaus for a
period of time. Consumer groups are calling on creditors to extend leniency to
Katrina victims for at least six months. Toughest
provisions
The law has many exacting provisions, most of which are
designed to curb abusive bankruptcy filings. A number of these provisions will
hit Katrina victims especially hard. They include: Mandatory
document production: Debtors filing for bankruptcy must produce a raft
of documents, including employer pay stubs, tax returns and other documentation
of income and expenses, on strict deadlines. "There is
not a mechanism in the law to extend the time periods for filing," says Joseph
Prochaska, a Nashville attorney who is chairperson of the American Bar Association's
Business Law Section's Consumer Bankruptcy Law Committee. "These provisions
mandate automatic dismissal of a case if these documents aren't produced. For
a Katrina victim who has lost his or her home, job, neighborhood and even family
members, this is just another blow." | 
