Debt Consolidation

Last April, President Bush enthusiastically signed into law the oddly-named Bankruptcy Abuse and Consumer Protection Act. This bill, representing the biggest overhaul of bankruptcy law in twenty-five years, was written in order to discourage “bankruptcy of convenience.” Proponents of the bill, which included the credit card industry, say that the bill is necessary in order to stop an avalanche of bankruptcy filings by drug users and compulsive shoppers and gamblers. The law makes it harder to have debts wiped away, requires credit counseling for those considering bankruptcy, and holds attorneys responsible for paperwork errors by their clients in bankruptcy cases. The net result will probably be chaos, as fewer attorneys will handle bankruptcy cases, credit counselors will raise their fees, and more consumers with problem debt will be clueless as to what they should do next. Adding to the confusion are some new statistics that suggest that a large number of bankruptcies that are thought to be personal are actually business bankruptcies. As a result, the new law may be unfairly targeting consumers for punishment when they are not actually the biggest part of the problem. Worse, it could be harming small businesses.

Studies suggest that the number of business bankruptcies may actually be up to ten times higher than previously reported. Many small businesses that fail and file for bankruptcy do so under guidelines that technically classify them as personal bankruptcies. The new law doesn’t account for this, however, and treats such bankruptcy filers no differently than those who file because they can’t stop shopping. It benefits no one to force a small store owner to undergo mandatory credit counseling when their business may have failed due to other reasons, such as having a big-box retailer more in next door. Even if that is the case, the law will require the bankrupt business owner to attend counseling in order to learn about managing personal and household budgets. This wastes the time of both the business owner and the credit-counseling agency and denies valuable counseling resources to those people who may really need it.

In time, Congress may amend this legislation if certain aspects of it do not work as intended. In the meantime, small business owners and those with personal debt problems will be inconvenienced, credit counseling agencies will be overworked, and no one will be any better off for it.

©Copyright 2005 by Retro Marketing. Charles Essmeier is the owner of Retro Marketing, a firm devoted to informational Websites, including End-Your-Debt.com, a site devoted to debt consolidation and credit counseling, and HomeEquityHelp.com, a site devoted to information regarding home equity loans.