Consumer Advocates: Bankruptcy Law Governing Payment of Debt Is Squeezing the Most Vulnerable - ABI

Federal lawmakers passed a law more than a decade ago that required more people in bankruptcy to pay off some debt before getting a fresh start. However, some consumer advocates say that the rule has disproportionately squeezed money from disabled veterans, retired people and the unemployed, who have had to dip into pensions and public-assistance income to pay back debt through a much more arduous bankruptcy process, WSJ Pro Bankruptcy reported. Lawmakers held a hearing yesterday on a proposal that would change one piece of the 2005 rule by enabling more veterans to keep disability payments and get through bankruptcy faster. “There’s been long-simmering frustration over this — that veterans or state pension employees or railroad workers are treated worse than other people,” said Edward Boltz, a North Carolina lawyer and a member of ABI's Commission on Consumer Bankruptcy. More than 80 percent of teachers and other government workers in Ohio, Massachusetts and Nevada, for example, work in positions that draw public-pension money for retirement compensation instead of Social Security payments. Retired railroad workers receive money from a separate government agency. The rule also affects the country’s disabled military veterans, whose payments from the Department of Veterans Affairs and Defense Department are more likely to be diverted to pay creditors if they file for bankruptcy protection. A 2017 study found that veterans — a group that faces higher rates of homelessness, mental health problems and debt from medical expenses deriving from combat-related injuries — are twice as likely to file for bankruptcy protection.

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