WASHINGTON—President Bush on Wednesday signed into law 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.
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. A unit of the Department of Justice, the U.S. Trustee Program, is supposed to screen and approve credit counseling agencies, but that doesn't mean that exploitive, unapproved credit advisers won't misadvise and fleece debtors by charging them high fees or steering them into costly repayment plans.
"I'm very concerned that the office of trustees doesn't have the resources, experience or the knowledge to assure that all credit counseling agencies offering this service are scrupulous," said Travis Plunkett, the legislative director of the Consumer Federation of America, a Washington-based alliance of state and nonprofit consumer agencies nationwide.
Jane Limprecht, the spokesperson for the Trustee Program, couldn't be reached for comment.
Howard Dvorkin, the founder of the Consolidated Credit Counseling Services, a nonprofit credit counseling agency in Fort Lauderdale, Fla., said rip-off credit counselors probably wouldn't apply to the Justice Department for approval.
Plunkett urges potential clients to ask credit counseling enrollment counselors, "'Is your salary based on how many people you enroll?"
"If the answer is `yes,' hang up and call somebody else because they're going to be watching their wallet, not yours," Plunkett said.
In addition, Dvorkin advises that customers:
_Avoid agencies that offer five- or 10-minute consultations.
_Trust the recommendations of friends and colleagues over solicitations.
_Check with the Better Business Bureau to assure that the agency is a member. If it's been named in complaints, find out why and be cautious.
_Read contracts carefully and ask questions if the terms are unclear.
The new law's impact will likely be greatest in states with the highest bankruptcy filing rates: Utah, Tennessee, Georgia, Nevada, Indiana, Alabama, Arkansas, Ohio, Mississippi and Idaho, in that order, according to the American Bankruptcy Institute.
For more information about the new law, see the report by the Congressional Research Service at
For help dealing with debt, go to:
Debt Counselors of America—www.dca.org
Consolidated Credit Counseling Services, Inc.—www.debtfree.org
American Bankruptcy Institute—www.abiworld.org
(c) 2005, Knight Ridder/Tribune Information Services.
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