Barack Obama and Bankruptcy changes
Democratic presidential candidate Senator Barack Obama is advocating changes to the current bankruptcy system in speeches on the campaign trail. Senator Obama recently unveiled some of his new bankruptcy ideas which include easing bankruptcy laws for elderly homeowners, disaster victims, military families, and other individuals who have become overwhelmed with debt.
One of Obama’s new provisions would have medical debt forgiven for those individuals who can prove they filed bankruptcy due to those medical expenses. Others could avoid certain bureaucratic steps to filing for bankruptcy by eliminating mandatory credit counseling, or fast tracking certain eligible families by exempting them from the new “means test”. Seniors would also be allowed a homestead exemption that could help them to keep their home. Obama believes these new bankruptcy changes could help families recover financially and potentially retain their homes.
Barack Obama is campaigning against many of the new changes in bankruptcy law established under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. Under BAPCPA, many individuals with higher incomes cannot file for Chapter 7 bankruptcy but instead must re-pay some of their debt under a Chapter 13 bankruptcy repayment plan. In addition, all bankruptcy filers must now get credit counseling prior to filing for bankruptcy and additional budgeting and debt management courses to eliminate all debt. Opponents have claimed that the 2005 laws were created for the interests of banks and financial institutions and not with the consumer’s interests in mind.
Many proponents, however, believe the new laws have been successful at stopping the worst repeat abusers of the bankruptcy system who continually generate consumer debt only to file for bankruptcy and have their debt eliminated. Proponents of the new bankruptcy laws also note that the new bankruptcy laws did lead to a dramatic decrease in bankruptcy filings after becoming law in 2005. However, the worsening of the economy and the housing crisis has increased filings over the past two years.
Senator Barack Obama’s willingness to discuss bankruptcy issues runs counter to many candidates’ campaigns in the past, many of whom have steered clear of bankruptcy issues to avoid annoying big-money interests and financial services groups who played a big part in getting the current bankruptcy laws passed in 2005.
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