Bankruptcy - Are creditors getting paid under the new law?

With the new, strangely named, Bankruptcy Abuse and Consumer Protection having taken effect in 2005, people with money problems are still scrambling to find a solution. Bankruptcy cases are stacking high, the attorneys are tired and overworked, and those consumers who can hire an attorney to accept their case are discovering that many lawyers have doubled or even tripled their fees. A lot consumers don't know if they can file at all these days, and lawyers are completely swamped with calls from uncertain consumers. The entire legal industry is effectively in chaos as calls from prospective filers are coming in all time high number because of confusion over the new debt relief legislation.

The new legislation was voted for after years of intense lobbying by financial institutions. Lenders have argued for years that consumers are carelessly running up thousands of dollars worth of debts that they have no intention of repaying, only to have those financial obligations written-off by the courts under previous bankruptcy law, which was seen by the credit and banking industries as too lenient. The banking and lending industry demanded, and received, a much tougher bankruptcy law so that they may retrieve more of the cash owed to them.

It will now be more difficult than ever for the typical debtor to have her financial obligations discharged by the courts via personal bankruptcy. Earlier cases that were resolved under Chapter 7 of the debt relief code, which allowed debt forgiveness, will now be determined under Chapter thirteen, which requires a repayment schedule. Washington gave the banking and lending industry everything it asked for in the revised law. According to financial institutions, those people who run up frivolous debts will now be forced to repay them, thus saving the lending industry billions of dollars and presumably they will pass on those savings to customers in the form of lower prices, fees, and rates of interest.
 

Will the new bankruptcy law actually give more money to financial institutions? Despite the arguments put forth by lenders, most debtors do not file on a whim; they do so because they've been unemployed, had a bad injury or have had some other emergency befall them, like what happened to those on the Gulf Coast when Katrina hit. Most debtors who file for bankruptcy have already reached a point where they just cannot pay their debts. Simply requiring that the people with debt problems need to pay money back won't provide them with the ability to do so, and repayment plan or not, these consumers may not be able to repay if they simply don't have the money. What little cash the creditors will see now may come over periods of years, and may not even amount to the full sum.

In all likelihood, creditors will not see any more money than they did before. The end result of this new legislation will simply be more hassles for everyone else.