New Bankruptcy laws

I am sure most of are of the changes, for those that aren't this may explain it in better detail.


WASHINGTON, March 14 - For many Americans among the more than one million
debtors whose financial troubles are expected to drive them into bankruptcy
next
year, the route to a fresh financial start will be far more complicated
under a bill that is now before the Senate and appears likely to become law.

The bill would overhaul the nation's century-old bankruptcy system and
eliminate the concept that many types of debts - notably credit-card debts
and other
loans that are not secured by a house or anything else of value - can be
wiped out by a trip to bankruptcy court.

For many debtors, the idea that bankruptcy offers a true, fresh start would
disappear.

After emerging from bankruptcy, they would still be responsible for paying
off some of their unsecured debts, even if that meant dividing their
paychecks
between old credit- card bills and current child-support payments, alimony
and other court- enforced obligations.

The bill has been endorsed by President Bush and is being championed by the
credit-card and banking industries, which say they have been harmed by a
dramatic
increase in the number of personal bankruptcies.

During last year's election campaign, they backed up their lobbying effort
with millions of dollars in political contributions to key members of
Congress
and with some of the largest corporate donations to Mr. Bush. The bill,
which has already been passed by an overwhelming margin in the House, is
expected
to be approved by the Senate late this week.

About 1.3 million Americans declared bankruptcy last year, an increase of 75
percent since 1990. Financial analysts say enactment of the bill would mean
billions of dollars in extra profits for credit-card issuers over the next
decade.

The bill's goal, supporters say, is to stop abuse of the system by many
debtors who are shirking their responsibility to pay back their debts, even
though
they have money to do so.

"All of us end up paying for the unscrupulous who abuse our system," said
Senator Orrin G. Hatch, the Utah Republican who is chairman of the Judiciary
Committee.
"People with high incomes can run up massive debts, and then use bankruptcy
to get out of honoring them."

The banking industry says that bankruptcies drive up the cost of borrowing
for everyone else by $400 to $500 per person per year.

Todd J. Zywicki, a bankruptcy specialist at the law school at George Mason
University in Virginia, said, "I can see no good reason why a schoolteacher
earning
$30,000 a year should have to pay more for a mortgage or more for a new
couch because some guy making $100,000 a year finds it inconvenient to pay
his
debts."

The problem with the bill, opponents say, is that it would impose severe
financial penalties on people who are forced into bankruptcy through no
fault of
their own - because of medical problems or layoffs, for example. President
Bill Clinton vetoed a nearly identical bill last year, describing it as too
harsh on debtors.

Critics say the bill also does nothing to end what is perhaps the most
notorious abuse of the system in some states: a loophole that allows people
with
extravagant spending habits who are facing bankruptcy to shift millions of
dollars of assets into a house, which can then be shielded from creditors
under
what is known as the homesteading exemption.

The bill would deny the exemption for a home bought within two years of a
bankruptcy filing, but critics say that would simply encourage people with
lots
of assets to buy a mansion and then hold off their creditors for two years
before going to bankruptcy court.

The vast majority of people entering the bankruptcy court could only dream
of such a home.

Economic researchers say that nearly two-thirds of the people who file for
bankruptcy report significant periods of unemployment before their filings.
According
to a 1999 study by federal bankruptcy judges, the median income for
Americans filing for bankruptcy the year before was $22,000 a year.

Perhaps the bill's most important provision is a requirement that people who
meet a certain income test - generally, that they have enough income to pay
off at least 25 percent of their debts over five years - be barred from
filing under Chapter 7 of the bankruptcy code, which allows people to erase
most
of their unsecured debts.

Instead, they would be forced to file under Chapter 13, which requires some
repayment under a court-approved plan. Currently, about three out of four
people
file for bankruptcy under Chapter 7. When debtors choose Chapter 13, it is
often because they want to take advantage of the provision that allows them
to keep their homes.

The bill would continue to allow the unemployed or people with relatively
low incomes to file under Chapter 7, but it would impose several new
logistical
hurdles on them, including additional paperwork and the completion of a
credit-counseling program.

While the bill's sponsors say that the income test and the paperwork
requirements would not be onerous on truly impoverished debtors, critics say
that even
a few additional impediments could persuade them to give up entirely on the
bankruptcy system.

"I fear this will end up creating an underground economy," said Lawrence P.
King, a law professor at New York University. "People will go off the books.
They'll ask to be paid in cash. They'll get a false Social Security number.
They'll move.

"In my 40 years of dealing with Congress on bankruptcy legislation, this is
the worst I've ever seen," Professor King continued. "It's the kind of bill
that makes you want to point your fingers at individual congressmen and say,
`Shame on you.' "

Opponents of the bill include many economists and lawyers who say they are
also alarmed about changes it makes in the system of business bankruptcies.
Under
the bill, a single creditor could block the bankruptcy reorganization of a
company, threatening the company's viability and the paychecks of its
employees.

If a reorganization is delayed too long, "the only other alternative is
liquidation," said Brady C. Williamson, a Wisconsin lawyer who led a federal
commission
that reviewed bankruptcy laws in the 1990's. "And that's not good for either
creditors or employees."

The opponents say they are also concerned about provisions of the bill that
appear designed to benefit special interests at the expense of other
creditors,
creating the appearance of unfairness in what is being billed as "reform"
legislation.

At the request of lobbyists for the automobile industry, the bill eliminates
rules that allow debtors entering bankruptcy to repay only an automobile's
market value, not the full loan amount.

The White House has refused to say if Andrew H. Card Jr., President Bush's
chief of staff, lobbied for the change before joining the White House while
employed
as a senior executive at General Motors and president of the American
Automobile Manufacturers Association. "It has absolutely no bearing on his
current
role as chief of staff," said a spokesman, Scott McClellan.

Opponents of the bill had at least a moderate victory today, when Senator
Charles E. Schumer, Democrat of New York, forced a voice vote on the Senate
floor
to approve an amendment intended to prevent lenders facing bankruptcy from
trying to sell off high-interest "predatory" loans. It was the first - and
only
- amendment approved on the Senate floor in more than a week of debate on
the bankruptcy bill.

Copyright 2001 The New York Times Company

 

Re: it's ugly, that's for sure

That's a great Idea. This article came from the New York Times.