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I have heard that bankruptcy law is about to change. What’s up with that?


Nobody really knows. The bankruptcy system is not perfect. No system is perfect. But it has worked very well for creditors and debtors alike for many years. Credit card companies and other lenders are making more money than ever, but they are also giving more money than ever to politicians, trying to get them to pass new laws that make it harder for average people to file bankruptcy. Everybody outside of the credit industry agrees that the proposed changes are bad for everybody, including the creditors. Even most creditors will tell you that.

But they still keep pushing for it. Congress has tried to push the changes through every year for the past several years. They got it through one time, but President Clinton vetoed it. It was just about to come up for a vote again when the terrorists attacked New York and Washington, D.C. That almost certainly would have passed, and there is no doubt that President Bush would have signed it into law. He has promised to sign any new bankruptcy bill that Congress gives him.

Some people say that Congress has tried and failed so many times that they will finally give up. I doubt that, but I hope I’m wrong. If the changes are passed, they won’t become law for 6 months. That will give us a little bit of time to prepare.

The main thrust of the new laws is to make it more difficult and expensive for you to file bankruptcy. You will have to go through a credit counseling process, which in my opinion will almost always be a waste of time and money. You will have to pay the full amount of some of your debts, which for many people will not be possible. That will take away your reason for filing in the first place. There will be several other changes, but they are all along these same lines.

The real purpose of most of the changes is to discourage you from filing bankruptcy. The end result will be that more people will be stuck in the cycle of poverty, with no way out. Creditors can and will hound you until every cent is paid, plus interest. They won’t rest until they take every little thing of value away from you.

The funny thing is that this is actually bad for the creditors. They will spend more and more time and money going after less and less money. Many of them will reach a point where they would actually be better off letting it go, but they won’t be able to stop themselves. Why? Because that’s just the way they are built. After all, they are just enforcing their rights, and who is to say where they should stop?

The end result will be bad for everyone. There will be fewer productive citizens, because they will be busy dodging the repo man. There will be fewer people starting new businesses, because the risk of failure will be too great. This is not just my opinion. Get on the Internet, or go to the library and read the business and financial magazines. If you have Internet access, here is a good place to start: The American Bankruptcy Institute ("ABI") is a nationwide organization of bankruptcy experts, including economists, bankruptcy judges, bankers and other lenders, debtors lawyers, creditors lawyers, and many other financial experts. Their web site itself may not be very interesting to you, but it has links to articles from everyone who has any interest in bankruptcy.