Sunday, October 09, 2005

New Law About to Take Effect

The new bankruptcy law is about to take effect on the 17th of this month. This new law is going to make it more difficult to declare bankruptcy with the new "means test" and new filing requirements that will increase the expense both in time and effort as well as attorney's fees. See a report here.

Attorneys are also taking on more potential liability for the accuracy of the information in the filing. More filers will be forced to file via Chapter 13, which requires payments on debts for a number of years before the debts can be discharged. What the filer can afford to pay will be determined by the IRS guidelines of living expenses. These requirements are so stringent that no matter what the filer's future income, he/she will live in poverty for those years with barely enough money for food and shelter in the cheapest conditions. They are so difficult to maintain that I predict that close to 100% of those who file Chapter 13 will default, based on the fact that 70% of filers under the old law defaulted on Chapter 13 filings. When they default they may lose their bankruptcy protection all together, leaving them at the mercy of their creditors who, if they are credit card companies, will enforce interest rates as high as 35%, along with late fees, overlimit fees, and any other fees they decide to come up with. Those who were unfortunate enough to have high credit card balances in the bankruptcy could stand to have that debt perpetually for life, unless they strike it rich somehow and are able to make lump sum payments.

This Includes All The Recent Disaster Victims
What is worse is that these new requirements are going to be enforced on the recent hurricane victims. Legislation has been introduced to give these people a break, but legislators are afraid that would be admitting the law is too harsh. It looks like these people are going to be left out in the cold by their own representatives in Congress. It is unfortunate that our government doesn't understand how much damage this law will do to our country in the long run.

Perpetuation Of Poverty
One of the main causes of poverty in our country is when bad things happen that are out of our control, such as debilitating sickness, bad economic cycles, and increasingly high levels of taxation. It tells us this in the scriptures. Eccl 9:12 People can never predict when hard times might come. Like fish in a net or birds in a snare, people are often caught by sudden tragedy. NLT Unfortunately, this kind of thing includes the corruption of our system of laws and how legislation is passed along with our current banking system. Prov 30:14 There are people who take cruel advantage of the poor and needy; that is the way they make their living. TEV

So how do you avoid getting caught in the drain? Prepare for the worst. As unrealistic as it may seem, the only way to be sure that some calamity won't catch you off guard is to save LOTS of money, put it in a safe place, and hold it in a form of value that won't be destroyed if the dollar becomes worthless. Also, pay off ALL debt, including your mortgage, especially your mortgage. Live on far less than you make - I suggest 50% of your after tax income - based on Elizabeth Warren's recommendations in her book "All Your Worth." And last, but most important, put your trust in God. If you are a good steward of what you have, and you live a life that is generous to the poor, you will have many good friends who will become your true wealth in hard times. Prov 19:17 If you help the poor, you are lending to the LORD — and he will repay you! NLT