NCPA - National Center for Policy Analysis

Panel Proposes More Breaks For Debtors

October 16, 1997

As the number of debtors filing for bankruptcy soars, a federal panel is about to recommend making it easier for them to avoid their obligations.

The recommendations of the nine-member National Bankruptcy Review Commission -- which are to be presented to Congress and the White House on Monday -- are drawing fire from the credit industry, and even from some members of the panel. Commission member Edith Jones, a U.S. Court of Appeals Judge in Houston, calls the 1,300-page package of proposed changes "simply outrageous." She wrote a 150-page dissent.

Here are a few of the more controversial recommendations:

  • States, which currently have wide latitude in setting personal and homestead exemptions, would be required to allow debtors to shelter between $20,000 and $100,000 of a homestead's worth and up to $20,000 in personal property per individual or $40,000 for a couple.
  • Debtors would be forgiven nearly all their credit card debt 31 days or more prior to filing for bankruptcy under Chapter 7.
  • Student loans, except for those related to medical schools, could be forgiven -- an abrupt departure from current practice which does not allow student loans to be discharged in most cases.

The commission never voted on proposals to force debtors with higher incomes to file under Chapter 13, which requires a repayment plan.

Meanwhile, personal bankruptcy filings are projected to hit yet another record this year, at 1.3 million households -- up from 1.1 million last year. That's more than 1 percent of U.S. households and triple the total from 1985.

Experts estimate that losses from bankruptcies will equal $400 per American household this year -- resulting in higher overall interest rates and retail costs.

Several bills have been introduced in Congress that would give greater protection to lenders. Organizations claiming to represent consumers oppose them.

Source: Rodney Ho, "Bankruptcy Panel's Ideas Anger Creditors," Wall Street Journal, October 16, 1997.


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