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Storm victims unlikely to get break on new bankruptcy law

ATLANTA — Efforts by consumer activists and a handful of lawmakers to get Hurricane Katrina victims some breaks from a stringent new bankruptcy law are looking like a long shot.

Through letters, e-mails and proposed legislation, the advocates are trying to convince the Republican-controlled Congress that Katrina's economic aftermath will be so severe that the law's Oct. 17 effective date should be delayed a year for Gulf Coast residents, or other temporary reprieves should be granted.

But even some of the advocates acknowledge their chances of success are slim despite the number of homes, businesses and lives destroyed by the storm. Not only does Congress have many other fights on its hands right now, any debate about bankruptcy rules is burdened by nearly a decade of partisan politics that preceded the bill's enactment.

The Bankruptcy Abuse Prevention and Consumer Protection Act, which President Bush signed into law April 20, makes it harder for consumers and businesses to wipe out their debts.

The law's key change: Debt-relief seekers are subject to a means test to determine their ability to repay some of their debts under Chapter 13. If a filer earns less than the median income of the state where he lives and doesn't have enough income — after living expenses are taken out — to repay at least $6,000 over a five-year period, then he can file under Chapter 7, which forgives all debts.

Substantial changes were also made to the required benchmarks for businesses to file for bankruptcy protection under Chapter 11.

Bush said the reforms will make the system fairer and make credit more affordable. "In recent years, too many people have abused the bankruptcy laws," he said just before the signing.

Legislation introduced

Critics, who included many Democrats, bankruptcy lawyers and consumer groups, say it doesn't give clear exemptions to victims of a natural disaster.

But the new law's chief sponsors say no delay or changes are necessary because of a "special circumstances" provision that make it easier for filers financially devastated by unforeseen events such as hurricanes to have their debts erased.

Still, three House Democrats, including Rep. Sheila Jackson Lee of Texas, introduced legislation this month that would ease requirements for personal bankruptcy filers who are victims of Katrina or other natural disasters. For example, federal relief and insurance payments would not count as income in determining how much money such filers have to repay a portion of their debts. Also, they would not have to present federal tax returns and pay stubs right away if copies were lost in a calamity.

Republicans contend opponents of the new law are using Katrina as an excuse to make last-minute changes.

"The push to delay or reopen this is more about the opponents wanting to thwart the bill than helping victims of Hurricane Katrina," said Jeff Lungren, a spokesman for Rep. F. James Sensenbrenner Jr. (R-Wis.).

Sensenbrenner, who chairs the Judiciary Committee, was the bill's chief sponsor in the House.

"Everyone understands that clearly, a hurricane is a special circumstance," Lungren said, explaining that Sensenbrenner opposes any delay to the Oct. 17 implementation date. "If a hurricane isn't a special circumstance, what is?"

'Better rules'

Treasury Secretary John Snow, who was in Atlanta last week to talk about Washington's handling of Katrina, said that though the hurricane might have suddenly driven some Gulf Coast residents to file for bankruptcy, the new law shouldn't be delayed or changed.

"I think the new rules are better rules," Snow said. "It was hard to get the new rules in effect, and I certainly wouldn't want to change them."

But R. Patrick Vance, a New Orleans bankruptcy attorney who helped draft a letter the Louisiana State Bar Association sent to Congress last week asking for a delay, said business owners and individual consumers still don't know the extent of their financial losses, and the legal community in the Gulf states will be crippled for weeks.

To say the new law shouldn't be changed or delayed is a "very callous view of the situation, and I think they're uninformed," said Vance, who heads the litigation practice at the New Orleans-based firm of Jones Walker.

Questions arise

Claude Lightfoot, a New Orleans consumer bankruptcy attorney who evacuated to Florida after Katrina, said he has received at least 300 e-mails from Louisiana consumers with questions about what to do about mortgage payments and other debts and whether they ought to consider bankruptcy. That's on top the 1,200 cases he had been working and the 50 Louisianians since Katrina who have e-mailed him to ask that he start bankruptcy filings for them.

"We've been trying to push for an extension just for Katrina," Lightfoot said Tuesday, explaining he has written e-mails to numerous lawmakers.

He said he's received no response other than automatic e-mail replies from anyone, including Louisiana congressional delegates.

"This date is coming fast, and I don't think people are going to know what their losses are," Lightfoot said. "I'm very, very disappointed to see that there's partisan roadblocks to doing what's human."

Given how long bankers, financing companies and others fought for the more restrictive bankruptcy measures, it's highly unlikely that they'll be scaled back, said Charlie Cook, a political analyst and publisher of The Cook Political Report.

Any proposed changes would first have to go through the judiciary committees in both the House and Senate. But the Senate panel is preoccupied with filling two vacancies on the Supreme Court, and the House committee is too divided to compromise.

"The House Judiciary Committee looks like the bar scene from 'Star Wars.' There's crazies on the left and crazies on the right," Cook said.

"In this environment it would be hard to get something done."

Péralte C. Paul writes for The Atlanta Journal-Constitution. E-mail: pcpaul@ajc.com