At First Anniversary Bankruptcy Reform Remains Controversial

A federal law making it more difficult for consumers to circumvent debt through bankruptcy proceedings took effect one year ago in the United States. The law's main provision includes an income test and is in general designed to push those seeking bankruptcy to re-pay at least some of their debts.

Applicants for bankruptcy must go through a pre-filing session involving personal financial counseling and must investigate other options for debt resolution. The new system emphasizes education in money management, spending habits, and the stresses that make some people susceptible to predatory lending practices.

Opinions about the success of the program are mixed and contentious. Credit counselors say that only some 3 to 6 percent of those filing for bankruptcy actually convert their efforts to a debt management plan.

Dallas bankruptcy attorney Howard Marc Spector characterized most debtors as genuinely tapped out. "After you get done paying your mortgage, paying your car, most people don't have any money left, so therefore most people, when they take the means test, don't have any disposable income . . .."

Thanks to the newly created hurdles, bankruptcy fees have jumped from 60 to 100 percent and the paperwork load is tremendous and must be done correctly the first time or the case may be automatically dismissed.

Carolyn Chesnutt, a Texas bankruptcy attorney said that in this reform law "lenders got everything they wanted, and the consumers got nothing. The credit card companies wrote the bill, pushed it through, and turned Chapter 13 into their own private debt collection agency."