Report Seeks Bankruptcy-Law Changes
A bipartisan federal commission on Monday proposed an overhaul of U.S. bankruptcy laws, setting off a congressional debate that could lead to the most sweeping changes in personal bankruptcy rules in 13 years.
The report by the National Bankruptcy Review Commission won’t be the last word on the subject. Several key recommendations are already under attack, and members of Congress are moving to offer their own plans. Congress is likely to take action next year, but the end result may be quite different from what the commission recommended.
“I think it’s practical to expect that Washington within the next 12 months will hand down some significant changes,” said Kim Wallace, who tracks legislative developments for Lehman Bros. Inc.
Under the commission’s plan, the U.S. trustee in bankruptcy cases would require small businesses to file reorganization plans within 90 days of filing for bankruptcy court protection and to secure approval of their plans from creditors and bankruptcy judges within 150 days. In addition, the panel recommended adopting a uniform national system governing the assets that debtors are allowed to keep.
Its 172 recommendations also include forgiving most types of student loans as well as unsecured credit card charges generated by individuals more than 30 days before a bankruptcy filing. It would also clarify valuation rules for property on which creditors have a lien--a change that bankruptcy lawyers said is likely to favor debtors.
The commission split on many key recommendations, with four of the nine commissioners dissenting on portions of the report.
Its recommendations drew opposition from retailers and financial services companies, which are backing a rival plan that would make it harder for many consumers to discharge all debts via bankruptcy.
Creditors say the commission’s plan would make it easier for consumers to file for bankruptcy. More than 1 million people sought protection from their creditors in 1996, and that number is expected to rise 30% this year. Losses could total $40 billion, said U.S. Rep. Bill McCollum (R-Fla.), who has introduced a bill that would restrict the type of people who could eliminate all their debts by filing for bankruptcy.
Under McCollum’s bill, individuals whose incomes fall below 75% of the national median could secure protection from all debtors. Debtors with income above that level would have to meet certain criteria.
In the Senate, Sen. Charles Grassley (R-Iowa) is expected to present a plan today that would attempt to strike a balance between the panel’s plan and McCollum’s bill.
