Magazine article American Banker

Bill Would Limit Filings of Chapter 7 Bankruptcy by High-Income People

Magazine article American Banker

Bill Would Limit Filings of Chapter 7 Bankruptcy by High-Income People

Article excerpt

Two lawmakers introduced a bill Wednesday that would make it substantially tougher for borrowers with high incomes to eliminate their debts in bankruptcy.

The legislation, sponsored by Reps. Bill McCollum, R-Fla., and Rick Boucher, D-Va., essentially would create the "needs-based bankruptcy" concept that lenders have been advocating.

It would severely limit who can file for Chapter 7, which allows insolvent consumers to wipe out unsecured debt. Under the bill, Chapter 7 would not be an option for consumers who could afford to repay at least 20% of their unsecured debts. They would have to use Chapter 13, which requires submitting a plan to repay at least some unsecured creditors.

"This is an open-and-shut bill," said David Sandor, director of public affairs at Visa U.S.A. "It leaves the courthouse open to all who seek relief, but it shuts down loopholes in the bankruptcy code that have allowed people to avoid debts that they have the ability to repay."

Industry officials vowed to lobby hard for the bipartisan proposal.

"There is a reasonable chance that major provisions of this bill can be enacted before the end of the 105th Congress," said Philip S. Corwin, a lobbyist at Federal Legislative Associates who represents the American Bankers Association. "Most members of Congress will regard the thrust of these proposals as common sense and requiring individuals to act with some personal responsibility."

The bill would prevent consumers from shedding credit card debts incurred within 90 days of declaring bankruptcy. …

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