Friday, October 21, 2005

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

The Motley Fool ruminates on the recent bankruptcy reform:

"This [new bankruptcy] law reeks of hypocrisy to me. And no, this isn't political, given that the bill was a bipartisan smackdown of the average American. It seems to me that lower-income individuals are being held to a much higher standard than our largest companies are. Under a corporate bankruptcy, a company like Delta can avoid numerous obligations like health or pension benefits in order to remain in business. But a "fresh start" for ordinary citizens was not deemed worthy. Not even the victims of hurricanes Katrina and Rita will be given any special treatment under the new law. Maybe former presidents George H.W. Bush and Bill Clinton can be rolled out for a fundraiser or two in a couple of years to help some of the hurricane victims meet their Chapter 13 obligations.

"The double standard here is glaring. Recently, rising jet fuel prices nudged Delta and Northwest into declaring bankruptcy. Rising energy prices in addition to rising health-care costs are placing many Americans in equally difficult positions. Why are we more unforgiving of individuals than we are of corporations?

"Essentially, the law will make it harder for individuals to file for a Chapter 7 bankruptcy, which allows you to liquidate your assets to pay off some of your debts. Any remaining debts above the amount of your assets are then canceled. The credit card companies often fail to collect from their customers under this form of bankruptcy, so obviously, they wanted to reform the system.

"As of today, more people will be required to file a Chapter 13 bankruptcy, which will require individuals to enter into a payment arrangement lasting from three to five years in order to repay their debts. Last year, 1.1 million people filed for Chapter 7 bankruptcies, while approximately 450,000 filed for Chapter 13.

"Luckily for the likes of Delta, Northwest, and, dare we say, GM(NYSE: GM), Chapter 11 bankruptcies, which apply to corporations, were left untouched by the reform."

The rest of the article is here.

Further thoughts with a bit more detail here.

Originally noticed at Jerry Pournelle's site.

[And the illustration? Why the Marshalsea, of course.]