Academic journal article ABA Banking Journal

Bankruptcy Proposals Send Consumer Lenders for the Bromo

Academic journal article ABA Banking Journal

Bankruptcy Proposals Send Consumer Lenders for the Bromo

Article excerpt

The best comfort that consumer lenders can take from the personal bankruptcy recommendations made by the National Bankruptcy Review Commission is that some members of Congress -- and some members of the commission itself -- dislike the proposals as much as lenders do.

Before and after the commission made its report to Congress in October, members of the House and Senate were introducing several tougher bills than would result if the commission's consumer debt proposals were legislated as written. Judging by the reactions of legislators at a hearing on the report, it seems unlikely that the consumer proposals would be adopted in total, but any potential legislation would probably include some of them.

The 1,300-page report made 170 recommendations for revising federal bankruptcy law, and many of the changes covering business bankruptcies and administrative matters would be helpful to bankers. However, the changes proposed for consumer debt, taken as a whole, left lenders and their associations angry, to put it mildly.

That the report took a decidedly pro-consumer-debtor slant came as no surprise. As discussed in the August ABA BJ cover story, "In debt and loving it," (p.30), the overall tone of the commission's work and the leanings of its staff were pro-debtor. Some commission members actually signed, and submitted a dissenting opinion to portions of the report.

Among the more controversial recommendations, some of which reflect practices that have already arisen incourts around the country, are:

* Debtors would be permitted to retain up to $20,000 in value in any form, in addition to other protections already afforded by the law. This would replace state-set exemptions of property from the bankruptcy estate, some of which have been rather strict.

* Reaffirmation would be harder for lenders to obtain. Reaffirmation is the debtor's agreement to be bound by debt that would otherwise be covered by the bankruptcy law's "clean slate."

* Enforcement of purchase-money secured claims for household goods worth less than $500 would not be possible.

* Certain credit card debt would be automatically considered dischargeable through bankruptcy.

* In Chapter 13 repayment plans, some secured claims would be written down. …

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