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Tough bankruptcy law provision waived

The Justice Department has temporarily waived a provision of a tough new bankruptcy law to help people filing for bankruptcy in areas hit by Hurricane Katrina.
/ Source: The Associated Press

The Justice Department temporarily waived a provision of a tough new bankruptcy law to aid people filing for bankruptcy in Louisiana and southern Mississippi because of Hurricane Katrina.

The department’s United States Trustee Program said Tuesday that for the time being applicants in those areas would not have to undergo credit counseling before they file. Some observers had said the new law, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, would produce hardships for hurricane victims.

Sen. Russ Feingold, D-Wis., praised the waiver decision but said it highlights the need for legislation he has proposed that would provide a one-year grace period after Oct. 17 for people affected by the hurricane to file under current bankruptcy law. He said the new law does not have similar waiver flexibility for its other provisions.

“For example, neither the U.S. Trustee nor the Bankruptcy Court can waive a provision that makes it easier for landlords to evict their tenants who have filed for bankruptcy,” Feingold said in a written statement. “This could compound the hardship faced by victims already made temporarily homeless by the hurricanes. The victims of (hurricanes) Katrina and Rita should not be the guinea pigs for the great bankruptcy experiment that will start in a matter of weeks.”

The law requires that any debtor who files for bankruptcy after Oct. 17 must undergo credit counseling within six months before they file for bankruptcy. The law also authorizes U.S. Trustees to approve credit counseling agencies that meet the law’s criteria.

U.S. Trustees, who oversee private trusts and promote and maintain efficiency in the bankruptcy system, are authorized by the new law to waive the counseling requirement in any judicial district where the existing counseling agencies are not reasonably able to provide adequate services to filers. The U.S. Trustee for Region 5 made this determination for the Eastern, Middle and Western judicial districts of Louisiana and the Southern district of Mississippi.

The overall Trustee program also announced approval of 41 credit counseling agencies in all federal districts for which Trustees are responsible. The list of approved credit counseling agencies is posted at the Trustees’ Web site:

More agencies will be added to the list as they are approved.

So far, 13 counseling agency offices have been approved for Louisiana filers, and another five for southern Mississippi filers, but none is located in Louisiana or Mississippi. The Web site list says these offices provide telephone and Internet counseling where in-person counseling is not available.

The program is not responsible for overseeing bankruptcy cases filed in Alabama or North Carolina.