A major revamping of US bankruptcy law takes effect Monday, making it harder for consumers, and possibly businesses, to write off debts and get a clean slate.
The law, approved by Congress earlier this year, was prompted by concerns that surging personal bankruptcies were taking a toll on businesses by leaving retailers, banks and credit card firms in the lurch following consumer insolvencies.
But lawmakers also inserted a number of changes into the business bankruptcy code, aiming to shorten the reorganisation process and give more clout to creditors in court.
Mallory Duncan of the National Retail Federation said the law is aimed at curbing abuses in bankruptcy, especially at the individual level.
"Only a minority were misusing the law, but they were misusing it for millions of dollars," Duncan said.
"Bankruptcy is to be there as a social safety net. We are a compassionate society. And it costs society, so we want to make sure the people who are using it really need it."
Under the new law, Duncan said there is flexibility, "but if they can afford to repay, they have to repay what they can."
The new law makes it tougher for debtors to cast aside credit card and other debt by filing under Chapter 7, the most popular type of personal bankruptcy, which enables consumers to wipe out most of their unsecured debts. Most consumers whose incomes are above the median for their state will have to file Chapter 13, which requires repayments of debts over five years.
Backers of the new law say it will make it harder for people to go on spending sprees and then try to get out of debts through Chapter 7.
Edward Yingling, president of the American Bankers Association, said the new law "strikes just the right balance."
Yingling said that now "wealthy filers will no longer be able to use the system as a financial planning tool. The ability to escape debts - such as monetary judgements in a civil court case - by socking away millions in a Florida mansion will be limited."
Backers of the law point to high-profile bankruptcies like those of CNN host Larry King, actor Burt Reynolds and boxer Mike Tyson, who ran up millions in debt.
But consumer advocates and others say that many people get over their heads in debt though "predatory" lending - ranging from home equity loans with high interest rates to credit cards with overly generous limits.
Michael Baxter, a Washington lawyer and bankruptcy instructor at George Washington University, said the reform "was based on the premise that bankruptcy laws are being abused by consumers."
On the corporate side, Baxter said the new law aims to shorten the bankruptcy process and give creditors a greater voice in the reorganisation process. But he points out that any gains in efficiency may be offset by ambiguities that will make the new law hard to implement.
Bankruptcies have been surging ahead of the deadline.
A number of high-profile corporations have filed for creditor protection in recent weeks to avoid the more stringent rules under the new law, including auto parts giant Delphi Corp, Delta Air Lines and Northwest Airlines.