|
|
|
|
|
|
Press Release February 8, 2001 |
Contact: |
CONGRESS RENEWS PUSH FOR FLAWED BANKRUPTCY BILL
WASHINGTON, D.C. -- Congressional supporters of a vetoed bill to radically change the U.S. bankruptcy system are making another attempt to approve it without revisions or consideration of the impact of a downturn in the economy.
The House Judiciary Committee kicked off a two-day hearing on the bill this morning, while the Senate Judiciary Committee prepares to consider the bill tomorrow.
Consumers Union (CU) and Consumer Federation of America (CFA) urged Congress to make changes in the legislation to ensure that the bill does not have unintended consequences, such as unnecessarily harming working families making an honest effort to bring their finances into order. Instead, the bill should target the wealthy debtors who abuse the bankruptcy system, which the current version fails to do.
While not opposed to changes in the bankruptcy laws, CU and CFA oppose this so-called "reform" bill for several reasons:
· Reform is usually about making the system more fair, efficient, or less costly. This bill adds elaborate and costly disclosure requirements that will tap debtors who are already strapped. Moreover, it places substantial new burdens on bankruptcy courts -- essentially making the courts the debt collectors for the credit industry, with taxpayers footing the bill for this service.
· The bill takes away bankruptcy judges' discretion. It establishes hard and fast rules that treat an abandoned spouse the same way it treats a lawyer who overspent on vacations and fancy restaurants.
· The bill eviscerates the notion of a fresh start for honest debtors. The combination of the "means test" and the increase of nondischargeable claims will lead to more failed plans with the result that many
"honest but unfortunate debtors" will never be able to get a fresh start.
· The bill fails to curb reaffirmation abuses, like those in the Sears case.
· The bill fails to stop the abuse of the system by the wealthy. It will not change the outcome of many cases that have been cited as the clearest cases of bankruptcy abuse. Under this bill, a wealthy person will still be able to file for bankruptcy and keep the expensive house and extravagant lifestyle in some states.
· This bill fails to address businesses that abuse the bankruptcy system to avoid court judgements against them or other obligations.
· The nondischargeable debts allowed in this bill undercut the benefits of making domestic support obligations nondischargeable. In other words, the bill reduces the ability of a debtor to live up to his or her family obligations.
· The bill does nothing to curb the practices of the credit industry or provide adequate information to consumers about the cost of carrying credit.
CU and CFA believe that the banking and credit card lobby is afraid of amendments or additional scrutiny that could make this a better bill for consumers. Of course, this is the same industry that mastered the art of the fine print, so perhaps it really doesn't want Congress or the American public to know what's in the bill.
With the downturn in the economy, increasing number of layoffs in all sectors of American industry, and rising debt levels, the economic circumstances used to justify consideration of bankruptcy reform have changed dramatically. Members of Congress need to understand the impact that this bill will have on their constituents.
Congress could use this opportunity to address the practices of the credit card industry, including how creditors charge high interest rates that reflect the risk of default, the credit industry's seduction of American children and college students, and the use of penalty fees and permanent penalty interest rates that do not decrease or are reduced when the Federal Reserve Board lowers rates.
Congress could help by ensuring consumers get the tools they need to act responsibly, like information about the true cost of their credit cards. For example, a consumer making the minimum payment on an outstanding balance of $10,000 with a 17% interest rate would take 50 years to pay off and cost a total of $33,447. If the consumer were late on a single payment and the interest rate increased to 20%, it would take 83 years to pay off and cost a total of $58,084. This is the type of information consumers should get on every statement.
There has been a lot of talk about tax cuts to help consumers pay down their debts. If Congress really wanted to help consumers pay down their debts they would take care of some of the irresponsible industry behavior. Like seducing America's students with offers of easy credit, even when the student has no ability to repay those debts. Or charging consumers outrageous interest rates on payday loans. Or engaging in predatory loans that rob American's of the equity in their homes, and sometimes costing families their houses altogether.
The hard facts on who is declaring bankruptcy:
· A divorced women is 300% more likely to find herself in bankruptcy than a married or single woman, and a divorced woman raising children and trying to collect child support is 500% more likely to end up in bankruptcy.
· Two-thirds of the debtors in bankruptcy report a significant period of unemployment preceding their filings.
· African-Americans and Hispanic American homeowners are about 500% more likely to find themselves in bankruptcy than white, non-Hispanic homeowners.
· Among debtors aged 60 or older, more than 85% cite either medical or job problems as the reason for bankruptcy.
***
Consumers Union, publisher of Consumer Reports magazine, is an independent nonprofit testing, educational and information organization serving only the consumer. We are a comprehensive source of unbiased advice about products and services, personal finance, health, nutrition and other consumer concerns. Since 1936, our mission has been to test products, inform the public and protect consumers
