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What Happened to Bankruptcy Law in 2005?


In 2005, Congress passed the most dramatic reforms the laws of bankruptcy had seen for 20 years. You may have heard of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 already because it's a sore topic with bankruptcy lawyers and other consumer and debtor advocates. Though the name of the law suggests that Congress also intended to protect consumers, the fact that "abuse prevention" appears first in the title is telling.

Unfortunately, Congress gave in to lobbying efforts by credit card companies and other large stake holders which fueled the belief that folks in America were out to game the system. The reality is that most people who file for bankruptcy do so following a serious, life-altering change in circumstances. Thanks to the law, people who lose their jobs, go through painful divorces or survive cancer are sometimes forced to face obstacles to the protections the bankruptcy law rightly affords to every member of our society. So how did this happen?

On one side of the battle, creditors argued that there was wide spread abuse of bankruptcy law that permitted people with the ability to meet their liabilities walk away scot-free. This, they argued, made credit more expensive for everyone, forcing consumers who didn't declare bankruptcy to pay for those who did. There were also many who were neutral to the issue, because they felt that the law wouldn't significantly affect the people who most needed help.  Most filers, they believed, would be able to pass the Median Test anyway, which means you never have to do the Means Test at all. Consumer advocates argued that lenders had alternative means of controlling the cost of credit, and that the continued growth of the credit card and lending industries demonstrated that the credit game had clearly remained profitable. Unfortunately, it looks like the credit lobby prevailed.

If you're starting to feel like this all sounds pretty grim, cheer up! There is a bright side. People are still declaring bankruptcy in record numbers; not that this is something to celebrate, but it does demonstrate that it is not at all impossible for you to benefit from bankruptcy protection. The Means Test makes bankruptcy a little more burdensome, but it doesn't act as a true barrier to those who really need the protection of bankruptcy law.
It's also true that the law created uncertainties that are still being played out in the courts. For example, the Means Test is only supposed to apply to people who have "primarily consumer" debts, but there is some disagreement about both terms. Does "primarily" mean that the dollar amount of your consumer debt is higher? Or does it mean that more of your debts are consumer debts than not? Are mortgages consumer debts? Are taxes? What about student loans?

Here again, there is plenty of reason to keep a positive outlook. The courts are settling these questions gradually and there is general consensus over many of the questions.  What's more, an experienced bankruptcy attorney will be keeping up with changes to the law as soon as they happen, and will also have knowledge of local jurisdiction practices. With the help of a good attorney, bankruptcy will remain navigable, even if you may come across a few more obstacles on the road to financial freedom. Bankruptcy law remains one of the most important safety nets provided by the American government, and the bankruptcy law in America is still among the best for debtors in any industrialized nation. If you need help, don't hesitate to take advantage of this privilege.

In North Carolina, contact the Law Offices of John T. Orcutt by calling toll free +1-919-646-2654. Attorney John Orcutt offers a totally FREE consultation out of 4 offices conveniently located in Raleigh, Durham, Fayetteville & Wilson. If you need to file bankruptcy, you want John Orcutt.

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