Consumers League Urges "No" Vote on Bankruptcy Reform,
H.R. 333 - S. 420 Conference Report

In this time of economic downturn, the bill hurts disadvantaged Americans who have suffered loss of employment, (some N.J. Residents lost jobs from the terrorist attacks, and from the effects of the attacks) , or loss of health, or loss of spouse, the most common reasons for bankruptcy.

Instead of counting actual expenses, such as New Jersey's high housing expenses, the debtors will be allowed only average expenses on IRS lists So debtors will be expected to make payments with money they do not actually have. Obviously such payment plans will fail.

First the higher income debtors will be forced out of Chapter 7. But then the bill makes Chapter 13 payment plans much harder to complete, so some debtors will be denied both Chapter 13 and Chapter 7 relief in a Catch 22

Even the poorest bankrupts will have to make a useless trip to overburdened credit counselors; All debtors will have their tax returns open to any creditor employee - a danger to family members, an invasion of privacy, and potential for theft of identity.

The bill, 400 pages long, page by page unfairly changes the law to benefit creditors.

The bill has no balance. It has been denounced by Bankruptcy Judges and professors alike.

Consumer groups, labor and women's group oppose the bill.

The bill allows Texas and Florida millionaire bankrupts to keep their mansions, if purchased 3 years 4 months before bankruptcy, unless convicted of a very narrow list of crimes. This unfair loophole hurts New Jersey, which has no state homestead exemption law at all.

The heavy, bipartisan campaign contributions of the credit card banks pose the question as to whether creditors can buy Congress. Is it back to business as usual after the corporate scandals of 2002?

The bill encourages unsound lending by credit card banks. In 2001, those banks sent out five billion unsolicited offers of credit cards in the mail, up from 3 billion in 1997. If the banks were hurting, they would not be increasing these unsolicited offers. Congress should discourage unsafe lending, not encourage it.

The lesson to be learned from bankruptcy "reform" is that consumer groups must redouble their efforts because money talks. Lenders have invested tens of millions in a lobbying campaign to buy a bankruptcy bill. Our representatives consider that banks make a lot of campaign contributions. Bankrupt consumers send no money to Congress. So guess who is winning?. Punitive bankruptcy legislation passed both the House and Senate, but President Clinton gave it a pocket veto in December 2000. In 2001, both House and Senate have passed versions of the creditor wish list. If they reconcile, Mr. Bush will sign it. However Mr. Bush objects to the Senate provision which would make millionare Texas and Florida bankrupts surrender their million dollar mansions!! New Jersey has no state homestead law, so bankrupts can shield only $17,000 of home equity (the federal exemption). In Texas and Florida, bankrupt swindlers can owe $100 million, yet shield a $5 million mansion!

The "reform" was opposed by all major consumer groups, such as Consumer Federation of America, USPIRG, CLNJ, labor unions and women's groups. Women's groups oppose "reform" because it would make it more likely that banks would get paid, rather than children and their mothers in need of child support. Senator Charles Schumer inserted a very sensible clause into the bill which would make nondischargeable in bankruptcy any damages owed because a person killed or harmed a doctor at an abortion clinic. The hypocritical sponors deleted that needed policy from the bill.

Senator Jon Corzine, former Senator Lautenberg and Congressman Donald Payne of Newark get "hero" buttons for voting against the monstrosity. New Jersey Senator Torricelli was a sponsor of the industry-written Senate bill. Senator Torricelli, the chair of the Democratic Senate campaign, stated that a contribution of $150,000 to the committee he chairs from MBNA, a large credit card bank, had no effect on his sponsorship of a bill which is a wishlist for the banks. What are you saying Senator? that it was your idea to deny N.J. homeowners a chance to catch up on the mortgage? to force debtors out of Chapter 7 into Chapter 13 plans which will be impossible to pay?

The bankrupt bill will actually mean that fewer debtor will pay their debts in bankruptcy, because the bill adds more debts which must be paid in full. The banks are smoking dope-- the debtors don't have the dollars.

Time magazine, May 15, 2000, has a wonderful article "Soaked by Congress" on how the banks, by lobbying and campaign contributions of $20 million dollars are seeking to buy a bill which will hurt average Americans.

Why is the bill so bad? The bill does nothing to stop the main cause of bankruptcy-- lenders send out four billion pre-approved credit cards each year, some to bankrupts and those already in financial trouble. Some CLNJ members have received live checks for $7,500 in the mail. If we cashed them all, we'd be bankrupt too! The bill is hypocritical because it would force the middle class into payment plans which the average bankrupt has no chance of paying. Current law gives consumers incentives to choose a Chapter 13 payment plan. The bills, by expanding the list of debts which must be paid 100%, makes these payment plans impossible. A study by Creighton University professors, available at www.abiworld.org/research/creightonstudy.html, shows that only 4% of bankrupts can pay 20% of their debts in a 5 year plan. So 96% of actual bankrupts are justly in Chapter 7.

One bankruptcy judge wise noted that the bill transfers to the bankruptcy judges and trustees the task of deciding who is "worthy" of bankruptcy, which is a backhanded way of making the judges do the job of the banks, who should have decided who was creditworthy in the first place.

The real agenda of lenders is to place so many obstacles in the way that consumers get no protection from the U.S. Bankruptcy Court. First, everyone would have to make a useless trip to nonprofit credit counseling agency, who have no capacity to take on an additional million clients per year. If you can't get an appointment, too bad, no bankruptcy for you.

The bills a "fairy tale" world in which debtors are not allowed to tell the Court what their real-life income or monthly expenses are. Rather, "income" is what the debtor formerly received (in the last six months) while expenses will be set by arbitrary IRS expense lists (one set of expenses for all!). Payment plans which do not measure the debtor's actual expenses are bound to fail. How can the debtor pay without actual dollars? Debtor who live in states with high housing costs - like New Jersey - will get the short end of the stick. In another hypocrisy, high-income debtors can deduct private grade-school tuition per year! Educational IRA accounts of up to $100,000 would be exempt! But the bill intends the chapter 13 payment plans to fail, so banks get to sue the debtors all over again. Again, the debtors don't have the dollars. The banks will find out their lobbyists have lost touch with reality. The only way to stop a person with 10 credit cards is for banks numbered 3, 4, 5, 6, 7, 8, 9 amd 10 to refuse to lend to a person who cannot afford to have so many cards. Besides most honest studies show that people go bankrupt because of unaviodable life crises such as loss of job, loss of health, or loss of spouse.

The "reform" does nothing to reform the windfall which millionaire debtors get in Texas and Florida. Felons and fraud arists who declare bankruptcy in Texas and Florida can keep their home - even if it is worth $1,000,000! In contrast, New Jersey debtors are limited to the very modest federal homestead of $17,000. New Jersey has no state homestead law at all.

To please credit card lenders, the bills would send into Chapter 13 payment plans persons above the median family income levels. To please the mortgage lenders, the bill has made it near impossible to finish a payment plan to save your home from foreclosure! Creditors intend to make Chapter 13 plans to fail, then foreclose on your home.

The bill hurts tenants by making it very easy for landlords to evict bankrupts.

The bill's unprecedented and unconstitutional idea would fine attorneys for the debtor simply if a debtor filed Chapter 7, then was transferred to Chapter 13. Favored creditors would not get fined unless their motions were "substantially unjustified."

The bottom line on bankruptcy reform is involuntary servitude for the debtors, and the transformation of the U.S. Bankruptcy Court, from a former protective refuge, into the private collection agency of the banks who bought Congress.

Studies have shown that the vast majority of persons who declare bankruptcy are indeed broke. The Consumer Federation of America has shown that lenders are responsible for unwisely approving too much credit-card debt. Consumers League has opposed so-called "bankruptcy reform" which would restrict consumers' ability to use the bankruptcy process. While we recognize that there have been occasional abuses by high income debtors manipulating the system, the pending bills would harm the average middle-class bankrupt by making it much harder to get the fresh start which has been, for 100 years, the purpose of bankruptcy.

CLNJ opposes bills which would force almost every debtor to file a plan to repay their creditors. Since, historically, 67% of such plans fail, debtors would be forced to submit to a federally funded collections process with little hope of a long term successful outcome. Indeed, the bills would also raise the cost of a repayment plan so that ultimately even more cases would fail resulting in loss of homes to foreclosure, more utility shut-offs, auto repossessions and similar hardships.

The credit industry has been claiming that these bankruptcy reforms would be good for consumers in general. The Consumers League of New Jersey emphatically disagrees. As the General Accounting Office has pointed out, there is no evidence that if bankruptcy is tightened up, more consumers could afford to pay.Bankruptcy reform puts not one dollar more in the debtor's pocket. All taxpayers would be hurt by proposals for mandatory payment plans, since they would create a huge and expensive taxpayer funded federal collection bureaucracy.

The punitive proposals of the bill would make debtors' tax returns public! Debtors are folks just like you and me. Would you like your tax returns posted on the Internet? Some Bankruptcy Courts are going to publish petitons on the Web.

If anything, the credit industry needs to get its own house in order. Having made more than 2.5 billion credit card solicitations in 1995, it was inevitable that the industry would find that some of its indiscriminate lending would cause financial hardship. To fix the problem, the lending industry should return to prudent credit practices and offer those people who do have real financial troubles reasonable non-bankruptcy payment plans.

People are not rushing into bankruptcy irresponsibly. The number of consumers visiting consumer credit counseling to seek repayment plans has increased by more than 800%. The National Bankruptcy Review Commission reported that in 1973, there were .74 bankruptcies per million dollars of credit outstanding. In 1997 there were .73 bankruptcies per million dollars of consumer credit. That constant ratio is powerful evidence that more people are getting in trouble with credit only because much more credit is out there. In sum, Consumers League feels strongly that the bankruptcy system is sound but promiscuous lending at 18%+ interest is sick.

Finally, the year 2001 looks like a year of economic slowdown, layoffs and recession possibly. Why kick an unemployed worker when he is down? This unfair bill, by looking "backward" at past income, would be unfair to persons who had no actual income at present.