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The New Bankruptcy Laws
How Family-friendly Are They? By Teri Brown
The Economy Puts the Squeeze on FamiliesHousser believes these new laws come at a particularly difficult time for consumers for many reasons. The first is the rapidly increasing cost of living. "The squeeze is on consumers nationwide right now with soaring energy costs, increasing health costs and rising interest rates," he says. "For families who may have been feeling pinched before, this quarter makes it that much harder."
Another reason may be the slowing in home equity appreciation. Housser says until recently rising home prices have fueled consumer spending. As long as interest rates were low, consumers could refinance and use surplus cash they took out of their equity to pay down debt. But now that home values are rising more slowly and the Federal Reserve has been raising short-term interest rates, this is getting harder to do.
Another factor to this puzzle is credit card companies increasing their minimum payments. "In 2003, the Office of the Comptroller of the Currency the agency that regulates national banks issued guidelines urging banks to increase the minimum payments they require of credit card holders," says Housser. "While it was not a regulation, merely advice meant to encourage consumers to pay their debts in timely fashion, almost all banks are making the change."
Sandy Shore, senior credit counselor and Certified Financial Planner for Novadebt, a nonprofit consumer credit counseling agency with offices throughout the United States, says one of the major benefits to the new legislation is that consumers will be required to get some kind of credit counseling. "Under the new law, all consumers will get pre-bankruptcy counseling," says Shore. "The counseling will give them their options and the consequences. They will also need to complete a Financial Management Education Course prior to the discharge. It will also be harder to file a Chapter 7 bankruptcy. Filers whose income is above the state median will have to file a Chapter 13 and will have to pay back a percentage of the debt."