Changes In Bankruptcy Laws To Deal Second Blow To Victims Of Hurricane

"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.

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http://www.chron.com/cs/CDA/ssistory.mpl/business/3345871

Some Democratic lawmakers and consumer groups urged Congress on Wednesday to give Hurricane Katrina victims relief from the new bankruptcy law that will make it tougher for people to wipe out their debts.

The new bankruptcy law, set to take effect Oct. 17, requires people filing for bankruptcy to provide six months of paperwork about their income and expenses, including pay stubs and tax statements, and also attend credit counseling.

It will be impossible for Katrina victims to meet these requirements, said Brad Botes, director of the National Association of Consumer Bankruptcy Attorneys and principal in Bond & Botes, a law firm with offices in areas affected by Katrina.

Botes said the new law will force bankruptcy judges to ignore the plight of those devastated by the hurricane, sending them deeper into debt with no chance for a new financial start.

'What we really need to do here is avoid kicking hurricane victims when they already are down," he said.

Some Democrats on the U.S. House Judiciary Committee say they plan legislation that would give Katrina victims relief from the new law. Sen. Russ Feingold, D-Wis., said he will introduce a similar bill in the Senate.

President Bush earlier this year signed the legislation after a long campaign by credit card companies and other financial institutions to make it tougher to declare bankruptcy. The legislation was opposed by consumer groups and some Democratic members of Congress.

Rep. John Conyers, D-Mich., said Wednesday 34 House Democrats have agreed to co-sponsor his bill, which would allow leniency for victims of natural disasters including Katrina. No Republicans have agreed to support the measure, he said. Republicans control the Congress.

House Democratic Leader Nancy Pelosi, D-Calif., said families faced with personal bankruptcy because of the storm "should be given relief from any unnecessary burdens imposed by the new bankruptcy law."

The law has exceptions for special circumstance, such as military leave, but does not include an exception for natural disasters.

Botes said it is unclear how many people affected by the storm might file for bankruptcy because they are thinking about where they will live and how they will feed their families.

'Immediately after the hurricane, people's lives are turned upside down," Botes said. 'Five, six, eight months later, reality starts sinking in."

Travis Plunkett, legislative director of Consumer Federation of America, said financial help for Katrina victims goes beyond the new bankruptcy bill. He said credit card companies and other financial institutions should bend over backwards to be lenient to people in Katrina-affected areas. He said companies should not wait for customers to call and request help, but assume they need it and adjust payment requirements accordingly.

'They can't wait for someone to call them and beg for mercy," he said.

http://www.rutlandherald.com/apps/pbcs.dll/article?AID=/20050908/NEWS/509080355/1011

Disaster victims will face tough new bankruptcy laws
By Kevin Allison in New York
Published: September 8 2005 03:00 | Last updated: September 8 2005 03:00

Victims of Hurricane Katrina could find it harder to get back on their feet financially unless Congress exempts victims from tough new bankruptcy laws due to come into effect next month, lawyers and consumer groups warned yesterday.

Thousands of people could be forced to file for bankruptcy after they were left homeless and jobless by the storm, which devastated huge swaths of the US Gulf Coast and may have rendered New Orleans uninhabitable for months.

But the Bankruptcy Abuse Prevention and Consumer Protection Act, which was signed into law by President George W. Bush in April, could make it more difficult for victims of natural disasters to seek protection from their creditors.

The new law will require people seeking protection under Chapter 7 of the US bankruptcy code to pass a means test based on the past six months' average income. "You have to be able to take your financial documents into court to show that you meet the requirements," said Shari Heyen, a bankruptcy attorney in Houston.

The means test also includes guidelines for day-to-day expenses that assume a price of $1.60 a gallon for petrol. "It's like it's living in a fairy-tale land," said Ms Heyen. The law would further require people to attend a government-approved credit counselling programme before they were allowed to file for bankruptcy protection.

Brad Botes, a bankruptcy attorney and member of the National Association of Consumer Bankruptcy Attorneys, a debtors' advocacy group, said the new law would make an already difficult situation even worse. The law would force bankruptcy judges "in effect, to ignore the plight of thousands of individuals devastated by one of the worst disasters in US history", Mr Botes said.

Travis Plunkett of the Consumer Federation of America, a consumer lobbying group, urged the government to suspend the new law for victims of Hurricane Katrina and other natural disasters.

"Bankruptcy is an important safety net that families hit by unforeseen circumstances depend on," Mr Plunkett said. "The federal government should be bending over backwards to help Katrina's victims get back on their feet, not throwing up new barriers to bankruptcy."

Senator Russell Feingold, a Wisconsin Democrat, said on Tuesday that he would introduce a bill designed to address the new bankruptcy law's effect on victims of the hurricane and other natural disasters.

"We need to make sure that the new bankruptcy law . . does not compound the hardship for thousands for hard-working Americans who simply will not be able to make ends meet as a result of this disaster," Mr Feingold said.

http://news.ft.com/cms/s/e1e8f7d8-2004-11da-853a-00000e2511c8.html