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April 26, 2000, Wednesday, Home Edition

SECTION: Metro; Part B; Page 8; Editorial Writers Desk

LENGTH: 371 words

HEADLINE: UNJUST BANKRUPTCY REFORM

BODY:
Responding to a dramatic rise of personal bankruptcies, Congress set out three years ago to rewrite what it considered a permissive law and restore a balance between the rights of lenders and borrowers. Abuses of the bankruptcy code have occurred, although far less frequently than claimed, and laws to discourage debt-skipping are appropriate.

Yet the legislation, especially the House version, swings too far in favor of creditors and does nothing to discourage consumers' inordinate spending. The force behind the bankruptcy legislation--leaving aside a multimillion-dollar campaign by banks and credit card companies--was numbers showing that, amid the plenty, individual bankruptcies were on the rise. In 1998 alone, about 1.4 million people filed for bankruptcy, up 20% from the previous year. The numbers dropped last year by 9.3%, reversing the trend. More important, research showed only 3.5% of the bankruptcies were filed by debtors who had repayment capacity. The rest were broke. This rebuts the credit industry's claims that the current law is a haven for freeloaders.

The legislation imposes a rigid formula that denies Chapter 7 protection, which wipes out most debts, in too many hardship cases. It gives judges little discretion to alter the formula to account for individual cases of hardship. In fact, bankruptcy judges, whom the credit card companies distrust, could not even make procedural concessions--such as extending a filing deadline for debtors. The judges' discretion should be restored.

Moreover, the legislation should include the stronger of two provisions in the Senate bill that would require credit card companies to tell card holders in clear language the consequences of repaying at the minimum rate. The weaker provision, under which the monthly statement would say repayment at the minimum level would cost more and take longer, is meaningless. The only way to deter excessive spending is to tell consumers specifically how long it will take them to pay down their balance and what it will cost.

Congress correctly set out to prevent abuses of the bankruptcy code. But it ended up with a creditors' bill of rights that is unsympathetic and unjust to most debtors.

LOAD-DATE: April 26, 2000