Bankruptcy reforms don't mesh with economy - judge

By Emily Chasan

NEW YORK, May 12 (Reuters) - The nearly three-year-old U.S. bankruptcy reforms that toughened filing requirements for consumers may not be well suited to handle the fallout from the subprime mortgage crisis, a U.S. bankruptcy judge said on Monday.

"Those amendments come from an economically and politically different time period than we find ourselves in at this moment, and some of the assumptions are incompatible with this current economic landscape," U.S. Bankruptcy Judge Cecelia Morris said at an American Bankruptcy Institute Conference in New York.

Morris, who sits in the Southern District of New York in Manhattan, said she believes the tougher rules, made under the Bankruptcy Abuse Prevention and Consumer Protection Act, may be compounding problems for subprime borrowers forced to file for protection from their creditors today.

Under the new rules, Americans who file for bankruptcy protection from their creditors are subject to a means test to determine if they have enough income to pay off some of their debt, rather than having it eliminated.

Morris said that forcing people under bankruptcy protection to pay more of their credit card bills and to make more detailed reporting were among the unfairly burdensome new requirements.

"Many of the amendments added by the (act) assume or suggest that many debtors are just short of liars and thieves, or at least acting in bad faith and victimizing creditors," Morris said. "Yet for many, bankruptcy is the final safety net that keeps the subprime victims, and in this case homeowners, from becoming safe."

The bankruptcy overhaul, which took effect in October 2005, was backed by credit card companies, retailers and auto lenders who argued debtors with the means to pay obligations had abused the current rules.

"The debtors that appear in front of me are basically desperate," Morris said, adding that the types of people typically coming through her courtroom have changed recently.