After much talk and less information, the new bankruptcy law comes into effect Monday, even as some experts suspect that bankruptcy filings will in all likelihood fall with more of those truly in need of its protection being discouraged by the tougher norms from seeking it.
The overhaul of America's law on bankruptcy points to Americans filing for Chapter 7 actually facing heftier legal bills and the need to prove beyond doubt their hopeless situation in order to have themselves absolved of their debts in court. While it seeks to establish a more responsible way out inescapable debts and prevent an abuse of the currently liberal bankruptcy law, the new law has the potential danger of offering unscrupulous elements a way to “trouble” cash-strapped clients or even try to make a buck or two from their poor plight.
Some consumer protection experts suggest that the law maybe used as a way to leverage debts from debtors, by threats that they could not seek an escape in this penultimate move. A well-known consumer advocate even suggested, "I fully anticipate some of them using that as another means to pressure consumers to pay". Clearly the bottom line is it is going to be more difficult to file for Chapter 7 protection and most people as a result will opt for Chapter 13, whereby they will buy time and reschedule their repayments to still remain debt-laden.
While credit collectors are saying that they are not going to use the new law to their advantage, they are probably well aware of people's reservations on the new law.
The General counsel of ACA International, Rozanne Andersen, who represents debt collectors said, "We always have been sensitive to this…No one should be using this in a threatening manner”. But even she wonders whether the “less appealing option” would make marketing of “alternatives” like debt re-negotiation or elimination the real bankruptcy relief for consumers.
The Federal Trade Commission has reiterated that it would be “watching closely”, especially for fraudsters who are likely to use the law to deceive consumers about its requirements. But on the other side the law that serves to protect is itself likely to make those burdened by debts desperate enough to seek assistance from credit repair and debt elimination agencies, whose work in “fixing” credit problems borders on dubious. Betty Parker, a credit counselor from North Central Texas wonders, "You can't fix something that's legitimate, and that's what a lot of the credit repair industry is claiming to do". This has lead to an FTC warning: "No one can legally remove accurate and timely negative information from a credit report. Everything a credit repair clinic can do for you legally, you can do for yourself at little or no cost".
At times credit repair agencies even suggest that consumers to stop speaking to their creditors, which is the worst thing to do if a consumer is trying to legitimately obtain relief from interest charges or any other fees. While the bankruptcy law is stricter in respect of proving insolvency with income reports and credit counseling, the bottom line is it is a lot of work woven in legal jargon after 27 years of being liberal in its view of bankruptcy protection.
Though the law seeks to counsel consumers about how they got into the debt-trap mess, very few are likely to go to that stage of openness when all they want is to find out a way to prevent that collection agent from doing the rounds of their home, destroying the last iota of sanity.
Possibly if credit counseling had been there at the time they were choosing to get into debts, they may have never known this stressful phase in their life. And that they will incur yet another "reasonable fee" at this stage, when every cent counts, is yet another dissuasion from debtors seeking counsel or counseling for Chapter 7.
