Legislation to change debtor laws, erect hurdles for women

U of Ideas of General Interest -- August 1999
University of Illinois at Urbana-Champaign

Contact: Mark Reutter, Business & Law Editor (217) 333-0568; [email protected]

BANKRUPTCY LAW
Legislation to change debtor laws, erect hurdles for women

CHAMPAIGN, Ill. ó A bankruptcy "reform" bill before Congress could force women and children to compete with the credit industry to collect support payments from deadbeat dads, a University of Illinois expert says.

Under current law, debtor husbands and fathers "cannot be relieved of liability for alimony, maintenance and child support after they emerge from bankruptcy," said Charles Tabb, who specializes in bankruptcy law. "But the reform bill now under consideration by the Senate will allow powerful institutional creditors to compete with women and children in collecting their debts after bankruptcy."

The provision is one of many hardships that would adversely affect women, according to Tabb, who edits the monthly Bankruptcy Law Letter and is the author of "The Law of Bankruptcy."

Additionally, female debtors who "legitimately need debt relief through bankruptcy" would find more roadblocks in the proposed legislation introduced by Sen. Charles Grassley (R-Iowa). Of the 1.4 million consumer bankruptcies last year, women filed about 500,000 cases, often after they were unable to collect support payments.

The bill is part of a push by congressional Republicans to make it harder for people to wipe away credit-card debt by declaring Chapter 7. A bill requiring debtors to meet a "means test" in order to qualify for Chapter 7 was passed by the House of Representatives in May. A similar provision is contained in the Senate bill, which is expected to come up for floor debate shortly.

"Congress is on the brink of effecting a sea change in the fundamental conception of consumer bankruptcy," the U. of I. law professor said. "For a century debtors have enjoyed the principle of the ëfresh start,í in which they obtain an immediate discharge of their debts in return for filing for liquidation bankruptcy under Chapter 7. The rationale behind the policy was that it served the public as well as private interest by giving an honest but overwhelmed debtor an opportunity to start again, unhampered by the pressure or discouragement of repaying pre-existing debt."

The proliferation of credit cards has changed the landscape of consumer credit and personal bankruptcy, Tabb noted. "In 1997, more than 3 billion solicitations for credit cards were mailed. That is over 17 offers per year for every American between the ages of 18 and 64. The amount of outstanding credit limits has increased commensurately: In 1997, banksí total cardholder limits exceeded $1.7 trillion, up from $901 billion just four years earlier."

A more equitable approach would require credit-card issuers to act more responsibly in offering access to debt. "The consumer credit industry arguably holds the cure for the high bankruptcy rate in its own hands ñ restrict the availability of credit and monitor those to whom it extends credit. So why donít creditors tighten up on lending practices? Some do. But for many the answer is simple. They are simply making too much money on credit-card users who do not pay their debts in full each month."

-mr-