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May 18, 1999, Tuesday, Late Edition - Final

SECTION: Section A; Page 23; Column 1; Editorial Desk

LENGTH: 575 words

HEADLINE: Why Squeeze Every Last Penny From the Bankrupt?

BYLINE: By Henry J. Hyde; Henry J. Hyde, a Republican from Illinois, is chairman of the House Judiciary Committee.

DATELINE: WASHINGTON

BODY:
Early this month, with the support of more than 300 of my colleagues, the House of Representatives approved sweeping changes in our national policy on bankruptcy. Generally, these are much-needed reforms, but one part of the legislation could leave some debtors without enough money for basic needs.

For the last century, Americans filing for bankruptcy generally have been able to receive an immediate financial fresh start. The legislation now making its way through Congress effectively channels many debtors into a form of bankruptcy relief where they will have to repay a portion of what they owe for up to five years, a fair expectation in a society operating on the premise that obligations will be honored. The sticking point is how to determine whether an individual has some meaningful ability to repay. I'm a conservative, and I'm certainly a market capitalist, but I also believe in capitalism with a human face. Declaring bankruptcy can be a traumatic experience, and as we justifiably bolster creditors' rights, we ought not ignore the need to leave the debtor with a decent standard of living during the repayment period.

A majority of my colleagues believe that we should be guided by the Internal Revenue Service's expense allowance standards in determining the expenses of bankrupt individuals and their families for certain basic needs like food, clothing, rent and utilities. These standards, which are far too restrictive, were developed by the I.R.S. to maximize the collection of taxes from delinquent taxpayers, and I do not think it is a particularly Republican idea to advance them. In our successful effort last year to curb abuses by the I.R.S., Congress required it to apply these standards more flexibly in tax collection cases.

The treatment of food needs is an example of what is wrong here. The I.R.S. allowance applies uniformly in the contiguous 48 states, failing to reflect regional differences in the cost of food. In addition, under the I.R.S. schedule, allowable expenses for food increase dramatically with increases in income, a confirmation that the standards are not designed to reflect actual need. Serious problems are evident when a debtor earning $51,000 a year gets $421 per month for food when living alone and $619 per month -- less than 50 percent more -- when supporting a household of four. If more than a 5 percent increase beyond these standards in a family's food budget is needed, the bill passed by the House does not allow it unless the debtor can demonstrate extraordinary circumstances.

An amendment that I offered would have replaced the I.R.S. expense allowances in the bankruptcy legislation with a "reasonably necessary" standard that has been used for the past 15 years in voluntary debt repayment plans. Although existing case law already interprets and applies this standard, I proposed that the Department of Justice issue more precise guidelines. If my amendment had been adopted, many Americans still could have been channeled into repayment plans without depriving debtors and their families of the means to pay for their basic needs.

I hope Congress will reconsider this humane approach to living expenses, perhaps in similar legislation to be taken up as early as this week in the Senate or in a House-Senate conference to reconcile different versions of bankruptcy reform legislation. Decency and dignity need not be victims in an otherwise useful reform. http://www.nytimes.com

LOAD-DATE: May 18, 1999