Grassley said the comprehensive proposal he has advanced with Sen. Richard Durbin of Illinois is a "common sense response to a very negative trend."
The last two years have been marked by record-breaking filings for personal bankruptcy in the United States. And, despite an economy in its sixth full year of uninterrupted expansion, experts predict that another record in bankruptcy filings will be set this year. More than 1.4 million consumers are expected to declare bankruptcy in 1998.
Grassley said "there's plenty of blame to go around." He said irresponsible consumerism, a very aggressive credit industry and a powerful legal profession that profits from bankruptcy filings all contribute to sky-high personal bankruptcy filings. "Congress itself reinforced the mindset that ?it's a-okay' to spend more than you can afford with its 30 years of deficit spending," Grassley said.
Committee members voted 15 to 2 today to send the Grassley/Durbin consumer bankruptcy reform bill to the full Senate for consideration. One member of the panel did not vote.
The plan would make it more difficult to declare bankruptcy, while protecting those who have fallen on hard times. Grassley said it would "send a message to the people who today walk away from debts that other consumers end up paying for through higher prices. That message is: ?the free ride is over.'" At the same time, Grassley said the legislation "recognizes what can happen to families when there's an untimely death, a deadbeat spouse, a disability, or a natural disaster."
The Grassley/Durbin bill would give creditors a fair chance to recoup their losses by creating a flexible means test that encourages more individuals to file under Chapter 13, instead of Chapter 7. Chapter 7 allows people to liquidate their assets and wipe out most unsecured debts, including those to credit card issuers. Chapter 13 requires a repayment plan.
The bi-partisan bill specifies that individuals who can repay at least 20 percent of their secured debts must convert the case from Chapter 7 to Chapter 13 or leave the bankruptcy system altogether. The bill would allow creditors to bring evidence about a debtor's ability to repay into bankruptcy court. And, it would provide economic incentives for the private individuals who oversee Chapter 7 cases to bring such evidence to a bankruptcy judge's attention.
The Grassley/Durbin approach to consumer bankruptcy reform also protects consumers. It does not force every debtor into the same mold. Grassley said instead of mandating a rigid formula to separate those who can repay, their bill gives flexibility to the bankruptcy judge so that decisions can be made based on an individual's complete circumstances." In addition, their legislation contains stiff new penalties for creditors who may use abusive tactics to intimidate consumers or try to force them into Chapter 13 without having reasonable evidence they can repay their debts.
Grassley said the Senate plan also seeks to curb litigation with provisions to encourage reasonable out-of-court settlements and by giving incentives for alternative dispute resolutions.
During today's mark-up of the proposal, committee members endorsed amendments to create new legal protections for ex-spouses and children who are owed child support and alimony payments, to make debts resulting from intentional torts non-dischargeable under Chapter 13, to protect confidential tax information filed with bankruptcy papers from misuse by creditors, to create new and extend existing bankruptcy judgeships, and to disallow the claims of predatory lenders in bankruptcy who have violated certain provisions of the truth-in-lending act.
A separate consumer bankruptcy reform proposal sponsored by Rep. George Gekas of Pennsylvania is awaiting consideration by the U.S. House of Representatives.
An analysis of the Senate and House proposals by the non-partisan Congressional Budget Office found that the Grassley/Durbin bill would cost half as much as the House measure.
In addition, the Clinton administration has expressed its support for consumer bankruptcy reform that is "more similar to the approach embodied in S.1301," the Grassley/Durbin bill. The President also stated that such action is appropriate in his radio address two weeks ago.
Grassley has promoted reform from his position as chairman of the Senate Judiciary subcommittee with jurisdiction over the federal bankruptcy code. During the last year, he has convened three hearings to consider the problem of increased consumer bankruptcies and possible solutions.
