CONTACT: Jim Philipps
May
21, 1999
202/225-3665
Reforming the Bankruptcy System
By Congressman
Sherwood Boehlert
For too long, filing for bankruptcy has been an easy way out for people to walk away from their responsibility after running up large debts. What’s worse is that bankruptcies cost each household in the nation an estimated $550 a year in higher costs for goods, services, and credit. Why should you and I pay for someone else’s irresponsibility?
That’s why I voted in favor of the "Bankruptcy Reform Act" which recently passed the House with wide bipartisan support.
The vast majority of bankruptcy filers – more than 70 percent of 1997's all-time record 1.4 million bankruptcy petitions – choose Chapter 7 of the Bankruptcy Code, which erases virtually all debts. While many families may face job loss, divorce or medical bills, and therefore legitimately need the protection, research has shown that some Chapter 7 filers actually have the capacity to repay some of what they owe.
This legislation will ensure that high-income filers who could repay some of what they owe are required to do so. It accomplished this goal through a needs-based system that takes a debtor’s income, expenses, obligations, and any special circumstances into account when determining whether the filer has the means to repay a portion of their debts.
However, the bill preserves the right of any filer earning less than the median national income – currently about $51,000 for a family of four – to automatically choose either Chapter 7 or Chapter 13, thereby preserving, protecting, and enhancing the ability to obtain a legitimate "fresh start" in bankruptcy.
I believe this is a fair, common-sense approach that protects both those in legitimate debt and those who bear the burden of others financial problems by paying higher prices for goods and services.
In addition, this legislation closes loopholes which allow some debtors to use the current bankruptcy system to delay or evade child support and alimony payments. To me, this is the most offensive use of the current bankruptcy laws.
Another part of this bill that I like calls for debtors to fully disclose consumers of their options and rights before they file for bankruptcy, including alternatives to bankruptcy such as credit counseling. In addition, the bill sets up a pilot program of financial mangement training for debtors in the bankruptcy system, to help educate consumers so they can avoid repeating their past mistakes.
And have you ever seen those advertisements for law firms "specializing" in bankruptcy law and debt reduction? This bill cracks down on unscrupulous firms that push consumers into bankruptcy with out fully explaining the consequences.
Restoring the integrity of the bankruptcy system is important. Many hardworking people find themselves in the difficult situation of being unable to pay off their debts. This legislation will help those people repay their debt and get back on their feet. But it will also stop the abuses of those people who choose to accrue debt and take the easy way out -- and that will save money for all of us.