I knew when the bankruptcy law passed, that it would collide with the real needs associated with folks who really need options—such a the Katrina victims, AND that it was really serving the interests of the credit card companies. What no one could have predicted though was a collision of this magnitude. -Angela
Sept. 8, 2005, 8:30PM
By LOREN STEFFY
Copyright 2005 Houston Chronicle
A bad law just keeps getting worse.
The devastating aftermath of Hurricane Katrina is exposing more shortcomings in the federal bankruptcy law that's scheduled to take effect Oct. 17.
The so-called Bankruptcy Abuse Prevention and Consumer Protection Act is the love letter that Congress wrote to the credit card industry this spring. It's been widely decried by corporate and personal bankruptcy attorneys alike for making the process more convoluted, expensive and difficult for consumers, companies and even creditors.
Now it may bog down the Katrina recovery effort as well.
"The victims of Hurricane Katrina may face a cruel second blow when they take steps to try to put their lives back together," says Brad Botes, a bankruptcy attorney with the firm Bond & Botes, which has offices in the southeastern U.S., including some of the regions affected by the storm.
With jobs lost, lives uprooted and homes and businesses destroyed, bankruptcies are certain to rise in the coming months.
"The things that force people to file bankruptcy are usually some sort of catastrophic event," says Susan Matthews, a bankruptcy attorney with the Houston office of Adams and Reese. "Having their home wiped out and losing their job would force people to seek bankruptcy protection."
Mostly it's crises
Katrina reminds us that crises, not irresponsibility, are the primary cause of personal bankruptcies.
The new law, though, assumes that most debtors are simply dishonest, that they're looking for a way to shirk their obligations. So beginning next month, in order to file a standard Chapter 7 bankruptcy, debtors will have to show not only that they are broke, but that they've been broke for at least six months. Losing everything in a hurricane apparently won't be enough.
The law also requires additional paperwork such as copies of tax returns, pay stubs, bank statements and other financial records that, thanks to Katrina, may simply no longer exist.
Congress also enacted a provision requiring debtors to undergo credit counseling. In most cases, though, people forced into bankruptcy by a natural disaster don't need counseling, they need relief.
Debtors may be able to get some of these requirements waived, but they would have to petition the court, on an individual basis, which
takes additional time and money.
Waiving provisions
The Consumer Federation of America and the National Association of Consumer Bankruptcy Attorneys on Wednesday called on Congress to delay or waive the more onerous provisions of the new law for victims of natural disasters.
Four U.S. House members, including Houston's Sheila Jackson Lee, said Thursday they plan to introduce legislation that would do just that when Congress reconvenes next week.
"What we need to do here is avoid kicking hurricane victims when they're already down," says Botes, who is an NACBA director.
Even without the changes in the law, evacuees such as those in the Astrodome and other shelters around Texas may have difficulty filing bankruptcy. Residents of Louisiana, for example, can't file a case in Texas. Federal law stipulates that debtors must file in the judicial district where they reside.
(The State Bar of Texas is setting up mobile clinics for evacuees in need of legal advice.)
A second chance
It's an unfortunate consequence of disasters that people succumb to financial hardships they often couldn't imagine. Even if lenders cooperate in delaying payment demands temporarily, some borrowers, having lost both home and employment, may find themselves unable to catch up.
In America, we believe in the second chance. We believe in the idea of picking ourselves up from failure and trying again. It's the basis for our bankruptcy laws, which are unique in the world.
Nowhere is that concept more essential than in those areas digging out from Katrina's devastation.
"It's the only safety net these people have right now, and it needs to be there," Botes says. Along the Gulf Coast, the next few months will be a time of rebuilding, of starting over. It's a time for second chances, not just for the storm victims, but for members of Congress, too.
They have a chance to fix some of the mistakes they legislated in the spring.
Loren Steffy is the Chronicle's business columnist.
http://www.chron.com/cs/CDA/ssistory.mpl/business/3345871
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