By a vote of 97 to 1, the U.S. Senate passed the Grassley-sponsored legislation and responded to three years of record-breaking filings of personal bankruptcies.
Following Senate action today, Grassley said, "This balanced proposal addresses abuses by creditors and debtors. It is a common-sense approach that will promote responsible consumer activity and hold creditors more accountable for irresponsible actions." The Iowa senator is chairman of the Senate subcommittee with primary jurisdiction over bankruptcy policy.
"This bill takes aim at elements of the bankruptcy code that have contributed to the recent explosion of personal bankruptcy filings," Grassley said. "Generally speaking, it reforms the system to prevent consumers, who are able, to avoid repaying their debts and enhances debtor protections for those who deserve a fresh start."
The bi-partisan bill Grassley introduced with Sen. Richard Durbin of Illinois would make it more difficult for consumers to wipe away their debts. The Consumer Bankruptcy Reform Act, S. 1301, puts in place a flexible means test so that individuals who can repay at least 30 percent of their general unsecured debts must convert the case from Chapter 7 to Chapter 13, or leave the bankruptcy system altogether. Chapter 7 allows people to liquidate their assets and wipe out most unsecured debts, including credit card issuers. Chapter 13 requires a repayment plan.
The Senate-backed package also includes measures to curtail litigation with provisions to encourage reasonable out-of-court settlements and gives incentives for alternative dispute resolution.The bill would make Chapter 12 provisions to help farmers re-organize debt a permanent part of the federal bankruptcy code.
In addition, Grassley said the reform package includes strong protections that would give consumers new tools to make good spending decisions and discourage abusive collection tactics by creditors. Following bi-partisan approval by the Senate Judiciary Committee in May, Grassley worked closely with the administration and his Senate colleagues to fashion a strong compromise. In a formal "Statement of Administration Policy," the Clinton administration this month stated its support for the Grassley bill.
Grassley said changes were made to strengthen consumer protections and curb misuse of the bankruptcy code as a means of escaping debt. These changes include:
Credit Card Disclosure ? Credit card companies are required to spell-out account information on credit card holders' statements to help them manage their budgets, including how long it would take to repay their debt if only making the monthly minimum payment, as an example.
Creditor Penalties ? Adds penalties if a creditor threatens to challenge a Chapter 7 case unless a debtor agrees to repay a debt.
Dual Use Credit/Debit Cards ? Expand liability limit of $50 to stolen cards used for credit and debit purchases; current law protects stolen credit cards only.
Non-Dischargeable ?Limits the number of non-dischargeable debts to protect child support and alimony.
Farm Re-Organization ? Increases the debt limit for Chapter 12, so more farmers will have access to Chapter 12 protections.
Disclosure ? Requires new disclosures for high loan-to-value loans to protect consumers from misleading solicitations.
Help for Victims of Drunk Driving ? Makes debts resulting from drunk driving accidents priority debts to protect victims of drunk driving.
Grassley began his effort to achieve bi-partisan reform of the federal bankruptcy code for consumers in April 1997, when he convened a subcommittee hearing to consider the relationship between credit card debt and consumer bankruptcy. He conducted two additional hearings on the issues involved in consumer bankruptcy and consulted extensively with consumer groups, retailers and creditors in developing his proposal.