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Last Updated: Wednesday, 14 September 2005, 12:54 GMT 13:54 UK
New debt fear for Katrina victims
Centre for Hurricane Katrina refugees in Baton Rouge, Louisiana
Many victims of Hurricane Katrina have lost everything
New US bankruptcy laws could add to the woes of Hurricane Katrina victims as they struggle to rebuild their lives, a politician has warned.

Bankruptcy Code changes which make it harder for Americans to wipe out their debts take effect in a month's time.

Democratic Senator Russ Feingold says people driven to bankruptcy by hurricane damage should not be "test cases" for the new code.

He is proposing a bill that would give them another year under the old law.

However, it faces opposition from senior Republicans who say the bankruptcy changes will not affect people who have been completely ruined financially.

Senator Feingold's legislation comes amid growing concern about the possible implications of the new Bankruptcy Code for Hurricane Katrina victims. The new rules come into force on 17 October.

'New barriers'

The changes were passed by Congress earlier this year in response to a surge in personal bankruptcy filings, which reached an all-time high of 458,597 over the three months to June.

Designed to curb abuse of the system, the new code contains stricter documentation requirements, as well as a means test intended to identify people who are still able to repay their debts.

However, the Consumer Federation of America says the government should not be "throwing up new barriers to bankruptcy" at a time when hurricane victims are trying to get back on their feet.

And credit agency Fitch Ratings has warned that the devastation in Louisiana and Mississippi will "take its toll" on many inhabitants, who will "file for bankruptcy irrespective of more stringent laws".

'Fresh start'

Senator Feingold says many residents of the stricken area have suffered "catastrophic losses" and will have to file for bankruptcy "through no fault of their own".

"Bankruptcy lets them get a fresh start. And a fresh start is what so many of the relief efforts going on are all about," he told the Senate last week.

He said victims of natural disasters should be exempt from the means test.

"Katrina's victims should not be the test cases. Giving them a year to proceed under the old law seems entirely reasonable," he added.

However, the idea is opposed by the Republican chairman of the House of Representatives' judiciary committee, James Sensenbrenner, who is responsible for deciding whether the bill will be considered in the House.

Mr Sensenbrenner said the new law made no difference to people who were "down and out" and had no possibility of repaying 40% or more of their debts.


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