Congress Passes Bankruptcy Reform Bill

[tricksterpup]

It looks like that it has happened.

Congress Passes Bankruptcy Reform Bill
By MARCY GORDON, AP Business Writer

WASHINGTON - Tens of thousands of people who want to wipe out their debts in bankruptcy court would have to work out repayment plans instead under legislation Congress approved Thursday.

A 302-126 vote by the House sent the legislation to President Bush, who is eager to sign it, the biggest rewrite of the bankruptcy code in a quarter-century. It marks the second major change in law to benefit business since Republicans increased their House and Senate majorities in last fall's elections.

Debate in the House was acrimonious as Democratic opponents warned that the measure would hurt the economically vulnerable.

After eight years of strenuous efforts by congressional backers, banks and credit card companies, the legislation was catapulted toward enactment starting earlier this year. The legislation, which garnered some Democratic votes, cleared the Senate last month on a 74-25 vote.

The measure would require people with incomes above a certain level to pay credit-card charges, medical bills and other obligations under a court-ordered bankruptcy plan.

Opponents say the change would fall especially hard on low-income working people, single mothers, minorities and the elderly and would remove a safety net for those who have lost their jobs or face crushing medical bills.

The legislation "protects the credit industry at the expense of the consumer," Rep. Alcee Hastings (news, bio, voting record), D-Fla., declared in House debate. "It will drive more Americans deeper into financial crisis and weaken the nation's economy and social structure."

But backers in Congress and the financial services industry argue that bankruptcy frequently is the last refuge of gamblers, impulsive shoppers, divorced or separated fathers avoiding child support, and multimillionaires — often celebrities — who buy mansions in states with liberal homestead exemptions to shelter assets from creditors.

Rep. David Dreier (news, bio, voting record), R-Calif., said the legislation would save American families an average $400 a year in higher interest rates now charged to consumers to recoup losses from those who abuse bankruptcy proceedings.

In a bitter scene on the House floor, Democrats — most of whom opposed the legislation — used an array of parliamentary maneuvers to delay the final vote, forcing an unsuccessful roll call vote on adjourning the session and lining up one by one to register their objections in brief, biting statements.

Democrats were furious that the GOP leadership allowed none of the 35 amendments they had proposed earlier to be voted on. They particularly wanted provisions that would exempt from the new bankruptcy requirements military personnel returning from Iraq and Afghanistan, and people whose indebtedness is the result of financial identity theft.

Between 30,000 and 210,000 people — from 3.5 percent to 20 percent of those who dissolve their debts in bankruptcy each year in exchange for forfeiting some assets — would be disqualified from doing so under the legislation, according to the American Bankruptcy Institute.

Taking effect six months from enactment, the measure would set up an income-based test for measuring a debtor's ability to repay debts. Those with insufficient assets or income could still file a Chapter 7 bankruptcy, which, if approved by a judge, erases debts entirely after certain assets are forfeited. Those with income above the state's median income who can pay at least $6,000 over five years — $100 a month — would be forced into Chapter 13, where a judge would then order a repayment plan.

The legislation also would require people in bankruptcy to pay for credit counseling.

Underscoring the issue's political sensitivity, the liberal group MoveOn was beginning a campaign of radio ads this week against House lawmakers of both parties who support the legislation.

"We're going to call the Republican agenda what it truly is: a war on the middle class," said Tom Matzzie, the Washington director of MoveOn's political action committee.

New personal bankruptcy filings edged down from 1,613,097 in the year ending June 30, 2003, to 1,599,986 in the year ending last June 30, breaking an upward trend of recent years.

 

[Slappy*McFish]

I thought this was some information worth reading for those unable to file for bankruptcy or would rather not file period.

20 December 2004

"My credit record is terrible. I have been advised that if I just wait long enough and don't run up any more debts in the meantime, my terrible record will cure itself. Is this true? "

It is only partly true. You have to assist father time or he can't help you.
Credit Scores Will Not Improve Without Help From You

It is true that the force of negative information on your credit score declines as it ages, but this won't do you any good unless you now generate positive information. Old bad stuff plus recent good stuff generates a rising credit score. Old bad stuff followed by no credit activity results in a continued low score. This is a feature of all credit scoring systems.
The Federal Fair Credit Reporting Act Limits How Long Negative Information Stays on Your Credit Record

The Federal Fair Credit Reporting Act puts father time on your side by setting limits on how long negative information can appear in consumer credit records. Once a piece of information has been on a consumer's record for the prescribed period, it is supposed to drop off. Once off, it will no longer affect your credit score.

The prescribed periods are as follows: inquiries about you from credit grantors, 2 years; late payments, mortgage foreclosure, collection accounts and chapter 13 bankruptcy, 7 years; chapter 7 bankruptcy, 10 years; unpaid tax liens, forever.

The three major credit-reporting agencies (Equifax, Experian and Trans Union) have built purge routines into their data systems, but I have no idea how reliable the systems are. I am not even sure that all three follow exactly the same purge rules.

I found that on collection accounts, two of the companies purge 7 years after the date of the original missed payment, but the third purges 7 years from the date of the last activity! This means that the collection account of a borrower who pays it off after 6 years stays on the books of the third company for 13 years instead of 7!

It is a good idea for consumers who have adverse information on their credit records not to rely wholly on the purge policies of the three companies. Monitor them by periodically requesting your credit report. And if you happen to have a collection account, pay it as soon as possible, because the clock may not start ticking until you do.

But I repeat, getting rid of all the bad stuff, by itself, does not give you a good credit score. To get a good score, your record must include evidence of payments made on time. If you don't take on any new debt, you are not generating such evidence.

Years ago I had terrible credit habits and was chronically late on my credit cards, but for the last 5 years I have been out of debt. Will I be able to get a mortgage?

It will be difficult.
Debtaholics on the Wagon Are Viewed as Poor Risks

Lenders are not interested in lending to debtaholics who have stopped all borrowing. A debtaholic who has not borrowed for a long period following a credit binge, during which time all the bad stuff fell off his credit report, is viewed as a bad credit risk. Lenders view a loan to such a consumer as akin to offering a drink to an alcoholic who has been on the wagon.

Is debtaholicism an incurable disease, like alcoholism, where complete abstinence is the only satisfactory way to cope? Or can debtaholics learn to use credit responsibly? I am inclined to believe that some of them can, but lenders will put the burden of proof on the borrower to demonstrate it.

To do that, you must establish new relationships with credit grantors who are prepared to deal with people who have bad credit histories. They are a tough lot: you will pay a high rate, you will be kept on a short leash, and when you fall behind in your payments, you will be badgered in every legal way, and sometimes beyond. This is the only way for them to make money lending to a population that includes a sizeable number of incurable debtaholics.

While these firms catch a lot of flak from community organizations who object to the way they treat borrowers, the firms perform an important public service: they give ex-debtaholics a second chance when no one else will. If you pay them on time every month, they won't badger you at all, and your credit score will gradually rise. In time, you can graduate from the class of deadbeats and enjoy the better terms available to borrowers who have demonstrated that they can handle credit wisely.

Copyright Jack Guttentag 2005

 

[Matak]

So, is there anything wrong with being accountable for your actions?

 

[tricksterpup]

Ok here is the actual link to the Bill/Law
Its actually called the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
PDF format: http://www.cbo.gov/ftpdocs/62xx/doc6266/s256hjud.pdf
Link to website: http://www.cbo.gov/showdoc.cfm?index=6130&sequence=0&from=6

MAJOR PROVISIONS

In addition to establishing means-testing for determining eligibility for chapter 7 bankruptcy relief, S. 256 would:

* Require the Executive Office for the U.S. Trustees to establish a test program to educate debtors on financial management;

* Authorize 28 new temporary judgeships and extend four existing judgeships;

* Permit courts to waive chapter 7 filing fees and other fees for debtors who could not pay such fees in installments;

* Require that at least one of every 250 bankruptcy cases under chapter 13 or chapter 7 be audited by an independent certified public accountant;

* Require the Administrative Office of the United States Courts (AOUSC) to receive and maintain tax returns for certain chapter 7 and chapter 13 debtors;

* Require the AOUSC and the U.S. Trustees to collect and publish certain statistics on bankruptcy cases; and

* Increase chapter 7 and chapter 13 bankruptcy filing fees and change the budgetary treatment of such fees.

Other provisions would make various changes affecting the bankruptcy provisions for municipalities and the treatment of tax liabilities in bankruptcy cases.

The more I read about this law the more I do not like it.

 

[mindtonic]

So, is there anything wrong with being accountable for your actions?

On face value, you are absolutely right. However, it was recently reported that over 60% (sorry can't back it up with a link.....just going by memory) of bankruptcies are filed within six months of a lost job or major illness. That statistic, if true, throws quite a wrench into the common assumption that most bacruptcies are filed by irresponsible overspenders looking for an easy way out.

There are a lot of partisan political undertones to this subject that I'd prefer not to get into due to the potential emotional melee that could ensue, so I'll just give this bill a

based on the fact that is the above statistric is true, it would be unwise to make it harder on the majority of bankruptcy filers in order to reel in the minority who abuse the bankruptcy laws.

 

[Matak]

It would be good if the bill could be tweaked to deal with the 40% that abuse the priveledge, and make exception for the 60% with need.

I know just what you mean about remembering the fact but not the source. Story of my life...

 

[jmcleod]

Not every bill that goes through Congress is good (obviously), however, I do think the current BK laws are abused - predominantly by attorneys advising clients to run from their obligations. There are many issues here to deal with, but everyone of us pays more in taxes and interest because of improper or irresponsible planning.

Jon

 

[mindtonic]

That's just the point........the statistics show that the overwhelming majority of bk cases are not the result of irresponsibility or improper planning.

To bring the hammer down on a statistical, dishonest minority at the expense of the relatively honest majority, carries the potential to do more harm thab good in the long term.

 

[Matak]

IMO it's not a case of the dishonest person abusing the system/priveledge. Consumer credit is chronic and way out of control. People buy on credit on a whim these days without much thought about paying it off. I don't have stats, but I'd be willing to bet that most BK cases are the cause of a lack of self control, rather than a case of unfortunate circumstance.

 

[Slappy*McFish]

or a combination of the two. They'll over spend inturn increasing their minimum payments, then when the 'unfortunate circumstances' of losing a job or being hospitalized happens, they are way over extended and miss a few payments sending their credit on a downward spiral difficult to climb out of and end up just giving up.