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Status: In 2002 two separate bankruptcy bills passed the House and the Senate. These were sent to a conference committee that subsequently compromised and passed a joint bill in August, 2002. This bill was subsequently introduced on the House floor. It was expected that this bill would pass both houses and be signed by the President since President Bush has said he would sign virtually any bankruptcy forum legislation that was passed by Congress. There was, however, provision in the bankruptcy legislation that made it difficult for individuals to discharge debts if those debts arose from the harrassment of or damage to abortion clinics. Even though there were sufficient votes in the House to pass the bill, the Republican House leadership decided that it would be politically unwise to antagonize the anti-abortion contingent in the Republican party in an election year and withdrew the bill. The bill has since been reintroduced in the form of HR 975. It was passed out of the House Judiciary Committee on March 12, 2003. It passed in the Judiciary Committee along party lines, and that is expected to continue in the House as a whole. Regardless of the changes that are made, the Bill will impact anybody desiring to file bankruptcy. Pending legislation when passed is likely to make it more difficult to file bankruptcy for the following reasons: 1. Consumer credit counseling as a gatekeeper: No individual may file a Chapter 7 or a Chapter 13 banrkuptcy action without first seeking the services of a consumer credit counseling agency and receiving from that agency a certificate indicating that agency is unable to help them with their debt related problems. This creates an obvious problem for people who are filing bankruptcy on an emergency basis in order to stop a foreclosure, repossession, or wage garnishment. 2. Budget Restrictions: Anyone filing a Chapter 7 will be subject to a Congressionally imposed budget, and if, according to that budget, they are able to pay 25% of their unsecured creditors back, they must file a Chapter 13. Likewise, the Chapter 13 debtor will be subject to the same budget limitations and will have to pay back based upon the amount of disposable income that they show based upon this budget. The budget to which debtors will be subject is the one used by the Internal Revenue Service when collecting from recalcitrant tax payers. While it is possible that these restrictions may be modified through litigation, this cannot be guaranteed, and it will make the cost of both Chapter 7 and Chapter 13 more expensive due to the required litigation. 3. Income Limitations: There will be Congressionally imposed income limitations which simply state that idividuals making over a certain amount of money may not file a Chapter 7. This is apparently without consideration to how much debt the debtor may have The income restrictions do make allowances for the number of children in a family and will likely impact single people the most. 4. Elimination of "Cram-Down": Presently, in a Chapter 13, a debtor has the ability to reduce the amount paid to a secured creditor (one holding collateral) based upon the value of the collateral. For instance, a debtor filing a Chapter 13 on a vehicle worth only $10,000.00 but owes a secured amount of $15,000.00 only has to pay $10,000.00 plus interest back to that creditor. The balance of that obligation is treated as unsecured and will be paid with other unsecured creditors. The new laws will require that the debt be paid in full pursuant to the contract regardless of the value of the vehicle. Likewise, in Chapter 7, a debtor may redeem collateral by paying the value of the collateral to the creditor. Thus, in the same situation, the debtor would write the creditor a check for $10,000.00, obtain the title to the vehicle, and the balance of $5,000.00 would be discharged in Chapter 7. The new statute would require that the balance of the contract be paid in full in order for redumption to occur, thus saving the debtor only the interest not yet paid. 5. Other Changes: There are many other changes that will occur. This bill is very lengthy and is contradictory and confusing in many aspects. When the bill is enacted, it will not only be more difficult to file bankruptcy, but it will be more expensive simply because there will be more paperwork required by attorneys and, undoubtedly, more litigation. DOWNLOAD A COPY OF PENDING BANKRUPTCY LEGISLATION: If you would like to download a copy of this proposed legislation, please go to my Resources page where you will find a link to a site where you can download a copy of the bill in its entirety. |