What's in a name? In politics, sometimes quite a bit. After the 106th Congress ended in late 2000, CUNA went to Congressman George Gekas, then champion of the bankruptcy reform bill that had passed both chambers of Congress only to die because of a veto, with a simple yet profound suggestion: Change the name of the bill.
Up until then, the legislation had been called simply "bankruptcy reform." But what was apparent to CUNA lobbyists, as well as league and credit union activists who carried first-hand stories of members who file for bankruptcy protection despite having the means to repay some (if not all) of their debts, was the reality that "abuse" was the real impetus behind our support of the bill.
Thus, the "Bankruptcy Abuse Prevention and Consumer Protection Act" was born. The legislation has represented a fair and reasonable attempt to rein in what a member of our credit union board called "using a bankruptcy as a financial planning tool."
By now, the statistical side of the story of bankruptcy is well known. Since 1983, there has been an increase in the number of bankruptcy filings in every year but two. In 1990, the beginning of a decade of real and sustained economic prosperity, just over 700,000 Americans filed for bankruptcy. In 2001, that number had doubled to 1.4 million, a new record that looks to be broken when final 2002 statistics are tallied.
The numbers alone don't tell the whole story, however. What seems to have also changed, and contributed to the soaring rate of bankruptcy filings, is a change in societal attitudes about bankruptcy. Time and time again, credit union professionals and volunteers hear from members who take a cavalier, almost indifferent attitude toward filing for bankruptcy. Some, like a Minnesota man who retired to Florida after declaring a $30,000 bankruptcy, write glowing accounts to his hometown newspaper about how much he is enjoying his retirement, courtesy of the members of his credit union.
Others, such as two members of my credit union, a couple with a six-figure income, who each qualified for $10,000 VISAs (at the same time they were applying for other credit cards), openly game the system. During one month they maximized all these credit cards with cash advances. They never made a payment on any of them, waited the required time, and then filed for a Chapter 7 bankruptcy. An appeal to the court for "loading up" was denied. Our small credit union lost $20,000. What did they do with the cash? Their daughter had a very large, beautiful and expensive wedding in Hawaii-a long way from South Carolina.
Although measuring stigma is not an easy task, a study done by the Cato Institute detailed several revealing glimpses into bankruptcy filing patterns. The Cato study cited surveys that found that 45% of consumer bankruptcy filers learned about bankruptcy from friends or family. Ten percent of filers were identified by Cato as repeat filers, and 27% said they would consider filing again. Our small credit union has had at least two repeat filers who did not reveal their previous bankruptcies because they were past the time limit.
The absence of any stigma is contributed to, if not caused by, the prevalence of attorneys who specialize in bankruptcy filings. In our area the media, especially television, newspapers, and household mailings, is saturated with advertisements from bankruptcy attorneys offering to "relieve the pressure of monthly payments."
To be sure, not every bankruptcy filing is abusive. There is no question that the need for protection from creditors is something that consumers should have access to, and something that credit unions favor. I could not endorse a bill that denies people necessary bankruptcy protection. We all know of situations where a member is the victim of unforeseen financial calamity, often associated with the loss of a job, a divorce, or illness. But I can support the bill that has been considered by Congress, and I can continue to support it as a way to discourage the abuse that has come to characterize the bankruptcy system.
Look at what the bill does:
* It establishes a "means test" that determines whether a filer should be granted Chapter 7 versus Chapter 13, based on income and ability to repay. In other words, if you have the wherewithal, you shouldn't be able to simply walk away from your obligations. The bill also requires debtors with incomes above the median to submit a repayment plan, while accounting for living expenses.
* It restructures current law so that child support and alimony payments are at the top of the list of items protected from discharge. Currently, other payments take precedence over child support and alimony, including attorney's fees!!
* It protects the rights of credit union members to voluntarily reaffirm their debts.
* It mandates financial education, which I believe to be a prudent and practical way to help people with credit problems to stay out of future trouble. Plus, it's a natural fit with the credit union priority on financial literacy.
All of this adds up to a bill that would create a fairer and more realistic bankruptcy code. Credit union members, because they own their institutions, feel the effects of abusive bankruptcies directly. And while no one is arguing that the bankruptcy legislation will completely eliminate the abuse, no one should argue that the bill isn't necessary because it isn't perfect. If I could add one amendment to the bill it would penalize creditors who approve credit to over- extended borrowers. The best way to help an over-extended consumer is to say "no" to a credit request.
It is my hope that the bankruptcy abuse bill passes, that judges carefully follow the new law so that they take a more realistic view of people's capacity to repay their debts, and, perhaps most importantly, a renewed sense of individual accountability becomes apparent.
Maybe we ought to change the name of the bill again. My suggestion: the Personal Responsibility Act.
Lucile P. Beckwith is president/CEO of Palmetto Trust FCU in Columbia, S.C., and also a member of CUNA's Governmental Affairs Committee.