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Hurricanes and Bankruptcy
Reform Pushing More Americans Toward Financial Ruin By James Donahue Sept. 30, 2005 It is easy to see the
financial crisis confronting the tens of thousands of Americans that were caught up by Hurricanes Katrina and Rita. They have
lost their homes, cars and jobs. They are literally on the street without any means of support except for help they receive
from charities and the federal government. But there is another
problem that awaits not only these people, but millions of other Americans in the weeks the months ahead. This is a massive
debt coupled with the federal bankruptcy reform. The American Bankers
Association reported this week that the percentage of credit accounts 30 or more days past due has climbed to an all-time
high of 4.81 percent during a period from April to June, and because of high gasoline and fuel prices, is expected to grow
even higher as the year progresses. “The last two quarters
have not been pretty,: Jim Chessen, the association’s chief economist said. He blamed not only high gas prices, but
said rising interest rates and the fact that fewer people are saving is also playing a role. “The rise in gas
prices is really stretching budgets to the breaking point for some people,” Chessen said in an AP story. “Gas
prices are taking huge chunks out of wallets, leaving some individuals with little left to meet their financial obligations.” For the next several
months, while And while incomes are
non-existent, the bills are ever present. Mortgage, automobile, medical, and utility payments are always due in spite of the
chaos going on around these people. For the banks and lending institutions it is business as usual. Thus the temptation will
be great to utilize credit cards to the maximum in the faint hope that times will get better next year, and that jobs will
return in time to pay off these colossal debts. But times may not get
better. Those oil rigs off the coast may be more damaged than first reported and the casinos destroyed along the bayou may
not be rebuilt if the moralistic Christians throughout the south have anything to say about it. And the charm of All it will take is one
more big storm to sweep the area late this year or next, and that credit card gamble will be lost. Then what? In a recent analysis
for the website AlterNet, Howard Karger wrote: “One of the consequences of so many Americans living paycheck to paycheck
is their extreme vulnerability during crises. About half of families roll over credit card balances every month, and balances
average almost $5,000. “Last year 1.6
million cardholders declared bankruptcy. To meet their financial obligations, many Americans have refinanced their homes;
about 42 percent of new mortgages are refinances, and 77 percent strip equity from homeowners, leaving them with higher monthly
payments,” Karger wrote. He said that many of
the victims in the south fell into this situation even before the hurricane. And now “the federal bankruptcy reform
is on a collision course with those left behind.” In an effort to ward
off a growing national problem of credit card bankruptcies, Congress last year changed the bankruptcy laws, making it very
hard for families to erase their debts. At best, a person can get payments reduced, but the debt is no longer erased at the
sweep of a judicial pen. The new bankruptcy laws
ironically go into effect Oct. 17. Karger said he believes
the change is going to create “a credit crisis of major proportions on the While it is true, credit
card lenders, banks and even automobile loan companies are relaxing payment demands for up to three months for victims, Karger
said this is not going to be much help for people left out of work and without homes for a long time. He calls for Congress
to “revisit the federal bankruptcy law” and for credit card companies and other lenders to extend the moratorium
on debt repayment. “The failure to
enact significant reforms will sabotage efforts by hurricane victims to rebuild their homes, and with poor credit scores,
they will find it impossible to secure mortgages and car loans,” Karger wrote. |
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