Effort To Pass Bankruptcy Reform Begins Again

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Since the credit union and the banking lobby succeeded in getting a bankruptcy reform bill introduced in Congress nine years ago, almost 10 million Americans have filed for personal bankruptcy, about two million of them credit union members.

It's not clear how the "means-based bankruptcy" reform proposed by the bill would have affected those numbers, but the credit unions and banks, which have been joined in the intervening years by a broad spectrum of interest groups, including auto lenders and retailers, continue to believe the proposed reform would reduce their losses due to bankruptcy.

So they're ready to try again. And so are their allies in Congress.

U.S. Rep. Jim Sensenbrenner, the chairman of the House Judiciary Committee that approved the bankruptcy bill in each of the last four congresses, is expected to reintroduce the bill as soon as the 109th Congress convenes, or soon after. The bill will look very much like the one that died ever so near the finish line in each of the last three congresses, sources said.

It will include the three main credit union priorities: a means-based test to determine which debtors are eligible to erase their debts under chapter 7, relegating some instead to a chapter 13 reorganization; retention of credit unions' ability to enter into voluntary repayment, or reaffirmation, agreements with members; and mandatory financial education for bankruptcy filers.

The credit union lobby, predictably, is confident the bill will pass both the House and Senate-after all, it has passed easily each of the last four congresses. The bill even went all the way to the desk of President Bill Clinton, who let it die without his signature-a so-called pocket veto. But the last two congresses the bill passed both the House and Senate easily only to get hung up over abortion issues because of a provision that would prevent abortion clinic protesters from shielding their assets under bankruptcy law.

There is no evidence yet that that issue has been resolved. So we might be faced with a similar situation this year. One credit union lobbyist said they are working with the Senate, where the abortion provision rests, in hopes of resolving it, and he remains hopeful there will be a resolution before the gavel falls on the 109th Congress.

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