CFA: House Set To Pass Bankruptcy Bill That Will Harm Families Hit By Financial Misfortune

Bill Would Do Nothing to Curb Reckless Lending by Credit Card Companies

March 19, 2003
Travis Plunkett, 202-387-6121

Washington, D.C. -- The Consumer Federation of America (CFA) today urged members of the U.S. House of Representatives to reject legislation that would place severe restrictions on Americans who file for bankruptcy (H.R. 975). The bill was expected to pass the House this afternoon.

"With the economy sinking, this unbalanced bill couldn't come at a worse time for American consumers," said Travis B. Plunkett, CFA's legislative director. "The recession, corporate scandals and the attacks of 9/11 have taken their toll on many families. The credit card industry has used its political might to push through legislation that will limit access to a fresh start in bankruptcy for many who lose a job or suffer other serious hardships," he said.

A vast body of evidence links the rise in consumer bankruptcies directly to an increase in consumer debt. A series of CFA studies has documented that credit card issuers have dramatically increased their marketing and extension of credit in recent years. In the twelve-month period ending March 31, 2002, issuers mailed five billion solicitations -- nearly 50 per U.S. household, and made available more than $3 trillion in unused lines of credit -- about $30,000 per household.

"Credit card companies are shamelessly offering more credit than ever to consumers, while demanding that Congress give them relief by making it harder for these same consumers to declare bankruptcy," said Plunkett. "This bill simply doesn't balance responsibility between individuals and the creditors whose practices have contributed to the rise in bankruptcies."

CFA offered several specific concerns about the impact of H.R. 975 on consumers:

  • Does nothing to curb reckless lending by credit card companies and other creditors. Reckless and predatory lending would go unchecked and could increase. By making it harder for debtors to wipe away some debts, the bill reduces the financial risk for lenders and encourages them to lower their credit standards even more.
  • Imposes a rigid means test. The bill sets up an inflexible formula to determine if a debtor can wipe away most of his or her debts in Chapter 7 bankruptcy. A debtor whose Chapter 7 case is challenged due to the assumptions will have to litigate the issue, an expense many debtors cannot afford. A bankruptcy judge would not be able to waive the means test even if a debtor has experienced circumstances beyond his or her control, such as a medical emergency.
  • Endangers child support. Despite extravagant claims to the contrary, the bill still threatens the welfare of children. The bill allows more non-child support debts to survive bankruptcy (such as auto and credit card loans), thus forcing custodial parents to fight with creditors for the debtor's limited income.
  • Allows millionaires to continue to shelter their assets in mansions. The bill will still permit some rich debtors in five states to declare bankruptcy and keep homes of unlimited value.
  • Expands opportunities for creditor motions. Creditors will be able to threaten debtors with costly litigation. Those debtors who cannot afford to defend themselves in court will be coerced into giving up their legal rights.
  • Makes Chapter 13 plans to save homes and cars far more difficult. Numerous provisions in the bill, such as requiring five-year instead of three-year repayment plans for many debtors, will increase the failure rate in Chapter 13. Two-thirds of those who enter Chapter 13 plans (and attempt to repay much of what they owe) already fail to successfully complete them.
  • Increases the likelihood that debtors will be evicted -- even those who have caught up on back-rent. It will be easier for residential landlords to evict a tenant who is in bankruptcy.

CFA is a non-profit association of 300 organizations that, since 1968, has sought to advance the consumer interest through advocacy and education.