Neighbors shared with me an article called “The Fear Economy” out of the January/February issue of AARP Magazine. There’s a paragraph in the article on which they thought I’d want to comment:

“Also high on consumer advocates’ agenda is repeal of the bankruptcy reform act of 2005, which passed with overwhelming bipartisan (and lender) support.  ‘By restricting eligibility for a bankruptcy that fully discharges debts, Congress made it harder for families to get a fresh start, and less risky for lenders to target those already living on the edge,’ NACA (National Association of Consumer Advocates) Rheingold says.”

By way of background I have served as an Indiana bankruptcy lawyer for the past twenty-plus years.  When interviewed recently for an Indianapolis Business Journal article, I wanted to debunk the myth concerning those 2005 changes to bankruptcy law.  Because consumer advocates spoke out so vehemently against the changes, many people falsely assume they would not qualify to file bankruptcy.  Unfortunately, this misunderstanding prevented some who might have benefited from seeking the professional help they needed.  The message I wanted to convey in the interview is that debtors should not assume the new law precludes them getting relief through bankruptcy.

On October 17, 2005, the very day the bankruptcy law changes went into effect, explained that lawmakers who favored the changes argued it would prevent consumers from abusing bankruptcy, while consumer advocates argued the new law was meant to protect only creditors, not consumers.  It is true, I want to explain, that one of the intentions of lawmakers was for it to be more difficult to file Chapter 7 bankruptcy and force more debtors to file Chapter 13 (debt repayment plan).  In actual practice, though, most debtors (see Bankruptcy Abuse Prevention and Consumer Protection Act), most debtors are either not subject to the “means test” or are able to pass the test, in that their monthly income is at or below the median income for our state.

My neighbors were right.  There is much I have to say about the AARP article and about the 2005 changes in bankruptcy law.  But the most important thing I want to emphasize in my blog is this:  Don’t assume the new law means you won’t be able to make use of the bankruptcy safety net.  And, as I said in the IBJ interview, please seek legal halp at the first signs of financial trouble!