New Rules For Bankruptcy

President Bush signed the biggest rewrite of U.S. bankruptcy law in a quarter century on Wednesday, making it harder for debt-ridden Americans to wipe out their obligations.

"Bankruptcy should always be a last resort in our legal system," Mr. Bush said. "If someone does not pay his or her debts the rest of society ends up paying them."

Many debtors will have to work out repayment plans instead of having their obligations erased in bankruptcy court under the law, which will go into effect in six months. The 500-page legislation won final congressional approval last week after being pushed for eight years by banks and credit card companies.

The measure would require people with incomes above a certain level to pay some or all of their credit-card charges, medical bills and other obligations under a court-ordered bankruptcy plan.

Those who fought the bill's passage said the change will fall especially hard on low-income working people, single mothers, minorities and the elderly and would remove a safety net for those who have lost their jobs or face crushing medical bills.

The financial services industry argued that bankruptcy frequently is the last refuge of gamblers, impulsive shoppers, divorced or separated fathers avoiding child support, and multimillionaires who buy mansions in states with liberal homestead exemptions to shelter assets from creditors.

The bill got final congressional approval last Thursday, and Mr. Bush said he was eager to sign it. "These commonsense reforms will make the system stronger and better so that more Americans — especially lower-income Americans — have greater access to credit," he said.

New personal bankruptcy filings edged down from 1,613,097 in the year ending June 30, 2003, to 1,599,986 in the year ending last June 30, breaking an upward trend of recent years.

Between 30,000 and 210,000 people — from 3.5 percent to 20 percent of those who dissolve their debts in bankruptcy each year in exchange for forfeiting some assets — would be disqualified from doing so under the legislation, according to the American Bankruptcy Institute.

Those people have six months until the law takes effect to escape the tougher guidelines. Bankruptcy attorneys have said they anticipate a rush to the courthouse.

Under the current system, a federal bankruptcy judge determines whether individuals must repay some or all of their debt.

Under the new law, those with insufficient assets or income could still file a Chapter 7 bankruptcy, which, if approved by a judge, erases debts entirely after certain assets are forfeited. Those with income above their state's median income who can pay at least $6,000 over five years — $100 a month — would be forced into Chapter 13, where a judge would then order a repayment plan.