April 21, 2005--President Bush signed the controversial 500-page Bankruptcy Abuse Prevention and Consumer Protection Act into law on Wednesday. The new law, which will go into effect in six months, will force more debtors to pay back creditors through court-enforced payment plans rather than have their debts erased like they are under the current system.
"In recent years too many people have abused the bankruptcy laws," Bush said. "They walked away from debts even when they had the ability to repay them."
Opponents of the new law like Rep. Alcee Hastings, D-Fla., contend that the new rules favor wealthy creditors over low-wage earners, single mothers and the elderly. "It will drive more Americans deeper into financial crisis and weaken the nation's economy and social structure," Hastings said after he voted against the bill in the House last week.
The measure passed the House by a 302-126 vote.
Nearly 1.6 million Americans declared personal bankruptcy in the year ending June 30, 2004 -- a slight drop from the prior year.
The new rules could force up anywhere from 4% to 15% of these debtors to repay their creditors under Chapter 13 rules rather than the more lenient Chapter 7 regulations, said Jeffrey Morris, a spokesman for the American Banking Institute.
"My take is that the current bankruptcy law was too lenient and gave too many opportunities to erase debt and people took advantage of it," Morris said.