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Letters to the Editor

Web posted and Copyright © February 1, 2000, American Bankruptcy Institute.

Dear Editor:

he Bankruptcy Reform Act of 1999 died a protracted death last fall, but will be exhumed in 2000. The proposals attempt to curb abuse in the system, supposedly evidenced by record filings during the 1990s. For many Americans, filing was not abuse—it was a needful thing.

From the vantage point of a non-profit credit counseling agency who sees the playing field differently than creditors and lawyers, the new reform proposals put counseling agencies squarely in the mix.

We already consider ourselves to be the original "means testers" and defenders of "debtor education," both preventive and remedial (debt repayment plans). Many people who come through our doors are able to get back in control without bankruptcy. However, many others are directed to legal assistance, usually meaning bankruptcy. They are so far out of kilter financially that it is useless to try to bandage their finances any longer.

If the proposed legislation is passed, it ought to allow for differences among local and regional economic environments, as this relates to the first hurdle of the gross income test and allowable expense guidelines. The relationship between the local economy, demographics and the standard selected for means testing is of huge interest. I'm in favor of means testing, using the most locally derived income standards, as proposed by some writers in this Journal (See "Bankruptcy Reform: Finding the Best Gross Income Test," ABI Journal, July/August 1999).

For example, four Southern California metro areas rank in the top 12 cities with the fastest growing populations of children. This interesting demographic fact (think "families under financial stress"), coupled with a multitude of high local risk factors and vulnerability to crisis events such as loss of a job, medical emergency, divorce, etc., may not bode well for bankruptcy abatement in Southern California.

Demographic analyses of our client data show that the spendable incomes (factoring out housing costs) of our clients are way under the national averages. Those who aren't able to complete their debt management plans are younger. Households headed by females comprise a significant percentage of our client groups. Minorities are a larger percentage of clients needing housing counseling to save their homes. This is due to the high loan-to-value loan programs that have pushed up the home ownership rate. Although "mismanagement" is a frequent answer for the financial difficulty, when you look at the female component of our caseload, the underlying driver is more likely separation and divorce.

Try to pull together all these threads: "kid cities," female-headed households, minorities, crippling housing costs, crisis events. Then try to predict how this will affect future bankruptcy rates. It will be important for credit counseling agencies to work closely with their local bankruptcy trustees and be well versed in the local socioeconomics of insolvency. Our agencies will need to analyze "client utilization" patterns and communicate these to our trustees and bankruptcy groups.

Is bankruptcy reform going to provide significant mitigation of our national bankruptcy crisis? I can imagine thousands of individuals and families throughout Southern California passing through credit counseling thresholds for their certificate of compliance who will still need bankruptcy. As we have always been in the "alternative to bankruptcy business," it's fair to say that counseling agencies are in favor of bankruptcy reform. But we do not wish the public to be subjected to burdensome hurdles nor have ourselves burdened with an unfunded mandate for creditor welfare.

Credit counseling agencies need a new bankruptcy system to give means testing flexibility—and sensibility—so that we can continue to provide help and hope for a better life to people in the communities we serve.

Dianne L. Wilkman, President/CEO
Consumer Credit Counseling Service, Riverside, Calif.

Dear Editor:

Don't throw out chapter 13 based on Prof. Norberg's article in the Winter 1999 ABI Law Review ("Consumer Bankruptcy's New Clothes: An Empirical Study of Discharge and Debt Collection in Chapter 13" by Scott F. Norberg). Even though there may not be a great distribution to unsecured creditors, chapter 13 provides a way for financially distressed individuals to save their homes, provide transportation for their families and resolve tax or other non-dischargeable matters. People often find themselves in dire financial straits because of loss of employment, downsizing, accident, illness or domestic difficulties. Chapter 13 provides an honorable way for them to learn to manage money and get back on their feet financially. It keeps them from losing everything and thus becoming a burden on society.

In many instances, chapter 13 provides substantial distributions to unsecured creditors. In the fiscal year ending Sept. 30, 1999, Robert Wilson, the chapter 13 trustee in Lubbock, Texas (pop. 200,000), distributed more than $8 million, of which slightly more than $2 million was paid to unsecured creditors. Walter O'Cheskey, the chapter 13 trustee for Abilene, Amarillo, San Angelo and Wichita Falls, Texas (all of which are smaller than Lubbock), distributed $20 million, of which almost $4.5 million was paid to unsecured creditors. Both trustees provide education in budgeting and money management to the debtors at the commencement of the chapter 13 case to assist them in becoming wise consumers.

Chapter 13 is an honorable way for debtors who wish to pay their bills to do so—not a way to play games with creditors.

Hon. John C. Akard
U.S. Bankruptcy Judge, N.D. Texas


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