Bankruptcy Relief and Natural Disaster Victime

CRS Report for Congress
Bankruptcy Relief and Natural Disaster Victims
Updated November 14, 2005
Robin Jeweler
Legislative Attorney
American Law Division

Congressional Research Service ˜ The Library of Congress

Bankruptcy Relief and Natural Disaster Victims
In the wake of Hurricanes Katrina, Rita, and Wilma, many questioned whether
implementing the new procedures of the Bankruptcy Abuse Prevention and
Consumer Protection Act (BAPCPA), P.L. 109-8, which became effective on
October 17, 2005, should have been delayed or revised.
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 disaster 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, several bills that address the issue of bankruptcy relief for Katrina
victims have been introduced. 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.

Background ..................................................1
Defining Debtor and Creditor Needs...............................2
The Goals of the BAPCPA......................................3
Burden of Proof...............................................4
Limitations on Debt Forgiveness..................................4
The New Law: How Flexible Is It?................................5
BAPCPA Increases Transaction Costs.............................7
Small Business Reorganization...................................8
Legislative Response...........................................9
Administrative Response........................................9
Conclusion ..................................................10

Bankruptcy Relief and Natural
Disaster Victims
In the wake of Hurricane Katrina, many questioned whether implementing the
new procedures of the Bankruptcy Abuse Prevention and Consumer Protection Act
(BAPCPA), P.L. 109-8, which became effective on October 17, 2005, should have
been delayed. Others have suggested that the U.S. Bankruptcy Code, 11 U.S.C. §
101 et seq., as amended by the BAPCPA, may need legislative adjustments to meet
the special needs of disaster victims. Several bills that address this issue have been
This report considers whether bankruptcy law in general, and the new law in
particular, may present unique challenges to financial recovery for those whose life,
livelihood, and/or home have been damaged or destroyed.
Chapter 7 of the Bankruptcy Code governs liquidation of individual and
business assets and is used most frequently by individuals. Liquidation involves
marshaling the debtor’s assets as of the bankruptcy filing, reducing them to cash,
distributing the proceeds to creditors, and forgiving (i.e., discharging the debtor from
most debts that predate the filing). A bankruptcy reorganization under chapter 13
allows a debtor to discharge indebtedness by using future income to pay past debt.
In return, the debtor may be able to retain some assets that would have to be
surrendered in liquidation.
The U.S. Bankruptcy Code has historically and continues to make limited
distinctions between types of debtors by occupation, (i.e., wage earners, farmers,
family farmers, fishermen, railroads, commodity brokers, etc.). While there are many
different provisions addressing various debtor and creditor groups, there are far fewer1
instances of chapters or subchapters tailored to a discrete debtor group’s needs. In
addition to providing different procedures for reorganizing specified debtor groups,
some potential debtors, specified businesses such as domestic insurance companies
and banks, are not permitted to file in bankruptcy.2 Business entities that are not
permitted to file generally have other regulatory regimes to deal with their

1 Chapter 9 governs the reorganization of a municipality, when it is permitted to do so by
the state. Chapter 12 is designed to establish an expeditious and streamlined reorganization
process for family farmers and fisherman. Under chapter 11, which governs business
reorganization, there are subchapters addressing railroads, stockbrokers, commodity brokers
and clearing banks.
2 11 U.S.C. § 109.

Despite its complexity, the Code establishes general rules for the treatment of
a debtor and his or her indebtedness. In terms of debt, the primary distinction for
bankruptcy purposes is between secured and unsecured debt. Secured indebtedness,
such as home mortgages and automobile liens, are treated differently under the U.S.
Bankruptcy Code and commercial law in general; they cannot be fully discharged.
Unsecured claims, which are essentially contractual obligations to repay without a
pledge of collateral, may be discharged. Chapter 7 is utilized by debtors to discharge
unsecured debts such as credit card debts.
Defining Debtor and Creditor Needs
The ultimate goal of a bankruptcy proceeding is twofold: to give the deserving
debtor an economic “fresh start” by forgiving (i.e., discharging) debt, and to
maximize the debtor’s estate for the benefit of creditors and distribute it to them
equitably. As stated above, bankruptcy law, like the law in general, treats secured
and unsecured claims differently. Two major bankruptcy distinctions in the treatment
of unsecured debt are that, if there are sufficient assets, some unsecured claims will
be paid to creditors before others (which means that some of lower priority may not
be paid at all),3 and some may not be discharged in bankruptcy (which means that the
creditor can continue to attempt to collect from the debtor after the bankruptcy
proceedi n g). 4
But bankruptcy law does not — and never has — made major substantive or
procedural distinctions based on why the debtor files. Although there have been
many studies of the reasons that people file in bankruptcy, most, of necessity,
extrapolate from limited data. Nonetheless, regardless of the integrity of such
studies, it may not be clear how a general survey of bankruptcy schedules and filings
and debtor interviews will account for the aftermath of catastrophic, though
geographically limited natural disasters. An informal review by a bankruptcy law
professor suggests that there may be a strong statistical link between hurricanes and
bankruptcy filings.5 Yet accepting a common sense assumption that economic
catastrophe results in more bankruptcy filings still does not teach exactly what kind
of bankruptcy law changes may be desirable to accommodate the affected population.
For example, during debate over the BAPCPA, researchers released a report
suggesting that many individuals file in bankruptcy to deal with unmanageable

3 11 U.S.C. § 507. The majority of chapter 7 filings are “no asset” filings in which no
creditor receives disbursement of funds.
4 11 U.S.C. § 523.
5 Peter Gosselin, New Bankruptcy Law Could Exact a Toll on Storm Victims: Unless
changes are made, some say the overhaul due to take effect could make it tougher for Gulf
Coast residents to recover, L.A. TIMES, Sept. 7, 2005 at A17. In the article, Prof. Robert
Lawless indicates that bankruptcy filings after 18 major storms that each caused over $1
billion dollars in damage rose more than 1 ½ times the national average within areas
affected for at least one to three years afterward. See also Ed Flynn, Bankruptcy and Natural
Disasters, Vol. XXIII, No. 10, AMER. BANKR. INST. J. 20 (Dec. 2004/Jan. 2005).

medical expenses.6 Some argued that a debtor who has incurred high medical
expenses should receive different treatment under the bankruptcy law. But pre- and
post-BAPCPA bankruptcy law remains neutral with respect to why the debtor is
filing. The law sets forth a program that specifies the manner and extent to which
debts are to be paid or discharged.
Indeed, there are many challenges to determining what particular needs may or
may not be unique to hurricane victims. Some assume that filings will occur shortly
after the crisis, when homes are destroyed and jobs lost. Others believe that filings
will peak after several years, when individuals try to rebuild their lives and encounter
obstacles such as lower paying jobs or chronic medical problems. Many victims
may not return to their homes in the stricken areas, but will start their lives over in
new locales. And for many others, the obstacle may not be a complete lack of
resources. Some individuals will have adequate insurance to cover their property
losses and jobs to return to. But the length and scope of the disruption to their lives
may present their own unique financial hardships.
Tailoring bankruptcy law to the underlying causes of bankruptcy is perhaps not
achievable. Because individual finances are so fact-specific, bankruptcy law deals
only with process. But historically, in times in financial crisis like the Depression,
economic relief was facilitated by legislation permitting some manner of bankruptcy
filings.7 And under the 1978 law, financial rehabilitation of individuals was effected
by expeditious access to chapters 7 and 13.
The Goals of the BAPCPA
Under the Bankruptcy Reform Act of 1978,8 Congress created a streamlined
system for individuals to file under chapter 7. Over the years, millions did. The high
number of individuals filing in bankruptcy led Congress to perceive that bankruptcy
relief was too easy to obtain and that debtors were abusing the process.9 The
amendments effected by the BAPCPA are designed to reverse that trend. The law
implements rules and procedures which are designed to reverse the perceived ease
of filing, to require that bankruptcy relief be conditioned upon debtors dedicating a
portion of their post-bankruptcy income to pay off their pre-bankruptcy debts, and to
limit the amount of debt that may be forgiven. However, the approach the new law
takes is without precedent in the administration of the bankruptcy laws of the United
States. Because there is no empirical or experiential data to evaluate this new
approach to debt repayment, many have questioned whether it is flexible enough to

6 For more background on this issue, see CRS Report RS22096, Treatment of Health Care
Expenses under the Bankruptcy Abuse Prevention and Consumer Protection Act, by Robin
7 Virtually all of the early bankruptcy laws of the United States, enacted on a temporary
basis, were in response to economic hardship. See, e.g., 2 Stat. 19 (April 4, 1800); 5 Stat.

440 (August 19, 1841); 14 Stat. 517 (March 2, 1867).

8 P.L. 98-598, as amended.
9 See H.Rept. 109-31, Part I, 109th Cong., 1st Sess. 2 (2005), Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005.

accommodate the situations in which victims of Hurricane Katrina, indeed all natural
disasters, may find themselves. Some believe that it may be desirable to adapt many
pre-existing and new substantive and procedural requirements to disaster victims’
identifiable needs.
The BAPCPA is an extremely lengthy, complicated, and technical overhaul of
bankruptcy practice. Many of its provisions will undoubtedly be of assistance to
debtors, such as the clarification of the treatment of retirement funds in Individual
Retirement Accounts, or the treatment of money in educational savings accounts,
which are protected from creditors. Loans that a debtor may take from his or her
pension plan may be repaid despite a bankruptcy filing. Others may pose challenges.
A sampling of these issues and their implications for Katrina victims are considered
Burden of Proof
In furtherance of the policy of making chapter 7 filings more difficult to obtain,
the BAPCPA imposes a significantly higher burden of legal and evidentiary proof for
prospective debtors in numerous contexts. A basic example of this shift is the
amendment of 11 U.S.C. 707 governing dismissal of a chapter 7 case. Under the law,
which went into effect on October 17, 2005, when a bankruptcy judges considers
whether to dismiss a chapter 7 case for abuse, “[t]here shall be a presumption in favor
of granting the relief requested by the debtor.” That presumption is omitted in the
BAPCPA and is replaced by the presumption, embodied in the means test, that a
debtor who can theoretically pay $100 a month towards unsecured debts is abusing
chapter 7 and must reorganize under chapter 13.
Burdens of proof and legal presumptions are important elements of the
bankruptcy process. Additional examples of presumptions are those involved in the
dischargeability of debt. Use of a credit card to obtain cash advances totaling more
that $750 obtained within 70 days of the bankruptcy filing is presumed fraudulent
and nondischargeable.10 Likewise, under pre-BAPCPA and current law, all student
loans are nondischargeable unless a debtor can prove “undue hardship.”11 These
presumptions and burdens do not preclude a debtor from receiving bankruptcy relief,
but they increase the costs, evidentiary proof necessary, and in many instances, the
uncertainty of obtaining debt forgiveness. It is conceivable that standards on
presumed abuse, prospective income, and hardship may be difficult to apply to
persons unexpectedly displaced for extended periods.
Limitations on Debt Forgiveness
As stated above, bankruptcy deals with two types of debts: secured and
unsecured. With respect to unsecured debt, those that cannot be forgiven are

10 11 U.S.C. § 523(a)(2)(C)(II). This provision is amended by the BAPCPA to be more
favorable to creditors than its previous version.
11 See [Sec. of Education] Spelling: 372,000 students displaced by Katrina at
[ AT ION/09/12/ka trina.spellings .ap/index.html ].

nondischargeable. The BAPCPA broadens the categories of nondischargeable debt.12
Another example of nondischargeable debt that may have special impact on hurricane
victims is that governing condominium and/or cooperative fees.13 Under pre-
BAPCPA law, a condominium fee due after the bankruptcy filing was
nondischargeable so long as the debtor continued to physically occupy the dwelling.
Under the new law, such fees are nondischargeable for as long as the debtor “has a
legal, equitable, or possessory ownership” in the property.
The new law also makes major limitations to the debt forgiveness permitted for
secured debt. To simplify the process, in order for a debtor to keep possession of
collateral, a secured creditor must receive an amount that represents its value. A
secured creditor is “secured” only to the value of the collateral, and unsecured for any
amount which may be owed but is greater than the collateral’s value.
Valuing collateral, however, is quite complicated. Although the yardstick for
the collateral’s value is generally “market” value, determining what that standard
actually means has been subject to litigation and judicial interpretation over the years.
Different courts have allowed debtors to value collateral (hence, what they owe
secured creditors) by such standards as wholesale value, foreclosure value (market
value minus the costs to the creditor of foreclosing on the property and reselling it),
and replacement value.14 The BAPCPA, however, amends the Code by requiring
debtors to pay the highest possible amount to secured creditors for property acquired
for personal, family, or household use, that is, retail value.15 In some cases under
chapter 13, the debtor will have to pay the purchase price for a car or other item,
regardless of its replacement or retail value.16 Usually, the debtor who repays a
secured creditor continues to enjoy use of the collateral. It is not clear how these
changes may apply in a case of a debtor whose personal property has been destroyed
in whole or in part and whose insurance coverage, if any, may not be soon resolved.
The New Law: How Flexible Is It?
The means test is intended to ensure that those who can pay their debts from
future income do so. It sets forth a complicated formula to measure income versus
expenses. If the formula indicates that the debtor can pay $100 a month towards
unsecured debts the presumption of abuse may still be rebutted by demonstrating

12 For more background on features of the BAPCPA, including nondischargeable debt, see
CRS Report RL32765, The “Bankruptcy Abuse Prevention and Consumer Protection Actth
of 2005” in the 109 Congress, by Robin Jeweler.
13 11 U.S.C. §523(a)(16).
14 Associates Commercial Corp. v. Rash, 520 U.S. 953 (1997).
15 11 U.S.C. § 506(a)(2) (“...replacement value shall mean the price a retail merchant would
charge for property of that kind considering the age and condition of the property at the time
value is determined”).
16 Id. at § 1325.

“special circumstances.”17 However, to demonstrate the circumstances (and indeed
the destruction wrought by Hurricane Katrina would seem to be a unique
circumstance), a debtor “shall be required to itemize each additional expense or
adjustment of income” and provide documentation and detailed explanations
therefore under oath. Because the statutory language is mandatory, it is unclear to
what extent, if any, the court will have discretion to waive that requirement for
individuals whose financial records have been destroyed.18 And it may be
problematic to predict future income and expenses for persons uprooted for an
undetermined period.
The only category of debtor who is exempted entirely from the rigors of the
means test on a basis other than income are disabled veterans whose bankruptcy
indebtedness occurs primarily during a period when he or she was on active duty or
performing homeland defense activity.19 Although not explicit, this exemption
suggests that a presumption of abuse will apply to all debtors other than specified
disabled veterans; veterans may benefit implicitly from the presumption in favor of
relief that was omitted by the BAPCPA.
Another provision that may appear to lack flexibility involves pre-bankruptcy
credit counseling. In order to file, a debtor must undergo credit counseling within
180 days before filing. Many may argue that such a jurisdictional requirement should
not apply when the need for financial relief is the result of a natural disaster, although
others may feel that it is beneficial regardless of the reason for filing. A debtor may
plead “exigent” circumstances that merit a waiver of the counseling requirement.
But in no case may the waiver extend beyond 45 days after filing. A complete
exemption from the counseling requirement will only exist for those unable to
receive counseling because of incapacity, disability or active military duty in a
military combat zone.20
New and complicated domiciliary requirements for bankruptcy exemptions are
implemented by the BAPCPA. Although designed to prevent pre-bankruptcy moves
by debtors in order to obtain more favorable state homestead exemptions, the system
may result in unintended consequences with respect to debtors who are relocated, or
who relocate, as a consequence of the hurricane. For example, in certain default
situations, a debtor may be required to use federal exemptions in lieu of state
exemptions. How this new system of lengthened residency requirements and the dual

17 11 U.S.C. § 707(b)(2)(B)(i) provides, in part,”[T]he presumption of abuse may only be
rebutted by demonstrating special circumstances, such as a serious medical condition or a
call or order to active duty in the Armed Forces, to the extent such special circumstances
that justify additional expenses or adjustments of current monthly income for which there
is no reasonable alternative.”
18 See Geri Dreiling, Bankruptcy Law May Add to Katrina Victims’ Woes: Experts Are
Divided Over the Effects of New Statutory Provisions, ABA J. E-Report, Sept. 16, 2005 at
[] citing attorneys’ opposing views
on how the courts must implement the “special circumstances” provision.
19 11 U.S.C. § 707(b)(2)(D). If a debtor and spouse’s combined income is equal to or less
than the applicable state’s median income, the means test does not apply at all.
20 11 U.S.C. § 109(h).

state/federal system of bankruptcy exemptions will operate is “unclear.”21 Under the
federal exemptions, however, the ability of a debtor to avoid nonpurchase money,
nonpossessory security interests in household goods is significantly curtailed.22
BAPCPA Increases Transaction Costs
The new law increases the transaction cost of bankruptcy for debtors and their
attorneys. First, bankruptcy filing fees have been increased to reflect the new
responsibilities of the court, the Department of Justice, and trustees under the means
test and other provisions of the law.23
Second, and far more importantly, bankruptcy attorneys have new investigatory
responsibilities under the law. Under the BAPCPA, a signature by an attorney on a
bankruptcy petition constitutes a certification that the attorney has performed a
reasonable investigation into the circumstances that gave rise to the filing and has
determined that the information provided is well grounded in fact and warranted by
existing law.24 Attorneys who fail to perform this new responsibility risk sanctions.
The duty to verify the accuracy of client information will add time and expense to the
task of debtor representation.25
This task may be complicated by the hurricane disaster scenario. Many debtors
may have little to no documentation to support their financial hardship assertions.
And, unfortunately, a disaster can be accompanied by those who attempt to take
wrongful advantage of it.26 Therefore, just as the timing and locale of future filings
by disaster victims is unknown, so to is the extent to which bankruptcy attorneys will
be willing and able to take responsibility for the accuracy of client-provided

21 “It is not completely clear when federal exemptions would be triggered and that may
depend upon whether the state in which the debtor was domiciled for most of the 180 days
immediately preceding the 730-day period had specific rules governing its exemptions that
prevented the debtor from using that state’s exemptions.” William Houston Brown and
(Thomson/West 2005)
22 11 U.S.C. § 522(f).
23 Filing fee for chapter 7 has been raised from $155 to $200. The filing fee for chapter is
reduced to from $155 to $150. 28 U.S.C. § 1930.
24 11 U.S.C. § 707(b)(4)(C).
25 Some critics of the new law believe that there will be a scarcity of attorneys willing to
represent debtors. See Patti Bond, Lawyers wary of bankruptcy rules: Experts say new law
will make it more difficult for debtors to obtain counsel, THE ATLANTA JOURNAL-
CONSTITUTION, April 21, 2005 at E1. Bankruptcy attorney malpractice insurance premiums
are also predicted to rise. See Dara McLeod, Malpractice insurers watching impact of
bankruptcy law, KANSAS CITY DAILY RECORD, June 1, 2005.
26 For example, individuals have been prosecuted for submitting false claims to the Sept. 11
Victims Compensation Fund. Crime & Justice, THE WASHINGTON POST, Sept. 14, 1002 at

Third, the adversarial and litigation costs of implementing the new law may
generally increase because bankruptcy judges, trustees, attorneys, and professionals
have no body of law to guide them in interpreting the new legal requirements.
Scholars attempting to explain the new law to practitioners acknowledge that many
issues need to be fleshed out. One example is the interaction between chapters 7 and
13. Indeed, the greatest impact of the new law will be not on those who will continue
to qualify under the means test as “no asset” chapter 7 debtors, but on those who are
subject to mandatory chapter 13 reorganization. Will debtors who do not qualify for
chapter 7 be able to complete a chapter 13 reorganization? The question is posed:
There are as many factual scenarios as there are potential debtors, and how the
means test plays out in actual practice remains to be seen, but its results clearly
do not equate to what may be required of the same debtor in a chapter 13 plan.
It is entirely possible that a debtor may be forced into a chapter 13 plan due to27
failing the means test and then be unable to obtain confirmation of a plan.
The confluence of a new, stricter bankruptcy regime being implemented
simultaneously with a national economic disaster may be unprecedented. It may
complicate the task of reconciling new bankruptcy procedures designed to limit
access to chapter 7 with the new, and as yet unidentified particularized needs of the
hurricane victims.
Small Business Reorganization
Small business entrepreneurs often use credit card loans to fund their business
activities. As individuals, they could reorganize under chapter 13 if their
indebtedness fell within the chapter’s jurisdictional limits.28 It is increasingly
unlikely that they will be able to do so under chapter 13 as amended by the BAPCPA
because of the new schedules for determining disposable income.29
Congress has amended chapter 11 dealing with business reorganization to
implement special streamlined provisions for a small business, defined as one with
indebtedness under $2,000,000.30 Although new, more flexible confirmation
procedures for small business exist,31 there are also new, more onerous reporting
requirements. A debtor must provide reasonable approximations of projected cash
receipts and disbursements and comparisons of actual receipts and disbursements to
earlier projections and it must confirm compliance with bankruptcy, tax, and other
governmental filing obligations.32 The court must dismiss the case for an unexcused
failure to satisfy reporting requirements unless the court finds that absent unusual

28 The limit is currently $307,675 in unsecured debt and $922,975 in secured debt. 11
U.S.C. § 109(3).
29 11 U.S.C. § 1325(b)(2).
30 11 U.S.C. 101(51C).
31 11 U.S.C. § 1125.
32 Id. at § 308.

circumstances, the dismissal in not in the best interests of creditors and the
bankruptcy estate.33
Legislative Response
Several bills have been introduced that would make a variety of substantive
amendments to the Bankruptcy Code for the benefit of disaster victims. These bills
would address such issues as residential eviction, filing deadlines, credit counseling,
conversions from chapter 7 to 13, the means test, venue, and small business
provisions.34 They have not yet been acted upon.
Administrative Response
U.S. Trustees play a large role in bankruptcy administration under chapters 7
and 13 and, to a lesser extent, under chapter 11. Not long after Hurricane Katrina, the
Executive Office for United States Trustees (EOUST) in the Department of Justice
issued several press releases indicating actions that U.S. Trustees will take with35
respect to Katrina victims. In the press releases, the EOUST announced
!a temporary waiver of prefiling credit counseling and post-filing
debtor education requirements for Region 5 (composed of the
Eastern, Middle, and Western Districts of Louisiana and the
Southern District of Mississippi); 36 and
!its intention not to file enforcement motions against debtors who are
unable to provide documents such as payment advices and statement
of income due to natural disasters; to consider adverse effects of a
natural disaster as a “special circumstance” for debtors attempting
to rebut the presumption of abuse; to exercise flexibility and provide
alternative means for a debtor to attend the mandatory meeting of
creditors if the debtor cannot appear personally and testify in the
district where the case is filed; not to raise venue objections in cases
in which a debtor was displaced due to a natural disaster; to make
special concessions, including refraining from seeking conversion or
dismissal, for chapter 11 small business debtors who cannot

33 Id. at § 1112(b).
34 See, e.g., from the 109th Congress, S. 1647, S. 1765, S. 1766, S. 1787, and H.R. 4197. For
more background, see CRS Report RS22275, Proposed Bankruptcy Legislation to Address
Natural Disaster Victims, by Robin Jeweler.
35 See [].
36 U.S. Dept. of Justice, U.S. Trustee Program Announces Approval of Credit Counseling
Agencies for Bankruptcy Filers and Waiver of Credit Counseling Requirement In Areas
Affected by Hurricane Katrina, press release, Oct. 4, 2005, and U.S. Trustee Program
Announces Approval of Debtor Education Course Providers For Bankruptcy Filers and
Waiver of Debtor Education Requirement in Areas Affected by Hurricane Katrina, press
release, Oct. 7, 2005, at [].

reasonably be expected to perform statutory duties because of the
disaster if there are reasonable prospects for reorganization.37
The press releases do not specify a time frame for the temporary waivers.
Because the consumer and small business bankruptcy procedures in the
BAPCPA are new, the impact of their application to disaster victims cannot be
predicted with certainty. Proponents of the new approach may feel that, as designed,
it will, on an individual case-by-case basis, address the needs of all debtors, including
victims of natural disasters, by ensuring that those who can afford to pay their debts
do so regardless of their reason for filing in bankruptcy. Others may feel that, in the
wake of Hurricanes Katrina, Rita, and Wilma, the timing is not propitious for
implementation of a new bankruptcy system, particularly one premised upon the
notion that access to chapter 7 debt forgiveness has been widely abused. To the
extent that the Congress has rejected the notion of “easy” access for all to chapter 7,
some may advocate a new approach to bankruptcy, namely, crafting different debt
relief programs for different debtor groups based upon their reasons for filing and
their perceived worthiness. In that case, the needs of each group need to be identified
with some precision and necessary group-specific safeguards against abuse

37 U.S. Dept. of Justice, U.S. Trustee Program Announces Enforcement Guidelines for
Bankruptcy Debtors Affected by Natural Disasters, press release, Oct. 5, 2005, at
[http://www.usdoj .gov/ust/].