 Jessica
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Joined: 08 Jun 2004
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 Posted: Sat Oct 01, 2005 1:37 am Post subject: Bankruptcy Law after Katrina effect |
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With the new bankruptcy law about to be implemented, victims of hurricane Katrina are having a tough time to recover from their failure to pay off their home loans and other debts. The law requires the consumers to go through a lot of paperwork and even a credit counseling session before they can even file bankruptcy. The changes to the law demand that borrowers undergo a Means Test which determines which chapter of bankruptcy they should file.
The two types of bankruptcy- Chapter 7 and chapter 13 are easy ways through which a consumer can partially get rid off the mortgage payments. But it is a fact that filing bankruptcy has a negative affect on your credit report for a number of years. However, the U.S House and the Senate have passed laws to protect consumers affected by Katrina. Several legal organizations are coming forward to help the victims get out of debt problems. The Federal Deposit Insurance Corporation, Federal Reserve, National Credit Union Administration and Office of the Comptroller of the Currency have asked financial institutions not to report mortgage delinquencies for a certain period. Even the Consumer groups have called on lenders to simplify the mortgage rules for the Katrina victims.
The New Bankruptcy Law requires the proof of consumer income, tax returns, pay stubs etc and also requires the consumer to participate in the Means Test. But for a consumer who has somehow survived a disaster, it becomes difficult to go through all these. In order to help the affected consumers, Members of the Congress have introduced laws as a relief from the new Law. These laws include the following provisions.
- Katrina victims can file under the old bankruptcy law till October 2006, a year after the new law comes into effect.
- The Means test will undergo some changes so that the payments offered as relief are not taken as income.
- Courts should directly convert Chapter 7 cases to that of Chapter 13.
- The courts should allow for sufficient time before consumers sign the legal documents related to bankruptcy.
- Katrina victims will not have to undergo credit counseling programs.
- Katrina victims who fail to pay their rent due to the disaster should not be thrown out of their homes.
Apart from the implementation of these provisions, several lawyers from the American Bar Association and the American Bankruptcy Institute have come forward to help the Katrina victims on legal matters such as filing for insurance claims and bankruptcy cases. The U.S bankruptcy court has also granted a stay for debtors who are affected by disastrous effects of the hurricane Katrina.
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