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A revamped US bankruptcy law takes effect today

A major revamping of US bankruptcy law takes effect today, making it harder for consumers, and possibly businesses, to write off debts and get a clean slate.

The law, as approved by Congress earlier this year, was prompted by concerns that sur-ging personal bankruptcies were taking a toll on businesses by leaving retailers, banks and credit card firms in the lurch following consumer insolvencies.

But lawmakers also inserted a number of changes into the business bankruptcy code, aiming to shorten the reorganization process and give more clout to creditors in court.

Mallory Duncan of the National Retail Federation said the law is aimed at curbing abuses in bankruptcy, especially at the individual level.

"Only a minority were misusing the law, but they were misusing it for millions of dollars," Duncan said.

"Bankruptcy is to be there as a social safety net. We are a compassionate society. And it costs society, so we want to make sure the people who are using it really need it," she said.

Under the new law, Duncan said there is flexibility, "but if they can afford to repay, they have to repay what they can."

The new law makes it tougher for debtors to cast aside credit card and other debt by filing under Chapter 7 -- the most popular type of personal bankruptcy -- which enables consumers to wipe out most of their unsecured debts.

Most consumers whose incomes are above the median for their state will have to file under Chapter 13, which requires repayments of debts over five years.

Backers of the new law say it will make it harder for people to go on spending sprees and then try to get out of debts through Chapter 7.

Edward Yingling, president of the American Bankers Association, said the new law "strikes just the right balance."
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