Bankruptcy 'reform' is helping big banks squeeze consumers

By David Weidner, MarketWatch


NEW YORK (MarketWatch) -- For those who underestimate the power of the banking lobby as financial "reform" weaves its way through Washington, one need only look back five years ago to see how influential banks are at pressing their agenda.

In 2005, Congress yielded to an eight-year, $100 million campaign by banks to change personal bankruptcy law. In effect, the Bankruptcy Abuse and Consumer Protection Act made it harder for individuals to wipe away their debts under Chapter 7 of the U.S. Bankruptcy Code. More had to file under Chapter 13.

The bill was signed into law by President George Bush despite protests of consumer protection groups, economists and legal experts. President Bill Clinton actually was presented an earlier version of the bill first, but he vetoed it.

Under the law, it became hard to file any type of bankruptcy. There were new reporting requirements, more fees, mandatory credit counseling and new burdens on bankruptcy attorneys. But the real meat of the act was the higher threshold for Chapter 7 cases.

Chapter 13 was preferable to the banks because it doesn't wipe away debt. Individuals still had to pay down some of their credit cards and loans. The stinging effects of this change have become abundantly clear as unemployment hovers near 10% and Americans are swamped with debt.

Read more at link...http://www.marketwatch.com/story/bailed-out-banks-feast-on-bankrupt-customers-2010-04-06