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March 2001

Editor: Scott Gottlieb, CPA
Assistant editor: Susan A. Maffetone, CPA

The Bankruptcy Reform Act of 2001

The Bankruptcy Reform Act of 2001 (S. 420). disqualifies many debtors from filing for Chapter 7 bankruptcy, which allows them to wipe out their debts, and instead forces them into Chapter 13, which requires some form of repayment.

Following is an excerpt from the U.S. Senate Republican Policy Committee website: Legislation Notice of March 2, 2001.

S. 420 is based on the Bankruptcy Reform Conference Report that Congress passed overwhelmingly last year, but it has amendments adopted by the Judiciary Committee during markup. President Clinton (pocket) vetoed the conference report last year.

The House passed its bankruptcy bill, as amended, on March 1, 2001, by a vote of 306 to 108. The House bill (H.R. 333) also is based on last year's conference report.

The Senate approved last year's reform act (the Conference Report to H.R. 2415) on December 7, 2000, by a vote of 70 to 28 (after invoking cloture two days earlier). Fifty-three GOP Senators voted for the conference report, as did 17 Democratic Senators. The House had approved the conference report on October 12, 2000, by voice vote. The 106th Congress adjourned sine die without a vote on overriding the President's veto.

When the Senate first passed its bankruptcy reform bill in the 106th Congress on February 2, 2000, the bill included several nongermane amendments, including minimum wage, tax reform, health insurance, and drug enforcement amendments. That bill (S. 625 /H.R. 833) passed by a vote of 83 to 14.

According to the U.S. Department of Justice, creditors lose $3.22 billion every year because of bankruptcies filed by persons who could repay their debts. S. Rept. 106-49 at 2. Those costs are then passed along to all Americans. Based on research by the Congressional Budget Office, Senator Grassley has shown that bankruptcies cost each American household about $400 annually in higher costs for goods, services, and credit.


Legal Authority. The Constitution gives Congress express power "To establish . . . uniform Laws on the subject of Bankruptcies throughout the United States." Art. I, 8, cl. 4. Bankruptcy laws have been a permanent part of the federal code for 100 years. The bankruptcy code was overhauled in 1978, and that 1978 act (as amended) governs all bankruptcy cases filed today. See 11 U.S.C. 101 et seq.

The Explosion in Bankruptcy Filings. The reform effort is motivated in large part by an explosion in consumer bankruptcies, which is especially troubling because the economy has been healthy. Some of the relevant data are shown in Table 1, which shows that nonbusiness filings have quadrupled since the early 1980s

Opponents of the bill argue that the bill does nothing to end the abuses by banks and credit card companies that flood the mail with solicitations for easy high interest credit to people who can't handle it.

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