May 5, 1999 -- Ninth District Congressman Adam Smith today will vote to overhaul bankruptcy law and require debtors to repay some or all of their debt when they are financially able.

“Reforming bankruptcy laws is all about personal responsibility,” said Smith. “People who can afford to repay their debts should do so.”

The Bankruptcy Reform Act of 1999 (H.R. 833) is expected to pass the House today.

Under current law, bankruptcy filers may file under Chapter 7 and be absolved of all debt, or file under Chapter 13, preventing repossession of property but agreeing to repay some or all of their debt. H.R. 833 institutes a needs-based formula to steer more debtors into Chapter 13 and thereby require greater debt repayment.

“The formula is very balanced and fair,” explained Smith. “First of all, it only affects taxpayers earning more than the median income. It then provides allowances for living expenses, exempts child support payments, exempts secured debts such as mortgage and car payments, exempts retirement and education savings, and determines an individual’s ability to pay their debt. If there is an extenuating circumstance, such as job loss or medical emergency, a judge can still opt to forgive the debt. If it is determined that the debtor can afford to repay some of the debt, he or she is required to do so.”

It is estimated that bankruptcies cost each American household $400 per year in the form of higher prices for goods and services. Bankruptcies also restrict access to credit for lower- and middle-income families.

Smith says bankruptcy reform will provide fairness for the vast majority of consumers who do pay bills on time. “It is unfair that many higher-income families are declaring bankruptcy even when they have the ability to repay some of their debts, costing other families hundreds of dollars a year.” he said.

Small businesses are another victim of irresponsible bankrutpcy filings, according to Smith. “A small business can be devastated by just one or two debtors declaring bankruptcy and not paying their bills,” he explained. “The Bankruptcy Reform Act will change this by only allowing those consumers truly in need of bankruptcy reform to be absolved of their debts.”

The legislation also ensures that child support payments are first priority for debt repayment, unlike current law which places child support seventh on the list of priorities for repayment.

Smith says he supports the legislation because it emphasizes the value of personal responsibility. “We need to ensure that government policy promotes values like personal responsibility,” said Smith. “Requiring people to pay off the debt they incur whenever possible is a very basic tenet of personal responsibility.”