Senate Votes to Toughen Bankruptcy Laws
Last week's Senate vote on personal bankruptcy promises to tighten the laws which permit consumers to erase debt. The Senate voted to 83 to 15 in favor of a bill that would require consumers facing bankruptcy to file for bankruptcy protection under Chapter 13 of the Bankruptcy Code instead of the more popular Chapter 7.
A debtor undergoing a Chapter 13 bankruptcy must repay at least a portion of the debt over a three- to five-year period. The bankruptcy court determines a repayment plan based on the debtor's ability to pay, and creditors work with the court to determine a plan that is acceptable to them.
The Chapter 7 plan, which credit card companies dislike, allows for debtors to completely erase debt without having to repay. Certain debts, such as home mortgages and recent tax obligations, cannot be erased with a Chapter 7 plan.
The House has already passed a similar bill and President Bush has indicated his support of whatever compromise bill on which the two chambers can agree.