2008 Woodie Awards
Bankruptcy law makes last resort more expensive
Christian Danielsen ; The California Aggie (UC-Davis)
Issue date: 4/27/05 Section: News
"There's no political action committee for families in serious financial trouble," Warren said. "They can't make big contributions or pay for $600-per-plate dinners. All the money is on one side and all the hurt is on the other."
Warren was a joint author of a Harvard study revealing that approximately 50 percent of all those who file for bankruptcy do so because of medical expenses. Divorce and job losses account for another 40 percent of filings, according to Warren.
At the core of the 500-page bill is language that will force more people into Chapter 13 bankruptcy, in which debtors enter a repayment plan over a period of three to five years, as opposed to Chapter 7 bankruptcy, in which debts are forgiven after a debtor has forfeited all of his or her unprotected assets.
The law will largely take away a bankruptcy judge's discretion to assess individual cases, a point that drove 92 law professors to draft a letter in February to the Senate saying that the bill "seeks to shoot a mosquito with a shotgun."
Consumers who seek bankruptcy relief and earn more than their state's median income level -- on average, in the six months prior to their filing -- would be subject to a "means test" that assesses their abilities to pay based on a formula. If the formula finds a filer has more than $100 per month to pay, he or she must file under Chapter 13.
Although many students and recent graduates might fall under the median income threshold -- $46,113 for a family of two in California -- the law also mandates that every petitioner now take a credit counseling session and complete a financial management program as part of a bankruptcy filing, adding further costs.
"Bankruptcies will become more expensive and there will be more tricks and traps along the way so that more people will fall out of the system," said Warren. "This bill is designed to force tens of thousands of people out of bankruptcy altogether so that their creditors can continue to hound them."
Warren was a joint author of a Harvard study revealing that approximately 50 percent of all those who file for bankruptcy do so because of medical expenses. Divorce and job losses account for another 40 percent of filings, according to Warren.
At the core of the 500-page bill is language that will force more people into Chapter 13 bankruptcy, in which debtors enter a repayment plan over a period of three to five years, as opposed to Chapter 7 bankruptcy, in which debts are forgiven after a debtor has forfeited all of his or her unprotected assets.
The law will largely take away a bankruptcy judge's discretion to assess individual cases, a point that drove 92 law professors to draft a letter in February to the Senate saying that the bill "seeks to shoot a mosquito with a shotgun."
Consumers who seek bankruptcy relief and earn more than their state's median income level -- on average, in the six months prior to their filing -- would be subject to a "means test" that assesses their abilities to pay based on a formula. If the formula finds a filer has more than $100 per month to pay, he or she must file under Chapter 13.
Although many students and recent graduates might fall under the median income threshold -- $46,113 for a family of two in California -- the law also mandates that every petitioner now take a credit counseling session and complete a financial management program as part of a bankruptcy filing, adding further costs.
"Bankruptcies will become more expensive and there will be more tricks and traps along the way so that more people will fall out of the system," said Warren. "This bill is designed to force tens of thousands of people out of bankruptcy altogether so that their creditors can continue to hound them."