Congress Passes A Long-Awaited Bankruptcy Reform Bill
April 22, 2005
Recently the House passed significant bipartisan bankruptcy reform legislation, which cracks down on those who abuse our bankruptcy laws and provides broader consumer protections during the bankruptcy process. This legislation has been in the works for the past four Congresses and has finally been signed into law.
The rate of bankruptcies has been on the rise for several decades. In the 1980s, the number of bankruptcies doubled and again between 1990 and 2003. Last year alone, there were 1.6 million bankruptcies filed. With continual record-high bankruptcy filings year after year, it is clearly time to reform our country's bankruptcy laws. The costs of filing for bankruptcy go well beyond the individuals who do so. The costs become the burden of every American who then pays more for credit, goods, and services. A total of $44 billion in bankruptcy debt is discharged each year, costing every household in the country an additional $400 yearly hidden "tax." For far too long, consumers have picked-up the tab for bankruptcy abusers and it is high time that we put an end to this unfair practice. The Bankruptcy Abuse Prevention and Consumer Protection Act restores personal responsibility, fairness, and accountability to our bankruptcy laws, and will greatly benefit consumers.
Loopholes in our bankruptcy laws have allowed individuals to walk away from their debts, even though many are able to repay them. This abuse and misuse of the bankruptcy system is not fair to the millions of hard-working families who handle their finances responsibly. Under the new system, many with the ability to make monthly payments will still be able to use the bankruptcy system but only by making regular payments on their debts if the court finds they are able to do so.
Central to this legislation is a merit-based test that reflects a common sense notion: people who are capable of repaying their debt after seeking bankruptcy relief must actually repay their debts. This will ensure that only those who truly need to declare bankruptcy can do so while making it more difficult for those who use bankruptcy as a tool to cheat their way out of debt. This bill strikes a balance to help those who are struggling to clear their debts and get back on their feet without making bankruptcy an easy way out or a safety net for abusers.
The bill also helps children by strengthening protections in the law that prioritize child support and alimony payments. Additionally, it protects patients in bankrupt hospitals and nursing homes and provides special protections for farmers in bankruptcy.
This legislation clarifies and strengthens our bankruptcy system so that it will still be available for those who truly need it. Bankruptcy should remain an option for those who truly cannot repay their debts, but not a simple way to cheat debt and let others foot the bill. I was proud to support this fair and much needed overhaul of our bankruptcy system.