Bankruptcy Relief and Natural Disaster Victims

Publication Date: September 2005

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

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Abstract:

In the wake of Hurricane Katrina, many have questioned whether implementing the new procedures of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), P.L. 109-8, scheduled to go into effect on October 17, 2005, should be delayed.

This report considers whether bankruptcy law in general, and the BAPCPA in particular, may present unique challenges to financial recovery for those whose life, livelihood, and/or home have been damaged or destroyed.

To some extent, the new goals of the BAPCPA, which is designed to restore personal responsibility to individual's financial affairs and reduce the number of chapter 7 filings, may be at odds with the goals of those who want to assist Katrina victims through a speedy financial rehabilitation procedure under chapter 7 of the U.S. Bankruptcy Code.

The BAPCPA is an extremely lengthy, complicated, and technical overhaul of bankruptcy practice. Many of its provisions will undoubtedly be of assistance to debtors, while others are more problematic. This report reviews just a few elements of the new law in areas such as burden of proof, debt forgiveness, flexibility, transaction costs, and small business reorganization and considers their implications for Katrina victims. It concludes that it may be impossible to predict how the implementation of a new bankruptcy system will impact Katrina victims, whose specific needs in a bankruptcy context are not yet known.

To date three bills, H.R. 3662, H.R. 3697 and S. 1647, have been introduced which address the issue of bankruptcy relief for Katrina victims. These bills include provisions to push back the effective date for implementation of the BAPCPA, and to make substantive changes to the Bankruptcy Code for the benefit of disaster victims. This report will be updated as events warrant.