Changes to bankruptcy rules generated by the passing of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 will go into effect on
Monday, October 17. The changes have wide ranging implications for individuals and businesses. As a result, the number of bankruptcy filings have
dramatically increased since the announcement of the new rules.
With just a few days left before a new law will make it harder and more expensive to go broke in the legal sense, a growing number of consumers are
rushing to the courthouse to file for bankruptcy protection from creditors. Bankruptcy filings by businesses also are up in advance of the new law,
which takes effect Monday, although not as much as some experts expected.
"In September we filed about 60 [individual bankruptcy] cases; in October I've already filed 50, and I expect we'll file another 60 or 70 between now
and Sunday night," Gary Fischoff, an attorney for the firm Steinberg Fineo Berger and Fischoff in Woodbury, said yesterday. "Everybody who was ever
thinking about filing for bankruptcy has pulled their head out of the sand and come running in."
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The US economy is driven by an incredible level of consumption. That consumption rate is enabled and driven by enormous levels of consumer debt.
Over the last few decades, more Americans have been making poor choices when it comes to this debt and bankruptcies have resulted. The Bankruptcy
Abuse Pervention and Consumer Protection Act of 2005 was apparently Congress' response to this growing problem.
The new law, it appears, is far from perfect. Opponents noted that the legislation unfairly targeted individuals rather than businesses that abuse
the bankruptcy statutes.
Given the outrageous costs associated with medical expenses, it is disturbing to learn that amendments to the then pending legislation that sought to
exempt individuals driven to bankruptcy by medical debts were defeated.
My fear is that the new rules will do nothing to slow the level of consumption and that the US economy is headed for a precipice. There are already
indications that the housing market around the country is heading for a collapse - this is particularly troubling because so many Americans fund their
spending by borrowing against the (artificially inflated?) value of their home. If the housing market collapses, the so called "wealth" and "credit
worthiness" of millions of Americans will evaporate overnight.
Clearly, the new law should reduce the number of successful bankruptcy filings. It is, unfortunately, unclear if this will help or hurt our
collective ability to recover from economic disaster.
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