Written by Craig D. Robins, Esq.
The Bankruptcy Reform Movement. For each of the past five years, there has been a movement in Congress to toughen the existing bankruptcy laws. During this time, bankruptcy filings increased from 718,000 in 1990 to an average of about 1,400,000 filings per year in each year since 1998. The bankruptcy reform movement intensified at the height of this increase in1998 when Congress apparently decided that it was time to enact new, more stringent bankruptcy laws designed to make it more difficult for consumers to file for Chapter 7 relief. The reform movement has run a very rocky course ever since.
The push for bankruptcy reform has been fueled by the banking and credit card industries who have pumped tens of millions of dollars into lobbying efforts in an effort to persuade Congress that the current bankruptcy laws had become too lenient and that a high percentage of filers were abusing the bankruptcy system because they had the ability to repay some of their debts.
In general, the bankruptcy reform movement seeks to prevent a large number of consumers from filing for Chapter 7 relief, which currently enables them to eliminate their credit card debts in full. The proposed new laws require that many of these consumers file a Chapter 13 payment plan bankruptcy instead, forcing debtors to pay off a portion of their debts over a period of time. If passed, the provisions of the new reform legislation will result in the most sweeping overhaul of the Bankruptcy Code in more than twenty years.
What Reform Means to Consumer Bankruptcy. The essence of bankruptcy reform is to require consumers to meet certain minimum standards to qualify for Chapter 7 filing. For example, a consumer debtor’s income would need to be less than the state’s median income in order to qualify for Chapter 7. Also, the new legislation would disqualify consumers from Chapter 7 eligibility if they have the ability to pay at least $10,000 or 25 percent of their debts, whichever is greater, within three to five years. Another prerequisite for filing is that the consumer get credit counseling from an approved nonprofit organization. In addition, the new laws will make more consumer credit debts nondischargeable. Finally, the proposed legislation seeks to hold debtors’ attorneys liable for their clients’ conduct. Debtors’ attorneys will become responsible for conducting a reasonable investigation into the circumstances giving rise to the filing of the bankruptcy.
Opponents of the bill have argued that it does nothing to end the abuses of banks and credit card companies that flood the mail with solicitations for easy credit and indiscriminately increase lines of credit without conducting due diligence to ascertain if the customer can afford it. Furthermore, some families deemed too rich to qualify for Chapter 7 could be too poor to afford the necessary repayment schedule in a Chapter 13. Credit card companies have also been making it too easy for college students to begin racking up debt before they even graduate. The law also imposes additional obligations on those seeking to file Chapter 13. Virtually all consumer bankruptcy attorneys and trustees are against bankruptcy reform, as are most bankruptcy judges.
Reform Efforts During the Clinton Era. President Clinton, during his administration in the 1990’s through 2000, made it clear that he was not enthusiastic about any major bankruptcy overhaul and declared that he would be hesitant to sign any new legislation.
In 1999, the House passed a bankruptcy amendment bill. The Senate then passed this bill the following year. In 2000, after both houses of Congress overwhelmingly passed the bankruptcy reform bill, Clinton vetoed it on grounds that it would hurt ordinary people and working families who fell on hard times. He did this during his final weeks in office. Generally, Republicans are solidly in favor of bankruptcy reform, while Democrats are somewhat split.
Written by Craig D. Robins, Esq.
Significant Changes in 2003. During the past year, there have been a significant number of changes in the way consumer bankruptcy practitioners practice. This article will highlight some of the changes that have come about over the past year. These include possible bankruptcy reform, the new “initiative” of the Office of the United States Trustee to aggressively audit and investigate cases, the computerization of the bankruptcy court, and new forms and filing fees.
Legislative Status. Congress has vigorously tried to overhaul the Bankruptcy Code for each of the last five years. This reform movement has been fueled by banking and credit card industries who have pumped tens of millions of dollars into lobbying efforts. However, as a result of political squabbles and power shifts, changing administrations, shifting Congressional priorities towards national security issues after September 11th, and bankruptcy law amendments tied to volatile abortion issues, Congress has been most unsuccessful in getting bankruptcy reform signed into law.
Enactment is still possible this year. In the Spring of 2003, the House quickly passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2003. This was the seventh time in recent years that the House passed an omnibus bankruptcy reform measure. Some Senators have announced their determination to focus on the bill before the end of this year’s session, although as of November 25, 2003, the House filed the 2004 Omnibus Appropriations Bill, apparently without the Bankruptcy Reform Act. If Congress adjourns for the end of the year without enacting the new legislation, informed sources expect to see the reform bill come back immediately in 2004.
When and if the Bankruptcy Code is overhauled, it will drastically change consumer bankruptcy law and practice. These changes will be addressed in a future article.
The New, Paperless Bankruptcy Court. Bankruptcy courts around the country have been moving rapidly to implement procedures for electronic filing and computerization of all records. Prior to last year, all bankruptcy attorneys were accustomed to filing their petitions by personally delivering them to the court clerk’s office. However, in January 2003, the Court began pushing attorneys to file their petitions electronically through Electronic Case Filing (“E.C.F.”) over the internet.