Political Issues: Bankruptcy

With an increasing number of Americans buried in debt and in danger of losing their homes, bankruptcy is likely to be a hot issue this election year. Both parties’ candidates have already taken stands on the issue. On the Democratic side, Barack Obama would like to reform the bankruptcy process and has suggested other changes to help Americans in financial distress. On the Republican side, John McCain voted in favor of a law intended to curtail the burgeoning number of bankruptcy filings. In this post, we’ll explain each candidate’s views in more depth.

John McCain

McCain’s primary goal with regard to bankruptcy is to prevent consumers from abusing it. He believes that only the truly financially desperate should be able to use bankruptcy as an out. In 2005, McCain supported legislation that imposed additional costs on people who sought bankruptcy protection. This legislation, which Obama opposed, passed in the Senate with bipartisan support in 2005.

Barack Obama

Obama would like to reform the existing bankruptcy process in order to protect the most vulnerable. Here is a synopsis of his views on the issue:

• Wants to fast-track the bankruptcy process for military families
• Hopes to help seniors in danger of bankruptcy to keep their homes
• Intends to streamline bankruptcy for victims of natural disasters
• Plans to amend bankruptcy legislation to provide protection to people trapped in predatory mortgages

Existing Bankruptcy Reforms

The most significant bankruptcy reforms came in 2005. Here are the major changes under the new law:

• Fewer people qualify for Chapter 7 bankruptcy and must instead file for Chapter 13
• You must meet with an approved credit counselor for 90 minutes in the six months prior to filing
• What you can afford to pay will be determined by living standards set by the IRS instead of the courts
• Tougher homestead exemptions
• Lawyers may be liable if their clients’ cases contain inaccuracies