he consumer-credit industry wants to rewrite the federal law on personal bankruptcies, and is using tactics that would make a sailor blush.
News writers and broadcasters are being peppered with press releases, asserting that America has become a nation of debt dodgers.
Changes made two years ago in the bankruptcy law, the creditors say, have caused a huge increase in debt abuse--and they claim to have the data to prove it. A 1981 study done for the credit industry, by Purdue University's Credit Research Center, concludes that "nearly 40 percent of the Americans who filed for bankruptcy earlier this year could afford to pay half or more of their nonmortgage debt."
But is that conclusion really sound? At the moment no one knows, because no independent researchers have seen the raw data. Purdue's Robert W. Johnson, who headed the study, says that the supporting material will be released in two volumes, one by early January and one in February or March. Until then, reporters have to go by the charts, tables and graphs that come with the press releases.
"As I went through (the charts), I had a feeling that I had seen this sort of thing before," says Vern Countryman, Harvard Law School professor and vice-chairman of the National Bankruptcy Conference, a nonprofit organization that studies bankruptcy law. "In World War Two, Air Force information officers in the field frequently compiled similar charts, tables and graphs for the edification of higher headquarters. And the people who compiled such displays had a very accurate description for what they were doing: 'If you don't have hard facts, give them eye-wash.' "
What bothers many bankruptcy judges, lawyers and other specialists in the field is that the Johnson study differs so much from many other findings. Philip Shuchman, a Rutgers University law professor, studied bankruptcies in the Hartford, Conn., area and concluded that only six out of 128 might have been able to pay any of their debts--a mere 4.6 percent, compared with Johnson's 40 percent. (Johnson's study made assumptions about the bankrupt's future income and debt-repayment behavior over the next five years, which Shuchman's study did not.)
There is no question that the number of personal bankruptcies rose last year. The source of the current dispute is whether the new federal law is to blame or whether the rise can be traced to economic factors.
States may opt out of part of the federal law and so far 32 of them have done so. Some states have more liberal bankruptcy rules than the federal government, and some more conservative rules. There is no information on whether states that switched to more liberal rules had a steeper rise in bankruptcies than states that did not, and Johnson's study did not address this issue.
Shuchman points out that business bankruptcies rose sharply last year, although no major changes were made in the business-bankruptcies law. This suggests, he says, that today's bankruptcies are rising chiefly from hard times.
Johnson told my associate, Virgina Wilson, that his data do not show "what percentage of bankruptcies are attributable to the new law, lawyer advertising, economic conditions or inflation." But then he goes on to say--although his study does not show it--that "it looks to me" as if "30 to 40 percent of the bankruptcies now are attributable to the new law." You can see from that statement that he's pulling some of his figures out of his hat.
Behind all this "Sturm und Drang" lies a possible rewrite of federal bankruptcy law, now under consideration in both houses of Congress. The credit industry is pushing two main changes:
That people should not be allowed to declare bankruptcy, regardless of their financial condition, if income projections show a likelihood that they could repay part of their debt.
That debtors on court-ordered payment plans should be forced to put all their disposable income for five years toward debt repayment, rather than three years, as is now usually the case.
Countryman calls these proposals a "mass peonage statute," casting courts in the role of bill-collectors for creditors, some of whom may be careless about lending money.
Many bankruptcy specialists agree that some technical adjustments ought to be made in the law. But they first want more time to study the effects of the changes Congress made in 1979. They don't think that Congress should legislate on the basis of inflammatory assertions contained in a credit-industry press release.