Lead us not into temptation.

• Author: Rundles, Jeff

TWENTY SOMETHING YEARS AGO, WHEN I WAS A YOUNG business reporter looking for stories all over, there was some change in the bankruptcy law--I don't remember exactly what--and it caused the number of filings to skyrocket. It was big news--not the change in the law, but rather the skyrocketing filings.

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Now, this year we have The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 and predictably, once again, the filings are skyrocketing and it is big news. Anyone shocked by this should be required to read George Santayana ("Those who cannot remember the past are condemned to repeat it.")

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There is much to like in the new bankruptcy law, and not a little to dislike. It is legislation that the banking and credit card industries have been pushing over the last decade, and finally the Republican Congress did them this huge favor. Calling it, in part, the Consumer Protection Act, is awfully misleading, since it is clearly the Banking Protection Act, but that is only a minor criticism. Overall, I actually like the law, it's what is not addressed that troubles me.

First of all, bankruptcy law is one of the most arcane areas of government regulation, and even seasoned bankruptcy lawyers and judges can argue endlessly on the applications and the nuances thereof. Given that, at base the new law restricts who can file for personal bankruptcy, and it places some overdue restrictions on corporations using the law for business reorganization.

On the personal side, the favored route--exceedingly over the past several years--has been for people who have amassed a goodly amount of debt to file a Chapter 7 bankruptcy, have their debts expunged, and then receive a fresh start. The new law limits who can do this, using an income test, forcing those with enough means to make repayments on their debts under the Chapter 13 provisions of the code.

For corporations, the most interesting change in the new law are restrictions placed on the compensation a company filing for bankruptcy can give to retain key personnel.

I happen to favor both these moves because, indeed, there have been abuses. In personal bankruptcies plenty of deadbeats used the law to give themselves a healthy discount on their excesses. The law can, and should, put a damper on this. But I am concerned that it might also be too restrictive, forcing people with unexpected and honest consequences--like catastrophic health care costs--into...