The Bankruptcy Abuse Prevention and Consumer Protection Act of 2004 amends federal bankruptcy law to: 1) replace the presumption in favor of granting the relief sought by debtors with a presumption of fraud on the part of many debtors; 2) restrict the grounds upon which individuals may file, thereby excluding financially troubled families from bankruptcy protection; 3) require an individual debtor, regardless of the reason for filing, to be counseled by an approved non-profit budget and credit counseling service; and 4) permit credit card companies to modify or terminate debtor agreements approved by the court as part of the debtor’s bankruptcy plan. The bill never got out of the House-Senate Conference Committee because the House changed the bill dramatically from the legislation passed by the Senate. The version of S 1920 that unanimously passed the Senate in 2003 was a completely different bill—focused on the ability of family farmers to file for bankruptcy under Chapter 12 protections. In 2004, the House completely replaced the content of that bill with HR 975 which became the new S 1920. For this reason, the Scorecard grades only the House vote on S 1920, not the Senate's vote on what was effectively a different bill.
The Middle-Class Position:
The Middle Class Opposes. In 2004, 1.58 million American households, the majority of them middle-class families with children, were overwhelmed by job losses, massive unexpected medical bills or the devastating break-up of their families and were forced to declare personal bankruptcy. The leading cause of bankruptcy was not irresponsible consumer spending, but the loss of a job. Medical crisis was the second leading cause of bankruptcy. This bill is a windfall for the credit card industry, boosting the profits of credit issuers by making it easier for them to collect from the most financially distressed families. It empowers the credit card industry to saddle middle-class families with unreasonable interest rates and payment agreements by expanding their ability to reevaluate and terminate debtor agreements unilaterally. The bill also creates a windfall for unregulated credit counseling agencies, many of which are under civil and criminal investigation. And it would limit Americans' ability to receive legitimate federal bankruptcy protection when they lose their jobs, incur uncovered medical bills or when a wage-earning spouse leaves.
From the Experts:
“The people we found to be profoundly affected [by bankruptcy] are not some distant underclass. They’re the very heart of the middle class. These are educated Americans with decent jobs, homes and families. But one stumble, and they end up in complete financial collapse, wiped out by medical bills.” —Dr. Elizabeth Warren, Professor, Harvard Law School (February 3, 2005)
“Now is a particularly bad time to pass one-sided bankruptcy legislation. Many Americans are coping with the after-effects of a tough economic recession and are financially vulnerable. [This bill] would harm moderate-income families that have been hit by a financial emergency and benefit the credit card industry, whose aggressive lending practices contribute to bankruptcy.” —The Consumer Federation of America, Consumers Union, and the U.S. Public Interest Research Group (January 28, 2004)
Beyond this Bill:
The same bill, renamed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, has already been reintroduced in both the House (HR 685) and the Senate (S 256). As the cost of childcare, housing, education and especially healthcare continue to rise, legislators sensitive to the concerns of middle-class families should continue to oppose this punitive legislation. A true end to the epidemic of middle-class bankruptcy will come when we address our broken health care system and make a national commitment to creating and retaining middle-class jobs. Congress should also ban the predatory credit and lending practices that trap unwary citizens in escalating debt.
Number of middle-class American families that filed for bankruptcy in 2003: 1.3 million
Number of credit card solicitations sent to American families annually: 5 billion
Rank of job loss among the causes of personal bankruptcy: 1
Percentage increase in the rate of medical-related bankruptcies between 1981 and 2001: 2,200
Percentage of Americans with medical debt in a recent study who said they went without food before resorting to bankruptcy: 22
Percent who had a utility shut off: 30
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