The U.S. House of Representatives has passed bankruptcy reform legislation in a bill that is likely to reach the President this year. Dubbed the "Bankruptcy Reform Act of 1999", H.R. 833, is causing renewed alarm in the bankruptcy community.

How conservative is the bill? It is so bad that even Judiciary Committee chairman Henry Hyde, who has never been accused of being liberal, found it objectionable and asked his fellow Republicans to vote against the bill. Twenty five did vote nay but the ayes carried it.

During the last Congress, bills were introduced in both the House and Senate designed to drastically change the way consumer bankruptcies are managed. Both bills were heavily influenced by the banking and credit card lobbies. The bills, among other features, contained provisions for "needs based" testing for bankruptcy filers. Essentially, the guidelines require any debtor making over a fixed amount ($50,000 for a family of four was an often-cited figure) to repay a portion of his debt over a period of time. Currently, the law would often permit such a debtor to discharge most unsecured debts with no repayment. The "needs testing" is to be based on IRS guidelines which are relatively inflexible.

Although widely criticized by bankruptcy practitioners, judges, and consumer advocates, the 1998 legislation had wide Congressional support and failed to become law only because of the Congressional preoccupation with matters-Lewinski.

With impeachment now concluded, the House has once again introduced bankruptcy reform legislation. The current bill is a carbon copy of last year's House bill and once again support built in Congress.

The bill's detractors are concerned on a number of levels. Foremost is the fact that previous bankruptcy reform was the product of years of study and comment while the current changes seem to largely reflect the interests of the banking and credit card industry which stands to collect billions of dollars in previously dischargeable debt. The bill also takes away from bankruptcy judges the ability to use their discretion in certain instances.

Of concern too, is the fact that those supporting the legislation are selling it as a bill which is designed to benefit those dependent on spousal and child support. Their argument is based on the fact that one provision of the bill makes spousal and child support the claim which gets paid first in a bankruptcy. When put in such terms, voting against the bill seems like a vote against the flag and apple pie.

Critics contend that, although parents and children do go to the head of the line, their claims are going to be offset by the fact that the bill makes many credit card obligations nondischargeable and could force single parents and children into legal battles with the credit card companies over who has rights to available funds. Nothing in the new bill would require the credit card companies to reduce the 3.5 billion solicitations which were mailed last year, or to reduce interest rates.

Any changes to the bankruptcy laws would most likely become effective at the date of signing or at the beginning of next year.

The bill now must be worked on in the Senate and then by a joint Senate and House committee. Even if the reform legislation passes the Congresses, it must be signed into law by the President who indicated last year that he was not likely to sign the bill.

This is legislation which will have far reaching impact. With a major election looming Congress members are particularly sensitive to the views of their constituents and voters should inform their representatives of their feelings on these matters.

March 1999.
Reprinted with permission of the The Orange County Register.