At the same time, bankruptcy is a necessary path for some debtors, which allows them to begin to reconstruct their borrowing record and achieve a fresh start.
According to an article in USA Today, lawmakers are still divided about the best way to use bankruptcy law to help families recover from a financial crisis.
Senator Sheldon Whitehouse, a Democrat from Rhode Island, told the news provider that experts are concerned that the 2005 reform of bankruptcy law is not working as planned.
The legislation was meant to reduce the number of people filing for bankruptcy unnecessarily. It was also aimed at guiding more debtors into Chapter 13 bankruptcy, in which people have to repay debts within five years. In contrast, Chapter 7 bankruptcy liquidates borrowers’ assets and cancels remaining debt.
But some critics say the reforms have not met their goals and instead have made the process more costly, time-consuming and difficult for those who really need it.
As part of the changes, bankruptcy filing fees were raised and a means test was introduced, so debtors now have to show more proof that they cannot pay their bills. There are also stricter definitions as to what defines “necessary living expenses” and filers must attend money management classes at their own expense.
Although the law was changed in 2005, today’s bankruptcy statistics do not present an improved picture, according to some consumer advocates quoted the article. In fact, some say families who are delayed when filing simply end up deeper in debt.
“All we have done with the law is to delay the inevitable and possibly made situations worse,” John Pottow of University of Michigan Law School told the news provider.
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