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April 20, 2005

Bush Signs Bankruptcy Bill

President Bush signed legislation today that marks the biggest overhaul of our bankruptcy system in a quarter century.

The bankruptcy bill signed by President Bush will go into effect in six months. The major change under the bill is that debtors seeking to file bankruptcy will be subject to a means test. Debtors with incomes above their state’s median and who can pay back at least $6,000 over five years will have to file a Chapter 13 bankruptcy. These debtors will be required to enter into a payment plan to pay back some of their debt over time.

Currently, the court has discretion to determine whether an individual is required to file Chapter 13 rather than Chapter 7.  Chapter 7 allows debtors to discharge their debts by liquidating certain assets and paying what they are able from the money generated.

President Bush has long supported this bill. He stated, "Bankruptcy should always be a last resort in our legal system. If someone does not pay his or her debts the rest of society ends up paying them."

Opponents of the bill feel that its impact will fall the hardest on low-income individuals, minorities, the elderly, and single mothers. It will be especially hard on those who suffer a medical crisis or lose their job.

Supporters of the bill see it as a long awaited change. The bill has been around in varied forms for the past eight years. Supporters feel that it will prevent abuse of the system by individuals seeking a way out of gambling debt, child support, bills resulting from compulsive shopping, and other abuse of the bankruptcy shelter provisions.

Posted by Mandy Gibbs at 06:34 PM in Bankruptcy & Debtor/Creditor | Permalink


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