It is a sad state of affairs when a person is too broke to file bankruptcy, the one thing that can mean a better financial life for many Americans. But according to a recent article in The Wall Street Journal, that is exactly what is happening!

How Can This Be?

A new study by the Federal Reserve Bank of New York found that the major changes to the bankruptcy laws in 2005 (the Bankruptcy Abuse Prevention and Consumer Protection Act) are to blame. These revisions, pushed through by the banking lobby, have made filing bankruptcy much more expensive in terms of attorney fees because of the increased paperwork involved.

Bankruptcy filings have certainly dropped over the past few years. According to the article, “roughly 601,000 people and couples filed Chapter 7 in 2014, down from a recession-era peak of 1.1 million filings recorded in 2010, according to the U.S. Administrative Office of the U.S. Courts.”

Many have pointed to this as proof that the changes worked, and that more people are choosing to pay their debts rather than “abuse” the bankruptcy system. Others have concluded that more people are just living within their means. But this study would suggest that the changes just shut out some people from the bankruptcy process entirely!

We Need to Make a Change in the Law!

We have had these changes for almost ten (10) years now, and I cannot honestly say from what I have seen that things are any better. People still lose their jobs, become disabled, incur high medical bills due to illness or injury, or place unexpected expenses on credit cards that they later cannot afford to pay. Plus the added protection for private student loans has worsened this national crisis by at least 15%!

These changes, and the added expense that they have incurred, are not helping either the economy or the lives of individual Americans. People who file bankruptcy get a fresh start and are able to enter the market again and spend money (which would previously have gone to pay exorbitant credit card balances or medical bills). These changes need to be repealed.

What do you think? Would life be better for people struggling with debt and for the economy if we went back to the old, pre-2005 bankruptcy laws? Please give me your thoughts in the comments!

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Steven J. Richardson
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Bankruptcy, Collections, Student Loan, DUI and Traffic Court attorney in Woodbury, NJ.
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