New Bankruptcy Law Could Sink Katrina Survivors - Lawmakers, Rights Groups
by Abid Aslam
WASHINGTON - People flooded out by Hurricane Katrina could yet be sunk by debt under a new U.S. bankruptcy law that makes it harder for Americans to seek bankruptcy protection, consumer advocates and lawmakers have warned.
The Consumer Federation of America and the National Association of Consumer Bankruptcy Attorneys said in statements that the new bankruptcy law, due to take force Oct. 17, would deal a cruel second blow to many of the hundreds of thousands of people who lost their homes and livelihoods to the hurricane.
The consumer groups have asked Congress, which passed the law earlier this year, to grant Katrina's victims relief from the new measure.
Senator Russ Feingold, a Wisconsin Democrat, has proposed a bill that would give hurricane victims another year under the old bankruptcy law.
Many sustained catastrophic losses from the hurricane and would have to file for bankruptcy ''through no fault of their own,'' Feingold told the Senate last week.
''Bankruptcy lets them get a fresh start. And a fresh start is what so many of the relief efforts going on are all about,'' he said.
Feingold said victims of natural disasters should be exempt from a means test mandated under the new law.
The new law requires people with incomes above their state's median who can pay at least $6,000 over five years, or $100 per month, to repay debts under a court-ordered bankruptcy plan.
Additionally, people who lived in the disaster zones and were already in serious debt and planned to file before the new law takes effect next month now cannot hire bankruptcy lawyers and assemble their financial records in time, lawmakers and consumer advocates said.
''Katrina's victims should not be the test cases. Giving them a year to proceed under the old law seems entirely reasonable,'' said Feingold.
Feingold had picked up 17 co-sponsors in the Senate--16 Democrats and one Independent--by late Tuesday.
Even so, his proposal faces opposition from senior Republicans, including Rep. James Sensenbrenner, also of Wisconsin, who chairs the House of Representatives' judiciary committee.
Sensenbrenner said Tuesday he would not reopen the new law, nor allow hearings in his committee on a House version of Feingold's bill. Rep. John Conyers of Michigan and 31 other Democrats have sponsored the House measure.
Sensenbrenner said the new law would not harm ''down and out'' people who had no possibility of repaying 40 percent or more of their debts.
President George W. Bush, who signed the new law in April, reportedly indicated he would consider relief measures for hurricane survivors.
The American Bankers Association, which had lobbied for the new law, said the people hardest hit would remain eligible to write off their debts even under the new legislation. Nevertheless, the industry group has indicated it would be willing to work with lawmakers on specific measures to aid Katrina's victims.
Wall Street credit rating agency Fitch Ratings said Tuesday the personal and economic loss in Louisiana and Mississippi ''will take its toll on consumers, forcing many individuals in these affected regions to file for bankruptcy irrespective of more stringent laws.''
The Consumer Federation of America said the government should not be ''throwing up new barriers to bankruptcy'' as hurricane survivors clawed their way back to normal life.
Even before Katrina struck the Gulf Coast, some 1.6 million Americans filed for personal bankruptcy protection every year--more than five times as many as in 1980.
The process, which in many respects mirrored corporate bankruptcy, allowed them to come up with a creditor-reviewed and court-approved plan to write off some of their debts, pay off others, and reorganize their personal finances so they could make a fresh start.
Opponents of the first revamp of the nation's personal bankruptcy laws in more than a quarter-century said the legislation passed this year would deal a ruinous blow to the overwhelming majority of those forced to declare personal bankruptcy: moderate- and low-income families, many of them black or migrant or with only one parent; and individuals of modest means hit with large divorce losses or medical expenses.
However, credit card issuers, said to have had a major hand in writing the new law, said they needed the updated measure because well-off consumers took advantage of loopholes in the old rules to rack up and walk away from unpaid loans, saddling the industry with losses of $3-4 billion per year.
About 20 percent of all bankruptcy filers have some assets or means to pay off their debts, industry representatives said.
Credit card issuers including MBNA Corp., JPMorgan Chase & Co. and the finance units of General Motors Corp. and Ford Motor Co., in lobbying for the bill, said unpaid loans ended up costing every non-defaulting cardholder, for example through higher late payment fees, higher interest rates, and stiffer repayment conditions on car loans.
Opponents said the new law rewarded the $30 billion credit card industry and would do nothing to rein in credit card solicitations or put caps on interest rates or late fees, over-the-limit fees and other penalties--even though these were among the reasons people were forced to declare bankruptcy in the first place.
Bankruptcy reform has been a top priority of banks, credit card companies, and retailers for the past decade. The credit card industry has given $25 million to federal candidates and the political parties since 1999 and commercial banks have given $76.2 million, according to the watchdog group Center for Responsive Politics. More than 60 percent of the donations went to Republicans.
That, according to consumer protection groups including the National Consumer Law Center and Consumer Federation of America, resulted in a package that tilts the balance of power in individual bankruptcy heavily in favor of the financial industry, at the expense of consumer protection.
Civil rights groups also opposed the new law, formally called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, saying it would reinforce inequality.
Divorced women are 300 percent more likely than single or married women to find themselves in bankruptcy court because of the combined effects of lower wages, reduced access to health insurance, and the financial strain of rearing children alone, according to the Leadership Conference on Civil Rights (LCCR).
The new law would harm hundreds of thousands of women and children owed child support or alimony by forcing them to compete with credit card issuers, making it less likely that support payments would be made to those in need, the Washington, D.C.-based advocacy group said.
African American and Latino home owners are 500 percent more likely than white homeowners to find themselves in bankruptcy court, it added, largely due to discrimination in home mortgage lending and housing purchases and to inequalities in hiring opportunities, wages, and health insurance coverage.
by Abid Aslam
WASHINGTON - People flooded out by Hurricane Katrina could yet be sunk by debt under a new U.S. bankruptcy law that makes it harder for Americans to seek bankruptcy protection, consumer advocates and lawmakers have warned.
The Consumer Federation of America and the National Association of Consumer Bankruptcy Attorneys said in statements that the new bankruptcy law, due to take force Oct. 17, would deal a cruel second blow to many of the hundreds of thousands of people who lost their homes and livelihoods to the hurricane.
The consumer groups have asked Congress, which passed the law earlier this year, to grant Katrina's victims relief from the new measure.
Senator Russ Feingold, a Wisconsin Democrat, has proposed a bill that would give hurricane victims another year under the old bankruptcy law.
Many sustained catastrophic losses from the hurricane and would have to file for bankruptcy ''through no fault of their own,'' Feingold told the Senate last week.
''Bankruptcy lets them get a fresh start. And a fresh start is what so many of the relief efforts going on are all about,'' he said.
Feingold said victims of natural disasters should be exempt from a means test mandated under the new law.
The new law requires people with incomes above their state's median who can pay at least $6,000 over five years, or $100 per month, to repay debts under a court-ordered bankruptcy plan.
Additionally, people who lived in the disaster zones and were already in serious debt and planned to file before the new law takes effect next month now cannot hire bankruptcy lawyers and assemble their financial records in time, lawmakers and consumer advocates said.
''Katrina's victims should not be the test cases. Giving them a year to proceed under the old law seems entirely reasonable,'' said Feingold.
Feingold had picked up 17 co-sponsors in the Senate--16 Democrats and one Independent--by late Tuesday.
Even so, his proposal faces opposition from senior Republicans, including Rep. James Sensenbrenner, also of Wisconsin, who chairs the House of Representatives' judiciary committee.
Sensenbrenner said Tuesday he would not reopen the new law, nor allow hearings in his committee on a House version of Feingold's bill. Rep. John Conyers of Michigan and 31 other Democrats have sponsored the House measure.
Sensenbrenner said the new law would not harm ''down and out'' people who had no possibility of repaying 40 percent or more of their debts.
President George W. Bush, who signed the new law in April, reportedly indicated he would consider relief measures for hurricane survivors.
The American Bankers Association, which had lobbied for the new law, said the people hardest hit would remain eligible to write off their debts even under the new legislation. Nevertheless, the industry group has indicated it would be willing to work with lawmakers on specific measures to aid Katrina's victims.
Wall Street credit rating agency Fitch Ratings said Tuesday the personal and economic loss in Louisiana and Mississippi ''will take its toll on consumers, forcing many individuals in these affected regions to file for bankruptcy irrespective of more stringent laws.''
The Consumer Federation of America said the government should not be ''throwing up new barriers to bankruptcy'' as hurricane survivors clawed their way back to normal life.
Even before Katrina struck the Gulf Coast, some 1.6 million Americans filed for personal bankruptcy protection every year--more than five times as many as in 1980.
The process, which in many respects mirrored corporate bankruptcy, allowed them to come up with a creditor-reviewed and court-approved plan to write off some of their debts, pay off others, and reorganize their personal finances so they could make a fresh start.
Opponents of the first revamp of the nation's personal bankruptcy laws in more than a quarter-century said the legislation passed this year would deal a ruinous blow to the overwhelming majority of those forced to declare personal bankruptcy: moderate- and low-income families, many of them black or migrant or with only one parent; and individuals of modest means hit with large divorce losses or medical expenses.
However, credit card issuers, said to have had a major hand in writing the new law, said they needed the updated measure because well-off consumers took advantage of loopholes in the old rules to rack up and walk away from unpaid loans, saddling the industry with losses of $3-4 billion per year.
About 20 percent of all bankruptcy filers have some assets or means to pay off their debts, industry representatives said.
Credit card issuers including MBNA Corp., JPMorgan Chase & Co. and the finance units of General Motors Corp. and Ford Motor Co., in lobbying for the bill, said unpaid loans ended up costing every non-defaulting cardholder, for example through higher late payment fees, higher interest rates, and stiffer repayment conditions on car loans.
Opponents said the new law rewarded the $30 billion credit card industry and would do nothing to rein in credit card solicitations or put caps on interest rates or late fees, over-the-limit fees and other penalties--even though these were among the reasons people were forced to declare bankruptcy in the first place.
Bankruptcy reform has been a top priority of banks, credit card companies, and retailers for the past decade. The credit card industry has given $25 million to federal candidates and the political parties since 1999 and commercial banks have given $76.2 million, according to the watchdog group Center for Responsive Politics. More than 60 percent of the donations went to Republicans.
That, according to consumer protection groups including the National Consumer Law Center and Consumer Federation of America, resulted in a package that tilts the balance of power in individual bankruptcy heavily in favor of the financial industry, at the expense of consumer protection.
Civil rights groups also opposed the new law, formally called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, saying it would reinforce inequality.
Divorced women are 300 percent more likely than single or married women to find themselves in bankruptcy court because of the combined effects of lower wages, reduced access to health insurance, and the financial strain of rearing children alone, according to the Leadership Conference on Civil Rights (LCCR).
The new law would harm hundreds of thousands of women and children owed child support or alimony by forcing them to compete with credit card issuers, making it less likely that support payments would be made to those in need, the Washington, D.C.-based advocacy group said.
African American and Latino home owners are 500 percent more likely than white homeowners to find themselves in bankruptcy court, it added, largely due to discrimination in home mortgage lending and housing purchases and to inequalities in hiring opportunities, wages, and health insurance coverage.
