Too poor to go bankrupt

Yes, thanks to senators like Tom Carper Joe Biden, the former senator from MBNA, the bankruptcy “reform” act was like killing off any chance at all for poor people to recover from their debts. It also made credit card companies more powerful – and profitable, so as far as the politicians are concerned, win/win!

If there’s anything at all that I wish the Occupy movement would focus on, it would be overturning this travesty:

This year, hundreds of thousands of Americans are expected to be too broke to file for bankruptcy.
The average cost to file for Chapter 7 bankruptcy protection, the most common form of consumer bankruptcy, is more than $1,500, according to recent research submitted to the National Bureau of Economic Research.

As a result, anywhere between 200,000 and one million consumers are estimated to be unable to afford that steep cost this year.
The research, conducted by a group of professors from Columbia University, the University of Chicago and Washington University in St. Louis, examined how bankruptcy filings spiked after people received their tax rebates in previous years. They estimate that another 200,000 consumers, who would otherwise not have enough money to file, will use their tax refunds to pay for bankruptcy this year.

“For lots of people, bankruptcy has been taken off the table as an option because of the severe fees involved,” said Jialan Wang, co-author of the report.
Among those fees is a charge of about $300 just for filing the paperwork with the federal court, while the rest typically goes to bankruptcy lawyers, said Wang.
And there are other expenses on top of that, including fees for mandatory pre-bankruptcy credit counseling and a pre-discharge debtor education course. These average about $85 altogether, according to a recent study sponsored by the American Bankruptcy Institute.

That means many of the Americans who have seen their debt snowball out of control due to events like job loss, foreclosure or a medical emergency during the economic downturn are now left without their last financial lifeline, she said.

“It becomes harder and harder to pay off the debt as interest payments get higher, so your debt grows larger and larger,” she said.

The cost of filing for bankruptcy has risen in recent years as a result of the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act, which aimed to reduce the number of bankruptcies taking place by adding more requirements to the filing process — including additional paperwork and the credit counseling and debtor education.