Bankruptcy - Are lenders seeing benefits from the new law?

With the new, bizarrely named, Bankruptcy Abuse and Consumer Protection having taken effect recently, families with financial trouble are still struggling to find a solution. The legal industry is pretty much in chaos as calls from potential filers are arriving in unprecedented number due to confusion over the new bankruptcy law. Bankruptcy filing cases are backing up, the lawyers are fatigued and overworked, and those people who can hire a lawyer to accept their case are realizing that a lot of lawyers have doubled or even tripled their fees. Many people do not know if they can file at all anymore, and lawyers are simply overwhelmed with phone calls from confused debtors.

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The banking and lending industry demanded, and received, a much harsher debt relief law so that they may collect more of the money they are owed. Lenders and creditors have argued for several years that debtors are recklessly running up thousands of dollars worth of debts that they have no intention of repaying, only to have those debts forgiven by the courts under previous bankruptcy law, which was regarded by the credit and banking industries as too lenient. The new debt relief legislation was approved after years of high-pressure lobbying by financial institutions.

Congressmen gave the lending industry everything it asked for in the revised legislation. It will now be more difficult than ever for the average debtor to have his or her financial obligations wiped clean by the courts through personal bankruptcy. According to lenders, those debtors who amass frivolous debts will now be required to pay them back, thereby saving the lending industry billions of dollars and presumably they will offer those savings to consumers in the form of reduced prices, fees, and rates. Previous cases that were concluded under Chapter 7 of the bankruptcy code, which allowed debt forgiveness, will now be resolved under Chapter thirteen, which requires a repayment plan.
 

Will the new law actually put more money into the hands of financial institutions? Simply making it a law that the people with financial problems need to repay will not give them the means to do so, and repayment plan or not, these people may not be able to repay if they simply do not have the cash. What little money the creditors will see now might arrive over periods of years, and may not even represent the total amount owed. Most people who seek debt relief have already reached a point where they simply cannot pay their bills. Contrary to the arguments put forth by banks, many, if not most people do not file on a whim; they do so due to the fact that they have lost their jobs, had a catastrophic illness or have had some other emergency befall them, like what happened to those on the Gulf Coast when Katrina hit.

The net benefit of this new law will simply be more trouble for everyone else. In all likelihood, financial institutions will not see any more cash than they did before.