KPLC 7 News, Lake Charles, Louisiana |Bankruptcy Changes

Bankruptcy Changes

March 18, 2005
Reported by Libby White

If you're thinking about filing for bankruptcy, changes are on the way. A new law will change how the court looks at the income to debt ratio in order to file Chapter 7. These new standards will give less leeway to those in debt.

Local Attorney Alvin Hunt says, "It's going to make it very difficult particularly for the middle class and the lower income people who are struggling with a lot of credit card debt. They're going to be stuck in a revolving plan where they're going to be paying for years and years." Hunt says under the new law, one must go through a more difficult means test in order to file a Chapter 7 bankruptcy. "They're going to have disposable income left under that scenario and they're going to have to pay into monthly plans to the court anywhere from 3 years to 5 years. Now whether they can afford that monthly payment is still up in the air."

Attorney Gerald Casey says credit card companies are pushing this law to encourage consumers to pay back some of their debt. Casey says, "I think when the bill was first drafted, there was a perception that there was abuse of bankruptcy in some cases and some places."

Hunt says bankruptcy is a serious decision, but if you're considering it, you may want to act now. "If you do a realistic evaluation of your situation and bankruptcy is an option you may want to consider, we would recommend that you consider it now as opposed to when the new law takes affect." But if a plethora of people file before the bill becomes law, will it hurt the credit card companies? Casey says the answer comes straight from the senate floor. "Credit card companies made $30 billion in profit last year. That's Visa, Master Card and Discover, with the current bankruptcy rules. So how's it going to affect them? I can't imagine it having that big of an affect."

The bill has already passed in the Senate. It's expected to pass the House as well. Once President Bush signs it, it would go into effect sometime this fall.