We at CUNA are encouraged at the alacrity with which bankruptcy reform has come to the forefront. Nearly overnight, the long-sought legislation has been brought up in first the Senate (see related story on page 4), and then the House. We are optimistic that this year may finally be the one in which reform becomes reality. Yet, our optimism is tempered by today's reality, as there are still some major hurdles ahead. Yet those hurdles, plus the many years of work we have already put in, make it all the more important that we do everything we can to ensure that the balance of events does not tilt in the wrong direction and derail this latest run at these needed changes. Credit unions recognize that many people legitimately need the option to declare bankruptcy. What concerns us, however, are the cases of abuse by those who file Chapter 7 and totally walk away from their debt, even though they clearly have the ability to repay all or part of that debt. In seeking reform of bankruptcy laws, CUNA has consistently held three top priorities: A needs-based formula, mandatory financial education, and maintaining the ability of credit union members to voluntarily reaffirm their debts. The legislation before Congress now (which could be debated on the floor of the Senate during our Governmental Affairs Conference), while a product of compromise, does a good job of balancing these issues. We strongly urge the 109th Congress to pass this compromise bill as soon as possible. Any further dilutions may result in this bill not addressing the real bankruptcy problems facing America's consumers. Let me put that into perspective: Nationwide non-business bankruptcy filings were nearly 1.21 million in the first nine months of 2004. While final full-year data is not yet available, the results from the first nine months suggest that full-year filings will exceed 1.61 million – nearly equaling the 1.62 million record level set in 2003. The 2004 total is likely to be about 15 lower than in 2003, but the slight slow-down isn't surprising given the improving economy. However, viewed in a broader historical context the results are disturbing: 1.21 million filings is one-third higher than the 2000 total, over double the national total recorded in 1994 and six times higher than the total in 1984. Furthermore, the current near-record level of filings has occurred in a sharply improving economy. The U.S. economy grew 4.4% in 2004, its fastest increase since 1999. The U.S. unemployment rate averaged 5.2% in 2004, its lowest showing since 2001. While we expect the economy to continue to grow at a healthy pace, we also expect bankruptcy filings to rise as higher market interest rates impose a heavier debt service burden on the nation's consumers. Household debt levels are at all-time highs and debt service burdens (the amount of take home pay consumers devote to paying debts) are near all-time highs. Credit unions continue to be very concerned about these trends because their experiences with credit union members who file mirror the national experience. Data from credit union call reports to the National Credit Union Administration (NCUA) suggest that roughly 275,000 credit union member-borrowers will have filed in 2004 – a record number. This figure is 40% higher than the level of filings we witnessed in 2000. In addition, CUNA estimates that more than 40% of all credit union losses in 2004 will be bankruptcy-related, and those losses will total approximately $900 million. Credit unions, for the most part, are careful lenders. They cannot afford to be otherwise. But they also, for the most part, make every effort to work with their members by letting them know the credit union is there to help them through their financial difficulties. That's why credit unions support the legislation with the three key elements: *We support financial counseling because it clearly is valuable to the credit union and the member. According to a recent CUNA bankruptcy survey, 70% of credit unions counsel financially troubled members at the credit union. A similar percentage of credit unions may also refer members to an outside financial counseling organization, such as the Consumer Credit Counseling Service (CCCS), and many do both. Any sensible bankruptcy reform (as does the current legislation) should include education requirements to give debtors the tools they need to make wise decisions about filing for bankruptcy and to succeed financially after bankruptcy. *We support reaffirmations because it reduces losses that ultimately affect the membership as a whole. Because CUs are not-for-profit financial cooperatives, losses have a direct impact on the entire membership due to a potential increase to loan rates or decrease in dividends/interest on savings. Reaffirmations keep the credit union and its members from suffering a loss, and has the further benefit of maintaining the member's access to financial services and the reasonably priced credit that credit unions offer. *We support “needs-based bankruptcy” because it ensures that those who truly can repay all or some part of their debts will be required to do so under Chapter 13 (rather than have all of their debts erased, as under Chapter 7 bankruptcy). Truly, this is the heart of the legislation – it takes direct aim at those who abuse the system. And that is a problem that continues to draw concern. As pointed out in the 2002 report of the U.S. Trustee Program (the component of the Department of Justice responsible for overseeing the administration of bankruptcy cases and private trustees), “one of the Program's most critical responsibilities is to combat fraud and abuse in the bankruptcy system . This effort was undertaken to respond to mounting public concern that the bankruptcy system was being abused and that more should be done to protect the system by identifying and taking action against such wrongdoers.” Credit unions are on the right side of this issue, and have the right positions in building support for ultimate passage of legislation addressing this issue. While CUNA will continue to work vigorously on achieving other legislative goals – including passage of regulatory relief in the form of a new CURIA-like bill, for example – we are deeply encouraged by the Congress' action on this long-standing goal for credit unions. We will continue to work diligently for bankruptcy reform.