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Bankruptcy's Big Winners

One year after the passage of a sweeping revision to the federal bankruptcy law, some small companies are prospering at the expense of overburdened consumers.

The new law, which the major credit-card companies and banks long lobbied for, makes it more difficult for consumers to walk away from their debts. Among other things, the measure requires consumers to receive credit counseling before filing for bankruptcy, and makes the overall bankruptcy process much more onerous for individuals.

In the months leading up to the law's enactment, there was a spike in individual bankruptcy filings, as debt-laden consumers tried to beat the clock and qualify under the old law. That led to many banks, such as Bank of America (BAC), reporting a significant spike in consumer loan defaults and taking hefty charges against earnings.

But a year later, the law is starting to do what its backers had hoped. There's been a marked decrease in Chapter 7 bankruptcy filings (so-called liquidation proceedings) and a surge in Chapter 13 filings (bankruptcy restructurings for individuals). That's meant more work for companies that specialize in collecting and processing accounts receivables from consumers with checkered payment histories.

Companies in the accounts receivables sector, such as Asta Funding (ASFI) and AmeriCredit (ACF), have a better class of consumer debt to buy, thanks to the new law.

Audrey Snell, an analyst with ThinkEquity Partners says that under Chapter 13, the court mandates the debtor settle with the creditor.

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