I think the bankrupt citizens of Utah are in for a surprise.
The threshold for being pushed into Chapter 13, under the new bankruptcy law, is set at those with income above their state's median income who can pay at least $6,000 over five years, or $100 a month.
The measure still allows for the bankrupt to take advantage of state homestead exemptions, although it would be limited to $125,000 if the petitioner purchased their residence less than 40 months before filing for bankruptcy.
newkerala.com
Analysis: Bankruptcy reforms help creditors:
[World News]: By CHRISTIAN BOURGE, UPI Congressional and Policy Correspondent WASHINGTON, March 9 : The Senate is set to approve a massive overhaul of federal bankruptcy law pushed by credit-card companies and other creditors for years, but the changes made may not be the best for consumers nor be a full-faith effort to make high-income individuals live up to the same spending obligations as those with lower incomes.
The expected Senate approval of the pro-business bill Thursday was eight years in the making and will clear the way for certain House and presidential approval next month of legislation that will ensure erasing consumer debt will become much more difficult for many.
"The sooner we finish work in the Senate and get the bill to the House, the sooner our bankruptcy system will be focused as it should be on helping those with real need, and less vulnerable to abuse by consumers who have the ability to repay their debts," said the measure's primary author, Sen.Charles Grassley, R-Iowa.
While Republican proponents of the measure, which has bipartisan support in the Senate, have promoted the changes as providing an end to the free ride for those who can afford to repay their bills, a close examination of some of the loopholes provided calls that rhetoric into question.
They and credit companies argue that out-of-control bankruptcy fillings which, the American Bankruptcy Institute said have doubled over the late decade to more than 150 million annually, are a problem that must be dealt with.
But the Senate approval did not come easy after years of false starts and follows the current GOP leadership's successful push to reject a host of Democratic amendments over the last two weeks that could have scuttled the bill.
These include Tuesday's nearly party-line defeat of a long-successful amendment by Sen.Charles Schumer, D-N.Y.,, that would have blocked abortion protesters and other demonstrators from declaring bankruptcy to avoid paying damage awards when successfully sued for criminal activity.
The measure has kept the broader bill from gaining House approval in the past.
Other failed votes Monday on competing Republican and Democratic measures to increase the minimum wage by as much as $2.10 were exercises in political rhetoric and vote chasing.An agreement required 60 votes for either measure to gain approval, ensuring that neither had any chance for passage.
The bankruptcy legislation sets up a new test for measuring the ability of an individual seeking blanket bankruptcy protection to repay their debts.
Many of those currently eligible for Chapter 7 protection, which allows a partial and sometimes even total elimination of debt after assets are forfeited, will now be guided to Chapter 13 protection, which requires that a 3-year to 5-year debt-repayment plan be entered into with creditors.
About 70 percent of personal bankruptcy filings currently fall under the Chapter 7 category.
Some Democrats have fought the bill, arguing that people who have high medical costs from catastrophic illnesses or have lost their jobs should not be forced to take more money out of their pockets at a time when they are most financially vulnerable.
"For many people it (the bill) means the debt they have incurred that they cannot pay back will be dogging them and burdening them for the rest of their natural lives," Senate Minority Whip Richard Durbin, D-Ill., said Tuesday."At least be sensitive to some people who go into bankruptcy court through no fault of their own."
A recent Harvard University study found that half of all personal bankruptcies are driven by debt related to illness, while three-quarters of those who seek such protection from creditors do so despite having health insurance, ostensibly because it has not provided adequate coverage.
Harvard Law Professor Elizabeth Warren, a critic of the proposal and author of the study, told the Senate Judiciary Committee in February that the bill is based on the incorrect assumption that all bankruptcies are the result of consumer overspending.
"A person who had a heart attack is treated the same as someone who had a spending spree at the shopping mall," said Warren.
The threshold for being pushed into Chapter 13 is set at those with income above their state's median income who can pay at least $6,000 over five years, or $100 a month.
In addition, the new law requires those seeking bankruptcy to pay for credit counseling.
Current law allows a bankruptcy judge to determine whether a person seeking such protections has to repay debt or not, and credit counseling is not a prerequisite.
The measure does provide that accommodations be made for active-duty military personnel, poor veterans and those with serious medical problems at the time of filing, but it is accommodations that would impact the wealthy that have raised the cackles from critics.
The measure still allows for the bankrupt to take advantage of state homestead exemptions, although it would be limited to $125,000 if the petitioner purchased their residence less than 40 months before filing for bankruptcy.
Florida, Iowa, Kansas, South Dakota and Texas allow unlimited homestead exemptions, which allow even the incredibly wealthy to protect their expensive homes from creditors.
The measure also allows for the protection of a wealthy individual's assets in other ways.
It includes a loophole allowing so-called asset-protection trusts, which are exempt from being used as a means of debt repayment in bankruptcies, to retain their exempt status.
The Senate rejected an attempt to kill off the loophole, which pertains to special accounts that are legal in Alaska, Delaware, Rhode Island, Nevada and Utah and have been a favorite way for physicians to protect themselves from malpractice lawsuits for years.
Another exemption that would benefit the wealthy would increase to $1 million the exemption for retirement funds.
Such loopholes clearly do little more than help those who are rich but find themselves in financial straights from being subject to the same rules as the less financially fortunate. Although the impact these changes will have on bankruptcies in the United States is difficult to quantify, one thing is clear: With the median state income being the threshold for entering Chapter 13 payment plans, middle-income individuals are clearly going to take the brunt of it.
-- Copyright 2005 by United Press International. |
