Update on Bankruptcy Law Changes

Over the course of the past 7 years powerful credit card companies and financial institutions have successfully lobbied Congress to make changes to current bankruptcy laws. Congress has been close to passing a new bill in each of the last two years, only to be held up by the controversial Schumer Amendment. The Schumer Amendment, sponsored by Senator Charles Schumer D-NY, would deny a discharge for government fines imposed on those arrested for abortion clinic violence.

However, progress is being made on getting the bill pushed through Congress and onto the President's desk. In late January 2004, the U.S. House of Representatives voted to combine a non-controversial Senate passed bill (S. 1920) providing bankruptcy protection to family farmers under Chapter 12 of the U.S. Bankruptcy Code, with H.R. 975, the bankruptcy abuse reform bill that has passed in the House in 2003 without the Schumer amendment, and in 2002 with the Schumer Amendment.

Though the Schumer amendment is also absent on this new "packaged" version of the bill, political pressure on Democrats to pass the bill to assist farmers may be too great, resulting in the enactment of the new bankruptcy laws.

If enacted, the legislation would require more from debtors, including pre-filing consultations with an approved consumer credit counseling service in an attempt to force consumers to pay their debts outside of bankruptcy. Additionally, in order to file, a debtor would need certification from that credit counseling agency.

An income-based "means-test" would be implemented to determine which debtors may have the ability to pay back some of their debts under a Chapter 13. Those who do not pass the means-test would be forced into a Chapter 13.

In addition, more documentation from the debtor would be required, repeated filings would be discouraged, the waiting period between Chapter 7 filings would be extended from 6 to 8 years, and a debtor's final discharge would be subject to completing a course in financial management. These are only a few changes that would occur if the legislation were signed into law.

Unlike former President Clinton, President Bush has indicated that if the bill reaches his desk, he would sign it. And, although the new legislation may be perceived to be too politically distasteful prior to the upcoming election., there is a good possibility that legislators will push the legislation through after the November elections after the concerns of political fallout are no longer a consideration. Therefore, this leaves little time for consumers to file bankruptcy under the current, more favorable, system.

It does appear that enactment of new bankruptcy legislation may only be months away, though it is not clear if the bill will actually pass and be signed into law under the version now on the Senate floor. Republican Senators in late February wrote a letter to Senate Majority Leader, Bill Frist R-TN, which sought to persuade him to expedite the consideration of H.R. 975.

Though public pressure to put a priority on the legislation was placed on Senator Frist by fellow Republicans and other organizations such as the Credit Union National Association, it was noticeably not included on Senator Frist's list of legislative priorities for the summer of 2004. While this does not represent an indication that the bill will not be considered before the targeted October adjournment of this Congressional session, it does reflect an acknowledgment that this bill may be too difficult to push through before the November elections.

However, before any proposed legislation becomes law, consumers who need financial relief now, should consider filing sooner rather than later. This would ensure getting a case filed under the current, more favorable bankruptcy laws, and also would provide a last chance opportunity to avoid the potential hardships and extra costs associated with the proposed changes.


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