Idaho Lawmakers Support Protecting Americans from Bankruptcy Abuse

Idaho Lawmakers Support Protecting Americans from Bankruptcy Abuse

Washington, D.C. - Congressmen Mike Simpson and C.L. "Butch" Otter joined the 302-126 majority today as the U.S. House of Representatives passed S. 256, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. The legislation eliminates opportunities for abuse that exist under the current system while maintaining a safety net for those who find themselves in dire financial straits at no fault of their own.

"Reform sends a message that people cannot use bankruptcy as an easy way out of avoiding their debts," Simpson said. "Our bankruptcy system needs to be made less vulnerable to abusive consumers and more focused on helping those with real needs. This bill accomplishes these goals."

"It's the responsibility of Congress to ensure our laws are fair and serve the legitimate needs of America and individual citizens. Our existing bankruptcy laws fail that test, and expose us all to unwarranted costs," Otter said. "Through a process of attrition and the evolution of our economy, the system has become far too lax. It's time for a tune-up, and this legislation will help restore the premium that our government and we as individuals should place on frugality and fiscal responsibility."

All Americans end up paying for the unscrupulous who abuse the system. In fact, it has been estimated that every American family pays as much as $550 a year in a hidden tax as a result of the actions from these abuses. This bankruptcy reform legislation will help eliminate this hidden tax by implementing a means test to make people who can repay their debts actually honor them.

The current system allows people to run up massive debts and then use bankruptcy to get out of paying them. This legislation prevents this from happening by enacting the following provisions:

Needs-Based Bankruptcy

* The bill will ensure that only those who truly need to declare bankruptcy can do so. A presumption will be made that a chapter 7 case should be dismissed if the debtor has the ability to repay, over 5 years, the lesser of (a) $10,000 or (b) 25% of the debtor's total non-priority, unsecured claims (must be at least $6,000).
* The debtor's ability to repay non-priority, unsecured debts would be based on a "means test." Under the means test, the debtor's current monthly income is determined by averaging the debtor's monthly income for the 6 months prior to filing, excluding Social Security payments. That income would then be reduced by a number of expenses to determine whether the filer qualifies.

Stops Abuse

* In addition to the means test, dismissal of a debtor's case would be authorized when other abuses are present. In particular, a case may be dismissed if there is "bad faith" on the part of the debtor or if the "totality of the circumstances" surrounding the filing demonstrates abuse.
* A judge, trustee, or bankruptcy administrator can bring a motion for these types of abuses in any chapter 7 case. A creditor will be able to file such a motion only if the debtor's income is above the state median income level.

Financial Management and Counseling

* Within 180 days prior to filing for bankruptcy, the debtor must attend a credit counseling session, provided through a program approved by the Justice Department or bankruptcy administrator.
* After filing for bankruptcy, the debtor must complete an approved instructional course concerning personal financial management in order to obtain a discharge from chapter 7 or 13.

Debtor's Bill of Right

* The Act would require debt relief agencies to provide key disclosures to, and execute understandable written service contracts with, debtors they assist. Penalties would apply for non-compliance.

Family Farmers

* The Act would more than double the debt eligibility limit and requires it to be periodically adjusted for inflation; it lowers the requisite percentage of a farmer's income that must be derived from farming operations'; and it gives farmers more flexibility with respect to how certain creditors can be repaid.

S. 256 will now be sent to the President to sign into law.

http://www.house.gov/apps/list/press/id02_simpson/bankruptcy_reform.html