Q&A About Bankruptcy Legislation By MARCY GORDON .c The Associated Press WASHINGTON (AP) - Sweeping legislation passed last week by the House and Senate and supported by President Bush would rewrite the nation's bankruptcy laws. Questions about the changes: Q: What does the legislation do? A: It would make it harder for people to erase their credit card and other debts in bankruptcy court. It applies new standards for determining whether people filing for bankruptcy should be forced to repay their debts under a court-approved reorganization plan, under Chapter 13 of the Bankruptcy Code, rather than having their unsecured debt dissolved under Chapter 7 of the code. If a debtor is found to have enough income to repay at least 25 percent over five years, a reorganization plan generally would be required. Bankruptcy judges would have less discretion than they do now. Q: How did the legislation develop? A: Some lawmakers in both parties started pushing for it about three years ago. They were concerned over a jump in personal bankruptcy filings amid a prosperous economy and what they viewed as abuse of the bankruptcy system. New bankruptcy filings reached a record 1.4 million in 1998, an increase of more than 300 percent since 1980. They declined to about 1.3 million in 1999 and 1.2 million last year. Banks, credit card companies and retail credit businesses pushed hard for legislation, spending millions of dollars in campaign contributions and lobbying activities. Q: Who opposes it? A: Consumer groups, unions, and some groups representing women and children. They contend it is overly harsh on working families driven into financial disaster by job loss, divorce or huge medical bills. Opponents also criticize the credit card companies for mailing out billions of solicitations and trying to hook college students and low-income people who may get deep into debt and have trouble repaying. Q: If I file for bankruptcy protection, what would happen to me under the legislation? A: First, you would be required to take part in a credit counseling program. You probably would be told of the potential consequences of bankruptcy, such as the impact on your credit rating. Many counseling programs are free for consumers. Q: If I did file in bankruptcy court, could I keep my house? A: Under the Senate version of the legislation, you would be able to keep up to $125,000 of the equity in your home out of creditors' reach in bankruptcy court. The House bill applies existing state limits on equity in most cases. The exception: if you bought the home and established state residency within two years of your bankruptcy filing; in that case, the limit on protected home equity would be $100,000. Texas and Florida have unlimited homestead exemptions. Some famous and wealthy people - including actor Burt Reynolds - have written off millions in debt in bankruptcy court but kept their mansions in Florida. Q: Are most people who file for bankruptcy that wealthy? A: No. The median annual income of people filing for bankruptcy protection in 1998 was $22,000, according to a study by federal judges. Q: What about my car loan? A: Under the legislation, you probably would have to repay the full value of your outstanding auto loan. Debtors now are generally allowed to repay only the market value of the vehicle plus interest. Q: My husband and I are separated. Would his income be counted when the court was determining whether I would have to file under a Chapter 13 reorganization instead of Chapter 7? A: No, it wouldn't be counted. Q: What's the status of the legislation? A: Differences between the Senate and House versions have to be ironed out before a final package can be enacted and sent to Bush, who has indicated he would sign it. Many observers expect that to happen sometime this year. On the Net: Information on the bills, S. 420 and H.R. 333, can be found at http://thomas.loc.gov American Bankruptcy Institute: http://www.abiworld.org
