Now Or Never For Reform Bill

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With Congress returning from its August recess this week it will do so under pressure to pass a bankruptcy reform bill and predictions the number of Americans filing bankruptcy is going to continue to rise.

Credit union lobbyists remain optimistic the bill will pass, but one bankruptcy expert told The Credit Union Journal he is skeptical that the bill will pass. That same person, however, noted that up to 1.5-million Americans will seek bankruptcy protection before the year is out.

"We expect those numbers to continue to go up," said Sam Gerdano, executive director of the American Bankruptcy Institute, a research think tank that neither supports nor opposes the CU-backed bankruptcy reform bill. related. "We asked our 8,600 bankruptcy professionals in an Internet poll where they project filings for this year. This wasn't a scientific poll, but we believe it does reflect the industry's expectations: 90% to 95% said they expect to see filings continue to climb, primarily as a result of the hangover of debt burden from the 1990s. That level of debt takes time to wring out. This has not crested yet."

Mike Shenk, an economist with CUNA, concurred. "The results we've seen are consistent with what we would expect in a weak economy with high unemployment," he told The Credit Union Journal. "Credit unions will more than likely see a record number of filings among its members. That's a big deal for credit unions, because roughly half of their charge-offs are from bankruptcy."

And if the bankruptcy bill passes, CUs and other creditors can expect to see a spike during the 180-day grace period before the law is implemented. "That will bring out the bankruptcy lawyers, and induce more people to file before the law takes effect," said NAFCU's Jeff Taylor.

'File Now Before Law Changes'

Indeed, Gerdano noted that on several occasions, when the bankruptcy reform bill has managed to make headlines, there have been bankruptcy lawyers advertising the need to "file now before the law changes," and final passage of the bill could have the ironic effect of driving up the number of bankruptcy filings well into 2003, even if the economy begins to strengthen.

What effect those new numbers and the projections will have on the bill is unknown.

"This bill has a tortured five-year history and has been around the block so many times, it's tired out," said Gerdano. "Now I think there is really grave doubt about its chances."

It's not at all uncommon for a bill to get bounced around as much as has the bankruptcy reform bill, which aims to make it harder for debtors to abuse the system. Why is Gerdano so leery of its chances to pass? "The bill's opponents have to be congratulated for having crafted the most exquisite killer amendment," he observed.

That "exquisite amendment" is the Schumer Amendment, proposed by New York Democrat Chuck Schumer, which would make it illegal for people found guilty of committing violence against abortion clinics to shield their assets via bankruptcy in order to avoid paying fines or restitution.

"It's really a gold medal-winning killer amendment. It allows some lawmakers to say, 'Really, we support bankruptcy re-form, but...'" noted Gerdano. "This bill, if it dies again, will have been killed with kindness."

For some pro-life lawmakers, the Schumer amendment is a deal breaker. Still, lobbyists for both CUNA and NAFCU said they remain optimistic. "I still believe we're going to pass the bankruptcy bill," said NAFCU lobbyist Murray Channow. "Right now we're seeing the biggest push on this in five years."

CUNA's Gary Kohn agreed. "I have high hopes for this bill," he said, "and I base those high hopes on a certain amount of confidence. The word we're getting back (from credit union representatives who were encouraged to visit their lawmakers while they were in their home districts for recess) has been encouraging, very encouraging."

But there has been some indication that leadership may be somewhat reluctant to bring the bankruptcy bill to the floor for a vote because of the highly divisive Schumer amendment, particularly when Congress has both a full plate of other legislation-including the majority of the appropriations bills which, by law, must be passed before the year is out-the anniversary of the Sept. 11 terrorist attacks is looming, and there is legislation related to corporate abuses.

Democrats Could Change Focus

Another issue: the Democrats could regain the House in elections.

"If that happens, it's a whole different ball game. The bankruptcy bill as we now know it will be gone, and there will be a whole different bill in play, one that doesn't have that nice little carve-out for credit unions in it," said Gerdano, referring to voluntary reaffirmations. "A Democrat-lead House will create a totally different bankruptcy reform bill, one that's aimed at predatory lending, payday lending, and subprime lending. It will be aimed at creditor processes, not debtor abuses. It will call for restrictions on marketing of credit products, restrictions on credit available to college students, high school students, the elderly. All of these will be fertile topics."

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