YBK [Part 17]: Not surprisingly, Hurricane Katrina will have a major impact on the bankruptcy numbers in the three states (Louisiana, Mississippi and Alabama) that have been devastated. The L.A. Times reports that after every major hurricane in the last 25 years, bankruptcy filing rates have gone up at a rate of over fifty percent over unaffected states in the three years following the disaster.

Ironically, with the new law set to go into effect less than six months from now, the people who are most likely to be screwed by its provisions aren't the now-homeless African-Americans of New Orleans, whose annual income was too low to qualify for the new means test, but instead are the middle-class whites who lived on the outskirts:

But unless changes are made to an overhaul of the nation's bankruptcy law due to kick in next month, many of those affected by Hurricane Katrina and the resulting floods will have a substantially harder time winning court relief from loans they incurred for homes and businesses that are now gone, according to a variety of judges, lawyers and policy experts.

"Just because your house or car is somewhere in the Gulf of Mexico doesn't mean that your auto loan or mortgage went with it," said Brady C. Williamson, who was appointed by President Clinton to head a national bankruptcy commission in the mid-1990s.

UCLA professor Kenneth N. Klee said, "The new law is going to make it much more difficult for people to put their lives back together." Klee is a former Republican congressional staffer who was a chief author of the previous major bankruptcy-law change in the late 1970s.

House and Senate Democrats are expected to propose, perhaps as early as today, delaying the effective date for the new measure and easing some of its most stringent requirements. When it passed the bankruptcy overhaul last spring, the Republican-controlled House rejected an exemption for victims of natural disasters.

There is an exception within the new law for waiving the means testing and credit counseling upon a showing of "special circumstances", language that was deliberately kept vague by Congress, but how that will be interpreted is going to be left to the individual judges; some will apply a very broad standard, no doubt, allowing anyone who can show that the means test is unrealistic in their situation to remain in Chapter 7, while other judges will approve exemptions only in rare instances. Congress explicitly refused to grant an exception for victims of natural disasters, so there are no assurances that the victims of Hurricane Katrina will be able to use the "special circumstances" exemption.

I suspect that unless federal action on this front isn't enacted shortly, there will be a veritable stampede to the courts before the new law goes into effect on October 17.