View Full Version : Congress Passes Bankruptcy Reform Bill

04-15-2005, 01:17 PM
Congress Passes Bankruptcy Reform Bill

1 hour, 21 minutes ago Politics - U. S. Congress

By MARCY GORDON, AP Business Writer

WASHINGTON - A crucial deadline looms a half-year away for thousands of anxious Americans weighed down by credit card and other debt following congressional passage of a measure making it tougher to erase obligations in bankruptcy.

The most sweeping rewrite of U.S. bankruptcy laws in a quarter-century, pushed for eight years by banks and credit card companies, will take effect six months after President Bush signs a bill that Congress sent to him Thursday. The 30,000 to 210,000 people the American Bankruptcy Institute estimates will be affected can escape its impact if they file for bankruptcy before then.

Bankruptcy attorneys anticipate a rush to the courthouse.

The bill marks the second major change in law to benefit business since Republicans fattened their House and Senate majorities in last fall's elections. In February, a new law placed most large multistate class-action lawsuits under federal court jurisdiction, making it more difficult for plaintiffs to join and win multimillion-dollar judgments in state courts.

The bankruptcy measure requires people with incomes above a certain level to pay credit card charges, medical bills and other obligations under a court-ordered bankruptcy plan. It passed the House on a 302-126 vote on Thursday, a month after the Senate voted 74-25 following two weeks of fierce partisan debate.

Its backers in Congress and the financial services industry insist that bankruptcy frequently is the last refuge of gamblers, impulsive shoppers, divorced or separated fathers avoiding child support, and multimillionaires — often celebrities — who buy mansions in states with liberal homestead exemptions to shelter assets from creditors.

"Those who abuse the system make getting credit more expensive for everyone," House Speaker Dennis Hastert, R-Ill., said as he and Senate Majority Leader Bill Frist, R-Tenn., signed the bill to speed it to the president. "Bankruptcy is for those who need help, not those who want to shift costs to other hardworking Americans."

During debate Rep. David Dreier (news, bio, voting record), R-Calif., pegged those costs, in the form of higher interest rates, at an average $400 a year per family.

Bush said he was eager to sign the bill to curb abuses of the bankruptcy system. "These commonsense reforms will make the system stronger and better so that more Americans — especially lower-income Americans — have greater access to credit," he said.

Opponents say the change would fall especially hard on low-income working people, single mothers, minorities and the elderly and would remove a safety net for those who have lost their jobs or face mounting medical bills. At the same time, they say, the bill fails to restrain aggressive marketing and high rates charged by credit card issuers.

The legislation "protects the credit industry at the expense of the consumer," Rep. Alcee Hastings (news, bio, voting record), D-Fla., declared in House debate. "It will drive more Americans deeper into financial crisis and weaken the nation's economy and social structure."

In a bitter scene on the House floor, Democrats — most of whom opposed the legislation — used an array of parliamentary maneuvers to delay the final vote, forcing an unsuccessful roll call vote on adjourning the session and lining up one by one to register their objections in brief, biting statements.

Democrats were furious that the GOP leadership allowed no vote on any of the 35 amendments they had proposed. They particularly wanted provisions that would exempt from the new bankruptcy requirements military personnel returning from Iraq and Afghanistan, and people whose indebtedness is the result of financial identity theft.

Between 30,000 and 210,000 people — from 3.5 percent to 20 percent of those who dissolve their debts in bankruptcy each year in exchange for forfeiting some assets — would be disqualified from doing so under the legislation, according to the American Bankruptcy Institute.

The bankruptcy measure would set up an income-based test for measuring a debtor's ability to repay debts.

Those with insufficient assets or income could still file a Chapter 7 bankruptcy, which, if approved by a judge, erases debts entirely after certain assets are forfeited. Those with income above the state's median income who can pay at least $6,000 over five years — $100 a month — would be forced into Chapter 13, where a judge would then order a repayment plan.

The legislation also would require people in bankruptcy to pay for credit counseling.

New personal bankruptcy filings edged down from 1,613,097 in the year ending June 30, 2003, to 1,599,986 in the year ending last June 30, breaking an upward trend of recent years.

Under the current system, a federal bankruptcy judge determines whether individuals must repay some or all of their debt.

http://news.yahoo.com/news?tmpl=story&u=/a...o_co/bankruptcy (http://news.yahoo.com/news?tmpl=story&u=/ap/20050415/ap_on_go_co/bankruptcy)

04-15-2005, 01:59 PM
Congress, always trying to do what's best for the American people. :rolleyes:

04-15-2005, 02:23 PM
Although I am not in favor of abusing bankruptcy, I am glad there are a few exceptions to that rule.

04-15-2005, 02:56 PM
I'm glad that there are exceptions as well. Hopefully now, people will think twice about how they manage their finances and their health.

04-15-2005, 03:11 PM
....and cc companies AREN&#39;T predatory??? <_< Yeah, folk get knee deep in debt being frivolous with their spending rather than illness or some other catastrophe....but why tempt these tender people who may not have had the time to learn how to manage credit cards an opportunity to fall into debt yet AGAIN??

Bankrupt and Swamped With Credit Offers
When Chapter 7 Filers Wipe Out Their Debts, Card Firms Jump
By Caroline E. Mayer
Washington Post Staff Writer
Friday, April 15, 2005; Page A01

Overwhelmed by more than $60,000 in debt, Lenya Garcia filed for bankruptcy protection last July. In January, her case was completed and her debts -- mostly on credit cards -- were dismissed. Less than a month later, a rash of new credit card offers began arriving in the mail.

"I was very surprised," said the 36-year-old Bronx bookkeeper. "I figured my credit history had a big smear on it, and it would take a long time to get credit." Initially Garcia threw the offers away, but then she had a hard time renting a car without a credit card. So she took the next good "preapproved" offer -- 14.9 percent interest and no sign-up or annual fee -- and signed up at the company&#39;s Web site.

"I was approved instantly."

Bankruptcy attorneys say Garcia&#39;s experience is the norm for debtors emerging from bankruptcy. "I tell my clients they will be inundated with offers," said North Carolina attorney T. Bentley Leonard. The reason is simple, he said: This group of consumers is a very attractive market to lenders because their debts have been wiped out and new debt cannot be forgiven for another six years.

"One day they owe $50,000, the next day, nothing. What better person to lend money to?" Leonard said.

That&#39;s certainly the pitch of one database firm, NewLeadsUSA, which sells lists of bankrupt consumers and businesses from publicly available data. "Opportunity knocks after life&#39;s hard knocks," the NewLeads Web site says. "Bankruptcy means a new financial life for many businesses and consumers. Be among the first to reach this unique and lucrative market."

Most of the offers are extended to consumers who have filed for Chapter 7 bankruptcy, which allows them to erase most of their debts. But attorneys say frequent solicitations also are made to consumers who have filed under Chapter 13, which requires some repayment of creditors and restricts new debt.

Consumer advocates say these offers could increase under a new bankruptcy law approved by the House yesterday by a 302 to 126 vote. The measure, already approved by the Senate, would make it more difficult for consumers to wipe out their debt through Chapter 7 bankruptcy. White House aides have said President Bush will sign the measure pushed for nearly a decade by credit card and retail industries. Proponents say the changes are needed to end abuses by people who shirk their financial obligations.

Under the legislation, debtors who file for Chapter 7 bankruptcy court protection will not be able to get any future debts dismissed for another eight years. That in itself will make filers a more attractive target for credit solicitations, said John Rao, a staff attorney of the National Consumer Law Center, one of many consumer groups that fought the bankruptcy bill. "The problem is that credit card companies will have an even greater incentive to encourage recent bankruptcy filers to incur new debt, knowing that this debt will be safe from any possible bankruptcy discharge for a longer, eight-year period," Rao said.

The solicitations concern bankruptcy attorneys and judges who worry that the credit industry is irresponsibly dangling temptation in front of people who may be desperate for it. "It&#39;s like putting a steak in front of a starving man and saying, &#39;Don&#39;t touch,&#39; " said Brett Weiss, a bankruptcy attorney in Olney.

"It is very disturbing," said one federal bankruptcy judge who spoke on condition of anonymity because she regularly deals with debtors and creditors. "People should exercise responsibility and discretion, but I also believe banks should exercise discretion and responsibility in the manner and to the population they offer credit."

The banking industry says it is not specifically targeting bankrupt consumers, but merely offering access to credit to a wide spectrum of potential customers. "Just because someone files for bankruptcy doesn&#39;t mean they should be denied access to credit, nor does it mean that they cannot handle a credit card," said Tracey Mills, spokeswoman for the American Bankers Association. "People file for bankruptcy for many reasons, including job loss, divorce" and medical bills.

On its face, bankruptcy "doesn&#39;t warrant credit suppression," said Alan Elias, spokesman for Providian Financial Corp., which bankruptcy attorneys say is one of the more aggressive credit card solicitors. "A lot of people who come out of bankruptcy are actually pretty good credit risks," he added.

Capital One, another active solicitor of bankrupt debtors, said it does not have a product specifically designed for someone who has gone through bankruptcy. However, spokeswoman Tatiana Stead said, "we are a full-spectrum lender" offering products to customers of all sorts of financial means, including those who may have declared or are emerging from bankruptcy. Of course, she said, consumers with blemishes on their credit histories may be charged higher interest rates and fees. She declined to give specific product details, saying they are proprietary.

According to a yet-to-be-released survey of 356 debtors who filed Chapter 7 bankruptcy in 2001, 96 percent reported that they had received offers for credit cards, car loans, mortgages and other credit in the year after their debts had been discharged. Of those, half said they received at least 10 solicitations a month, said Katherine Porter, a University of Nevada at Las Vegas law professor who conducted the survey with a team of other researchers as part of the Harvard-administered Consumer Bankruptcy Project, which studied bankrupt families. Nine out of 10 respondents said at least one of the credit offers specifically mentioned their bankruptcy or financial difficulties.

And 23 percent said at least one of the offers came from a creditor who was part of their bankruptcy case and to which they had previously owed money. "Here are these lenders saying bankruptcy is so bad, debtors are so immoral. How bad or immoral can the lenders really think these bankrupt families are if they are offering to lend to them again?" said Porter.

In spite of these solicitations, Porter said, 75 percent of those surveyed reported that they had accepted no new credit offers for approximately one year after emerging from bankruptcy court protection.

Bankruptcy attorneys say that immediately after debts are discharged, lenders come calling. "It&#39;s a very common occurrence," said Texas attorney Alvaro Martinez, who recalls a couple whose debts were discharged in January. The discharge occurred on a Monday; by Thursday, a large national bank had granted a $70,000 mortgage to the couple, Martinez said.

Some of the offers come at a premium. First Premier Bank, which markets cards to many post-bankruptcy consumers, charges fees of about $175 for a limited initial credit line of $250 to $350, said Miles Beacom, president of Premier Bankcard, the bank&#39;s credit card affiliate. There are two one-time charges, a $29 account setup fee and a $95 program fee, an annual $48 fee, a monthly $6 participation fee and a $25 fee every time the credit limit is increased.

Beacom said his firm&#39;s core market focus is subprime borrowers, or those with risky credit. "Our real focus has been to help individuals reestablish their credit," he said. The fees may seem high, but they are comparable to high-risk car insurance. "Our customers have had speeding tickets and accidents, but with their credit -- so they have to pay more upfront to prove they are good, consistent customers." Once they have a proven track record, they can easily obtain other credit at lower costs, he said.

The high fees, Beacom added, have not deterred consumers from applying. Monthly, the company gets about 350,000 inquiries and issues cards to only about half of those who apply. "There&#39;s a real need here. . . . These individuals want to reestablish their credit," Beacom said.

The availability of credit stuns some bankruptcy attorneys, including Denice Patrick of Linwood, Wash., who filed for bankruptcy protection two years ago for her mother, Charlene Genardi. Her 74-year-old mother&#39;s only source of income -- then and now -- was about $750 a month from her Social Security check.

"The week of her discharge she got five separate card offers in the mail," said Patrick, whose mother lives with her. "I was astounded. Many of them I threw away because I didn&#39;t want her to see them." In January 2004, Genardi filled out an offer for a Capital One card -- a $500 credit limit with 9.9 percent interest. "I didn&#39;t think she&#39;d get one, given her income and bankruptcy," Patrick said. But she did.

Garcia&#39;s offer also was from Capital One, for a $1,000 credit line with no start-up fees.

Garcia was reluctant to apply. "I didn&#39;t want to get caught up in trouble again," she said. But, she decided, "there are just some things you need a credit card for."

04-16-2005, 01:01 AM
Originally posted by tran68@Apr 15 2005, 02:11 PM
Garcia was reluctant to apply. "I didn&#39;t want to get caught up in trouble again," she said. But, she decided, "there are just some things you need a credit card for."


I&#39;d rather get a "secured" card first. Rather put up the money myself, then get suckered by "friendly" credit card offers.

I filed for bankruptcy too and Capital One sent me approved notice after approved notice, but I had read before how shady they were, so I never took them up on their offer.

04-16-2005, 01:09 AM
I recently had no choice but to file chapter 7. Too many folks coming for my paycheck at one time and the garnishment was the last straw. Got my discharge in Feb or March. Since then I have gotten auto loan preapprovals DAILY. They get trashed because I don&#39;t do car payments. :D Got some for credit cards too, Aspire and First Consumers being the main offenders. They are on crack. Let me see if I can find the "offer" if I haven&#39;t trashed it........Ok....19.5% APR, $150 annual fee, monthly maint fee $6.50/mo ($78/year), account opening fee $29.50...that&#39;s crackalicious. <_< I know I need to rebuild my credit so I have a reasonable card from Orchard Bank that I have used exactly once. I don&#39;t know if this law will help or not but the economy will sure feel it with people not spending as much on goods and services.

04-16-2005, 01:18 AM
Originally posted by macgirl@Apr 16 2005, 12:09 AM
I know I need to rebuild my credit so I have a reasonable card from Orchard Bank that I have used exactly once. I don&#39;t know if this law will help or not but the economy will sure feel it with people not spending as much on goods and services.


Yup!! :pointlaugh: I&#39;ve already cooled it. My sister and girlfriends keep telling me to get store credit to buy furniture for my apartment. I&#39;m like if I don&#39;t have the cash to get it all at once, then I&#39;m not getting it. Period. Point blank. <_< I do need a dining table, dressers, and such, but I&#39;m not going broke to impress anyone and if my "friends" don&#39;t like it they are totally welcome to buy me some furniture. I will gladly accept. :)

I&#39;ve watched too many Oprah and Dr. Phil debt disaster shows to fall into that mess again. Dr. Phil&#39;s always says "if I don&#39;t have the cash to get it, then I don&#39;t need it."

05-08-2005, 02:55 PM
i agree i just got my discahrege i believe in feb or mar also i have received everykind of car offer and i am not gettin another car with a note i have drivin a hooptie before and will gladly drive one again and credit card i have had three in my life and they didn&#39;t have a big spending limit but when they finished adding fees and interest i owed more than i recieved, my sister went bankrupt for the second time last year and already back to messing her credit up again she get all these things she know she aint going to pay for then when the bill come she aint paying, her cable was in my name she decided she wasn&#39;t going to pay whateva she ain&#39;t got no mo cable and the bill is paid my credit will not be messed up again when i get financiallly stabe i want me a house.