Overwhelmed by more than $60,000 in debt, Lenya Garcia filed for bankruptcy protection last July. In January, her case was completed and her debts -- mostly on credit cards -- were dismissed. Less than a month later, a rash of new credit card offers began arriving in the mail.
"I was very surprised," said the 36-year-old Bronx bookkeeper. "I figured my credit history had a big smear on it, and it would take a long time to get credit." Initially Garcia threw the offers away, but then she had a hard time renting a car without a credit card. So she took the next good "preapproved" offer -- 14.9 percent interest and no sign-up or annual fee -- and signed up at the company's Web site.
Consumer Impact If signed by President Bush as expected, the bankruptcy bill passed yesterday by the House will make it harder for many people to wipe out most of their debts.
Bankruptcy Protection: What is Chapter 7 and Chapter 13 bankruptcy? And how will the new bankruptcy legislation change them?
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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."
"I was approved instantly."
Bankruptcy attorneys say Garcia's experience is the norm for debtors emerging from bankruptcy. "I tell my clients they will be inundated with offers," said North Carolina attorney T. Bentley Leonard. The reason is simple, he said: This group of consumers is a very attractive market to lenders because their debts have been wiped out and new debt cannot be forgiven for another six years.
"One day they owe $50,000, the next day, nothing. What better person to lend money to?" Leonard said.
That's certainly the pitch of one database firm, NewLeadsUSA, which sells lists of bankrupt consumers and businesses from publicly available data. "Opportunity knocks after life's hard knocks," the NewLeads Web site says. "Bankruptcy means a new financial life for many businesses and consumers. Be among the first to reach this unique and lucrative market."
Most of the offers are extended to consumers who have filed for Chapter 7 bankruptcy, which allows them to erase most of their debts. But attorneys say frequent solicitations also are made to consumers who have filed under Chapter 13, which requires some repayment of creditors and restricts new debt.
Consumer advocates say these offers could increase under a new bankruptcy law approved by the House yesterday by a 302 to 126 vote. The measure, already approved by the Senate, would make it more difficult for consumers to wipe out their debt through Chapter 7 bankruptcy. White House aides have said President Bush will sign the measure pushed for nearly a decade by credit card and retail industries. Proponents say the changes are needed to end abuses by people who shirk their financial obligations.
Under the legislation, debtors who file for Chapter 7 bankruptcy court protection will not be able to get any future debts dismissed for another eight years. That in itself will make filers a more attractive target for credit solicitations, said John Rao, a staff attorney of the National Consumer Law Center, one of many consumer groups that fought the bankruptcy bill. "The problem is that credit card companies will have an even greater incentive to encourage recent bankruptcy filers to incur new debt, knowing that this debt will be safe from any possible bankruptcy discharge for a longer, eight-year period," Rao said.
The solicitations concern bankruptcy attorneys and judges who worry that the credit industry is irresponsibly dangling temptation in front of people who may be desperate for it. "It's like putting a steak in front of a starving man and saying, 'Don't touch,' " said Brett Weiss, a bankruptcy attorney in Olney.