HISTORIC NEW BANKRUPTCY LAW TAKES EFFECT

October 17, 2005

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The “Bankruptcy Abuse Prevention and Consumer Protection Act” of 2005 (“BAPCPA”) takes effect today, making it harder for consumers, and possibly businesses, to write off debts and get a clean slate. Mallory Duncan of the National Retail Federation said the law is aimed at curbing abuses in bankruptcy, especially at the individual level. Under the new law, Duncan said there is flexibility, “but if they can afford to repay, they have to repay what they can.” Backers of the law point to high-profile bankruptcies like those of CNN host Larry King, actor Burt Reynolds and boxer Mike Tyson, who ran up millions in debt. But consumer advocates and others say that many people get over their heads in debt though “predatory” lending—ranging from home equity loans with high interest rates to credit cards with overly generous limits. Linda Sherry of Consumer Action pointed out that revolving debt—most of which is credit card debt—increased nearly 15-fold from January 1980 through 2004, from $54 billion to $791 billion, heightening bankruptcy risks. David Yen, a bankruptcy specialist at the Legal Assistance Foundation of Metropolitan Chicago, said that low-income consumers may still be able wipe the slate clean, but that those in the middle may be “priced out of bankruptcy” because of the new income limits and complexities, which make legal costs higher.

Historic New Bankruptcy Law Takes Effect