BANKRUPTCY “REFORM” BILL FADES, BUT WON’T GO AWAY

July 28, 2004

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According to Harvard Law Professor Elizabeth Warren, that’s because legislation designed to make it tougher for people to dissolve their debts in bankruptcy court has been pushed on Congress for seven years by banks, credit-card companies, retailers, and other financial institutions, the Christian Science Monitor reported.

Proponents of the tougher bankruptcy measures say too many people are gaming the system, engaging in a spending splurge, going bankrupt to clear their debts, and then repeating the process. Debtors capable of repaying their debts can often “walk away from their financial obligations,” according to the American Bankers Association. Warren counters that more than 90 percent of bankruptcies arise from job loss, onerous medical bills not covered by health insurance, and divorce.

Present bankruptcy law already includes a provision allowing courts not to discharge debts if the debtor is abusing the system, notes Judge Roger Whelan, ABI Resident Scholar. ABI-funded research indicates that abusers are fewer than 3 percent of individuals filing for chapter 7 bankruptcy, while creditor institutions say they amount to 10 to 15 percent.