From the AP via the Star Ledger:
Bankruptcy laws thin ranks of filers
The ranks of people seeking to erase their debts have thinned noticeably in the year since the biggest changes in U.S. bankruptcy laws in a quarter-century took effect.
…
After an eight-year campaign by banks, retailers and credit-card companies, Congress changed the law to require for the first time an income-based test for measuring a debtor’s ability to repay obliga tions.Those deemed to have insufficient assets or income can still file a Chapter 7 bankruptcy. But those with income above their state’s me dian income who can pay at least $6,000 over five years are forced into Chapter 13, where a debt repayment plan is ordered.
…
It’s designed to make life miserable for anybody who owes money,” says Lawrence Brooke, an attorney in Alexandria, across the Potomac River from Washington. “It’s a help-the-banks, squish-the- little-guy law.”Brooke is one of several lawyers in northern Virginia who have abandoned consumer bankruptcy work since the new law took effect. “I won’t have anything to do with it,” he said, even though it has reduced his income.
Brooke said the paperwork hurdles for debtors to qualify for Chapter 7 have become insurmountable for many, and the workload and ag gravation for attorneys have increased.
from the Chicago Tribune:
The coming credit crunch: What’s in your wallet?
PROBABLY TOO MUCH PLASTIC, EXPERTS SAY. RISING DEBT IS AMONG THE OMINOUS TRENDS THAT THREATEN AMERICANS’ FINANCIAL HEALTH
By Elizabeth Razzi. Elizabeth Razzi has written about personal finance for The Washington Post and Kiplinger’s Personal Finance. She is author of “The Fearless Home Buyer.”
Published October 15, 2006
Despite the steadily expanding U.S. economy, a perfect storm of rising mortgage rates, disappearing health-insurance coverage, stagnant wages and relentless college-tuition increases is gathering on the financial horizon for many Americans, threatening a flood of debt and bankruptcies. The warning signs are hard to miss:
The amount of consumer credit outstanding, led by brisk growth in credit card use, more than doubled in the first six months of the year, according to the Federal Reserve. Over the past two years, consumers increased their non-mortgage debt by 12.5 percent, reaching an average of $11,669 early this year, says Experian Consumer Direct, a company that compiles credit reports and scores. Meanwhile, the average number of late payments rose 19 percent, indicating increasing difficulty managing the greater debt load.
http://www.chicagotribune.com/business/chi-0610150441oct15,0,389484.story?coll=chi-business-hed
Always remember
The borrower is servant to the lender.
SAS
There’s been plenty written on the new bankruptcy law and how it’s playing out. One of the things mentioned is that because the process has become so onerous the number of people likely to simply fold their tent and not try will increase exponentially. Also keep in mind that a lot of people who might have filed this year were pulled into last year because they were avoiding the new regs.
“It’s designed to make life miserable for anybody who owes money,” says Lawrence Brooke, an attorney in Alexandria, across the Potomac River from Washington. “It’s a help-the-banks, squish-the- little-guy law.” ”
It’s a “blame someone else, it’s not your fault” kind of lawyer.
Rich
I’m not familiar with the details of the new law, but there is absolutely no doubt in my mind that a significant percentage of individuals who went into Bankruptcy in the last 15 years went into outlandish debt with every intent of using bankruptcy as their “Get out of Jail Free” card. I have no facts to back up my assertion. Just a gut feeling. Thoughts?
Navy Vet:
I know of two families who went into bankruptcy in the past few years, one whose baby was born with a congenital heart defect, and who required for the five years of her life regular treatements not covered by her father’s health plan; and a second family in which both earners lost their jobs and were out of work for more than a year.
Both families had houses bought with at least 20% down. Both families owned their cars and drove them for a minimum of five years. The former family had to stop tithing to their church to satisfy creditors. The latter family is still awaiting the terms of their filing.
It’s not all profligate spenders; oftentimes, its families with narrow margins for error who hit hard times.
But to the banks who bought the current Congress’ support of the bankruptcy bill, it’s always, “f**k you, pay me.”
Acutally, the #1 reason people go into bankrupcy is….drumroll please….catastrophic medical problems. There are plenty of people who buy things they really cannot afford, but almost nobody buys something with the intention of declaring bankrupcy to avoid paying for it, despite what the banks and the credit card companies try to sell. The top 2 reasons for bankrupcies are medical problems, followed closely by sudden unempolyment. I mean think about it. Would you buy a plasma TV, then declare bankrupcy so you don’t have to pay for it, only to now have to live without ANY credit for 10 years? The argument just dosen’t make any sense.
I actually agree with both of you and perhaps worded my statement too strongly. When I said significant, I was thinking around the 10% range of bankruptcies. But like I said, I have no data and my basis was nothing more than anecdotal. Reflecting on that, it’s just a cynical statement borne out of frustration.
While I spent the last several years saving up to buy a home, I saw what I could afford decrease with each passing year and now am unable to purchase a decent home in a decent area. I did what one is supposed to do to buy a home while others lived high on RE despite going massively in debt to do so over the past several years.
Seems like I’m having to pay for their financial joyriding.