| Bankruptcy
law another blow for Katrina victims | | |
| Means
test: One of the most significant provisions of the new law is a means
test that determines which type of bankruptcy a consumer can file. Chapter 7,
known as the liquidation chapter, is generally easier on consumers, while Chapter
13 requires consumers to pay back both secured and unsecured creditors over a
five-year period.
"Under the means test, a consumers' income over
the past six months is averaged and a determination is made as to how they can
file," says Brad Botes, director of the National Association of Consumer
Bankruptcy Attorneys."This six-month look back at income and unrealistic
expense guidelines included in the law should be permanently waived for Katrina
victims." If these provisions aren't
waived for Katrina victims, many of them could be ordered to pay back creditors
when they have no current income or assets. Credit
counseling requirement: All consumers must take a 90-minute credit-counseling
course and present the certificate to the court when submitting their bankruptcy
filing. "People driven into bankruptcy by a hurricane don't need pointless
counseling about how to manage their credit more wisely," says Botes. "A
family forced to evacuate doesn't need credit counseling." Proposed
legislation
Members of Congress have introduced legislation to provide
relief to Katrina victims from the new bankruptcy law. On Sept. 8, Sen. Russell
Feingold, D-Wis., proposed a bill aimed at some of the harshest provisions in
the law. Some of the provisions include: - Allowing Katrina
victims to file under the old bankruptcy law through Oct. 17, 2006, a year after
the new law goes into effect.
- Modifying the law's "means
test" so that disaster relief payments aren't counted as income.
- Forbidding
courts to automatically convert bankruptcy cases from Chapter 7 to Chapter 13.
- Waiving
the credit-counseling provision.
- Allowing courts to extend
paperwork filing deadlines.
- Striking provisions that make
it easier for landlords to evict tenants during bankruptcy proceedings, which
would ensure that Katrina victims who can't pay rent as a result of the disaster
aren't evicted.
"It will take years to rebuild the
areas affected by this disaster," Feingold said in a statement. "In
the meantime, some residents and small businesses will undoubtedly, through no
fault of their own, have to file for bankruptcy some time in the future. The bankruptcy
system is supposed to provide an important safety net for people who suffer this
kind of devastation. This bill will help families who have been hit so hard by
this disaster get back on their feet." | 
