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Correction to This Article
A Business column March 3 incorrectly stated that more than 50 percent of Americans age 65 and older are driven to bankruptcy by medical debts they cannot pay. It should have said that 50 percent of those older than 65 who file for bankruptcy do so because of medical debts.
Color of Money

Bankruptcy Bill Lingers in the Ring

By Michelle Singletary
Thursday, March 3, 2005; Page E03

The relentless battle by Republicans in Congress, egged on by the credit card industry, to push through a bankruptcy bill reminds me of George Foreman and the rope-a-dope boxing technique Muhammad Ali used on him in their historic fight in 1974.

For several years now, the Bankruptcy Abuse Prevention and Consumer Protection Act (and trust me, there's little meaningful protection for consumers in this flawed piece of legislation) has stayed in the legislative ring.

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The fight to get the bankruptcy bill passed is the classic rope-a-dope. Despite repeated punches, proponents of the bankruptcy bill just keep standing up against the ropes waiting for the moment when they can claim a victory against already financially spent consumers.

Proponents of the bill argue that the bankruptcy system needs a major revision because too many people who have the means to repay their creditors walk away from their financial obligations. To hear them tell it, people are jumping for joy when they come out of bankruptcy because they have cleverly avoided paying their debts.

That's just not so, argue consumer groups and others fighting to defeat the bill. In a letter to Senate leaders, a group of bankruptcy and commercial law experts argue that even if the system needs fixing, what's in the ring now is flawed. The bankruptcy system works as it should, the groups contend. Bankruptcy judges and trustees overseeing consumer bankruptcy cases do exactly what they are supposed to do. They ferret out those who cheat the system. They make consumers with financial resources pay back their creditors. For example, when consumers file for Chapter 7 bankruptcy and can clearly pay something, the courts have the authority to switch those people to Chapter 13.

Still, supporters of the bankruptcy bill say the system is being abused. They want debtors to submit to needs-based testing to determine whether they should be allowed to file under Chapter 7 or be forced into Chapter 13.

Under Chapter 7, almost all debts are erased. Filers are usually allowed to keep certain property, such as some equity in a primary residence and household goods. The majority of individuals filing for bankruptcy protection use Chapter 7. Under Chapter 13, creditors are repaid, in full or in part, in installments over a period of three to five years.

For many opponents of the bankruptcy bill, the means testing is the most worrisome. It doesn't allow the courts to consider whether a debtor is seeking bankruptcy relief because of some terrible circumstance, complains Edmund Mierzwinski, consumer program director for the nonprofit U.S. Public Interest Research Group.

Other opponents of the bill have a problem with a requirement that would force individual debtors to get credit counseling. On the surface the requirement sounds reasonable. However, recent Senate hearings found some disturbing problems in the credit-counseling industry, as a group of bankruptcy and commercial law professors pointed out in a letter to Sens. Arlen Specter (R-Pa.), chairman of the Judiciary Committee, and Patrick J. Leahy (D-Vt.), the ranking minority member.

"The industry is plagued with consumer complaints about excessive fees, pressure tactics, nonexistent counseling and education, promised results that never come about, ruined credit ratings, poor service, and in many cases being left in worse debt than before they initiated their debt management plan," wrote the group of professors, who included leading authorities on bankruptcy such as Elizabeth Warren of Harvard Law School.

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