Indebted to debt

For any college student (except those with a parental carte blanche), debt remains a very real threat, if not a reality already. I know economics tends to be a dry subject, but for any student with debt or soon to be accumulating debt, the subject of bankruptcy is urgent.\nIn April, President Bush signed into law a bill that will be the most significant restructuring of the bankruptcy code in 25 years. The code will take effect in October, so Americans are currently rushing en masse to the courts to file bankruptcy before the deadline -- filings have increased by as much as 17 percent in Cleveland and 22 percent in Iowa.\nWhy the rush?\nCurrent bankruptcy code includes Chapter 7, in which the debts are wiped out to give the debtor a fresh start, and the less generous Chapter 13, in which all debt remains and a payment schedule is required. The new code stipulates that any debtor making above the state's median income and able to pay back at least $6,000 over five years cannot file for Chapter 7. This forces debtors into a Chapter 13, which requires court-supervised financial counseling.\nAccording to the U.S. courts,\n 1.6 million bankruptcies were filed between March 2004 and March 2005, 1.14 million of which were under Chapter 7. Changing the law to make it virtually impossible to file for Chapter 7 will greatly reduce the overall number of bankruptcies filed or force debtors to pay all their debts on a schedule under Chapter 13.\nReducing bankruptcies may not be as great as it sounds. Forcing payment of debts will ensure that Americans are financially accountable, but it will slow economic activity.\nBeing on a court-supervised financial plan means consumers cannot spend money as freely as before. Granted, it is money they don't have, but it is used to purchase a product, creating demand for more of that product and thus jobs to produce it.\nLess overall buying (the result of being on a budget) will result in less production and most likely job cutbacks. Debtors will also be less likely to pay the exorbitant gas prices (previously bought with debt-accruing credit cards). Businesses dependent on drivers will then suffer from lack of customers.\nThe new law will also affect student loans. Any bankruptcy filed within 10 years of last attending school will not apply to student loans. A separate application must be made, which will be judged by the same high standard as Chapter 7. Thus, students with both loans and living debt will be doubly doomed by the new law and forced into a very tight financial situation.\nGranted, I'm definitely a fan of personal accountability, especially with finance. Someone who spends irresponsibly should suffer the consequences. But what about those with medical expenses, or legal fees or student loans? These debtors are not irresponsible, just unfortunate.\nThough Congress' desire to encourage financial responsibility is admirable, it should also consider both the long-term economic consequences of its actions.