Washington,
Apr 14, 2005 -
Saying that we need bankruptcy reform in America, New Mexico Congressman Steve Pearce, a member of the House Financial Services Committee Thursday voted in favor on the Bankruptcy Abuse Prevention and Consumer Protection Act (S 256), which was approved in the House on a 302-126 bipartisan vote.
The bill would require debtors who have the means to enter a court ordered repayment plan under Chapter 13 of the Bankruptcy Code, rather than having their debts cancelled under Chapter 7.
“We need bankruptcy reform,” Pearce said, “because economic losses from bankruptcy cause higher prices for goods and services. When that happens, everybody picks up the tab—consumers, small businesses and the overall American economy. Comprehensive bankruptcy reform is necessary to bring more fairness for those who work hard to pay their bills. Every bankruptcy filed puts upward pressure on interest rates, so decreasing the number is good for people trying to buy a new house or pay for a car.”
“Bankruptcy reform,” Pearce stressed, “sends a message that people cannot use bankruptcy as a financial boondoggle or as an easy way out of paying their debts. Bankruptcy reform would also reduce the systemic risk in the banking system and financial marketplace. It would also protect patients in bankrupt hospitals and nursing homes and give farmers special protections in bankruptcy.”
The act promotes responsible borrowing and provides financial education to financially troubled consumers, reduces the disparity of treatment in the bankruptcy system, establishes more uniform and predictable bankruptcy standards as well as strengthening the integrity of the bankruptcy process.
“By toughening the requirements for declaring bankruptcy, a truly needs-based system will be created for those who are in the greatest need,” Pearce said.
The debtor’s ability to repay non-priority, unsecured debts would be based on a “means test.” Under the means test, the debtor’s current monthly income is determined by averaging the debtor’s monthly income for the 6 months prior to filing, excluding Social Security payments. That income would then be reduced by a number of expenses to determine whether the filer qualifies.
“In addition to the means test,” Pearce said, “dismissal of a debtor’s case would be authorized when other abuses are present. In particular, a case may be dismissed if there is ‘bad faith’ on the part of the debtor or if the ‘totality of the circumstances’ surrounding the filing demonstrates abuse.”
The Senate has passed similar legislation. The bill now goes to President Bush for his signature.
