WASHINGTON -- Some Democratic lawmakers and consumer advocates are seeking relief for Hurricane Katrina victims from a new, more stringent bankruptcy law that takes effect next month.
Republicans, who dominate both the House and Senate, appear frostier to the plan, and the White House has indicated that it is considering the idea.
The changes in the US Bankruptcy Code, which make it harder to erase credit card and other debt through bankruptcy, will affect 30,000 to 210,000 people nationwide. Passed by Congress and signed by President Bush in April, the new law has spurred a rush to the courthouse. New personal bankruptcy filings under the more lenient current law surged to an all-time high of 458,597 in the second quarter.
With Hurricane Katrina's devastation of New Orleans and the Gulf Coast, hundreds of thousands of survivors have lost homes, jobs, and businesses. The personal and economic loss in Louisiana and Mississippi ''will take its toll on consumers, forcing many individuals in these affected regions to file for bankruptcy irrespective of more stringent laws," the Wall Street credit agency Fitch Ratings said yesterday.
People who lived in the disaster zones and were already in serious debt and planned to file before the new law takes effect Oct. 17 are in no position to hire a bankruptcy lawyer and get their financial records together by then, some lawmakers and consumer advocates say.
The new law also requires everyone filing for personal bankruptcy to take courses in credit counseling.
People who may be driven into bankruptcy by the hurricane also need additional time, and the law's effective date should be delayed for at least a year for all those affected by Katrina, the lawmakers and advocates say.
''Bankruptcy is an important safety net that families hit by unforeseen circumstances depend upon," said Travis Plunkett, legislative director of Consumer Federation of America. ''The federal government should be bending over backwards to help Katrina's victims get back on their feet, not throwing up new barriers to bankruptcy."
Russ Feingold, Democrat of Wisconsin, one of 25 senators who voted against the bankruptcy bill last spring, is proposing legislation that would provide a one-year grace period after Oct. 17 for people affected by the hurricane to file under current bankruptcy law.
The measure also would allow victims of natural disasters who cannot meet the credit counseling requirement to file for bankruptcy without first completing the courses.
Seventeen senators, 16 Democrats and one independent, had signed on to Feingold's bill as of yesterday, and Democrats in the House are putting forward similar measures.
Senator Charles Grassley, Republican of Iowa, chief architect of the legislation that made the most sweeping rewrite of US bankruptcy laws in a quarter-century, maintains that it already gives bankruptcy courts ''significant flexibility to look at the special circumstances surrounding an individual's financial situation."