NATION Law limits bankruptcy protections
Creditors could make $1 billion to $4 billion over five years.
KNIGHT RIDDER NEWSPAPERS
WASHINGTON -- President Bush signed into law Wednesday stiffer U.S. bankruptcy regulations that will make it harder for debtors to escape their troubles.
"America is a nation of personal responsibility, where people are expected to meet their obligations," Bush said before signing the measure, which banks and credit card companies had sought for many years. "If someone does not pay his or her debts, the rest of society ends up paying them."
A prominent consumer advocate cautioned, however, that the law could present debtors with some new problems.
The measure, which takes effect in six months, sets strict new eligibility limits for debtors seeking bankruptcy protection under Chapter 7 of the bankruptcy code, the popular provision that allows them to erase their debts after forfeiting their assets.
What the law would mean
Under the new law, only bankruptcy petitioners who earn less than the median income of their state can file under Chapter 7. Those who earn more and can repay at least $6,000 over five years can only file under a Chapter 13 debt reorganization plan, which requires some repayment.
The changes are expected to net creditors between $1 billion and $4 billion in the first five years and to make consumers more careful about taking on debt and more diligent about paying it off.
Bush said the law would "protect those who legitimately need help, stop those who try to commit fraud, and bring greater stability and fairness to our financial system."
Consumer advocates, however, are concerned about some aspects of the new law, especially a provision requiring bankruptcy petitioners to undergo credit counseling within 180 days of filing for bankruptcy.