Bankrtupcy Law

New Bankruptcy Rules Add to Consumer Woes, But Work Better for Corporations


No one foresaw the subprime mortgage meltdown when new consumer bankruptcy provisions were enacted that went into effect in the fall of 2005. And now the new rules are making the real estate situation worse than it otherwise would be, a federal judge said today at a conference in New York.

Under the Bankruptcy Abuse Prevention and Consumer Protection Act, consumers generally have to pay more of their credit card debt than they did under previous law. Debtors do so in order to stay afloat financially, U.S. Bankruptcy Judge Cecelia Morris told the audience at an American Bankruptcy Institute Conference today in New York. But as a result, the judge says, more debtors are losing their homes, reports Reuters.

“Those amendments come from an economically and politically different time period than we find ourselves in at this moment, and some of the assumptions are incompatible with this current economic landscape,” Morris says.

Meanwhile, however, revised bankruptcy filing provisions that took effect at the end of 2004 apparently are working better for corporate debtors:

“As companies face the tightest credit market in decades, ready-made, prepackaged and prearranged bankruptcies have soared in popularity, spurred along by tougher bankruptcy rules and worried lenders,” Reuters reports in another article.

The new bankruptcy rules, which require cases to move more quickly, are spurring corporate debtors to gain advance approval from Chapter 11 creditors, either in writing (for prepackaged bankruptcies) or orally (for prearranged bankruptcies), because this speeds the process, the news agency explains.

Additional and related coverage:

Financial Week: “Ready-made reorgs ready for recession “

ABAJournal.com: “Consumer Bankruptcies Rise Almost 50%”

ABAJournal.com: “Lenders Freeze Home Equity Lines, Avoiding Possible Chapter 13 Cuts”

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