New bankruptcy laws status:

Good news, at least temporarily, on the legislative front with respect to the new bankruptcy laws. The Bankruptcy “Reform” Bills, House version H.R.333 and Senate version S.429 were being modified so that there would be one version (H.R. 333) that could pass both the House and Senate during the political maneuvering in Congress last fall. Just when it looked like it was going to finally be passed there arose an unlikely combination of Republicans and Democrats that caused it to be defeated.

The battle was over demands by the Republican far right that wording be removed that would prohibit the discharge of fines resulting from anti-abortion protests. They were joined by Democrats opposed to the bill on the basis that it was too harsh to ordinary people who have to file bankruptcy while giving huge protections to the wealthy who file bankruptcy. This unlikely combination succeeded in defeating a procedural compromise on the bill by a vote of 172 to 243 on November 14, 2002, the last day of the 107th Congress.

The combined opponents included the U.S. Catholic Church and various pro-life groups combined with groups who saw the bill as harmful to women and unfair to the general consumer and public.

As good as this news is, the fight is far from over. While brand new bankruptcy legislation will have to be introduced, it is expected that will happen this spring.

Making new bankruptcy legislation harder to oppose, the Republican Party is now firmly in control of Congress, having succeeded in gaining control of the Senate in the last election. Republicans almost to a member have been in support of this legislation though most Democrats have also been in favor of it in some form.

Senator Orrin Hatch (R-Utah) who is a strong advocate of the bill takes over Chairmanship of the Senate Judiciary Committee now that the 108th Session of Congress has started. He is expected to push for a new bill. Further, it is expected that advocates of the legislation will build on the framework of the old bills to fashion new legislation that will have broad support in the House and Senate.

In the House, where the Republican Party has a larger majority, Judiciary Committee Chairman James Sensenbrenner (R-Wis.), one of the sponsors of the prior bankruptcy bill, plans to introduce new legislation without the provision that so troubled the Republican far right. He plans on taking it up in the spring and is confident that he can get enough votes to pass the legislation in the full House.

The President has already indicated his willingness to sign a final bill if it reaches his desk. At least he was willing to sign it so long as it did not end the unlimited homestead exemption in Texas (where he was the former Governor) and Florida (where his brother is Governor) for his wealthy supporters who live there. There was a compromise that limited the homestead exemption to those who lived in the state either for 2 years or 40 months depending on which version you hear. This would minimize the tactic of debtors moving to those states just to gain the unlimited exemption. He has indicated such a compromise would be acceptable to him.

This legislation is a key issue for the retail banking and credit industry. They have contributed in excess of one hundred million dollars ($100,000,000) in political contributions to Congressional Legislators over the past several years. They are not likely to give up until they collect in the form of votes for this legislation from those they have supported. Money talks.

There are rumors that supporters are considering attaching the legislation as a rider to some “must do” bill to circumvent battles in Congress.

Why the new bankruptcy laws are bad for you:

The reason the bill is opposed by women’s groups, consumer’s rights groups, professors and academics in the bankruptcy field as well as most bankruptcy judges is that it makes it harder to discharge unsecured debts in bankruptcy and save homes and keep cars in bankruptcy reorganizations.

The most onerous part is the concept of a “means test”. It starts on the basis of determining whether your income was equal or above the average household income in the state. That would be based on your prior years income, not what your present income is. Therefore if you lost you job or were injured you may well still be subject to this test even though that income no longer existed.

If you are subject to this means test, than you would have your living expenses compared to a “template” of what the I.R.S. thinks you should be able to live on without regard to the reality of you circumstances or the costs of the immediate region you live in. They would take the average costs of the state and if you lived in a region that the living expenses was higher than that average, you are tough out of luck.

The means test would compare your prior income on a monthly basis to this calculation of what you are supposed to live on and if you had $83.33 (House version) or $250.00 (Senate version) in monthly “income” above your necessary “living expenses” from that template you would not be able to file Chapter 7 bankruptcy and would have to file a 5 year Chapter 13 bankruptcy reorganization giving all the supposed “disposable income” to your unsecured creditors. Even if you did not have the income to pay the monthly amount, but did have enough left over to pay 25% of your unsecured debt over that 5 year period, then you still would be denied the right to file a Chapter 7 bankruptcy to discharge the debts.

This legislation is like the multi-headed monster known as the Hydra in Greek mythology. Each time you cut one of the heads off this thing, it just grows a new one. While I cannot say if or when this legislation will pass, one thing is certain. You do not want to have to face it in addition to the emotional trauma that comes with a bankruptcy filing. If you qualify under present law to file and need to, my recommendation is don’t take chances with Congress. File now and get on with rebuilding your life and credit.

Links to up to date news on the new bankruptcy laws:

The best site to track what is happening on new bankruptcy laws is the American Bankruptcy Institute commonly known as the ABI. It is an organization made up of members from all areas of interest in the functioning of the bankruptcy laws in the United States. It includes lawyers for both debtors and creditors, judges, bankruptcy trustees, law professors, consumer advocates and creditors rights advocates. It is a “think tank” making recommendations as to changes and “improvements” to the bankruptcy system. It tends to be more creditor oriented in its views but is the closest thing we have to relatively unbiased reporting of bankruptcy news in America.

There is also a creditor advocacy group that has a web site that provides news on various creditor issues including bankruptcy. It is the Commercial Law League of America. While clearly pro-creditor and anti-debtor, it is none-the-less a good place to see what they are supporting and what strategies are being employed to get the laws they want passed through Congress. It is worth watching and provides a early warning of tactics to be used by creditor advocates to influence legislation.

Another excellent place to research for bankruptcy news and laws is the National Association of Consumer Bankruptcy Attorneys. It is an organization of over 1300 attorneys who primarily represent debtors who need bankruptcy assistance. Unlike the well-healed creditors groups who are supported by huge amounts of money the banks can afford to throw at these issues NACBA is not well funded as it is supported from the pockets of the debtor’s attorneys themselves. I have never seen a person or business filing bankruptcy that could afford to hire lobbyists to pursue legislation for their own benefit. Despite its limited funding, it has made significant efforts on behalf of debtors and has had some success in influencing bankruptcy legislation to protect debtors. It does try at its web site to keep information as to what is happening in bankruptcy legislation available to potential debtors and their attorneys.

Written on February 28, 2003, by Gary Ray Fraley Esq. founder and owner of California Bankruptcy Attorneys. Mr. Fraley is a Personal and Small Business Bankruptcy Specialist, certified by the Board of Specialization of the State Bar of California. Ó2003

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