Bankruptcy Reform Legislation Frustrates Lenders, Congress Yet Again

WASHINGTON-Over the last four years, the bankruptcy abuse reform bill has been introduced in Congress and each year it gets shot down, one way or another. After President Bill Clinton killed the bill with a pocket veto three years ago, a sigh of relief was audible from supporters when the new Republican administration was ushered in. However, lobbyists have failed to push Congress to get a bill to President George W. Bush’s desk for two years. Following the resolution of the homestead exemption, the main sticking point in the legislation has not been the legislation itself so much as the clinic violence amendment. Reform supporters have charged Senator Charles Schumer (D-N.Y.) for injecting his amendment-that would prevent violent protestors at abortion clinics from snuggling under the blanket of bankruptcy protection when it comes to fines related to protest activities-specifically to stall the bill. While an agreement was struck that eliminated the specific reference to abortion clinics, pro-lifers in Congress refused to let that issue die. Additionally, unions and others felt the language in the compromise infringed too much upon their right to protest. One provision that credit unions are particularly interested in is means testing to determine if a filer requires Chapter 7 protection, where debts are absolved after liquidating assets, or should be bumped up to Chapter 13, where the debtor pays back as much of the debt as possible, starting with secured debts. Also, credit unions want mandatory financial counseling for debtors before they file for bankruptcy. Lastly, credit union lobby groups have worked for the ability of credit union members to voluntarily reaffirm their debts with their credit unions. This congressional session, more than prior years, seemed to have brought members of the credit union community opposed to the bill out of the woodwork. Opponents claimed that credit union bankruptcy averages remained low, well under 1%, and that only a small fraction of those (5% to 10%) were fraudulent. CUNA and NAFCU, which have expended large amounts of time, energy, and money on the issue, have said that, during the recess, they are evaluating their efforts and working on their strategies for next session. While the absence of House bill sponsor Congressman George Gekas (R-Pa.), who narrowly lost his reelection bid to incumbent Tim Holden (D-Pa.) due to redistricting, may be a minor ding in the bill’s trip through the legislative process, it certainly will not kill it, the trade associations have said. [email protected]