LEXIS-NEXIS® Academic Universe-Document

LEXIS-NEXIS® Academic

April 25, 2000, Tuesday, Final Edition

SECTION: EDITORIAL; Pg. A22

LENGTH: 506 words

HEADLINE: Bankrupt in Secret

BODY:

THE BANKRUPTCY reform legislation in Congress is murky in many respects. It is presented as a device to prevent irresponsible borrowing, but it is also a fight between credit card companies, car-loan providers and sundry other creditors that want to protect their claims on bankrupt debtors, each at the others' expense. Equally, the reform is presented as response to a dramatic rise in bankruptcies during the past decade or so. But last year the number of bankruptcies was down by a tenth from the previous year, suggesting that the market may be reforming by itself. Now the bankruptcy bill is shrouded in a new layer of murkiness. Senate leaders, both Republican and Democratic, have resolved to avoid the usual open conference in which their version of the legislation is reconciled with the House's efforts. Instead, they plan to negotiate with the House secretly and then fold the resulting deal into some unrelated bill. The senators say this is the only way to circumvent foot-dragging by the bill's opponents, which may be correct. But the new maneuver puts the onus on the administration to exercise its veto if secrecy turns out to have produced a bad bill.

One of the tests for the legislation will be whether it addresses irresponsible behavior by creditors as well as by borrowers. The Senate's proposal is said to compel credit card companies to put debt warnings on their monthly statements, a move that would usefully deter customers from being seduced into paying only the 2 percent minimum required each month. The warning would explain that if you owe $ 1,000 and the annual interest rate is 17 percent, it will take fully 88 months to be free of the debt if you make only minimum repayments. And it would provide a toll-free number for those who want help.

This good provision is unpopular in the House, which asks only that credit card companies send a bland debt warning to customers once a year. It is essential that the Senate get its way on this, and on two other contentious issues. The first is a proposal to curb abuse of bankruptcy protection by rich debtors, who exploit a loophole putting homes outside the reach of creditors. In some states, there is no upper limit on the value of a home that can be shielded: A clever debtor who owns a million-dollar house and not much else can escape his obligations unfairly. The House is determined to keep the homestead exemption. The administration needs to weigh in on the side of the Senate.

The other argument is over rules designed to prevent bankruptcy laws from imposing undue hardship. Nearly all bankruptcies are caused by genuine misfortune, not irresponsibility: Of the 1.3 million filings last year, nearly half were brought on at least partly by medical expenses relating to an illness or accident; others were caused by job loss or divorce. Bankruptcy law should allow responsible borrowers who fall on hard times relief from their creditors. Once again, the Senate goes some way toward this, but the House is too harsh.

LOAD-DATE: April 25, 2000