Bankruptcy Following the 2012 Elections
Massachusetts consumers are facing important elections this November including all congress members, one United States Senator and, of course, the race for the presidency. But how will the result of the elections result in changes for bankruptcy in Massachusetts? Will more Massachusetts residents get a chance for a “fresh start” which the law affords?
The short answer is: we don’t know. None of the candidates are really talking about changes to personal bankruptcy laws. Massachusetts candidates for the US Senate have nothing in their playbooks that they have disclosed. Nor have the presidential candidates.
Let’s look at where the presidential candidates have states positions to see if we can determine any sense of the goals. President Barak Obama has done nothing of note in the realm of amending current personal bankruptcy laws. He has, however, filed a bill that offers relief to veterans. This may be instructive as to what, if anything, he would propose during a second term. That bill offers veterans the following in the forms of bankruptcy relief: eliminating the “Chapter 7 means test“, reducing the paperwork required in filing for personal bankruptcy, and increasing the homestead exemption.
The GOP candidate has not offered any insight as to what, if anything he would do if elected on the topic of personal bankruptcy.
So, let’s look at the president’s proposals and see how this would help, or hurt. The means test was imposed by the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The Act requires all persons who file a Petition for bankruptcy in federal bankruptcy court to “pass” the test, which is to have a family income under their statewide median income. If you family income exceeds that income, you have to complete a complicated form showing how you have expenses that would enable you to qualify. For information see our Massachusetts Means Test article.
The reduction of paperwork would be helpful for anyone, veterans or not, as the new law requires so much paperwork, the attorney fees associated with filing have tripled. The federal homestead exemption, presently $21,625 is insufficient for many bankruptcy filers that have equity in their homes; those filers, in Massachusetts, can take advantage of the Massachusetts Homestead Law which allows for $500,000 to be protected in home equity, and double that for a married couple who file correctly.
Our analysis: first, Governor Romney is not likely to propose anything. The last Grand Old Party president, George Bush, pushed for the 2005 laws, which made personal bankruptcy more restrictive, offering less relief. Second, President Obama is not likely to offer much help to Massachusetts consumers, either. Notwithstanding the low likelihood of his proposal passing, veterans, while deserving, make up only a small part of the population.
Even so, the Means Test and paperwork are not what we have found to be the problem for Massachusetts consumers. US Senate candidate, Professor Elizabeth Warren, while not appearing to have a platform, has noted that student loans are a huge issue going forward. Neither party appears to be looking at reform on this issue.