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Updated 4:00 PM January 24, 2007




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Bankruptcy Reform Act: No help to consumers in debt

Consumers in financial trouble are being squeezed harder than ever. Many debtors are learning—or soon will learn now that the holidays are over—that filing for bankruptcy isn't as easy as it used to be, a U-M expert says.

More than a year after provisions of the Bankruptcy Reform Act took effect in October 2005, debtors are finding it more expensive and time-consuming to file for bankruptcy protection, says law professor John Pottow. The act, however, has not solved consumer financial distress.

"Reform, as it was styled, focused on reducing the number of bankruptcies but paid no attention to their cause," says Pottow, a bankruptcy expert. "The data we see suggest the underlying cause is getting worse: a growing number of Americans still cannot pay their debts."

Debts typically increase during the holidays, he says. Consumers rely heavily on credit cards to buy gifts, decorations and other related items, then get debt-induced hangovers in January when they go to their mailboxes to find much-higher-than-expected credit card bills.

If debtors consider filing for bankruptcy protection, they can expect higher costs. Pottow says reports suggest attorneys fees have jumped by 50 to 100 percent in response to the complexity of the new law.

"The statute also increased court filing fees, and new credit counseling and paperwork requirements make bankruptcy a more time-consuming (and hence expensive) endeavor," he says. "So if fewer distressed people can afford to file for bankruptcy, what will the increasing ranks of the distressed do? They won't just disappear."

A podcast featuring Pottow can be found at:

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