One Year Later: Are U.S. Bankruptcy Laws Working?

Wednesday, 6 Dec 2006 | 12:36 PM ET

It has been one year since the U.S. Senate enacted a massive overhaul of laws to regulate filing for bankruptcy. Filings are at a 10-year low since then – but there’s skepticism about whether these reforms are really helping.

Robert Lawless – professor at the University of Illinois College of Law – will appear before a Senate judiciary committee today to give his take on just how effective these laws have been. He says despite the statistics – middle-class Americans are still filing. Now it’s just harder.

Bankruptcy Filings Plunge
A senate judiciary committee hearing will check up on bankruptcy reforms a year after they were enacted, with Robert Lawless, University of Illinois College of Law Professor of Law, Jennifer Smith, The Financial Services Roundtable Vice President, Public Affairs and CNBC's Liz Claman

According to Lawless – keeping people out of court to deter bankruptcy is like closing a hospital to cure a disease. It’s no surprise filings are down – he says – it’s almost twice as expensive to hire a lawyer to take individuals through the process.

Jennifer Smith is the vice president for public affairs at the Financial Services Roundtable. She counters Lawless’ claims by citing earlier data that shows those who need to file are allowed to. She endorses earlier, better and more choices for consumers at risk of bankruptcy.

Lawless says it’s “politically unrealistic” to expect a repeal in the law – but he has suggestions to change it: Stop mandating consumer credit counseling for individuals – and give back discretion to bankruptcy courts to dispense justice where needed.