Bankruptcy and the Poor

In 2005 Congress passed a new bankruptcy law to prevent abuses, it made getting a lawyer necessary. But of course many can’t afford one. Some wait until their tax refunds, so much so there is a spike in bankruptcy filings from March to May. Some file under Chapter 13 which means their debts have to be repaid usually over 5 years.  Chapter 13 requires a lawyer too, and those fees have to be added to the list of debts. Many default and then it all falls through. There are also bankruptcy services which purport to help people, but the law can be complicated and often consumers are not well served by these services. The best way to file for bankruptcy is through Chapter 7 which erases all debts. But the lawyers’ fees and the filing fees are not within the means of many who need to file.  In the  recent past the number of consumers who file for bankruptcy each year is from 800,000 to 1.5million people. Some lawyers have the clients write a series of pre dated checks which they cash every month after the bankruptcy court proceedings, and some states have not allowed this practice. Some other states allow lawyers’ fees to be paid in two installments pre and post bankruptcy. What is needed are reforms, which are not complicated and which are not major but which in this Congress are not likely to be passed despite a powerful ally in Senator Elizabeth Warren. As it is laws meant to help those in need make things worse for them. And that is wrong.

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