Consumer Bankruptcy Law Needs Fixing, Advocates Say
Should current consumer bankruptcy law be revised to better serve debtors across the country? According to a recent article in The Wall Street Journal, a new report from the American Bankruptcy Institute (ABI) Commission on Consumer Bankruptcy contends that “bankruptcy court . . . has lost its power to help people fix some financial problems stemming from the massive social and economic shifts that have taken place since modern bankruptcy law was passed in 1978.” In other words, consumer bankruptcy law is outdated, and it needs to be revised to take into account the 21st century needs of debtors. The law is now over 40 years old.
Bankruptcy Reform in 2005 Does Not Help Consumers in 2019
The 2005 bankruptcy reform is among the first issues that the report takes up. When new bankruptcy rules were put into place in 2005, fewer consumers were filing for bankruptcy. The reform also led to the “means test,” which makes it significantly more difficult for many individual debtors to file for Chapter 7 bankruptcy. The ABI report suggests that those rules, despite being less than 15 years old, are nearly as outdated as consumer bankruptcy law that dates back to the late 1970s.
Elizabeth Perris, a retired bankruptcy judge who played a key role in creating the report, explained how “the 2005 rules were drafted at a time when houses were cheaper and the amount of student loan debt was so small that the Federal reserve did not categorize it in its monthly statistics release.” In addition to the 2005 rules failing to conceive of the more pressing consumer issues in 2019, the report also notes that judges have disagreed in recent years over bankruptcy rules. As such, bankruptcy filings often are inconsistent from one jurisdiction to the next.
In addition to making changes that do not help debtors—and in fact largely “hurt the poor and those grappling with crushing medical bills and job losses,” according to the report—the bankruptcy rule changes in 2005 also made filing for bankruptcy more expensive. Under those rules, consumers who want to file for Chapter 7 bankruptcy often have to pay about $1,200 up front. It is important to keep in mind that, to qualify for Chapter 7 bankruptcy, you must have a low enough income to pass the means test, which likely indicates that you do not have approximately $1,200 to spare.
Recommendations for Changes to the Current Bankruptcy Law
What do advocates at the ABI recommend when it comes to revising the current bankruptcy law? First, and perhaps most easily, the ABI panel wants to see credit-counseling requirements eliminated. While this is not a particularly costly step (it usually costs around $25), it is largely unnecessary given that consumers who go through the course do not have any other option but to file for bankruptcy.
In addition, the ABI panel wants to see an extension of bankruptcy exemptions for certain debtors. For example, if a debtor cares for a child or an elderly family member, that person should be able to retain additional property. The panel also recommends allowing debtors in Chapter 13 bankruptcy to retain one month of disposable income in the event of emergency expenses like vehicle repairs or hospital bills.
Contact a Bankruptcy Lawyer in Oak Park
Bankruptcy law is complicated, and it is important to have a consumer advocate on your side. An Oak Park bankruptcy lawyer at our firm can help with your case. Contact the Emerson Law Firm today for more information.
See Related Blog Posts:
Dealing with Tax Debt Collection
Rising Consumer Debt and Delinquencies
Bankruptcy Reform in 2005 Does Not Help Consumers in 2019
The 2005 bankruptcy reform is among the first issues that the report takes up. When new bankruptcy rules were put into place in 2005, fewer consumers were filing for bankruptcy. The reform also led to the “means test,” which makes it significantly more difficult for many individual debtors to file for Chapter 7 bankruptcy. The ABI report suggests that those rules, despite being less than 15 years old, are nearly as outdated as consumer bankruptcy law that dates back to the late 1970s.
Elizabeth Perris, a retired bankruptcy judge who played a key role in creating the report, explained how “the 2005 rules were drafted at a time when houses were cheaper and the amount of student loan debt was so small that the Federal reserve did not categorize it in its monthly statistics release.” In addition to the 2005 rules failing to conceive of the more pressing consumer issues in 2019, the report also notes that judges have disagreed in recent years over bankruptcy rules. As such, bankruptcy filings often are inconsistent from one jurisdiction to the next.
In addition to making changes that do not help debtors—and in fact largely “hurt the poor and those grappling with crushing medical bills and job losses,” according to the report—the bankruptcy rule changes in 2005 also made filing for bankruptcy more expensive. Under those rules, consumers who want to file for Chapter 7 bankruptcy often have to pay about $1,200 up front. It is important to keep in mind that, to qualify for Chapter 7 bankruptcy, you must have a low enough income to pass the means test, which likely indicates that you do not have approximately $1,200 to spare.
Recommendations for Changes to the Current Bankruptcy Law
What do advocates at the ABI recommend when it comes to revising the current bankruptcy law? First, and perhaps most easily, the ABI panel wants to see credit-counseling requirements eliminated. While this is not a particularly costly step (it usually costs around $25), it is largely unnecessary given that consumers who go through the course do not have any other option but to file for bankruptcy.
In addition, the ABI panel wants to see an extension of bankruptcy exemptions for certain debtors. For example, if a debtor cares for a child or an elderly family member, that person should be able to retain additional property. The panel also recommends allowing debtors in Chapter 13 bankruptcy to retain one month of disposable income in the event of emergency expenses like vehicle repairs or hospital bills.
Contact a Bankruptcy Lawyer in Oak Park
Bankruptcy law is complicated, and it is important to have a consumer advocate on your side. An Oak Park bankruptcy lawyer at our firm can help with your case. Contact the Emerson Law Firm today for more information.
See Related Blog Posts:
Dealing with Tax Debt Collection
Rising Consumer Debt and Delinquencies
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