Thoughts About the Changes to the Bankruptcy Code

See Related Articles

The United States Congress passed in the Spring of 2005 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 with a stated purpose of addressing "abuses" to the bankruptcy system. The changes, most of which were effective October 17, 2005, will require some income earners to be pay-off a greater portion of their unsecured debt via a five year re-payment plan. This legislation was sponsored at great expense by the lobbyists and executives of the consumer credit industry.

Despite my many misgivings about the changes, I believe that the changes do not prevent debtors in need - unmanageable due to a period of unemployment, a divorce, or unpaid medical bills - from getting relief from their debts by the filing of a bankruptcy. The process is more cumbersome and involves more disclosure of information. However, most consumer debts will find that they can file the most common consumer bankruptcy (a Chapter 7). Those bankruptcy filers will be able to wipe out their unsecured debts while keeping their house and their vehicles (so long as their payments are kept current) as well as their personal property and their retirement benefits.

The benefit to those that lobbied hard and expensively, the credit card industry, will be small in forcing debtors into five-year repayment plans, to seek debt counseling alternatives or scaring debtors from filing bankruptcy. During my twenty years of representing consumer debtors, there has grown a significant financial market in lending to those discharged in bankruptcy. Many of my clients have filed a Chapter 7 bankruptcy at a time of dire need, and then, having used this fresh start, go out to re-establish their credit, to buy homes and to even go into successful businesses. A debtor involved in pay back plans via debt counseling, Chapter 13 or large burdensome debt loans are inhibited in getting new credit card accounts, car loans and home mortgages.

As an attorney, especially as a consumer bankruptcy attorney, there are other provisions of the new law that I find particularly distasteful, such as the attempt by the 2005 amendments to alter the relationship between attorneys and clients and to create a conflict between client and attorney at the inception of their relationship. Potential clients are described as "assisted persons" and attorneys are called to be "debt relief agencies."

Among these changes are the requirement that I provide potential clients with mandatory forms. I quote a prominent bankruptcy judge’s description of these forms, i.e., "notices and warnings that are not relevant in many of the circumstances in which they must be given, that will be false in some required contexts and that are just mean and scary for no obvious benefit."

As your attorney, I shall not be dissuaded from rendering advice as your attorney and information to which you are entitled by the benefit of being my client. Particularly, I question the assertion in these congressionally mandated forms that filing a bankruptcy is "routine." I advise you to question me about any provision of these forms that contradicts anything that I may have said to you.