President George W. Bush has signed new bankruptcy
laws that would prevent individuals from abusing the
current system. In an effort to fulfill the promises
of tort reform and overhauling any kind of abuse to
the legal system, the gears are in motion towards
accomplishing these goals.
The Republicans have already succeeded in one phase in
their reform, having passed a bill that commutes
class-action suits from state courts to federal
courts, that bill has since been signed into law.
This new law was under some scrutiny from the left,
regarding whom the law will benefit.
Questions have been raised concerning how the bill may burden individuals
with more financial woes and it has been suggested that
Republicans are just sitting in the pockets of credit
card companies and powerful financial asset
corporations. The basic premise of the bill is to
teach the average American to be more financially
responsible.
According to the Administrative Office of the U.S.
Courts, yearly bankruptcy cases have jumped from under
300,000 to 1.6 million in the past couple decades -
that is 1.6 million individuals filing for bankruptcy
every year.
When one finds themselves in immense debt, to the
point of bankruptcy the bill simply asks that the
government not to feed irresponsible individuals.
Scott Talbott, of the Financial Service Roundtable,
told Bloomberg, "We're really going after that small
segment of the American public who abuse the credit
cards, abuse their credit, abuse the bankruptcy
system."
Just before the bill's ratification, Democrats
introduced an amendment that would bar Anti-Abortion
groups from also abusing bankruptcy in their effort to
repay debt done during rallies or protests. That
amendment was voted down 53-46. Democrats argue that
the amendment was not merely targeting Pro-Life
groups, but protesters of all types. Senate Minority
Leader, Harry Reid (D-NV) said, "It's [The Amendment]
about holding those responsible who commit violent
acts and believe they are above the law."
Republicans countered saying that the law already
prohibits individuals from using bankruptcy after
performing "malicious acts."
A portion of the bill that is under fire is the "test"
that is to be administered to would-be bankrupt
individuals. Democrats argue that the test fails to
look into unforeseen reasons for debt.
One looks at a debtor's earnings and examines the net
income after deducting allowable expenses; Bloomberg
gives an example of medical bills. Following that
evaluation, if a debtor's net results in the capability to
pay a $10,000 lump sum, they would be required to file
for Chapter 13. In Chapter 13, the courts require a
debtor to set up a repayment plan. Creditors are
typically paid much less than what it owed, but back
taxes and secured debt (e.g. mortgages) are to be paid
off in, typically, a three to five year plan (five
years is the maximum tenure for a Chapter 13
bankruptcy).
Also, if a debtor were able to pay 25% of what is
owed, or offer a $6,000 monthly payment, the debtor
would also be barred from filing for Chapter 7.
Chapter 7 is a might lenient compared to Chapter 13,
in that, there is no repayment plan. Instead, debtors
are required to expunge their nonexempt assets to
which the distribution goes to the creditors. Debtors
are also eligible for liens or mortgages on some
properties. Chapter 7 also allows only a four to six
month plan.
The Los Angeles Times says, "Its passage would be an
important political victory for President Bush as he
struggles with a skeptical public and skittish
Republican members of Congress for major changes in
the Social Security program."
