Restrictive bankruptcy bill to remain in place for Hurricane Katrina victims

The government and the media made much of an announcement on Wednesday that the Justice Department would use a provision of the bill to waive a requirement that bankruptcy applicants in parts of Louisiana and Mississippi undergo credit counseling before they file. However, this is only one of the provisions in the law that makes it more difficult for consumers to use bankruptcy as a last resort to escape from their debt obligations.

The new bankruptcy law, passed in April 2005 with substantial support from the Democratic Party, is scheduled to take effect on October 17. It places restrictions on the ability of individual debtors to file for Chapter 7 bankruptcy, which includes the cancellation of all debts. In particular, individuals who either have incomes that exceed the state median or who can pay at least $100 a month to creditors must file instead for Chapter 13 bankruptcy protection. Under Chapter 13, filers are required to follow a three- to five-year debt repayment plan to pay off some of their creditors.

The legislation was virtually written by the financial industry, which stands to reap substantial profits by squeezing more from debtors. It is one of the most overtly class-based, pro-business pieces of legislation passed during Bush’s second term.

In addition to waiving the counseling requirement, Assistant Attorney General William Moschella, in a letter to House Judiciary Committee Chairman James Sensenbrenner on Wednesday, said that the government program that manages bankruptcy filings “will consider income loss, expense increase, and other adverse impacts of a natural disaster to constitute ‘special circumstances’ ” in determining whether to seek court enforcement of the Chapter 13 bankruptcy requirement.

However, this statement provides no guarantee that hurricane victims will be given any leeway, but only requires that the government take their circumstances into consideration. The many other provisions of the law, including one that will make it easier for landlords to throw out tenants who have filed for bankruptcy, remain in effect.

The purpose of the Justice Department’s statement was to make a show of concern for the victims of the hurricane while ensuring that the draconian bankruptcy law is neither delayed nor repealed. Sensenbrenner, a Republican from Wisconsin, rejected outright any suggestion that the legislation be changed. Opponents of the bill “ought to get over it,” he said last month.

This attitude stands in sharp contrast to the speed with which the administration moved in the aftermath of Katrina to suspend existing laws and regulations on corporations, including the Davis-Bacon Act, which requires that companies receiving federal money pay their workers the prevailing local wage.

Many victims of the hurricane have seen their houses destroyed, lost their jobs and been burdened by substantial new living expenses after being evacuated from their homes. These victims have received very little aid from the federal government, and what they have received is quickly drying up.

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http://www.wsws.org/articles/2005/oct2005/bank-o08.shtml