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BANKRUPTCY
BILL PASSES U.S. SENATE
Auburn,
April 7, 2000---In early February, the U.S. Senate passed a
bankruptcy bill that will make it harder for people to erase their
debts through bankruptcy.
The Senate
voted 83 to 14 for the bill, which contains some of the biggest
changes to the U.S. bankruptcy code in 100 years, says Dr. Fred
Waddell, Extension family resource management specialist. The
House passed the bill by a wide margin last May. The bill now goes
to a conference committee to reconcile differences.
Unfortunately,
a lot of people don't have a clue what the legislation is about,
says Frank Torees, legislative counsel for Consumers Union.
"The bill,
which is expected to become law later this year, is one for which
creditors have lobbied intensely, claiming that it's aimed at
curbing debtor abuse of the bankruptcy system," he says.
Consumer advocates, labor unions and women's groups have opposed
the bill because it will require a "means test" forcing
many people into Chapter 13 bankruptcy, which requires repaying
most of their debts.
About 30
percent of all bankruptcies now filed in the United States are
Chapter 13s. Only about 35 percent of those repayment plans are
ever completed. Fifteen percent are converted to Chapter 7
bankruptcies, requiring people to go back into court and pay
additional attorney fees and court costs. The average cost of a
Chapter 7 bankruptcy is $750 including attorney fees. The average
cost of a Chapter 13 is more than $1,000.
When the bill
becomes law and many more people are forced to file Chapter 13s,
trustee offices, which develop and administer repayment plans will
be swamped, says Waddell. Also, the percentage of those who fail
to complete the plans and who must file bankruptcy again as
Chapter 7s will greatly increase, as will the case load of the
bankruptcy courts. It already takes up to 6 months for a
bankruptcy to clear through the courts.
While creditors
are pushing the passage of this bankruptcy bill, they also are
reducing financial help to credit counseling services and
withholding credit data that would help consumers avoid bankruptcy
and prevent financial problems. At the same time, many are
soliciting people to use more credit by increasing spending
limits, while they decrease grace periods between payments and
increase interest charged and user fees. Because of these changes
in the law, consumers must be better financial managers, Waddell
adds.
SOURCE: DR.
FRED WADDELL, Extension Family Resource Management Specialist,
Alabama Cooperative Extension System (334) 844-3244
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