NEW BANKRUPTCY LAW PENDING

December 16, 1999

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The U.S. Congress is currently about to vote on several proposed new laws, to greatly change the U.S. Bankruptcy Code. The banking lobby has hired six of the seven major Washington, D.C. lobbyists to convince Congress that these changes are necessary.

The primary reason the lobbyists have convinced Congress that these changes are needed, is that there are record levels of consumers filing bankruptcy. The lobbyists have not told Congress that there is also a record level of consumer debt in this country at this time, $1.4 trillion (that’s $1,400,000,000,000.00 dollars of consumer debt), and that the numbers of consumer bankruptcies is directly correlated to the amount of consumer debt per household.

These proposed laws are very damaging to consumers, and contain numerous provisions that will essentially gut the protections given to consumers by the existing U.S.Bankruptcy Code, which has been in effect since 1979.

If these laws pass, one of the primary changes would be to impose means testing on Chapter 7 debtors, so that a person will be ineligible to file Chapter 7, if they make more than the median national income, and they can afford to pay even 20% of their unsecured debt over in a five year period, allowing them only the IRS guideline living expenses, with very limited exceptions.

Any creditor would be able to contest a bankruptcy, and the standard to contest a bankruptcy is lowered from substantial abuse to inappropriate use. More types of debts will be non-dischargeable if this new law passes, whether in Chapter 7 or Chapter 13.

For example, if these new laws are passed, no debt will be dischargeable in bankruptcy, if it was incurred within 90 days of filing the bankruptcy. Also, no debt would be discharged if the debtor couldn’t have objectively believed that they could pay the debt, when it was incurred.

That is, a person probably wouldn’t be able to discharge their $30,000 in credit card debt, if they make $45,000 per year-objectively, a judge could later find that the person could not have reasonably believed that they could pay it back, even though they may have been borrowing from Peter to pay Paul, and were desperately trying to avoid bankruptcy until they could get re-employed, get over an illness, etc.

There are numerous other proposed changes to the law, many of which would probably make filing bankruptcy much more difficult and much more expensive for the consumers that it was designed to help, as well as the courts and the court-appointed trustees. If you want to review the proposed new laws, go to the website of the American Bankruptcy Institute at www.abiworld.org.

Meanwhile, please write, call or email your local Congressman and express your opposition to these draconian laws. Obtain your Congressman’s telephone number or email address at http://www.house.gov, or http://thomas.loc.gov.