Is new bankruptcy law good for creditors?

With the new, oddly named, Bankruptcy Abuse and Consumer Protection Act having become law in 2005, people with money troubles are still scrambling to find a solution. Many people don't know if they can even file anymore, and lawyers are completely swamped with phone calls from bewildered consumers. The entire legal industry is effectively in chaos as calls from possible applicants are coming in all time high number due to misunderstandings over the new debt relief law. Bankruptcy filing cases are stacking high, the lawyers are fatigued and stressed, and those debtors who can find a lawyer to take their case are noticing that many attorneys have dramatically increased their hourly rates.

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The lending industry demanded, and received, a substantially tougher debt relief law so that they might retrieve a larger portion of the money owed to them. Lenders have argued for years that consumers are recklessly amassing thousands of dollars worth of financial obligations that they don't plan to repay, only to have those financial obligations erased by the courts under previous bankruptcy law, which was regarded by lenders and creditors as too forgiving. The new bankruptcy law was passed after years of intense lobbying by banks and credit card companies.

Past cases that were resolved under chapter seven of the debt relief code, which allowed debt to be discharged, will now be resolved under chapter thirteen, which mandates a repayment schedule. Congress gave the lending industry anything and everything it asked for in the revised legislation. It will now be harder than ever for the typical debtor to have his financial obligations discharged by the courts through personal bankruptcy. According to lenders, those people who accumulate unimportant debts will now be forced to pay them back, thereby saving the lending industry billions of dollars and presumably they will forward those savings to consumers in the form of reduced prices, fees, and interest rates.

Will the new law really put more money into the hands of creditors? Contrary to the arguments put forth by lenders, most people do not file on a moment's notice; they do so because they have lost their jobs, had a catastrophic injury or have had some other emergency befall them, such as what happened to the victims of Hurricane Katrina. Most consumers who apply for debt relief have already reached a point where they clearly cannot pay their bills. Merely making it a law that the debtors need to repay will not provide them with the ability to do so, and repayment plan or not, these consumers may not be able to pay money back if they just don't have the funds. What little cash the lenders or creditors will receive now may come over periods of many years, and may not even represent the total amount owed.

It is likely that lenders or creditors will not see any more money than they did before. The result of this new law will simply be more hassles for everyone else. That is a shame, as many consumers could truly benefit from laws that provided real help for people who owe too much money, can’t pay it back and have no education regarding financial matters.