What was the reason for the bankruptcy law change?The bankruptcy laws were changed on October 17, 2005 in an effort to put more people into a repayment status as opposed to giving people a fresh start according to a Highland Park bankruptcy attorney. As you know, there are two Chapters under the Bankruptcy Code; Chapter 7 and Chapter 13. Chapter 7 is known as fresh start bankruptcy where someone who has very little in the way of assets but has a lot of unsecured debt is able to get a fresh start financially. Chapter 13 is bill reorganization through a bankruptcy Chapter 13 trustee. This is the type of case where someone can repay mortgage arrears or reorganize other debt and repay it either in full or at a percentage over the next 3 to 5 years.
As bankruptcy filings continued to increase prior to the law change, credit card companies and the banking lobby wanted to curtail the number of filings that were taking place in this country. They lobbied for over a dozen years to try to get the bankruptcy laws to change. The bankruptcy laws were originally vetoed under President Clinton and eventually they were passed under President Bush. There was a long and involved bankruptcy process.
The bankruptcy laws were changed because the credit card lobby was a strong lobby that put a lot of money into the bankruptcy reform legislation. The credit card companies wanted to see less people file for Chapter 7 bankruptcy relief and see more people repay their debt over time.
Unfortunately for these lobbyists, bankruptcy did not go away after the laws were changed. Bankruptcy filings continue to increase under Chapter 7 after the law had been changed. The simple matter is, it wasn’t the bankruptcy laws that needed to be changed; it was the lending and careless lending by the credit card companies and by the mortgage companies that needed to be curtailed. If the credit card company is going to give credit cards to people who do not have the ability to repay the debt and who do not have to prove what they are making per year, of course people are going to take advantage of that type of credit. People are not the ones that are the governors for how much credit they can handle. It is the lenders who have a much better handle on what somebody can afford to repay based on their income and their expenses. They simply did not have all their bankruptcy facts when they pushed so hard for the reform.