Hurricane Katrina and the New Chapter 7 Bankruptcy Law

The new federal bankruptcy law - which will go into effect on October 17th, 2005, will make recovery for victims of Hurricane Katrina much more difficult.

The new law requires them to take a credit counseling course before they can even file. Then when they get to file for bankruptcy they have to meet a tight timeline of paperwork, all designed to make their filing fail. The official idea is that they have to prove that they really cannot pay their creditors.

Now keep in mind that people who have just lost everything may find themselves in a situation where filing applications with 7-day turnaround times and similar restrictions is not quite possible. Not only may many courts in Gulf Coast districts be closed, but the victims and their lawyers are not at permanent addresses, may stay in motels spread all across the country, have no computer access to get to important resources. (Yes, lawyers of the American Bar Association and the American Bankruptcy Institute have volunteered to help Katrina victims, but these people may not even know about it or have the possibility to use these possibilities.)

The new bankruptcy system gives them no leeway.

The current ("old") bankruptcy law contains exceptions for people who have been victims of hurricanes, earthquakes or floods. It was debated to include sich a provision into the new bankruptcy law but it was defeated by a congressional voting by partylines.

After consumer advocates spoke up about this issue, laws have been introduced to the Senate to protect Katrina but none have gone through yet. As of today, only 2 weeks are left.

Katrina victims can go to the American Bar Association Web site for information on legal services available to them. The American Bankruptcy Institute's Web site can match them up with volunteer bankruptcy attorneys.