As if the victims of Hurricane Katrina didn’t have enough to worry about, there’s that damn bankruptcy bill from earlier this year.
Hurricane Katrina is expected to cause a spurt of bankruptcy filings by storm victims — and sweeping changes in U.S. bankruptcy laws may leave them even more strapped than they otherwise might be.
The Bankruptcy Abuse Prevention and Consumer Protection Act, which takes effect October 17, includes a slew of rules and restrictions intended to curb abuse. These are expected to make it harder for individuals to file to keep creditors away, and more difficult for businesses to reorganize.
But the law wasn’t directed at people who file because of catastrophes such as Katrina, in which people lost homes, businesses and perhaps months of regular paychecks. Katrina has caused widespread devastation in Louisiana and Mississippi and left New Orleans, population 462,269, virtually uninhabitable.
“People who are seriously affected by this hurricane are not going to be able to file bankruptcy by October 17,” said Henry Sommer, co-editor of “Collier on Bankruptcy,” a leading reference work. “They have more pressing things in their lives, like survival.”
Under the new bankruptcy law, people who file face a series of new hurdles, including additional fees, paperwork, and “means testing” that forces them to pay off at least some debts. For those whose home and place of business has been destroyed by a hurricane, and may not be rebuilt for a very long time, the burden adds insult to injury.
For what it’s worth, four House members, led by Rep. John Conyers (D-Mich.) are planning to introduce legislation to provide flexibility for victims of natural disasters in bankruptcy. A similar measure was rejected while the bill was debated on the Hill earlier this year, but something tells me it might have a little more salience now.