Copyright 2002 The Buffalo News
The Buffalo News
May 24, 2002 Friday, FINAL EDITION
SECTION: EDITORIAL PAGE, Pg.C12
LENGTH: 736 words
HEADLINE:
BANKRUPTCY REFORM
BODY:
Deadlock
over a fringe issue has stalled progress on a bankruptcy reform
law that otherwise seeks to balance the fears of people who owe money and the
needs of companies that lend it. The stall is a good thing. The
bankruptcy reform bill has been improved in the last six months
of negotiations, but not enough.
The main intent of bankruptcy
reform is to stem a tide of bankruptcy filings that
has alarmed lenders, and to end such outrageous abuses as running up major debts
or buying luxury homes just before filing for debt erasure. Given the tougher
economic times that have taken hold since this push started, this bill is
unlikely to stem bankruptcies, and its provisions against abuse
retain major loopholes. The compromise bill does allow debtors more flexibility
in shielding money for such necessities as housing and education, and it
permanently extends Chapter 12 protections that allow farmers to keep their land
and keep farming even in bankruptcy.
It also seeks to
end abuses by capping a house-protecting "homestead exemption" at
$125,000 for any house lived in for less than 40 months - and
by setting a "hard cap," regardless of length of ownership, for filers convicted
of felonies or securities law violations within 10 years.
But that
tougher stance is eroded by language that continues the practice of unlimited
homestead exemptions in six states, a loophole that would allow wealthy filers
to save luxury homes in, say, Florida or Texas. A group of law school
bankruptcy experts warns that anyone could drive a limo through
that big a loophole, simply by temporarily re-establishing a residence of record
in a full-exemption state to protect, ultimately, real estate holdings in any
other.
And, experts concerned about American entrepreneurship warn, this
reform makes it easier for creditors to push small businesses
into liquidation.
The bill does recognize the rising tide of
bankruptcies at a time when bankruptcy has
lost most of the social stigma that once held filings in check. In the first
quarter of this year, there were 379,012 nonbusiness filings, second only to the
400,394 for the second quarter of last year. American
Bankruptcy Institute data show total
bankruptcies rising from 832,829 in 1994 to 1.45 million in
2001.
That hurts banks and financial companies that extend the credit
upon which most low- and middle-class Americans rely, especially in tight times.
But those companies also seize on tough times to flood mailboxes with credit
card solicitations and encourage debt, and it's hard to sympathize with
businesses that feed the problem they want Congress to solve.
That
solution, under this bill, would be to limit the number of filers who could seek
protection under Chapter 7 of the bankruptcy law, which erases
debts after eligible assets are sold to pay off as much debt as possible.
Instead, more filers would be pushed into Chapter 13, which mandates a
court-structured repayment plan.
Negotiators have added a "means test"
to determine who gets shifted from debt-erasure to mandatory debt-repayment, but
the law also would add to the cost of filing - imposing, for example, a
requirement for mandatory credit counseling that could cost debtors hundreds of
dollars.
In its pursuit of a relatively small number of cheaters, this
reform still adds to the burden of Americans who, because of
illness, job loss, divorce or other economic impacts, simply are unable to cope
with their bills. According to the Bankruptcy Institute, those
unlucky or unwise folks account for 97 percent of the filings. In trying to curb
the remaining 3 percent, this bill tilts the scales too far toward creditors.
In debate on this issue, Sen. Charles Schumer, D-N.Y., insists on a
Senate provision that targets a few abortion clinic protesters.
Rep. Henry Hyde, R-Ill., is just as determined to delete that clause, which
would bar filers from erasing debts resulting from
abortion-protest fines.
It's an old battle. Schumer
pushed through a 1994 clinic-access law over Hyde's determined opposition, and
wants this bankruptcy clause to put teeth into that earlier
measure. Hyde contends it's more likely to unjustly penalize peaceful protesters
who mistakenly violate a police order. In any case, hijacking a bill to make it
serve an only marginally related political end may be a time-honored practice in
Washington - but it's wrong, nonetheless.
LOAD-DATE:
May 25, 2002 
