By Ed Lowe
Senior Writer
The holidays are over and the bills are beginning to roll in. For many people, the excesses of holiday buying will prove too much for an already stretched budget. Most people are able to handle them and their finances will recover over time. Scrimping and saving will help balance income and expenses. But to a few, desperation will set in and they will be forced to consider alternatives to the prompt payment of their bills.
A citizen's right to bankruptcy is guaranteed by the United States constitution which requires Congress to pass legislation regarding bankruptcy. It was our founding fathers' response to the evils of English debtor prisons which had left wives and children of jailed debtors as a burden on the state, living in poverty and turning in many cases to crime in order to survive. Bankruptcy laws have been a part of the U. S. Code for more than a century, but Congress has recently enacted a law, signed by President Bush on April 20 of last year, which materially alters the terms under which debtors may seek the protection of the courts under those bankruptcy laws. The new law went into effect on Oct. 17, 2005.
Many critics of this revision of the law said that it was designed to reduce losses by irresponsible credit card issuers and banks who extended high interest loans to sub-par creditworthy buyers and who have been experiencing severe losses from those who are unable to pay the bills. These same credit card issuers have been criticized for the exorbitant interest rates they charge on the cards and for the "small print" contract terms that have cost debtors untold millions of dollars. Proponents of the law have stated that the new provisions of the act prevent abuses of credit by irresponsible borrowers and that, as a result of the provisions of this act, the playing field has been leveled.
Now, it's time to review the actual effects of that law. The law makes the filing of bankruptcy more complicated and requires extra steps to get the court's protection. But, according to Irwin Zalutsky, one of the City's best known bankruptcy lawyers, "It is not a major change in the law. There was a heavy spate of filings for bankruptcy before the law went into effect. That in turn emptied the pipeline of debtors who needed protection. But publicity has indicated that bankruptcy has been made all but impossible. Nothing could be further from the truth."
Zalutsky emphasized that the remedy of bankruptcy is still very much available. While the complexities of the law have increased, a qualified bankruptcy lawyer is still able to meet the requirements of the law and steer people through its provisions.
"Bankruptcy today is a bit more complicated, but the lawyers who have been specializing in the practice of that branch of law are well equipped to deal with the new provisions of the act now required. That includes the process of credit counseling. People filing now must go through a process with a court approved credit counselor—this is designed to establish a budgeting process for the debtor to assure the debtor is able to manage his finances after the bankruptcy filing under Chapter 13 of the law. Having established that budgeting process, the debtor then uses the services of his lawyer and gets the same court protection as he would have had before the law was enacted," said Zalutsky.
"The part that has become more difficult is the total discharge of debt. When filing under Chapter 13, a payment plan is developed with the court's authority behind it. That plan requires that debts be paid off over an extended period of time; that interest on debt stop at the time of the filing and that the debtor make regular payments to a trustee of the court. That money is then distributed to creditors according to the approved plan," he said.
According to Zalutsky, filing for protection under the bankruptcy law is complicated only by the need for budgetary credit counseling. According to the official Web site of the Federal Bankruptcy Court Trustee, only 11 credit counseling agencies have been approved for the Northern District of Illinois. Couple this with the fact that none of those 11 are located in Chicago and the additional fact that in order to receive the necessary clearance for the bankruptcy filing, the debtor has to work with the counselor either on line or by phone, and you can see the root cause of the problem. Zalutsky indicated that the Trustee is trying to work out that portion of the new law to make it easier for the debtor to receive the counseling services that are required.
There are many reasons for individuals to over-extend their credit. Many are the result of external pressures —illness, job loss, educational expenses for children, or the lack of adequate fire or casualty insurance. But many other problems arise from pressures that are internal: a desire to keep up with the neighbors in terms of major purchases, drugs, criminal actions against the creditor, or simply succumbing to the pressures of advertising to have everything new in the market. One experienced credit counselor told Inside that credit abuse is another form of addiction, not unlike the abuse of drugs, gambling or alcohol. Some credit abusers seek social approval by owning "things" which are obtained through the overuse of a credit card. This credit expert stated the problem very simply: "If a person spends 110 percent of his income, the more he makes, the more problems he will have with his credit."
Zalutsky has agreed to respond to readers seeking additional information on this new element of the law. He can be reached at this office at (312) 782-9792. |
