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Bankruptcy crackdown

April 24, 2005|by WANDA T. WILLIAMS

wandaw@herald-mail.com

In 1996, Karen and Roger Swope filed for personal bankruptcy under Chapter 7 when they couldn't afford to pay their bills after Roger Swope wasn't able to work because of an injury, Karen Swope said.

"I was working part time and I couldn't keep the bills up," she said.

Despite the bankruptcy filing, Karen Swope said they weren't trying to avoid their responsibilities.

"For them (creditors), it was all or nothing, and we just couldn't pay it all, plus the penalties," Swope said. "I would have preferred paying my creditors. I just needed some time."

Chapter 7 bankruptcy occurs when a debtor surrenders all nonexempt assets to a bankruptcy court trustee, the property is sold and the money is used to pay creditors. Exempt property, which is usually household- or work-related assets, are kept by the debtor.

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While the Swopes benefited from filing Chapter 7, the new Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 will make it more difficult for people seeking relief under the Chapter 7 personal bankruptcy law.

That filing erases debt without requiring repayment, said Nicki Mann, a certified consumer credit counselor with the Washington County Consumer Credit Counseling Agency.

"More people would be required to file under Chapter 13, which is our repayment plan," Mann said.

Chapter 13 bankruptcy also is known as a reorganization bankruptcy. It is an option for people who want to pay off their debts over a period of three to five years.

Although excessive credit-card debt, divorce or the loss of a job might leave many struggling to meet their financial obligations, Mann said bankruptcy reform will require more consumers to repay their debt rather than have it erased.

The new law also will require consumers to undergo credit counseling as a stipulation before they can file for personal bankruptcy. It also will require debtors, who have a demonstrated ability to repay their debts, to use a form of bankruptcy relief that requires debt repayment, a summary of the bill said.

Unlike existing bankruptcy laws, the bankruptcy reform bill will require debtors to receive credit and financial management counseling before being eligible for bankruptcy relief, Mann said. This allows debtors a chance to fully understand all of their alternatives as well as the consequences of filing personal bankruptcy, said William Benzil, chief counsel and senior vice president of legislative affairs for the National Foundation for Credit Counseling.

Benzil said the bankruptcy bill, which passed the U.S. Senate first, was approved by the House of Representatives earlier this month.

The bill is considered to be the most far-reaching bankruptcy reform since 1978, said Roger Schlossberg, a Hagerstown bankruptcy attorney who believes the bill will deny honest debtors a reasonable chance at a "fresh start" to recover from financial struggles that landed them in bankruptcy in the first place.

Schlossberg said he has watched debt problems escalate over the years.

"In 1982, I had 150 cases a year, and today, approximately 12,000 cases are assigned to me - that's over a 25-year period," said Schlossberg, who does not support of the bankruptcy reform bill. "In the next six months, I wouldn't be surprised if I get a year's worth of filings."

The new bankruptcy reform law drew support and opposition from some who question and debate the law's effectiveness and long-term benefit, area experts said. However, the number of citizens who file for personal bankruptcy is steadily increasing, with just under 1.6 million filings in 2004, Benzil said.

Consumers seeking financial counseling may call the local consumer credit counseling service at 1-800-747-4222 from 8 a.m. to 8 p.m. Counseling also is offered online and in person at the local credit counseling office at 920 W. Washington St., Suite 112B, Hagerstown.

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