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Consumer: Reasons For Filing<<TD />George Kerber
News Room

Web posted and Copyright © 1/12/98, American Bankruptcy Institute.

The following abstract summarizes the text of submissions made to the National Bankruptcy Review Commission. The abstract is organized by NBRC working group and topic.

The Final Report of the NBRC can be viewed on-line. To obtain a copy of any document shown below, contact the Center for Legislative Archives, Room 205, National Archives Building, Washington, D.C. 20408. The telephone number is 202/501-5350. Mr. R. Michael McReynolds, Deputy Director, will be able to assist with specific inquiries. (The NBRC  documents will be housed at this location until June, 1999. Thereafter, the records will be transferred to the Center's archives in College Park, MD.)

ID Name Group Other Code
Problem Referenced Proposed Solutions
Wall Street Journal - Section C

Bankruptcy filings are up. Stigma is fading, assets can be protected, credit stigma no longer a problem. You only get a discharge every six years. Information on National Foundation for Consumer Credit. Credit Counseling is the key. Bankruptcy is not the only alternative to a large debt load.
Wall Street Journal

Individual bankruptcy filings are skyrocketing. Gives map of highest filings. Consumer credit debt is not the only reason. High divorce rates; no medical insurance; no auto insurance requirement are listed as other factors that can lead to idividual bankruptcy.
David F. Bartone President & CEO of Corning Federal Credit Union

2d Total charge-offs for past three years have risen from $342,286 to $974,505. 95% of that increase is due to bankruptcy. Research has revealed that 80% of bankrupt loans were solid when granted & individuals were encouraged to file without any real difficulty. Bankr. has become the method whereby individuals can keep almost everything of value except their obligation to pay. Making bankruptcy the easy way out MUST STOP! Or the credit unions and the majority of their good customers will continue to lose.
Pam Catlin CEO; Sequoia Hospital Employees Federal Credit Union

9th Huge increase in the amount charged off in the last 12 mos. compared to charge-offs from 1990 through 1994. Although some of it can be attributed to health-care industry trends, certain disturbing trends have appeared: No social stigma to bankruptcy; no need to learn fiscally responsible way of life; lax consumer credit standards; better credit standing for seven than for thirteen; lawyers deterring debtors from reaffirming any of their debt. Most difficult for smaller lenders who can't pass losses on to other customers as easily as larger institutions. Place some limits on access to credit card. Stiffer consequences for those who do file for bankruptcy, such as mandatory credit-counseling. Also stronger incentive to encourage people to pay back more of their debt.
Polly S. Higdon Bankruptcy Judge; District of Oregon Invited Participant to Consumer group - Santa Fe meeting.
9th There is no limitation on the frequency or number of Ch. 13 filings for individual debtors. In OR it is a serious problem with frequent multiple filings. Has provided the NBRC with four months of computer printouts attempting to show why certain debtors make multiple filings.
Ike Schulman President; National Association of Consumer Bankruptcy Attorneys Invited Participant to numerous NBRC meetings.
4th Dispute has arisen as to how big a problem serial filings really are, whether they are rampant or comprise a very small percentage of the cases that are filed. NACBA experience is that serial filings are often the result of changed circumstances beyond the debtor's control. With regard to small fraction of serial filings that are abusive, appropriate remedies exist under current law. Section 110 new controls will greatly reduce the number of serial filings. Protect the rights of honest debtors who may need to file more than one petition and to narrowly tailor any remedy to only those cases that are abusive.
Ike Schulman President; National Association of Consumer Bankruptcy Attorneys Invited Participant to numerous NBRC meetings.
4th Some debtors attempt a subsequent ch. 13 payment plan after dismissal of a prior case. In most cases, the prior dismissal resulted from a temporary loss of income during the prior case which made it impossible for the debtor to complete the plan. This loss of income is usually due to a job layoff or illness. Usually the debtor will be able to resume work and propose a viable payment plan. Current law allows a debtor to refile a ch. 13 petition where circumstances warrant, subject to the creditors' right to object on bad faith grounds. Also, a debtor right to refile is already limited to protect creditors from frivolous refilings where a creditor has filed a motion for relief in the prior case. Many debtors are successful in completing a subsequent case and repaying their creditors after the dismissal of a prior case. NACBA recommends that there be no change in the current law allowing repeat filings.
Karen Gross Professor of law; New York Law School 28 U.S.C. § 1930
2nd All needy debtors should be allowed to file without having to pay a filing fee. All needy debtors should be eligible for relief in bankruptcy on an in forma pauperis basis. This requires amending various provisions of Title 28, including 28 U.S.C. § 1930.
Kenneth J. Doran Doran Law Offices Participated at Consumer Bankruptcy Working Group on July 19.
7th Mr. Doran did not state a problem, but rather offered his view of the goal of consumer bankruptcy. N/A
The Legislative Committee of The Summit Federal Credit Union, Rochester, New York

2 Author gives statistical information on the rise in bankruptcies which they have experienced, and their comments on various provisions of the National Bankruptcy Review Commission's draft proposal for changes to Chapters 7 and 13.
Sy Nguyen

9 Author filed bankruptcy because of large credit card debt and loss of his job. He encloses two articles on consumer debt. The government shsould regulate credit card solicitations and control the banks to keep the initial interest rates for a longer period and it should remain fixed for the charged amounts at the rate that applied when the initial transaction occurred.
William R. Mapother Attorney Chart of Mapother's Comments on Draft #1 Proposals; Memorandum on Draft #1 of Consumer Bankruptcy Working Group by author.
6 Debtors' advocates blame lenders, especially credit card issuers, for the plethora of bankruptcies. The Commission should recommend legislative limits on credit card issuers. 15 USC 1642(1) should be amended to prohibit mass mailing of credit card solicitations. Make it illegal or an unfair credit practice to solicit by mail any consumer with whom the creditor has not had some business relationship prior to the mailing. Any debt incurred through such a solicitation should be made dischargeable and unenforceable and unrecoverable in Chapter 7 and/or 13.

Royce E. Wallace Attorney, Chapter 13 standing trustee Memorandum by the author on the Functions of a Standing Chapter 13 Trustee
10 Author feels the consumer credit marketing community is significantly impacting the commission, as can be seen in the absolute six year bankruptcy bar coupled with a discharge on confirmation of a plan. "The Commission should keep in mind the fact that virtually the only restraint in consumer leading [sic] is access to bankruptcy relief."
Elizabeth S. Petersen Attorney

4 "I have very few instances, in my own knowledge, of debtors who abuse the system by refiing repeatedly. Most of the debtors that I have met and represented have refiled because they have lost their job during the original filing and want to continue to try to make payments and keep their property. None.

William Mark Bonney Standing Chapter 13 Trustee, Eastern District of Oklahoma

10 Author writes about two cases which "show how credit card companies invite abuse by their own credit issuance practices." He encloses the petitions and schedules of each for reference. "It is my hope that the Commission believes that credit card issuers do not need protection but only need to act in a manner that is more consistent with prudent banking policies and procedures."

J. Michael Combs Attorney Advertisement from an automobile dealer to help Chapter 7 and Chapter 13 filers buy cars.
6 Author, along with other attorneys from his area, discusussed Chapter 7 vs. Chapter 13 filings. They concluded that among themselves, that ratio of about two Chapter 13s for every Chapter 7 had changed over the past 12 months to approximately 50/50. They came up with four reasons why this shift had occurred: 1. Over the years, Chapter 13 has become legally more difficult and therefore less desireable, while Chapter 7 has not changed; 2. The proposed change that Chapter 13 filings be severly limited, even to once in a lifetime; 3. The sudden rise in unsecured debt, particularly credit card debt, has given rise to more Chapter 7 filings; and, 4. Chapter 7 has simply become less onerous - they are inundated with requests for reaffirmations, credit card companies an automobile finance companies are willing to give credit again within 3 months with a Chapter 7 discharge.

Steven J. Abelson Attorney Abbreviated financial statements of four representative clients.
3 Author represents consumer debtors. "[T]he often stated perception of debtors as financial malingerers or worse, as "deadbeats," is as inaccurate as can be." "The Bankruptcy Protection is a vital and important safety net in our society, which should not be dismantled on the basis of perception."

Gerald L. White & Gary H. Gale Attorneys, White & Gale

9 "It is our belief that the credit industry is in large part responsible for the record number of bankruptcies and the situation will continue as long as credit is made so readily available without any concern for the ability of the consumer to repay." "The concept of a fresh start is crucial to the clients that we have seen over the years." "Virtually every client that I have seen goes through tremendous personal trauma in reaching the decision to file bankruptcy. for many of these clients their situation came to a head based on theloss of a job, a cut in pay, unexpected medial bills that weren't covered by insurance, sseparation or divorce, having to take on the support of a relative or other matters that were beyond their control. When they are in default, the creditors are rarely willing to work out a reasonable payment plan while the interest continues to accrue rapidly." None proposed.

Stephen Brobeck Executive Director, Consumer Federation of America

Author submits report on "The Consumer Impacts of Expanding Credit Card Debt" in which he discusses consumer credite practices, especially with regard to credit cards, and its impact on bankruptcy filings. Consumer education is necessary but not a sufficient solution to the problem of consumer debt from credit cards. Creditors must be more careful in making risk assessments before they extend credit, focusing on the relationship, in each household, of cared-related credit extended (total used and unused credit lines) to income. Limiting the ability of debtors to enter Chapter 7 bankruptcy is punitive and unnecessary.

Suze Kaczmarczyk Bankrupt/Repossession Coordinator, Hoodview Federal Credit Union

5 Author critiques Draft #1 dated March 5, 1997 of the Consumer Bankruptcy Working Group. She feels that the draft puts more of a burden of loss on creditors, and does not do enough to assist in true rehabilitation of the debtor. Author believes that the areas which should be addressed are twofold: first, the prevention of avoidable bankruptcy filings; and, second, maximizing the rehabilitation of debtors, which would also increase the rate of return to creditors. "In my opinion, the primary cause of bankruptcy is financial ignorance on the part of the debtor." Author includes an almost one-page outline of general and specific suggestions to prevent avoidable bankruptcy petition filings and maximize recovery after a bankruptcy petition is filed.

Bernard S. Via, III Attorney, Via & Frye Article from Standard & Poor's, Waterhouse, December 1996 issue showing that bank stocks are gaining profits from consumer credit; Article from Bankruptcy Law News indicating that consumer bankruptcies follow consumer debt load in Virginia.
4 "At this time, it looks like the banks are attempting to make it more difficult for consumer creditors to file bankruptcy They do this every time bankruptcies increase." "Extension of consumer debts parallel the filings of bankruptcy. In other words, in order to get higher profits the banks are scraping the bottom of the barrel." People are being given credit with too little income. "AS a consequence, more people are being overloaded with debt which is causing them to go bankrupt and abandon any attempt to repay debts. The higher consumer debt along with the high interest rates simply swamp the ability of the creditor to keep up....Additional factors not mentioned in the articles which I see very day include lack of insurance for medical care, car accidents, taxes and divorce. The penalty charges of the I.R.S. drive people out of business and into cash work." None

Todd A. Koenig Attorney, Todd C. Esser & Associates

The reason for the bankruptcy problem is the "easy, if not careless," access to credit created by the credit industry desire for profit. 7 The government should not interfere in trying to lessen bankruptcy filings. "Market forces will eventually even out the dynamic. Credit pushers will be force to accept some responsibility in the issuance and continuance of credit if they wish to avoid the obvious consequences of indiscriminate and careless credit."

Stephen E. Shamban Attorney & Panel Chapter 7 Trustee Copy of article "Consumer Bar to Commission: Don't Credit Creditor Views", Consumer Bankruptcy News, June 5, 1997.
1 Author encloses a copy of an article from Consumer Bankruptcy News describing the work of the NBRC. "It should be recognized that the current expansion of consumer bankruptcies is due, in large part, to the virtually promiscuous granting of credit by these institutional creditors." "I have also found that in many many cases, it is the creditors and their unwillingness to negotiate delinquencies in a fair and reasonable way who force many debtors into filing Chapter 7 or Chapter 13." "In virtually every case involving consumer credit that I have handled within the last two (2) years, I have found that despite their willingness to make reasonable payment arrangements combined with extreme distaste towards the concept of even filing a bankruptcy, the debtors feel justified in proceeding to bankruptcy based on the creditors' unwillingness to negotiate. The debtors feel they have made their best efforts and have been rebuffed." "I hope that the Commission takes these realities into consideration and resists the one-sided blandishments of the credit industry which seeks to influence you Commission into recommending changes to the Bankruptcy Code which would make it more difficult for deserving debtors to obtain relief."

private citizen

8 Author "went through bankruptcy, discharged 4/97" and found it to be a very humbling experience. Although he aknowledges his responsibility for the debt, he also feels that "some or a large share of the problem should go to my creditors. If they wouldn't have been so free with and credit and greedy for my finance charges I may not have been put thru this." "I think bankruptcy would go down if the credit companies were a little more careful with who they gave credit to."

Fred D. Paul citizen

5 Author notes that he is considering filing personal bankruptcy. He had been "lured by attractive easy credit to accomplish the immediate goal of helping to provide better things for my family." Now his VISA credit card interest has been raised to 26.94%, he has a large balance, and the interest payments alone are huge. "I am not alone. Please help." See above.

John C. Akard Bankruptcy Judge, Northern District of Texas Letter dated 10/7/97 to Hon. John C. Akard from George F. McElreath, Assistant U.S. Trustee with enclosures. 707(b) 5 Author is forwarding information from the United States Trustee outlining the Trustee's procedures for reviewing cases to determine if ther is a substantial abuse in the bankruptcy filing. N/A

MaryJane Miller

9 Author gives a list of "a few of the things that are making a consumers have a worse time paying their bills." N/A


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