It took eight years of political maneuvering, but a bill to overhaul the nation’s bankruptcy system now looks close to becoming law. If it does, that’s when the real fight will begin.
Lawyers who have combed through the 501-page bill say that despite its attempt at specificity and bright-line tests to tell the truly destitute — who would still get to erase most of their debts — from the casual spendthrifts attempting to wriggle out of inconvenient bills, much remains open to argument and interpretation.
For example, a key test for whether someone can qualify to wipe out almost all debts in bankruptcy would be based on whether the debtor’s income is above the median for his state. Each state’s median will be based on U.S. Census numbers — the bill spells that out — but would have to be adjusted for inflation, and how to calculate that adjustment has not yet been defined.
The stated goal of the new legislation, which was pushed by the credit card, auto and retail industries, is to end abuse of the bankruptcy system. But many bankruptcy experts worry it will only add cost and red tape to the process of filing for bankruptcy and not necessarily curb abuse.
Indeed, lawyers are already discussing ways that the legislation’s hard-and-fast measures might make it easier than current law to manipulate the bankruptcy system.
Joseph Gold, a bankruptcy trustee for eastern Virginia, predicted “many creative lawyers” will get around many of the new restrictions.