New bankruptcy laws status:

At this point the news is nothing but bad and getting worse for anyone who needs to file bankruptcy.

The House Judiciary Committee passed the Senate version of the Bankruptcy Reform Act without changes on Wednesday, March 16, 2005. It is expected to go to the full House in early April. I talked with the American Bar Association Chief Legislative Consul on Monday, March 14, 2005. He says that this legislation is certain to pass. President Bush has always been in favor of the law and it is certain he will sign it. I guess you could say that the people who really need a “fresh start” are about to be "amBushed".

At the moment the law is set to become effective 180 days after it is signed though that could change and be shortened.

The law not only will stop many people from being able to qualify to file bankruptcy, on top of that, those that will qualify will find that the cost of legal representation to file a bankruptcy will raise by 200% to 300% or more. This is because the laws put Debtor's attorneys personally liable to creditors if there is any errors or misstatements in the client’s paperwork.

What this means is that if the client lies or is incorrect by accident the client’s ATTORNEY can be required to pay damages to the creditors. Under that scenario the attorney, to protect himself, may have to hire a PRIVATE INVESTIGATOR to investigate his own client’s finances and an APPRAISER to appraise his client's assets. Obviously, the client gets to pay for these costs. That cost could add $1,500-$2,500 in ADDITIONAL FEES (above what the fees are now) to the fee the client has to pay the attorney for representation.

The true purpose of all this is to drive Debtor's attorneys out of business ( I am aware of several that are going to quit filing bankruptcy cases) and make it impossible for the poor to get the information and advice they need to stay out of problems.

My advice to anyone considering bankruptcy is to hire an attorney NOW. Even if the law is not effective for 180 days, I am already seeing a substantial increase in business. It will only get busier as people find out what Congress and the President have done to them.

I expect that many attorneys will be fully booked in short order. Potential clients will find that they can't even get an attorney to handle their case before the law becomes effective if they wait too long. Also the cost that attorneys charge to file cases will undoubtedly go up significantly even before the laws take effect. It is simply the law of supply and demand, a reality that is there in any business.

If you want a free attorney consultation with me call my staff at 1-800-675-1005 and they will be happy to set you a phone or in-office appointment..

This legislation is a key issue for the retail banking and credit industry. They have contributed in excess of one hundred million dollars ($100,000,000) in political contributions to Congressional Legislators over the past several years. They are not likely to give up until they collect in the form of votes for this legislation from those they have supported. Money talks. Unfortunately, we Americans have the best Congress and President money can buy .

Why the new bankruptcy laws are bad for you:

The reason the bill is opposed by women’s groups, consumer’s rights groups, professors and academics in the bankruptcy field as well as most bankruptcy judges is that it makes it harder to discharge unsecured debts in bankruptcy and save homes and keep cars in bankruptcy reorganizations.

The most onerous part is the concept of a “means test”. It starts on the basis of determining whether your income was equal or above the average household income in the state. That would be based on your prior years income, not what your present income is. Therefore if you lost you job or were injured you may well still be subject to this test even though that income no longer existed.

If you are subject to this means test, than you would have your living expenses compared to a “template” of what the I.R.S. thinks you should be able to live on without regard to the reality of you circumstances or the costs of the immediate region you live in. They would take the average costs of the state and if you lived in a region that the living expenses was higher than that average, you are tough out of luck.

The means test would compare your prior income on a monthly basis to this calculation of what you are supposed to live on and if you had $100.00 in monthly “income” above your necessary “living expenses” from that template you would not be able to file Chapter 7 bankruptcy and would have to file a 5 year Chapter 13 bankruptcy reorganization giving all the supposed “disposable income” to your unsecured creditors. Even if you did not have the income to pay the monthly amount, but did have enough left over to pay 25% of your unsecured debt over that 5 year period, then you still would be denied the right to file a Chapter 7 bankruptcy to discharge the debts.

This legislation is like the multi-headed monster known as the Hydra in Greek mythology. Each time you cut one of the heads off this thing, it just grows a new one. When this legislation pass the House one thing is certain, you do not want to have to face it in addition to the emotional trauma that comes with a bankruptcy filing. If you qualify under present law to file and need to, my recommendation is don’t take chances. File now and get on with rebuilding your life and credit.

Links to up to date news on the new bankruptcy laws:

The best site to track what is happening on new bankruptcy laws is the American Bankruptcy Institute commonly known as the ABI. It is an organization made up of members from all areas of interest in the functioning of the bankruptcy laws in the United States. It includes lawyers for both debtors and creditors, judges, bankruptcy trustees, law professors, consumer advocates and creditors rights advocates. It is a “think tank” making recommendations as to changes and “improvements” to the bankruptcy system. It tends to be more creditor oriented in its views but is the closest thing we have to relatively unbiased reporting of bankruptcy news in America.

There is also a creditor advocacy group that has a web site that provides news on various creditor issues including bankruptcy. It is the Commercial Law League of America. While clearly pro-creditor and anti-debtor, it is none-the-less a good place to see what they are supporting and what strategies are being employed to get the laws they want passed through Congress. It is worth watching and provides a early warning of tactics to be used by creditor advocates to influence legislation.

Another excellent place to research for bankruptcy news and laws is the National Association of Consumer Bankruptcy Attorneys. It is an organization of over 1300 attorneys who primarily represent debtors who need bankruptcy assistance. I am a member of this organization and support their efforts. Unlike the well-healed creditors groups who are supported by huge amounts of money the banks can afford to throw at these issues NACBA is not well funded as it is supported from the pockets of the debtor’s attorneys themselves. I have never seen a person or business filing bankruptcy that could afford to hire lobbyists to pursue legislation for their own benefit. Despite its limited funding, it has made significant efforts on behalf of debtors and has had some success in influencing bankruptcy legislation to protect debtors. It does try at its web site to keep information as to what is happening in bankruptcy legislation available to potential debtors and their attorneys.

Written on March 26, 2005, by Gary Ray Fraley Esq. founder and owner of California Bankruptcy Attorneys. Mr. Fraley is a Bankruptcy Specialist, certified by the Board of Specialization of the State Bar of California.

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