Bankruptcy was Repealed: And Other Lies Your Creditors Tell You

Powerful machine though it is, it just didn't get its money's worth with the laughably titled Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). Oh, it tried - it tried for years in fact, following the amendments in 1984 that were widely viewed as "pro-debtor" - to get a comprehensive anti-consumer law published and on the books. And for awhile, it looked like it worked. BAPCPA won bipartisan support, and swept through Congress - and across President Bush's desk - with seeming ease. After all, who'd argue that people shouldn't pay their debts?

Except it just wasn't that simple. And the law the credit industry paid so much and fought so hard for? Well, to call it "poorly written" might be charitable. "An inarticulate, indecipherable mess" would be more accurate, at least in spots. Consider: one section of the new Code requires the Clerk of the bankruptcy court to give each filing debtor a notice after filing. Another section requires the debtor's attorney to give the same notice to the debtor before filing. Or consider the so-called "hanging paragraph" of section 1325 - so called because they didn't even bother to number the paragraph and just left it "hanging" there, causing mass confusion and contradictory rulings across the land. The section, if you're curious, provides that another section doesn't apply to, in part, cars purchased for the personal use of the debtor within 910 days prior to filing. (Why 910? Why not 899? Or an even 1000?) If that other section (section 506, for the terminally curious) doesn't apply, then a creditor who lent the debtor funds to purchase the car would have no secured claim at all. In bankruptcy, the premiere position of protection for a creditor is secured - it means you have collateral against which you can proceed, despite the fact the debtor gets off with the discharge and therefore is no longer personally liable for the underlying debt. So, if that doesn't apply, then the car lender stands in line with the unsecureds - the credit card companies. Right?

Well, no. What the creditor lobby was trying to achieve was a rule that said "car lenders who meet these criteria have a secured claim for the entire amount of the loan, even if the loan value exceeds the car's value considerably." And because cars depreciate pretty quickly, those loans often do exceed the car's value. In other words, special treatment for car lenders - definitely not a pro-consumer move at all.

Welcome to the wacky world of BAPCPA, where up is down, creditors are the good guys, and debtors are low-down despicable human beings who spent themselves into this mess, and now want a clean getaway. This horrible legal drafting job was premised on fault conclusions - that increasing bankruptcy filing statistics were due to runaway consumer spending (when in reality, most filings are predicated on one of a number of catastrophic events, such as divorce, job loss, or medical bills), and that the creditors were suffering unduly (when the credit industry is one of the healthiest billion-dollar industries in the country). It's also at the root of an interesting development, and it's one that ought to have been foreseen by the responsible parties: namely, that any law, no matter how badly drafted, has to be interpreted by a judge in a courtroom dealing with actual people and real cases. And those interpretations aren't uniformly making the credit industry happy. In short, the authors of this badly written law got what they paid for, but not what they expected.

And now, they're doing anything they can to prevent people from filing bankruptcy. This itself isn't exactly new. What's new is the level of deception being reported by bankruptcy attorneys across the country. Here's a snippet of the calls their clients are getting from creditors and bill collectors:

"You can't file for bankruptcy anymore. It was repealed. Didn't you read about that in the newspaper?" (Truth: No, it wasn't repealed. Though it might have been better if it had been repealed. At least then Congress could get a completely clean do-over.)

"If you file for bankruptcy, you're committing fraud and a crime, and we will make sure your case is prosecuted." (Truth: No, you're not. There's no bankruptcy crime committed simply by filing. You have to actively misrepresent your debts or your property to get that special treatment.)

"You can't file for bankruptcy if you own a home." (Truth: Are you kidding? Of course you can.)

So what's a consumer to do? First, arm yourself with knowledge. Know your rights, and your obligations. Educate yourself on the Fair Debt Collection Practices Act (FDCPA) and learn what bill collectors can and can't do to collect their debts. Second, certainly try to negotiate with your creditors. Ask for lower rates, grace periods, forbearance or repayment programs - whatever they've got to help you pay off the debt without strangling yourself financially. Third, keep track of your calls. Don't be afraid to answer the telephone when a creditor calls. If they violate the FDCPA, then you can sue for statutory damages of up to $1,000, plus actual damages, or you can use the violation as a negotiation tool to help lower the underlying debt. Keep a pad of paper and a pen by the telephone and log all such calls - date, time, person who called, and details of the conversation. And if the calls get abusive, take that log to a consumer lawyer who can help you fight back.

To find a consumer lawyer, go to the National Association of Consumer Advocates website and click "Find an Attorney." Fight back, and reclaim your life.