Riforma della legge fallimentare in USA

[FaGal]

GOP bill tightens rules for bankrupt
Change to hurt those swamped by medical debt, Democrats say

By Rick Klein, Globe Staff | February 17, 2005

WASHINGTON -- Republicans in Congress want to significantly tighten regulations to keep people who declare bankruptcy from ducking debts they should be able to settle, but Democrats and physicians' groups argue the move would penalize Americans who go broke because of huge medical bills they can't pay.


The bankruptcy bill, scheduled to come before the Senate Judiciary Committee today, has been on the wish list of Republican leaders and financial institutions for nearly a decade, and Senate Majority Leader Bill Frist said yesterday that the expanded GOP majority in the Senate will allow quick passage of the measure this year. The Senate could vote on the matter by the end of the month, he said.

''Congress has wasted time, and we still have a bankruptcy crisis on our hands," said Senate Finance Committee chairman Charles E. Grassley, an Iowa Republican and the measure's lead sponsor. ''The vast majority of people believe that individuals who file for bankruptcy should be required to pay back some of their debts if they have the means to do so."

But Democrats are mobilizing to stall the bill, saying that it doesn't include enough protection for some of the estimated 1 million Americans whose healthcare debts drive them into bankruptcy every year. A recent study by a group of Harvard law and medical school professors found that about half of all bankruptcies are filed shortly after people experience a serious medical problem -- and about three-fourths of those filers went bankrupt despite having health insurance.

Three Democrats on the Senate Judiciary Committee want more time to fine-tune the bill to protect people whose medical debts forced them into bankruptcy. In addition, several Democrats are trying to include a crackdown on corporations that dodge pension obligations through bankruptcy.

''In this situation, the real losers are going to be middle-income, working families, and effectively it's going to be the financial interests that are going to use the courts as collection agencies," said Senator Edward M. Kennedy, Democrat of Massachusetts, who serves on the Judiciary Committee. ''It is unconscionable to punish people because they have the misfortune to be sick."

Citing the Harvard study, more than 1,700 physicians sent a letter to Judiciary Committee members on Monday, urging them to reject the bill. The effort was organized by Physicians for a National Health Program, a nonprofit group that advocates universal healthcare.

But Senator Grassley called it a ''myth" that catastrophic illnesses and overwhelming medical bills spur most bankruptcies. At a hearing on the bill last week, he cited US Trustee's Office statistics that indicate 78 percent of bankruptcy filers reported medical debts of less than $5,000.

''Misrepresentations about this legislation have been running rampant by those who oppose any meaningful bankruptcy reform," Grassley said. ''Political criticism is never inhibited by ignorance."

Three different versions of the bill have come close to passing since 1998, but Democrats have blocked each of them. Both the House and Senate approved the bill in 2002, but Democrats held up its final passage by adding a provision that Republicans considered anathema: barring those convicted of blocking access or committing violence at abortion clinics from filing for bankruptcy to avoid paying fines.



That amendment is again being offered by Senator Charles E. Schumer, Democrat of New York. The bill's supporters say it's the main obstacle again this year.

''If the Senate passes a bankruptcy bill without the Schumer amendment, I'm certain that the bankruptcy bill can become law quickly," House Judiciary Committee Chairman F. James Sensenbrenner, Jr., a Wisconsin Republican, said yesterday.

Under current law, all consumers can file for Chapter 7 bankruptcy, which allows them to walk away from their debts after forfeiting a portion of their assets in accordance with state-specific guidelines. Credit-card companies and banks have long argued that those with higher incomes use Chapter 7 bankruptcy to avoid debts that they could have paid down, forcing financial institutions and small businesses to assume the debt, then pass it on to consumers.

''It's a weight on our whole economy," said Laura Fisher, a spokeswoman for the American Bankers Association, which is lobbying for the bankruptcy reform bill to pass. ''You have high-income filers out there who are not repaying debts when they have the means to."

Under the bill, those who earn more than their state's median income and can pay at least $6,000 of their debts over five years would have to file for bankruptcy under Chapter 13 laws, where courts can order repayment plans to settle the debt.

The bill allows bankruptcy filers to show a judge special circumstances -- including details of any outstanding medical bills -- to justify an altered or reduced payment plan or even eliminate the filer's obligation to the debt, according to the measure's backers.

''Those who are genuinely down and out will still be able to file under Chapter 7, to get their discharge and move on with their lives," Sensenbrenner said.

But critics say that, if the bill passes, a person who claims he or she can't repay a debt will have to complete a complex series of legal requirements -- something a lawyer would have to prepare and a bankruptcy filer probably couldn't afford, said Elizabeth Warren, a Harvard Law School professor who was one of the coauthors of the medical bankruptcy study.

The bill doesn't distinguish between someone who went broke by using credit cards irresponsibly and someone overwhelmed by sudden medical problems.

''Increasing the cost of a bankruptcy by a couple of hundred dollars will price some of the most desperate families out of the system altogether," said Warren, who testified against the Grassley bill at a hearing last week. ''It's intended to set up enough trip wires to toss people out of bankruptcy."

Rick Klein can be reached at rklein@globe.com.
© Copyright 2005 Globe Newspaper Company.
http://www.boston.com/business/artic..._for_bankrupt/

[FaGal]

Bad Bankruptcy

Following this post from last week, the Senate Judiciary Committee approved bankruptcy "reform" legislation on Thursday that imprudently makes it harder and more expensive for people to discharge their personal liability for substantial debts in bankruptcy. Given Congress' Republican majorities, the long disputed measure appears to be on track to be signed into law.

This bankruptcy reform bill is similar to others that have been batted around Congress several times during the past seven years, but each time the bills have been stymied by a combination of Democratic opposition and Republican obstinance. A nearly identical bill to the one that the Judiciary Committee just passed has been introduced in the House.

The bill's main flaw is that it takes a "one shoe fits all" approach that would likely funnel most individuals into Chapter 13 cases under which the debtor proposes a plan to repay debts based on the debtor's income. In attempting to accomplish that dubious goal, the bill threatens to create a huge bottleneck in the U.S. Bankruptcy Courts by requiring that the Bankruptcy Judge make a threshold determination in each personal bankruptcy case of whether the debtor is, in effect, a "good" debtor, who is simply down on his or her luck, or a "bad" debtor, who is just trying to avoid paying his or her debts. If the debtor is not sufficiently "good" to justify a complete discharge of personal liability for his or her debts in a liquidation under chapter 7 of the Bankruptcy Code, then the Bankruptcy Judges are to funnel them into a chapter 13 case.

Just to give you an idea of the administrative nightmare that this ill-conceived requirement will likely cause, note that 1.6 million personal bankruptcies were filed in the 12-month period ending September 30, 2004, according to data from the Administrative Office of the U.S. Courts. Bankruptcy Courts already have extraordinarily busy dockets, and plopping such a time-consuming process at the outset of each personal bankruptcy case on top of those crowded dockets is simply contrary to any reasonable notion of judicial economy.

Moreover, this bill does not have the support of of a wide coalition of business leaders and the leading academic experts in insolvency law, such as the then new Bankruptcy Code enjoyed when it was passed in 1978. In comparison, this reform bill is supported primarily by narrow special interests -- financial institutions in the credit card business -- that want to make it harder for debtors to discharge their liability for substantial credit card indebtedness. As a result, the bill makes individual bankruptcy more expensive and difficult, which undermines one of key incentives of insolvency law -- that is, a fresh start for a person who desires a second chance and an opportunity to put their financial house in order.

Meanwhile, just to make certain that the bill has bipartisan contributions of bad ideas, the Committee accepted amendments from Senator Edward Kennedy that would limit companies on the brink of a chapter 11 reorganization from from paying key employees retention bonuses and would require a special trustee to be appointed in cases where corporate fraud is suspected. Not surprisingly, retention bonuses and fraud were hot button items in the politically-charged chapter 11 case of Enron Corp.

However, preventing a financially-troubled company from attempting to keep its key employees from deserting a sinking ship is a particularly bad idea because those employees are often the most important factor in planning a successful reorganization under chapter 11 that will pay creditors a dividend and preserve jobs in a community. Consequently, by taking away a financially-strapped company's flexibility to retain key employees, Congress is increasing the risk that the company will end up in a liquidation, which means that creditors recover nothing and the community in which the company is located loses jobs. Similarly, requiring a special trustee in cases involving corporate fraud is simply unnecessary and more political grandstanding -- the Bankruptcy Code already provides for the appointment of a trustee under such circumstances.

At least Judiciary Committee Democrats are promising a floor fight next month, in which they expect to propose at least 50 amendments to the bill. Moreover, Sen. Charles Schumer plans to propose the same amendment that has doomed a couple of the previous bills in the recent past -- a provision that would prohibit protesters from using bankruptcy to obtain a personal discharge of liability for paying court fines resulting from intentionally blocking abortion clinics. Perhaps those tactics will prevent this ill-advised and unnecessary legislation from being enacted.

Former University of Texas and current Harvard Law School professor of law Elizabeth Warren made these comments in her Congressional testimony on the bill, and closed with this recommendation to the Judiciary Committee:

Don’t press “one-size-fits-all-and-they-are-all-bad” judgments on the very good and the very bad. Spend the time to make the hard decisions. Leave discretion with the bankruptcy judges to evaluate these families. Based on the Harvard medical study and other research, I think you will find that most debtors are filing for bankruptcy not because they had too many Rolex watches and Gameboys, but because they had no choice.

You have a choice. It's a choice that you're making for the American people. Adopt new bankruptcy legislation. Establish a means test that targets abuse. But do not enact a proposal written to address myth and mirage more than reality. Do not enact a proposal written for 1997 when the problems of the American corporate economy in 2007 deserve far more attention and the problems of the American middle class can no longer be ignored.

Overwhelmingly, American families file for bankruptcy because they have been driven there — largely by medical and economic catastrophe — not because they want to go there. Your legislation should respect that harsh reality and the families who face it.

This bankruptcy reform bill is not without its good aspects, such as the provision that would limit the "race to the bottom," in which bankruptcy courts in certain jurisdictions use the liberal venue provisions of the Bankruptcy Code to market themselves to debtors' lawyers who often choose the venue of big business reorganization cases. However, the bad provisions in this bill far outweigh the good, and Congress simply does not need to be wasting time on bad bankruptcy bills at a time when action on other key domestic issues is far more pressing.
http://blog.kir.com/

[FaGal]

March 9, 2005
Bankruptcy Bill Set for Passage; Victory for Bush
By STEPHEN LABATON

WASHINGTON, March 8 - The Senate assured final passage of the first major overhaul of the nation's bankruptcy laws in 27 years on Tuesday, when it took two votes that cleared the remaining political obstacles to a measure that the nation's credit and retail industries have sought for years.

The bill would disqualify many families from taking advantage of the more generous provisions of the current bankruptcy code that permit them to extinguish their debts for a "fresh start." It would also impose significant new costs on those seeking bankruptcy protection and give lenders and businesses new legal tools for recovering debts.

The Senate on Tuesday first defeated an amendment that would have prevented violent protesters at abortion clinics from using the bankruptcy laws to shield themselves from judgments awarded in civil lawsuits. That amendment, which lost by a vote of 53 to 46, had threatened to derail the legislation. The senators then voted 69 to 31 to limit debate and cut off any effort to kill the legislation by filibuster.

Final passage of the measure is now an inevitable formality.

House leaders have said they will quickly approve the legislation once the Senate completes work on it as early as this week. President Bush has said he intends to sign it. His predecessor, President Bill Clinton, killed the measure in his final days in office in 2000 after it had been passed by Congress by declining to sign it at the end of the legislative session, issuing a so-called pocket veto.

The sponsors of the legislation say that it will have the effect of lowering the costs of goods and services for all consumers by making it easier for companies and issuers of credit to collect unpaid debts rather than passing those costs on to everyone else. In the last 30 years, bankruptcy filings have steadily increased, rising eightfold since Congress last rewrote the bankruptcy laws.

But critics said the measure was a thinly disguised gift to banks and credit card companies, which, they contend, are largely responsible for the high rate of bankruptcies because they heavily promote credit cards and loans that often come with large and largely unseen fees for late payments. They said that the measure would impose new obstacles on many middle-income families seeking desperately needed protection from creditors, and that it would take far longer for those families to start over after suffering serious illnesses, unemployment and other calamities.

The votes on Tuesday were the second legislative victory in recent weeks both for Mr. Bush and the Senate majority leader, Bill Frist, himself a possible presidential contender in 2008. Mr. Frist nimbly moved both the bankruptcy bill and another bill last month making it more difficult to bring class-action lawsuits through the Senate.

In both cases, he unified the Republicans to beat back every effort by the Democrats to water down or delay the measures. In both cases, he also reached a deal with House leaders in which the Senate blocked any significant changes to the measure in exchange for a commitment from the House that it would adopt unaltered what the Senate approved.

The White House applauded the votes on Tuesday.

"The administration supports the passage of bankruptcy reform because ultimately this will lead to more accessibility to credit for more Americans, particularly lower-income workers," said Trent D. Duffy, a deputy White House spokesman. "The fact that the Senate was able to set aside those issues and move toward passage shows it's another bipartisan accomplishment. Coupled with class actions, it shows we're off to a good start."

The sponsors of the bankruptcy legislation say it is a badly needed measure to curb a growing number of abusive bankruptcy filings by individuals who ought to be able to meet their obligations. Those cases, supporters of the measure say, have added hundreds of dollars in annual costs to other consumers who wind up having to pick up the unpaid debt.

"We are a compassionate nation but we should not be fools," said Senator Orrin G. Hatch, a Utah Republican who has fought for the measure for eight years. "We want to give our neighbors who get in over their heads a chance to get out of their financial troubles. But for some it is a way to avoid personal responsibility. There is something inherently unfair about denying full restitution to creditors."

Supporters of the new law point to the rise of bankruptcy filings, from 200,000 in 1978 to 1.6 million last year, as evidence of abuses.

But critics of the measure say that the rise in such filings is not evidence of unfair filings. Rather, they say, it is symptomatic of broader economic problems - the growing distress in families plagued by high health care and education costs. A recent study by bankruptcy and medical experts at Harvard University found that more than half of the 1,771 personal bankruptcy filers in five federal courts cited medical bills as a primary reason they filed.

The critics - including consumer groups, Democrats and more than 100 bankruptcy law professors - say that the legislation's supporters have significantly exaggerated the problem with the current bankruptcy laws. They say the legislation will do far more damage than good by hitting middle-income families, women and the elderly who have used bankruptcy protection in growing numbers to protect themselves.

"This bankruptcy bill is mean-spirited and unfair," said Senator Edward M. Kennedy, Democrat of Massachusetts. "In anything like its present form, it should and will be an embarrassment to anyone who votes for it. It's a bonanza for the credit card companies, which made $30 billion in profits last year, and a nightmare for the poorest of the poor and the weakest of the weak."

In a letter to Congress two weeks ago, 104 bankruptcy law professors predicted that "the deepest hardship" would "be felt in the heartland," where the filing rates are highest - Utah, Tennessee, Georgia, Nevada, Indiana, Alabama, Arkansas, Ohio, Mississippi and Idaho.

Critics also said the measure fails to do anything to curb abusive bankruptcy practices by wealthy families, who can create special trusts to shelter their assets, and by corrupt companies like Enron and WorldCom, which were able to find favorable bankruptcy courts and deprive many of their employees and retired employees of benefits. The Senate defeated a series of amendments proposed by Democrats that sought to address those issues.

"The bill has a real bias," said Senator Charles E. Schumer, Democrat of New York, whose proposal to close a loophole that permits wealthy people to shelter assets through a special trust was defeated last week. "It deals with abuses in bankruptcy by one group but not with another group."

The lobbying money for the legislation, which has come close to passage several times in the eight years since it was introduced, has been lopsided.

The main lobbying forces for the bill - a coalition that included Visa, MasterCard, the American Bankers Association, MBNA America, Capital One, Citicorp, the Ford Motor Credit Company and the General Motors Acceptance Corporation - spent more than $40 million in political fund-raising efforts and many millions more on lobbying efforts since 1989, according to the Center for Responsive Politics, a nonpartisan organization that studies the role of money in the political process. By definition, the critics of the legislation had limited lobbying resources.

The foundation of the legislation is a provision that would limit access by individuals to Chapter 7 of the bankruptcy code. It enables individuals to sharply limit payments on their obligations and get a "fresh start."

The bill would instead impose a means test that would prompt many people to file for bankruptcy protection under Chapter 13, which requires a repayment plan. The means test would not be applied to debtors who earn less than the median income in their state. Those who earn more than that and can pay at least $6,000 over five years would have to seek protection under Chapter 13.

The median income for a family of four in 2003 was $65,093, ranging from $45,867 in New Mexico to $82,561 in Massachusetts, according to the United States Census Bureau.

The bill would also increase the costs of bankruptcy by increasing the amount of paperwork filed and force people in bankruptcy to pay for counseling about the way they use credit. It would also make it more difficult for some people to try to shelter their assets through the purchase of expensive homes in states like Florida and Texas, which have homestead exemptions. To shelter more than $125,000 in assets, homes must have been purchased at least three and a third years before a bankruptcy filing.

NY TIMES

[FaGal]

http://abiworld.net/bankbill/

[FaGal]

Senate Passes New Bankruptcy Legislation


March 14, 2005 (Associated Press) -- The biggest rewrite of bankruptcy laws in 27 years is about to turn the path to a debt-free second start, undertaken by more than 1 million Americans each year, into a road less traveled.

A bankruptcy overhaul bill the Senate passed by a 74-25 vote on Thursday 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.

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

The legislation would set up an income-based test for measuring a debtor's ability to repay debts. It would require people in bankruptcy to pay for credit counseling and stiffen some legal requirements for debtors in the bankruptcy process.

Eighteen Democrats and the Senate's lone independent joined Republicans in approving the legislation. It goes to the House next month and then to President Bush, who made it a priority after the GOP increased its majorities in the fall elections.

That would mark a second victory for Bush this year on pro-business legislation he had sought.

"I applaud the strong bipartisan vote in the Senate to curb abuses of the bankruptcy system," the president said in a statement. "Reforming the system with this commonsense approach, more Americans - especially lower-income Americans - will have greater access to credit."

Congressional and industry backers of the legislation have been pushing for it for eight years, arguing that too many people with the ability to repay at least a portion of the money they owe were walking away from all their debts.

"This legislation restores personal responsibility and fairness to an abused system," said Senate Majority Leader Bill Frist, R-Tenn.

Democratic opponents argued that the changes would keep people who are overwhelmed by medical costs or loss of a job hopelessly in debt for the rest of their lives.

"The concerns and interests of consumers, poor and middle-class families, our uniformed service members and their families, and veterans were cast callously aside," said Sen. Patrick Leahy, D-Vt.

Over the past two weeks, Republicans knocked down Democratic attempts to ease the impact of the legislation on people facing huge debts they cannot pay, including single parents, the unemployed and the ill.

Wall Street investment bankers won a provision in the bill that will enable the same firm to work for a company both before and after it files for bankruptcy. Securities and Exchange Commission Chairman William Donaldson opposed the move; he said it would further undermine investor confidence already shaken by the Enron, WorldCom and other corporate scandals.

The bill orders the most sweeping overhaul of U.S. bankruptcy laws in more than a quarter-century, reworking a system created soon after the Republic was founded under which indebted people met their obligations to creditors while also being able to get a fresh start.

Supporters of the bill said bankruptcy often was 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.

Under the new income test, 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. But 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.

About 70 percent of the people who file for bankruptcy now do so under Chapter 7, while the other 30 percent or so fall under Chapter 13, according to the American Bankruptcy Institute.

Most of the Chapter 7 filers "don't have the income to fund a (repayment) plan that won't fail," said Samuel Gerdano, executive director of the group of bankruptcy judges, lawyers and other experts.

Current law allows a bankruptcy judge to determine under which chapter of the bankruptcy code a person falls.

The bill is the second piece of pro-business legislation on which Congress has acted quickly this year. Last month it sent Bush a bill placing most large multistate class-action lawsuits under federal court jurisdiction, making it more difficult for plaintiffs to join together and win multimillion-dollar judgments in state courts.

-- Marcy Gordon
http://finance.pro2net.com/x47363.xml

[FaGal]

US set to tighten bankruptcy law
news.bbc.co.uk - April 14, 2005

Legislation that makes it harder for US consumers to escape their debts by filing for bankruptcy has been passed by Congress.


The Bankruptcy Reform Bill, long-wanted by US banks and credit card companies, is designed to stop people abusing the bankruptcy system to avoid repayments.

On Thursday it was passed by the House of Representatives by a 302-126 vote after previously passing the Senate.

It now goes to President George W Bush who has already said he is in favour.

'Restores integrity'

Supporters of the bill say that in preventing the abuse of the bankruptcy system it will make credit cheaper for the great majority of borrowers.

Republican House Speaker Dennis Hastert said the bill's passage "restores integrity in the system".

"It makes it harder for those who want to use bankruptcy as a scapegoat to avoid debts," he said.

"Bankruptcy is for those who need help, not those who want to shift costs to other hard-working Americans."

Critics

Yet opponents say it is too harsh on low income Americans who are driven into debt by unemployment, ill health, divorce, or simply through poverty.

"This is the most special interest-invested bill that I have ever dealt with in my career in Congress," said Michigan Democrat Representative John Conyers.

"It massively tilts the playing field in favour of banks and credit card companies and against working people and their families."

Applications for personal bankruptcy in the US were down 3.8% last year to 1.6 million.

[FaGal]

April 15, 2005
House Passes Bankruptcy Bill; Overhaul Now Awaits President's Signature
By STEPHEN LABATON

WASHINGTON, April 14 - The House overwhelmingly approved a major overhaul of the nation's bankruptcy laws on Thursday, completing Congressional action on the measure and sending it to President Bush.

The 302-to-126 vote adopted the first significant revision of the bankruptcy laws in 27 years and is the culmination of years of intensive lobbying by the nation's largest banks, credit card companies and retailers, who have complained about what they say is a rising tide of abusive bankruptcy filings.

It is a victory for Mr. Bush, who supported the measure, and a setback for civil rights, labor and consumer organizations. They say the new law will be a huge giveaway to special interests at the expense of middle- and lower-income families.

Those groups say that abuses of the bankruptcy system are episodic, not systemic, and that the increase in filings over the last 30 years is a symptom of other societal problems, like the growing number of uninsured families facing high medical bills. They also link the increase to the sharp rise in promotion by credit card companies, banks and retailers of easy credit often accompanied by hidden and high fees.

Supporters of the legislation beat back a variety of attempts to force lenders to cut fees, expand disclosure and curtail what critics have called the abusive marketing tactics of banks and credit card companies. The supporters also fended off a series of amendments that would have curtailed what critics said were the abusive bankruptcy practices of corporations like Enron and WorldCom.

In a statement, President Bush commended the vote. "These common-sense reforms will make the system stronger and better so that more Americans - especially lower-income Americans - have greater access to credit," he said.

The Senate passed the same bill last month by a vote of 74 to 25.

When it takes effect, six months after it is signed by the president, the new law will disqualify many families from taking advantage of the more generous provisions of the current bankruptcy code, which since 1898 has permitted bankruptcy filers to extinguish their debt for a "fresh start."

In its place, the bill would impose a means test that would force many people to file for bankruptcy protection under Chapter 13, which requires a repayment plan. The means test would not be applied to debtors who earn less than the median income in their state. Those who earn more than that, and can pay at least $6,000 over five years, would have to seek protection under Chapter 13, rather than the more generous provisions of Chapter 7.

The median income for a family of four in 2003 was $65,093, ranging from $45,867 in New Mexico to $82,561 in Massachusetts, according to the United States Census Bureau.

The bill would also impose significant new costs on those seeking bankruptcy protection and give lenders and businesses new legal tools for recovering debts. It would make it more difficult for some people to try to shelter their assets through the purchase of expensive homes in states like Florida and Texas, which have homestead exemptions. It also imposes new barriers to filing a series of successive bankruptcy filings over the years.

Supporters of the measure were giddy on Thursday. The National Retail Federation issued-and then tried to rescind-a statement it had inadvertently sent out by e-mail hours before completion of the measure, applauding Congress for approving the bill.

"It feels like we've been waiting as long to pass bankruptcy reform as Washington spent trying to get baseball back in town," said Steve Pfister, the senior vice president for government relations at the retail federation. "The House hit one out of the park today. Now we're just waiting for President Bush to cross home plate by signing this bill into law."

Mr. Pfister said the legislation would lower costs for all consumers because they wind up making up the difference on the unpaid debts of those who abuse the system.

But others disagreed.

Opponents of the legislation said that the move by Congress was a harsh attack on the poorest and most needy and came just one day after the House adopted a measure of huge potential benefit to the wealthiest when it voted to eliminate the estate tax.

"The G.O.P. is practicing Robin Hood in reverse," said Representative John Conyers Jr. of Michigan, the ranking Democrat on the House Judiciary Committee. "Last night they repealed the estate tax, a gift to the wealthiest individuals in our society. Today they pushed through the special-interest bankruptcy bill, punishing the very poorest members of society. This shows all the world that all of that talk about values in the last election was just that - talk."

In fact, 73 Democrats joined the 229 Republicans in voting to approve the measure. It was opposed by 125 Democrats and Bernard Sanders of Vermont, the lone Independent in the House.

The legislation had been opposed by many bankruptcy law professors and judges who testified in recent months that it was unnecessary and would create more problems than it would solve. They said that it would impose new obstacles on many middle-income families seeking desperately needed protection from creditors, and that it would take far longer for those families to start over after suffering serious illnesses, unemployment and other calamities.

In a letter to Congress two months ago, 104 bankruptcy law professors predicted that "the deepest hardship" would "be felt in the heartland," where the filing rates are highest -Utah, Tennessee, Georgia, Nevada, Indiana, Alabama, Arkansas, Ohio, Mississippi and Idaho. A study conducted by legal and medical specialists at Harvard University of 1,771 personal bankruptcy filers in five federal courts found that about half were forced into bankruptcy because of heavy medical costs.
http://www.nytimes.com/2005/04/15/bu...rint&position=

[FaGal]

Bad Bankruptcy bill goes to President Bush

bankruptcy-credit-cards.jpgAs expected, the House approved the Bankruptcy Reform legislation and sent it to President Bush, who has stated that he will sign it promptly. The amendments will go into effect in six months.

This previous post sets forth my reservations about this legislation, so they will not be restated here, except to point out that this is special interest-driven legislation that modifies an underappreciated bankruptcy system that contributes much to the strength of the American economic system. The "fresh start" of a bankruptcy discharge encourages entrepreneurs to take risk and create businesses and jobs, and gives individuals hope that they can rebound from a financial disaster to rebuild wealth for their families. Accordingly, making that remedy more expensive and more restrictive to individuals is not a step in the right direction.
http://blog.kir.com/

[FaGal]

Morally bankrupt?
Apr 15th 2005
From The Economist Global Agenda


America's Congress has passed a new, creditor-friendly bankruptcy bill. As consumer advocates and credit-card companies both try to stake out the moral high ground in the debate, there are some reasons to be concerned about the change

AMERICA leads the world in many fields, but perhaps most commandingly in bankruptcy. Last year, in Britain, which enjoys Europe’s most debtor-friendly bankruptcy laws, 35,898 people filed for bankruptcy protection. In the United States that figure was 1.6m—around nine times higher per capita. Bankruptcy in America has long been easier—and thus more prevalent—than in other parts of the world, but the past 20-odd years have seen an explosion. Five times as many Americans went bust last year as did in 1981.

American legislators are looking to change that with a reform bill aimed at making bankruptcy less attractive. On Thursday April 14th, this was passed by the House of Representatives, having already made it through the Senate. In the run-up to the vote, the debate had turned into a sort of morality play, with advocates for financial firms and consumers each seeking to cast the other as the sole villain behind the increase in bankruptcy filings.

Neither side has a monopoly on blame. Though credit-card companies like to claim that the real problem is the easy bankruptcy ushered in by the last major reform, in 1978, David Skeel, a law professor at the University of Pennsylvania, argues that those changes alone did not cause the spike in filings that followed. He points out that a Supreme Court decision around the same time weakened usury laws and ushered in the era of widespread unsecured consumer borrowing—the kind that bankruptcy makes it easy to shrug off. This is not necessarily a bad thing: before credit cards, consumers often resorted to less salubrious lenders, such as pawn shops or loan sharks. But it does suggest that easy credit is part of the problem.
Nonetheless, it is not by itself a sufficient explanation. While consumers do carry more debt than they used to, the amount of income devoted to servicing that debt has not gone up that much, thanks to falling interest rates and longer maturities. Other factors must be at work; plausible candidates include greater income volatility, legalised gambling, bigger medical bills, increased advertising by lawyers offering to help people in debt, and a cultural shift that has destigmatised bankruptcy.

But Congress clearly blames the debtor, not his financial enabler. The new bill will make it harder for individuals to declare Chapter 7, the most common form of bankruptcy, which allows debtors to walk away from their debts, often while shielding exempt assets like cars and homes. Those whose income is above the median in their state, and who are able to pay at least $100 a month after allowed expenses, will be forced to enter Chapter 13, where they must repay at least part of their debt over five years. Debtors will have to document their income more extensively and go for credit counselling. Serial Chapter 13 filings, which are often used to stave off foreclosure or eviction, will be blocked.

The bill’s reform of corporate bankruptcy, known as Chapter 11, shows a similar suspicion of filers’ motives. Among the main changes are the curtailment of bonus schemes used by bust firms to keep employees they deem valuable during reorganisation; various enhancements of creditors’ rights; and a new mechanism for bankruptcy trustees to take control if there is evidence that existing management engaged in fraud and such like.

Outside of America, this would still seem generous. European managers who take their company into bankruptcy can generally expect to be sacked. In Britain, they can be held liable for the firm’s debts if they continue operations while it is technically insolvent. In continental Europe, courts lean more towards liquidation than reorganisation. Individual bankruptcy, meanwhile, is a rarity, and those who enter it are generally expected to cut their budgets to the bone to make at least partial repayment. In many places, judges can refuse to grant bankruptcy protection if they think the money borrowed was spent frivolously, or if the borrower’s record during repayment is less than perfect.

But while Europeans might be bemused at all the moral outrage in America over the latest reforms, they might also wonder why Americans are so eager to move their bankruptcy law closer to Europe’s—especially since Europe is busily trying to emulate America. Until around 20 years ago, consumer bankruptcy didn’t even exist in many European countries, and corporate bankruptcy was a draconian process too dreadful for all but the most desperate managers to contemplate. Since then, these nations have relaxed their laws precisely because they see the economic benefits this has brought America.

A cure worse than the disease?

Making bankruptcy harder tends to make borrowers more willing to lend, but consumers less willing to take on debt. The result is that interest rates—the price of credit—fall. At first blush, this would make it seem that Europe had the right idea in the first place; the vast majority of people and companies that never declare bankruptcy get better terms on their loans, while the few profligates are forced to watch their step.

But making bankruptcy more difficult has other, less attractive economic effects. Forced repayment plans can discourage people from working harder (or at all), since extra income simply goes to pay creditors. Making bankruptcy more unpleasant can also deter entrepreneurship; people starting businesses are often required to personally guarantee loans to their firm—and those without assets are often forced to rely on MasterCard and Visa for their seed capital (see article). Tougher corporate-bankruptcy rules seem to make companies more risk-averse. America’s current permissive system does let many (possibly undeserving) managers keep their jobs, but it also saves workers and suppliers from a sudden loss of income.

A number of the new bill’s non-economic aspects are also troubling. Some, such as documentation requirements, seem a reasonable way to weed out fraud, which the FBI estimates to be some 10% of cases. But many others, such as forcing those whose incomes qualify for Chapter 7 to fill out detailed budgets, will discourage deserving debtors. The new treatment of secured car loans could put child-support and alimony payments behind GM’s finance arm in the queue. In a sense, the bill's critics fear, it moves America away from Europe in the wrong direction, stripping autonomy from judges and turning the bankruptcy process into a mechanical monster which is all too likely to crush innocents under its wheels.

The bill does at least contain one feature that has everyone pleased: a new Chapter 15, which adopts the UN’s model code on cross-border bankruptcy. This will make multinational bankruptcies, a growing issue, much easier to handle. Still, only time will tell whether America’s steps in Europe’s direction are one forward, or two back.

[FaGal]

http://www.economist.com/agenda/disp...ory_id=3860106