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Bush Signs Bankruptcy Bill

President Bush signed legislation today that marks the biggest overhaul of our bankruptcy system in a quarter century.

The bankruptcy bill signed by President Bush will go into effect in six months. The major change under the bill is that debtors seeking to file bankruptcy will be subject to a means test. Debtors with incomes above their state’s median and who can pay back at least $6,000 over five years will have to file a Chapter 13 bankruptcy. These debtors will be required to enter into a payment plan to pay back some of their debt over time.

Currently, the court has discretion to determine whether an individual is required to file Chapter 13 rather than Chapter 7.  Chapter 7 allows debtors to discharge their debts by liquidating certain assets and paying what they are able from the money generated.

President Bush has long supported this bill. He stated, "Bankruptcy should always be a last resort in our legal system. If someone does not pay his or her debts the rest of society ends up paying them."

Opponents of the bill feel that its impact will fall the hardest on low-income individuals, minorities, the elderly, and single mothers. It will be especially hard on those who suffer a medical crisis or lose their job.

Supporters of the bill see it as a long awaited change. The bill has been around in varied forms for the past eight years. Supporters feel that it will prevent abuse of the system by individuals seeking a way out of gambling debt, child support, bills resulting from compulsive shopping, and other abuse of the bankruptcy shelter provisions.

House Passes Bankruptcy Bill

The bankruptcy bill passed in the House of Representatives yesterday by a 302-126 vote.

Congressional approval of the bill was much expected this session, especially after the bill passed in the Senate last month by a 74-25 vote. The bill has come up but failed to pass in previous sessions largely due to a controversial abortion-related amendment that was not included in this bill this session. While largely a republican-supported bill, it has also gained the support of many democrats. Seventy-three democrats from the House voted for the bill.

The bill will make significant changes to our bankruptcy system, many people will be unable to completely discharge their debts under Chapter 7. Instead, individuals will be subject to a means test. Those with incomes above their state’s median will have to enter into a repayment plan under chapter 13. Opponents of the bill feel that it will punish consumers while aiding the credit industry.

President Bush has long been a supporter of the bill. Shortly after the House passed the bill President Bush stated, "I look forward to signing the bill into law." It may be presented to President Bush as early as next week.

FTC Settles with Fraudulent Debt-Counseling Agencies

U.S. regulators settled with three debt-counseling agencies accused of scamming consumers out of millions of dollars.

The three agencies involved in the settlement were National Consumer Council, Debt Management Foundation Services Inc. and Better Budget Financial Services Inc. Lydia Parnes, head of the Federal Trade Commission's consumer protection division stated that "All three companies lied about who they were, what they could do for consumers and how much they charged."

According to the FTC, there have been an increasing number of scams involving debt-counseling agencies. Although many agencies are legitimate, it has been an increasingly common problem that some agencies promise to help consumers reduce monthly payments and manage debts, but they only succeed in making matters worse for the consumer.

Better Budget Financial Services Inc. instructed clients to pay their monthly bills to Better Budget rather than creditors while the agency claimed to be negotiating with creditors. However, Better Budget was not negotiating with creditors as the consumers expected. As a result, interest would mount forcing consumers further into debt and often resulting in bankruptcy.

National Consumer Council promised consumers free debt-counseling services. Instead of offering credit-counseling they were using their non-profit status to act as telemarketers. They would place unsolicited calls to consumers to direct them to other debt-counseling services that would charge them fees and rarely reduce their debt problems.

Debt Management Foundation Services Inc. also violated telemarketing laws to solicit business from consumers. They would then charge consumers up to $1,000 for their services.

The companies involved must repay consumers more than $25 million. Debt Management Foundation Services Inc. and National Consumer Council are in the process of being shut down.

House Judiciary Committee Approves Bankruptcy Bill

The House Judiciary Committee approved the bankruptcy bill today in a 22 to 13 vote.

Democratic efforts to amend the bill were rejected by House Republicans who want to keep the bill as written to ensure its speedy passage. The only Democrat to support the legislation was Rep. Rick Boucher of Virginia. The bill may be addressed by the full House in April. It is expected to pass quickly.

House Committee May Introduce Legislation on Subprime Lending

The House Committee on Financial Services may introduce a bill today that would address predatory-pricing tactics in the lending industry.

The legislation would trump state laws regulating the lending practices of banks, thrifts, and mortgage lenders. The purpose of the legislation is to prevent abusive lending practices aimed at low-income or risky borrowers. Such practices include charging risky borrowers extremely high interest rates, pre-payment penalties, and other exorbitant fees. Many states and cities already have laws to address these issues but some consumer advocates and individuals in the lending industry feel that more must be done. Federal legislation would create uniformity and increased protection for consumers, especially those consumers in states that do not have laws to protect against these abuses. (washingtonpost.com)

Mark Pearce, president of the Center for Responsible Lending, a borrower-rights group, is concerned that federal legislation may take away from the protections some states have already put in place for consumers. "The states have shown that it's possible to pass a strong law that still protects a vibrant, responsible subprime market,"  Pearce said.  "When we look at federal legislation, one big question is, would anything at the federal level undo what the states have done, because the states have been the leaders on this issue." (washingtonpost.com)

Industry lobbyists stated yesterday that the House is likely to draft a passable bill, especially considering the recent passage of the bankruptcy bill in the Senate.

Senate Passes Bankruptcy Bill

The U.S. Senate passed the bankruptcy bill in a 74-25 vote on Thursday.

Eighteen Democrats joined Republicans in passing the bill. It will move to the House of Representatives next month where it is expected to easily pass.

If the bill becomes law it will mark the biggest overhaul in our bankruptcy system in a quarter century. The bill sets up an income-based test for consumers in bankruptcy. Those with incomes above the state’s median would be required to file under chapter 13 rather than chapter 7 and repay some of their debts.

Democrats have tried to soften the bill’s impacts on groups such as the elderly, single parents, and minorities. They feel that the bill favors the credit industry at the expense of the poor. Democratic efforts to add amendments or alter the bill were unsuccessful under the Republican majority. Leaders in the House of Representatives have stated that if the bill reached the House essentially unchanged they will pass it quickly.

Senate Closer to Passage of Bankruptcy Bill

The bankruptcy bill is closer to passage in the Senate as the Republican majority defeats Democratic efforts to soften the bill.

The bankruptcy bill’s speedy passage through the Senate was slowed a bit today by discussions regarding a Democratic proposal aimed at preventing conflicts of interest in the securities industry.

The proposed amendment would have prevented investment banks from representing a company or defrauded creditors in bankruptcy when the investment bank had previously advised or financed securities offerings by the company. The proposal was sponsored by Sen. Patrick Leahy, D-Vt. and is said to be in response to recent corporate scandals. The proposal seemed to have the support of some Republicans; however, it was defeated today in a 55-44 vote.

Democratic Senators feel that the bankruptcy bill is aimed in favor of the credit industry at the expense of low-income workers, minorities, single-mothers, and the elderly. In spite of Democratic efforts to soften the bankruptcy bill, the Republican majority has thus far remained successful assuring that the bill remains as written.

Bankruptcy Bill Closer to Passage

After today’s vote in the U.S. Senate it seems more likely that the bankruptcy bill, which would make it harder for consumers to discharge their debts in bankruptcy, will pass in the Senate.

Two votes in the Senate today pushed the bankruptcy bill closer to passage. First, the Senate voted 46-53 against an amendment that would prevent abortion protestors from filing bankruptcy to escape paying court-ordered fines. The rejection of this amendment is significant since it is said to be the “poison pill” of a similar bankruptcy bill that failed to pass in the last Congress.

The Senate also voted 69-31 today to limit further debate on the bankruptcy bill to 30 hours. Only amendments relating to the bill may be debated. With this limit in effect, the bill will likely reach the House of Representatives essentially unchanged. Leaders in the House of Representatives have stated that they will move the bill quickly if it is not significantly altered.

Senator Charles Grassley, an Iowa Republican and the bill’s chief sponsor, stated that "It is the (Senate Republican) leadership's intention to complete action on this bill during Wednesday's session." The bill is largely supported by credit card companies, retailers and auto lenders. It will require individuals with incomes above their state’s mean to file bankruptcy under Chapter 13 rather than Chapter 7 and repay some of their debt.

Senate Votes Down Minimum Wage Amendment to Bankruptcy Bill

The Senate voted down an amendment to the Bankruptcy Bill today that would increase the minimum wage by $2.10.

The amendment was proposed by Massachusetts Democrat Sen. Edward Kennedy who stated that "raising the minimum wage is critical to preventing the economic freefall that often leads to bankruptcy."

The amendment was voted down mainly because Republican Senators want to see the bill remain essentially unchanged.  Last week, leaders in the House of Representatives stated that they would move the Bill quickly if it remains fundamentally the same as written. 

Debate on the bill is expected to come to an end this week. However, a familiar amendment Republicans have called the “poison pill” is still expected to come up. This amendment would prohibit abortion clinic protestors from filing bankruptcy to get out of court-ordered fines.  It was tacked onto a similar bankruptcy bill last session and is said to be the cause of the bill’s failure to pass.

Senate to Debate Bankruptcy Bill

The Senate is to begin debates today on legislation that would significantly change the bankruptcy code. 

The bankruptcy bill, sponsored by Sen. Charles Grassley, R-Iowa, would make it more difficult for consumers to file Chapter 7.  The bill would set up a means test to determine whether the individual earned more than their state's median income and could repay some of their debts. If the individual’s income was above a set level they would fall under Chapter 13 and would have to repay some of their debt.

The bill is supported by credit card companies, retailers, and other lenders who feel that consumers abuse the current system by discharging their debt under Chapter 7 when they have the means to pay some of it back.  Opponents of the bill, including consumer advocate groups, feel that the bill would harm low-income families and reward businesses that aggressively market consumer loans.

This bill is much like the one that came up last session. However, it does not currently include a provision aimed at preventing anti-abortion protestors from filing bankruptcy to get out of court-ordered fines.  This provision, included in last session’s bill, was cited as the cause of the bill failing.  Sen. Charles Schumer, D-N.Y., plans to reintroduce the amendment.  Republicans in both houses feel that the bill will easily pass if the amendment is not added.