Bankrupting the victims

GOVERNMENT AID IS FINALLY flowing to the most helpless victims of Hurricane Katrina, but a broader category of the dispossessed will test the government over a longer period of time. They are families with the means to flee the hurricane, perhaps even with insurance to cover some losses, but without the resources to make a living immediately. In other contexts, they would be referred to simply as the middle class.

They have lost their homes but are living off their credit cards and maybe a little savings. As those savings dwindle, however, the mortgage keeps coming due and their credit card nears its limit. Soon the paycheck may stop, and with it their health insurance.

How many of these victims exist is anyone’s guess; the Congressional Budget Office predicted that the hurricane will cost 400,000 jobs nationally, and some private estimates are double that. Congress will no doubt take some steps to help victims rebuild their lives, but it also should take this opportunity to revisit the new bankruptcy law, which goes into effect Oct. 17. As the Times’ Peter Gosselin reported Wednesday, the new bankruptcy law treats those affected by a natural disaster the same as the deadbeat who spent it all on luxury cars, jewelry and cocaine.

As of Oct. 17, individuals filing for bankruptcy who have income at or above their state’s family median (in Louisiana, it is $51,402 for a family of four) will largely be forced to repay some or all of their debts for up to five years. Normally, such debtors would have the option of declaring Chapter 7 bankruptcy, which allows people to emerge from debt relatively quickly.

What’s more, the new law calculates income by taking a six-month average, so even if someone is jobless, his income statement may not reflect it. And small businesses face a tighter 10-month deadline for coming to agreement with creditors on a repayment plan, even if snack shops and shoe stores drowned by Katrina may take years to recover. And strict deadlines and demands for stacks of documentation remain, even if the documents dissolved in a toxic stew or floated into the Gulf of Mexico.

Rep. John Conyers Jr. (D-Mich.) and Sen. Russell D. Feingold (D-Wis.) are leading efforts to delay the bankruptcy law’s application to Katrina victims and grant broader exceptions to survivors of all severe disasters.

Before Katrina, supporters of the new law argued it would curb abuse of the bankruptcy code. This argument was always dubious, and in the aftermath of the hurricane, the new law appears simply callous. Does Congress really want to use Katrina’s victims as test cases in some sort of grand experiment in bankruptcy reform?

The irony is that Congress has already decided that the more obviously desperate deserve relief. Federal and state officials have sensibly slashed red tape to provide immediate food stamps and Medicaid to evacuees -- the poor and not-yet-poor alike. The federal government is providing debit cards to evacuees in the Astrodome.

The federal government failed its most vulnerable citizens in the days after Katrina. Unless Conyers and Feingold prevail, it may do the same, albeit more slowly, to those one rung higher on the economic ladder, as middle- and working-class families lose their foothold on self-sufficiency.