Thursday, March 10, 2005

Bankruptcy terms toughen , but debts are on the rise

The Christian Science Monitor has a good article on the toughening of bankruptcy laws in the US, which will make it more difficult to use bankruptcy as a means to get a fresh start.

Could this be a response to a hidden crisis?

Toughening bankruptcy laws is a salve or treatment for increased debtloads and does little to address the underlying issue: interest.

"Drafted before 9/11 and big corporate bankruptcy scandals, the bill aims to make it harder for individuals to escape debt by declaring bankruptcy.

From 1983 to 2003, bankruptcy filings have increased 500 percent. To the bill's supporters, this represents a "bankruptcy tax" that other consumers pay in the form of higher penalty and late fees on their credit cards and higher down-payment requirements on auto loans. Banks and credit-card companies say many who declare bankruptcy are gaming the system and could afford to pay more.

. . .

Driving the debate are diverging views over why consumers get deeply into debt. Republicans and moderate Democrats who support the bill say the issue is one of personal responsibility and a need to restore the integrity of the bankruptcy system. Critics, including most consumer groups, say the real issue is the vulnerability of American families.

"It will affect people's ability to raise children, educate them and afford medical care," says Marc Abrams, a bankruptcy lawyer at Wilkie Farr & Gallagher in New York. "When bankruptcy was conceived, it was supposed to give an individual a fresh start. This is the end of the fresh start."