I haven’t been keeping up with this issue, but now it looks like the proposed bankruptcy reform legislation is going to go through. Here’s the part I found most interesting: Bankruptcy Bill Passes In The Senate…The most significant section of the legislation makes it more difficult for individuals to file for bankruptcy under the more lenient Chapter 7 of the bankruptcy code. Currently, about 70% of personal bankruptcies are filed under Chapter 7.

Under Chapter 7, individuals essentially wipe out most unsecured debt (save for alimony, child support, student loans and tax obligations), after making a fair distribution to creditors of whatever non-exempt property the debtor has. The most significant exemption is for protecting a debtor’s primary residence; the specific rules that apply to any debtor’s situation vary from state to state. Chapter 7 allows the individual debtor to make a fresh financial start through the discharge of his or her existing financial obligations in bankruptcy.

The legislation establishes a needs-based system for qualifying for Chapter 7 treatment. In particular, the bill requires any individual with an annual income higher than the median in his state of residence and with an ability to pay at least $6,000 over five years ($100 per month), to file for bankruptcy under the less forgiving provisions of Chapter 13. Such a filing would mandate a court-sanctioned repayment plan for existing debts (including medical costs and credit card payments). Critics contend that the revised system will make it more difficult for individuals to get the fresh financial start that bankruptcy protection is supposed to facilitate.

Those seeking bankruptcy protection would be required to participate in credit counselling (at their expense) for six months prior to making a bankruptcy filing.

Florida, Iowa, Kansas, South Dakota and Texas have unlimited homestead exemptions that allow anyone, including the affluent, to file for bankruptcy and shelter a primary residence, regardless of its value, from creditors. The Senate bill now limits this homestead exemption to $125,000 if the person in bankruptcy bought the residence less than three years and four months before filing for bankruptcy. Homes purchased prior to that cut-off would still qualify for the full exemption allowed in that particular state.

I wonder how ‘medical costs’ got added to the list of things that have to be paid off? This should cause the false medical bills cause bankruptcy meme to regenerate quickly.

Also, the credit card companies will now decrease their interest rates, right?

Credit card companies? Anyone? Bueller?


  1. marty salo says:

    You’re hoping credit card companies will what? The credit card companies exist for one primary reason, to make money. They don’t make as much money if they reduce rates they charge people. I don’t see that happening.