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Bankruptcy law tough on katrina victims { September 8 2005 }

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   http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/09/08/BUGJDEJTL91.DTL

http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2005/09/08/BUGJDEJTL91.DTL

Bankruptcy law called too tough
Move under way to exempt Katrina victims from latest changes
- Carolyn Said, Chronicle Staff Writer
Thursday, September 8, 2005

Victims of Hurricane Katrina should get a reprieve from a tough new federal bankruptcy law set to go into effect Oct. 17, according to consumer activists and some members of Congress.

"We call on Congress to provide emergency relief for Katrina victims from the harsh and inflexible bankruptcy law changes," said Brad Botes, a director of the National Association of Consumer Bankruptcy Attorneys and a principal in Bond & Botes, a law firm with offices in Gulf Coast states. "In the absence of such relief, the victims of Hurricane Katrina may face a cruel second blow when they try to take steps to put their lives and finances back together."

Proponents of the new law say it will crack down on deadbeats who run up credit card debts heedlessly. Opponents say it makes it almost impossible for people and businesses that have gotten in over their heads financially to make a fresh start.

Travis Plunkett, legislative director of the Consumer Federation of America, joined with Botes in a conference call Wednesday urging that implementation of the law be delayed by a year for Katrina victims and that some of its provisions be permanently waived for them.

Those include a requirement for extensive paperwork such as tax returns and paycheck stubs, a review of the past six months of income, a requirement for debtors to undergo credit counseling and a provision that makes it easier for landlords to evict tenants in bankruptcy. These requirements should be eased for victims of all natural disasters, Plunkett said.

Several congressional Democrats have already said that they support shielding Katrina victims from the law.

Rep. John Conyers, D-Mich., the ranking Democrat on the House Judiciary Committee, plans to co-sponsor legislation as soon as possible to postpone the law's impact on families and small businesses financially devastated by Katrina, said Ludmilla Scott, a legislative assistant to Conyers.

Sen. Russ Feingold, D-Wis., also is expected to introduce legislation to let Katrina victims file for bankruptcy under the older, more flexible law and to ease some of the new law's requirements for victims of natural disasters, Reuters reported.

But it's not clear whether an amendment to the law would attract bipartisan support. Jeff Lungren, a spokesman for House Judiciary Chairman James Sensenbrenner, R-Wis., seemed to indicate otherwise in remarks quoted by Reuters last week.

"The goal of this law was to ensure that all bill-paying Americans, including victims of Hurricane Katrina, don't have to pay the debts of others that can afford to pay," he said.

While 34 House Democrats have agreed to co-sponsor Conyers' bill, he said no Republicans have expressed interest.

While it may seem self-evident that a natural disaster like a hurricane hurts people economically, experts say that impact often takes a while to show up in bankruptcy filings.

Robert Lawless, professor of law at the University of Nevada in Las Vegas, just completed a study of bankruptcy filings after the 18 major hurricanes that hit the United States between 1980 and 2004 and caused $1 billion or more in damage.

He found that bankruptcy filings in the hard-hit areas increased 50 percent faster than those in areas not affected -- but the impact didn't show up until 12 to 36 months after the hurricanes.

"People try a lot of alternatives before they end up filing bankruptcy," Lawless said. "It's not the day the disaster hits. It's not the day you get laid off that you file. It's months later, after you've exhausted all your other alternatives."

He said some of the new law's provisions clearly don't make sense for victims of natural disasters. "The paperwork requirements, which include automatic dismissal if you don't file (all the requested documentation), are ridiculous for people whose financial records and indeed whole lives are a pile of rubble under 6 feet of water."

The provision that filers undergo credit counseling is also senseless, he said. "How do you counsel disaster victims to avoid their mistakes they've made in the past?"

Like Lawless, Harvard Law School Professor Elizabeth Warren was already strongly opposed to the new bankruptcy law. She said its timing could hardly be worse for Katrina victims.

"The revision of the bankruptcy law will go into effect at about the same moment that the power will be turned back on in New Orleans," she said.

"Millions of hard-working families economically devastated by this unprecedented storm will be the first to face a bankruptcy law designed to make it harder for them to get relief. The victims of Katrina should not be the guinea pigs for working out the ambiguities and uncertainties of this complex new law."

Warren said it is too harsh on small businesses as well as individuals.

"Under this new bill, a big business has 18 months to reorganize; a small business gets 10. A big business doesn't have to file any new paperwork; a small business has to file a ream of new forms and disclosures.

"Chapter 11 for the first time will have a dollar figure in it. Business with debts under $2 million will have to meet these additional requirements. At a time when the Gulf Coast will most need its entrepreneurs to pick themselves up and try again, the new bankruptcy laws would make that much more difficult," Warren said.

E-mail Carolyn Said at csaid@sfchronicle.com.

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