Broke and Broken: Congress Begins Bankruptcy Reform

On February 17, 2005, the Senate Judiciary Committee approved bankruptcy legislation that would make it harder for people to dump their debts,

Bankruptcy reform has been a part of the congressional agenda for nearly a decade, but this year, there just may be enough support in Congress to pass the bill. And it seems to be a top priority -- it’s scheduled for debate right after the President’s Day recess.

What the bill would do

The measure, sponsored by Charles Grassley (R - Iowa), would make it harder for debtors to file under Chapter 7 of the bankruptcy code, which allows people to erase credit-card bills and other non-mortgage loans after liquidating some assets.

Most debtors would instead have to file under Chapter 13, which allows the court to require a partial repayment of debts, depending on the debtor’s income and ability to pay.

When determining repayment, the court would consider medical expenses and/or the cost of supporting elderly parents or disabled children.

Even so, Democrats say that the bill is not considerate enough of the circumstances that require many families to file for bankruptcy.

Democrats say

Democrats frame the bankruptcy issue inside their larger policy debate about fairness and opportunity. They cite the troubled health care system as a primary cause - many families go broke under the weight of hefty medical bills.

The minority is also concerned about those who suffered job loss in the post 9 -11 recession as well as the women and men serving in Iraq and Afghanistan. In particular, Democrats want to protect military reservists who are teetering on the edge of financial ruin because they left high-paying jobs to serve overseas.

Democrats plan to offer more than 50 amendments to the bill once it reaches the Senate floor. But senior Senator Edward Kennedy (D - Mass.) managed to attach one amendment in committee - one that would help clarify the eligibility requirements for Chapter 7 bankruptcy by spelling out the types of medical expenses that would qualify. This builds Democratic Party philosophy into the details of the Republican bill. This may be all the minority party can hope to do.

Since Democrats lost seats in the 2004 elections, they may not be able to pass amendments or block the legislation without a legislative block or filibuster. Indeed, Senate Majority Leader Bill Frist (R-Tenn.) told reporters that he was confident that the bill would pass.

Do we need bankruptcy reform?

Legislators on both sides of the aisle agree that some bankruptcy reforms are needed. The current bankruptcy system is sometimes abused by individuals and corporations alike, and in the wake of the Enron and WorldCom scandals, lawmakers are eager to improve the system.

According to the Administrative Office of the U.S. Courts, 2004 saw 1.6 million personal bankruptcy filings. Republicans say that this high rate creates higher goods and services costs for all Americans.

Of course, credit-card companies and banks, which suffer most of the current system’s financial consequences, are lobbying heavily for bankruptcy overhaul. But consumer advocates argue that the bill would remove a safety net for those who can’t pay medical bills or have lost their jobs.

What is the question?

The regular mention of expensive medical bills within the bankruptcy debate brings up a worthwhile question. Is it in fact the health care system and not the bankruptcy system that needs reform? Would this bankruptcy reform bill unfairly target the 45 million Americans who don’t have health insurance?

What do you think?

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Article Posted on: 2/25/2005