This document provides background information and summarizes the debate over Bankruptcy Reform. The links to the left will lead you to public documents that we have found.
In Dickensian
England, a debtor unable to come up with a payment to those he or she owed
ended up in prison. And those who have read Dickens know that a debtor's prison
was truly hell on earth. American debtors face a kinder fate when they go
belly up. Bankruptcy laws allow for an orderly disposition of remaining resources
and facilitate a settlement between the debtor and those who are owed money.
Individuals who declare personal bankruptcy can usually avoid prison, provided
they haven't committed fraud of some type.
Those in the
lending industry believe that bankruptcy laws are far too lenient. A lobbyist
for a finance trade association summarized the case for a change in the current
law: "There are really large numbers of bankruptcy filers, but there
are particularly large losses that occur from high-income filers that use
bankruptcy as a form of financial management to shield assets." At the
heart of the proposed reform is the establishment of a "needs-based"
bankruptcy system. One supporter said that this change "could distinguish
between debtors who have virtually no assets or earning power and those with
the ability to repay all or a significant portion of their debt." There
are few who disagree that the bankruptcy laws are sometimes abused and many
believe some changes should be made. Yet opposition has arisen from consumer
groups, like the Consumer Federation of America and PIRG (the Public Interest
Research Group), who believe that the finance industry would gain too much
power with the changes being proposed.
The direct opposition
to bankruptcy reform, however, is weak and diffuse and the consumer groups
have not stood in the way of legislation. Rather, the obstacle to a rewrite
of bankruptcy law has been abortion. These two seemingly unrelated issues
became intertwined because of protests by anti-abortion groups outside of
abortion clinics and other venues that resulted in violations of various laws.
For example, the virulently anti-abortion group, Operation Rescue, was ordered
to pay $1.6 million to the National Organization for Women and Planned Parenthood
for protest-related activity that was injurious to those organizations. As
a matter of conscience, the organization declared bankruptcy rather than pay
groups they regard as perpetrators of evil. For supporters of NOW and Planned
Parenthood, this was a fundamental injustice. They had to pay out money because
of direct damages and costs incurred because of the anti-abortion protests,
but then the organization that violated the law declared bankruptcy to avoid
paying them. (There were no assets left in the organization for the bankruptcy
court to distribute to claimants.)
The Senate version
of this legislation has contained a provision that would exclude from bankruptcy
settlements any civil claims that result from abortion clinic violence. Conservative
Republicans have been put in a difficult position. They back the bankruptcy
legislation but those who stand against abortion don't want to concede to
the groups supporting abortion rights. This issue has bedeviled bankruptcy
reform since the mid-1990's as Congress has been unable to reconcile the opposing
sides. To the frustration of the many banking and finance trade associations
that operate in Washington, the legislation remains bottled up.