Mortgage Forum

Zino

Florida Fl. Bankruptcy Reform Act

The consumer credit industry, led by the credit card issuers, has sought reform of the Bankruptcy Code to make it less "consumer friendly." The major prongs of the industry's desired "reforms" are means testing to force more debtors to elect to file Chapter 13 bankruptcies rather than Chapter 7 bankruptcies, debtor counseling both pre and post petition, less liberal exemptions, and broadened exceptions to discharge.

These "reforms" have been embodied in the proposed Bankruptcy Reform Act of 1999. Like its predecessor, the Bankruptcy Reform Act of 1998, the 1999 Act quickly ran into legislative hurdles, which caused a bifurcation between the relatively flexible Senate version (S.625) and the less flexible House version (H.R. 833). Each of these bills largely adopted the pre-conference version of the 1998 Act, which had been passed by the respective houses of Congress.

On May 5, 1999, the House passed H.R. 833. Senate consideration of S. 625 was to occur in May 1999 as well. However, the Senate's deliberations were postponed until fall 1999 due to the press of business precipitated by the Kosovo crisis, the impeachment trial of President Clinton, and various emergency supplemental appropriations bills related to disaster relief. President Clinton may have effectively postponed any meaningful consideration of many of the proposed "reforms" until the 107th Congress convenes in 2001 by virtue of his threat to veto any bill that contains many of the keystone provisions sought by the consumer credit industry, such as rigid "means testing" requirements for Chapter 7 relief.

Various studies and scholarly articles have cast doubt on the effectiveness of the proposed "reforms." These studies suggest that means testing would have, at best, a modest but significant impact on Chapter 7 filings. Some of these studies also suggest that the "exemption" reform proposals, especially those centered around the very large and unlimited homestead exemptions of states including Florida, Texas, and Kansas, would have an impact only on a relative handful of cases nationally. Other studies suggest that women, minorities, and the poor would be disproportionately affected by the enactment of the proposed legislation.

The American Bankruptcy Institutes's ABIWorld Web site, www.abiworld.org, contains synopses of the various proposed bills and the studies of their probable impact on bankruptcy filings. The status and content of the proposed legislation, and therefore its impact on practitioners, remain quite fluid as of late summer 1999 when this comment was written.

The sole item of bankruptcy legislation that was enacted into law by September 1, 1999, was Pub. L. 105-277, as amended by Pub. L. 106-5. Collectively, these laws extended the "sunset" of Chapter 12 (11 U.S.C. §§ 1201, et seq.) from October 1, 1998, to October 1, 1999, retroactively to October 1, 1998. The retroactive provision was necessary to "ratify" some Chapter 12 filings that had been accepted by the bankruptcy courts between October 1, 1998, and the March 31, 1999, enactment date of the legislation.

Some districts had refused to permit any new Chapter 12 filings during this period. If the 1999 Reform Act is not enacted by October 1, 1999, a similar extension bill will likely be enacted to further extend Chapter 12's sunset. The various Reform Act versions would all make Chapter 12 permanent. Congress' failure to make Chapter 12 permanent in the March 31, 1991, legislation seems to be due to a Congressional desire to avoid any piecemeal amendment of the code.

Florida Bankruptcy Act And The Florida Bankruptcy Code

A factor all bankruptcies share is overwhelming debt in relation to income. As credit has become more readily available to consumers of all financial backgrounds, Americans have taken on higher levels of debt. The exuberant 90’s, with endless optimism fueled by the stock market and high levels of employment, encouraged consumer borrowing. A slowing economy since 1999 has made it difficult to repay debt assumed during the previous decade. Many people are depending on credit to survive unemployment.

Bankruptcy laws and regulations are governed by Federal Bankruptcy Code. The US Administrative Office of the Courts compiles statistics on the number of filings; these data are limited to debt and provide meager demographic information.

Studies show that many consumers lack information about bankruptcy prior to contacting an attorney, learned little about managing their finances during the process, and many regret having filed. A multi-nation study of bankruptcy concluded that few debtors had considered any alternatives to bankruptcy before filing.

One of the most comprehensive studies of consumer bankruptcies in the US concluded that the causes of bankruptcy are complex and related to (a) fundamental changes in the national economy that have contributed to income volatility and employment insecurity, (b) rising medical costs and lack of health insurance, (c) divorce and the growing number of single parent families, (d) the determination to maintain home ownership in the face of insupportable debt, and (e) a dramatic increase in debt at high interest rates.

Additional studies reported that the principle cause of bankruptcy was job loss exacerbated by burdensome consumer debt and meager savings. Less than one-third of families have an emergency savings fund to tide them through even a short period of unemployment. Lenders are granting credit cards to riskier borrowers who have more liberal attitudes toward debt, carry higher debt burdens and work in cyclical jobs with low job security.

Consumers need to know the way the credit marketing system works. Consumers, not lenders, are responsible for setting their own debt limits. Increased economic and employment volatility suggests that emergency reserves and or the ability to send an additional family member into the workforce may be critical to family financial survival.