Has the new Bankruptcy law for consumers kicked in yet?

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Q. I just finished paying all my bills for July and it will be difficult to have enough for food this month, unless I hit the lottery. LOL! I don't want to file bankruptcy, but it may be my only choice- as I am on disability retirement. Does anyone know when the new bill is scheduled to become law? Trying to hold on--as long as possible!

A. For some people to hold off anticipating legislation is not the best idea. If people are in dire straits, now is the time to file. Both versions of the new bill are not exactly consumer friendly Bankruptcy Law Soon to Be Less Help to Those in Debt Congress is making drastic changes to bankruptcy law. Will they affect you? March 16, 2001 Bankruptcy law, which traditionally has allowed those in financial trouble to get a fresh start, just got a major overhaul by the United States Congress. Both the House and Senate (at the behest of the credit card and banking industry) passed legislation that makes it difficult -- or impossible -- for some people to file for bankruptcy. President Bush has promised to sign the legislation, which will probably take effect in late 2001 (the legislation states that most of the new rules will become effective 180 days after signed into law). Given the big backers of the legislation, it's not surprising that the bill is unfriendly to debtors. The bill would prohibit some people from filing for bankruptcy, add to the list of debts that people cannot get rid of in bankruptcy, make it harder for people to come up with manageable repayment plans, and limit the protection from collection efforts for those who file for bankruptcy. The credit industry says the changes are needed because the increasing number of personal bankruptcies -- almost 1.3 million in 2000, up from about 700,000 in 1990 -- is costing them too much money. Opponents say the credit card companies brought their problems on themselves, by sending out billions of solicitations each year for high-interest credit cards and encouraging consumers to run up high debts. This article discusses changes that affect both Chapter 7 (which lets people erase many debts) and Chapter 13 (under which debtors pay back part of what they owe over several years) bankruptcy. For more specifics, see Bankruptcy's Fresh Start No Longer an Option for Many and New Laws Make Chapter 13 Bankruptcy Tougher. Who Files for Bankruptcy? The bankruptcy legislation was packaged and promoted as much-needed "reform." But it will be devastating to many people who find themselves out of work, ill or injured, and over their head in debt. The vast majority of bankruptcy filers are not wealthy individuals trying to cheat the system. The average person filing for bankruptcy earns just $22,000 per year (according to a 1999 study by federal bankruptcy judges). Most have suffered a significant period of unemployment before filing. According to Consumers Union, among elderly debtors, 85% cite medical or job problems as the reason for bankruptcy. Consumers Union also says that single moms trying to make ends meet make up a large portion of bankruptcy filers - divorced women raising children are 500% more likely to end up in bankruptcy than married or single women without children. You May Want to File Now. If you are contemplating bankruptcy within the next few years, the coming restrictions on bankruptcy may drastically affect your options. It may make sense to file soon, before the rules change. Fewer People Eligible for Chapter 7 Bankruptcy Losers: Those who want to file for Chapter 7 bankruptcy but have an above-average income and could, according to the IRS, pay a little each month. Traditionally, bankruptcy's fresh start has been available to almost everybody. The new law, however, will prohibit some people from filing for Chapter 7 bankruptcy altogether -- those whose incomes are above the state median (quite low in some states) and who can pay as little as $100 per month to creditors. Whether or not a debtor can afford to pay $100 or more a month is determined not by the person's actual income and expenses, but by IRS rules that state what "reasonable" expenses are. For more about these restrictions, see Bankruptcy's Fresh Start No Longer an Option for Many. People denied a Chapter 7 bankruptcy would either have to file for Chapter 13 bankruptcy and come up with a three- to five-year repayment plan, or keep slipping further behind on their debts. This restriction is one reason many women's groups opposed the bankruptcy legislation. People who can't file for Chapter 7 bankruptcy and wipe out their credit card balances, they fear, will have less money available to pay other debts -- child support, for example. Fewer People Able to Stick to Chapter 13 Repayment Plans Losers: Those who want to file for Chapter 13 bankruptcy but reside where the cost of living is high. Debtors pushed into Chapter 13 bankruptcy because Chapter 7 is no longer available to them will find that the new law has also made Chapter 13 bankruptcy more difficult. In Chapter 13 bankruptcy, debtors must put together a repayment plan, basing their payments on their income and expenses. Under the new law, actual expenses won't matter -- debtors will be allowed to claim only certain amounts for certain expenses (housing, for example), even if the actual cost is much higher. Some people, especially those living in areas where the cost of living is high, will be unable to follow through with a repayment plan. For a more thorough discussion, see New Laws Make Chapter 13 Bankruptcy Tougher. Delays in Filing The new law would require most people to get credit counseling from a nonprofit agency within six months before they could file for bankruptcy. (In addition, debtors would have to complete a course on personal financial management before completing either Chapter 7 or Chapter 13 bankruptcy.) Another roadblock will delay people who have not yet filed a tax return for a recent year. Anyone filing for Chapter 7 bankruptcy must provide a tax return for the most recent taxable year; those filing for Chapter 13 must be current on tax returns for the previous four years. Although for many, filing late returns (and paying stiff penalties and interest) is an option, for some, who are hopelessly delinquent in their taxes, this new rule will block access to bankruptcy altogether. Less Protection from Creditors' Collection Efforts Losers: People in the throes of an eviction, state license suspension proceeding or family law proceeding. One of the most powerful aspects of current bankruptcy law is called the "automatic stay." This jargon refers to rules that immediately halt almost all collection actions and lawsuits against someone who files for bankruptcy. (For an explanation, including a list of common actions stopped by a bankruptcy filing, see The Power of Bankruptcy's Automatic Stay.)

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