| Bankruptcy Laws Spruced Up |
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Chetan Anand, 24x7 Updates
An internet clock like an eternal clock is running on bankruptcy attorney Mark Zuckerberg’s computer, counting down the days, hours, minutes and seconds until new federal bankruptcy laws take effect. The impending changes have a flood of Hoosiers rushing to file bankruptcy -- and Zuckerberg longing for his 18-hour days to subside.
The crush likely will end Oct. 17 when new bankruptcy rules kick in. The law will make it costlier and more time-consuming to file bankruptcy, and will make it harder for above-average earners to simply wipe their slates clean.
The law has been sharply criticized by bankruptcy attorneys and consumer advocates but praised by banks, credit-card companies and other lenders for bringing balance to a system that has favored debtors since 1978.
Personal bankruptcy filings in Indiana and nationwide spiked 11 percent from April through June, according to U.S. Bankruptcy Courts figures. In Indianapolis, the U.S. Bankruptcy Court for the Southern District of Indiana has received more than 100 personal filings a day during those months.
And the pace is quickening. Since July 1, the court has received an average of 125 filings a day, and more than 250 each day last week. Daily filings a year ago numbered about 30.
However, The Bankruptcy Abuse Prevention and Consumer Protection Act was debated in Congress for six years, with heavy lobbying by the banking and credit industry. It passed in April.
Under the main provision of the law, debtors who earn more than the median income in their state and who can afford to repay $100 of their debts each month for five years, no longer will be allowed to file for Chapter 7 bankruptcy, which would wipe the slate clean.
Instead, they must file under Chapter 13 of the law, which requires a debtor to develop at least a five-year payment plan to compensate unpaid creditors. Debtors who earn less than the state median and whose expenses exceed their income still could file under Chapter 7.
Debtors must undergo credit counseling before filing for bankruptcy and must take a financial management course before being discharged from bankruptcy.
The law also will require bankruptcy attorneys to verify personally the accuracy of their clients’ financial information. That will take more time, attorneys said, boosting the cost of filing.
Some businesses have ducked into bankruptcy before the law changes. Northwest Airlines, the busiest air carrier at Indianapolis International Airport, beat the Oct. 17 deadline by filing for bankruptcy reorganization this month. And Delphi Corp., which has major operations in Kokomo, has promised to file for bankruptcy before the deadline unless it gets relief from its unions.
The new law restricts any bonuses doled out to retain key employees. It limits the time in which a firm has the exclusive right to create a reorganization plan and forces a bankrupt firm to assume or reject leases within seven months of filing.
The new law could fall particularly hard on Indiana. The state has lost 50,000 jobs since a peak in 2000 as manufacturers rolled back employment during recession, by outsourcing jobs overseas and by rapid rises in productivity.
A few years ago when economy hit a low Bankruptcy laws save many firms by developing debt repayment plans but with new law in force many of these companies might again file for bankruptcy.
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Washington (24x7Updates) -- President Bush nominated Judge John G. Roberts Jr. today to replace Chief Justice William H. Rehnquist, whose death late Saturday opened a second vacancy on the Supreme Court and a new front in the ideological battle over the judiciary.
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Carnival Cruise Lines announced Saturday that the U.S. government has chartered three luxury cruise liners - Ecstacy, Sensation and Holiday - for the next half year, to provide temporary housing for victims of Hurricane Katrina.
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Washington (24x7Updates) -- President Bush, seeking to stem criticism that a slow federal response has contributed to needless misery, said Saturday he is ordering additional active duty forces to the hurricane-battered Gulf Coast.
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