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Penalties and Refusals Almost Everywhere He Turned

Sunday, March 20, 2005; Page F11

Brent Rivers struggled for almost 10 years after a car accident left him with a broken hip and pelvis before he finally filed for bankruptcy protection in December.

He tried to consolidate his debts into a single loan, only to find himself deeper in the hole because of an interest rate that he said was nearly double what was promised.

Brent Rivers's problems, which began with an accident, cost him his house and a hefty 401(k) withdrawal. (John Fletcher For The Washington Post)

_____In Focus: Bankruptcy_____
Bankruptcy's Next Chapter (The Washington Post, Mar 20, 2005)
Keeping Some Hiding Places (The Washington Post, Mar 20, 2005)
_____3 Faces of Bankruptcy_____
Interest, Late Fees Tripled The Card Companies' Bill (The Washington Post, Mar 20, 2005)
Ulcers and Credit Piled Up Debt (The Washington Post, Mar 20, 2005)
_____Color of Money_____
Mandatory Counseling, A Good Idea in Theory: Michelle Singletary says the bankruptcy counseling provision in the bankruptcy bill "is there as a roadblock. It's a setup, lobbied for by banks and credit card companies, to steer people away from bankruptcy to debt repayment plans."

Rivers said he kept trying to pay off his bills. He withdrew about $35,000 from his 401(k) retirement plan, incurring about $3,500 in penalties for taking funds early.

He persuaded a few credit card companies to let him pay less than he owed, but under Internal Revenue Service rules, that forgiveness was later reported as income, costing Rivers about $4,000 in unexpected taxes.

He tried to refinance his house, but because he didn't have a permanent job, lenders declined.

And he sought out credit counselors, only to be told they couldn't help because his debts were so far above his income.

"I wasn't trying to cheat anyone out of money; I did everything possible," said Rivers, 54, a planner and buyer at a North Carolina brake plant.

By filing for Chapter 7 protection, Rivers erased about $103,000 in unsecured debt, nearly half of it in credit card bills for medical and other expenses. He had no secured debt, such as a mortgage or car loan. If the provisions of the bankruptcy bill had been in effect, Rivers might not have been able to benefit from Chapter 7 protection, according to his lawyer, T. Bentley Leonard. Under the proposed law the first test for families filing for Chapter 7, which allows more debts to be wiped out than the more restrictive Chapter 13, is whether their annual income is below the median for the state in which they live. The income for Rivers's household, which includes his wife and 16-year-old daughter, was about $79,000 last year, or about $15,000 above North Carolina's median for a family of three.

If Rivers had waited to file for bankruptcy protection until after the proposed law takes effect, he would probably have to file under Chapter 13 bankruptcy, Leonard said. That would require him to pay back a portion of his debt for five years even though "these folks do not have the means to generate that kind of income," especially since the plant where Rivers works is scheduled to close permanently in May.

Banking executives, however, say the proposed law would provide for people like Rivers. If his monthly expenses for food, transportation, housing, utilities, health care and other basics were so high that they left no extra money to pay his creditors, he might still be able to file under Chapter 7, said Ed Yingling, executive vice president of the American Bankers Association.

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