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Home › Articles › Financial Fitness › The New Bankruptcy Laws

The New Bankruptcy Laws

How Family-friendly Are They?

By Teri Brown

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Bankruptcy can be a stressful ordeal for couples and families. Marie Jones, mother of one from San Diego, Calif., remembers that while facing bankruptcy can be daunting, educating yourself on the subject can help lesson the anxiety. "I felt scared and anxious at first, until I researched into it and found out how many people have to take this route," Jones says. "And once we started the process and I met other people filing, I realized that it was nothing at all to be afraid of or ashamed of."

Jones felt that most of the people she met in court had simply fallen on hard times and weren't abusing the system at all. That is one of the reasons why she is so wary of the new bankruptcy laws. "I do know that they are not on the side of consumers and working people, and that they will make it terribly hard for people who have fallen on hard times to get their lives back in order," says Jones. "People do not realize that bankruptcy can save lives, and that some people with nowhere else to turn may not be able to survive these new laws."

Is Jones correct? Just how family-friendly are these new laws?

What the New Laws Mean
Andrew Housser, co-CEO of Freedom Financial Network in San Mateo, Calif., is concerned as well. He says he has never seen such a confluence of consumer pressures as he has this past quarter. "Bankruptcy reform comes at a time when many families are already struggling," says Housser. "It spells trouble."

He summarizes the new bankruptcy laws:

  • The new bankruptcy law that went into effect October 17, 2005, primarily affects Chapter 7 bankruptcy filings, which typically wipe out all unsecured debt.
  • The crux of the new law is a "means test" that determines eligibility for Chapter 7 protection. Those whom the law deems to have enough income (as defined by each state's median income) to repay at least a portion of their debt will be unable to obtain Chapter 7 protection.
  • Chapter 13 filings which require consumers to repay debt on a repayment plan are still available.
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