More compassion

Hurricane Katrina survivors whose finances are in shambles may not qualify for federal bankruptcy protection once a new law with tough eligibility restrictions takes effect Oct. 17.

And anyone who intends to file before the new standards take effect must overcome other Katrina complications such as injuries, being moved to out-of-state shelters, the loss of personal financial records and the closure of the five federal courthouses in hurricane-ravaged areas of Louisiana, Mississippi and Alabama.

The Bankruptcy Abuse Prevention & Consumer Protection Act, which President Bush signed into law April 20, allows only people who earn less than their states' median income to file for Chapter 7 bankruptcy protection, which lets them erase their debts after they forfeit their assets. Those who earn more than the state median income and can repay at least $6,000 over five years must file under a Chapter 13 bankruptcy-reorganization plan, which requires some repayment.

The law would force about 10 percent of debtors to seek Chapter 13 debt relief instead of Chapter 7 protection, studies have found. As a result, creditors would net an extra $1 billion to $4 billion in debt repayments over a five-year period, according to similar studies.

The law also requires bankruptcy filers to submit more paperwork, such as tax returns and paycheck stubs, and to get credit counseling - at their own expense - within six months of applying. It bases a petitioner's current income on the average amount earned for the six months preceding the application.