H.R. 3146 The Consumer Lenders and Borrowers Bankruptcy Accountability Act of 1998

To amend title 11 of the United States Code relating to bankruptcy.
Consumer Lenders and Borrowers Bankruptcy Accountability Act of 1998
(Introduced in House)

SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) SHORT TITLE- This Act may be cited as the `Consumer Lenders
and Borrowers Bankruptcy Accountability Act of 1998'.

(b) TABLE OF CONTENTS- The table of contents is as
follows:

Sec. 1. Short title; table of contents.

Sec. 2. Discouraging reckless lending practices.

Sec. 3. Discouraging wage seizures which push people into
bankruptcy.

Sec. 4. Stop creditors' abuses of the bankruptcy
system.

Sec. 5. Improve debtors' understanding of bankruptcy options
and alternatives.

Sec. 6. Increase incentives for voluntary repayment
plans.

Sec. 7. Provide fair property exemptions and prevent
high-rollers from abusing the system.

Sec. 8. Prevent abuse of bankruptcy system by debtors who can
afford to pay their debts.

Sec. 9. Prevent abusive bankruptcy filings.

Sec. 10. Improve accuracy of debtors' bankruptcy
schedules.

Sec. 11. Ensure proportionate and fair recoveries for
creditors.

Sec. 12. Prevent windfalls for undersecured
creditors.

Sec. 13. Reinforce the fresh start.

Sec. 14. Clarifying amendments.

Sec. 15. Applicability of amendments.

SEC. 2. DISCOURAGING RECKLESS LENDING PRACTICES.

(a) LIMITING CLAIMS ARISING FROM IRRESPONSIBLE LEADERSHIP
PRACTICES- Section 502(b) of title 11, United States Code, is
amended--

(1) in paragraph (8) by striking `or' at the end,

(2) in paragraph (9) by striking the period at the end and
inserting a semicolon, and

(3) by adding at the end the following:

`(10) the claim is--

`(A) based upon an extension to an individual of
unsecured credit which caused, and which the claimant knew or should
have known would cause, the debtor's aggregate unsecured debts to exceed
40 percent of the debtor's annual gross income; or

`(B) based on a secured debt if the creditor has
violated section 129(h) of the Truth in Lending Act;

`(11) the claim arises from a debt on which the creditor
failed or refused to waive interest in an unsuccessful consumer credit
counseling plan attempted by the debtor before filing bankruptcy (and
the creditor shall bear the burden of proving its waiver of interest in
such a plan);

`(12) the claim arises from a debt incurred in or adjacent
to a gambling facility, or a debt which the creditor knew or should have
known was intended to be used by the debtor for gambling
purposes;

`(13) the claim arises from a consumer debt on which the
annual percentage rate for the debt as defined by section 107 of the
Truth in Lending Act increased by more than 5 percent in the 12-month
period ending before the order for relief;

`(14) the claim is not secured and arises from a consumer
debt on which a billing statement provided by the creditor in the 1-year
period ending on the date of the order for relief included an offer to
accept a periodic payment which, if made on the due date for that
periodic payment and each subsequent due date, would not amortize the
principal amount due to the creditor at the then current rate of
interest in a period of less than 15 years from the due date of the
periodic payment; or

`(15) the claim is made by a creditor, its agents, or
assignees based on a debt with respect to which the creditor, its agents
or assignees engaged in conduct which violated section 805, 806, 807, or
808 of the Fair Credit Reporting Act whether or not such creditor is a
debt collector as defined by section 803(6) of such Act. Civil liability
against such creditor, agent or assignee under section 813 of such Act
shall also be available whether or not such creditor is a debt collector
as defined by section 803(6) of such Act.'.

(b) CLARIFY THE DISCHARGEABILITY OF CREDIT CARD DEBT IN A WAY
THAT PLACES SOME RESPONSIBILITY ON CREDITORS FOR IRRESPONSIBLE LENDING
PRACTICES-

(1) REQUIREMENTS- Section 523(a)(2) of title 11, United
States Code, is amended--

(A) in subparagraph (B) by striking `or' at the
end,

(B) in subparagraph (C) by striking the period at the
end and inserting `; or', and

(C) by adding at the end the following:

`(D) except as provided in subparagraph (C), consumer
debts under an open end credit plan (as defined section 103 of the Truth
in Lending Act) are dischargeable unless--

`(i) the creditor establishes the requirements of
subparagraph (B) with respect to the consumer's credit application;
or

`(ii) the creditor establishes actual and
reasonable reliance on an express fraudulent statement made by the
debtor in connection with an extension of credit in excess of the amount
available under the open end credit plan.'.

(2) PROOF- Section 523 of title 11, United States Code, is
amended by adding at the end the following:

`(h) Proof of fraud under this section shall be made by clear
and convincing evidence.'.

SEC. 3. DISCOURAGING WAGE SEIZURES WHICH PUSH PEOPLE INTO
BANKRUPTCY.

Section 547 of title 11, United States Code, is amended--

(1) in subsection (e)(3) by adding at the end the
following:

`In the case of wages or other income of an individual debtor, a
transfer of the right to receive such income is not effective until the
time that the income is to be paid to the debtor.'; and

(2) by amending subsection (c)(8) to read as
follows:

`(8) that is a voluntary transfer of property that has an
aggregate amount less than $600.'.

SEC. 4. STOP CREDITORS' ABUSES OF THE BANKRUPTCY SYSTEM.

(a) SANCTIONS FOR CREDITOR ABUSES OF THE BANKRUPTCY
SYSTEM-

(1) ALLOWANCE OF CLAIMS OR INTERESTS- Section 502 of title
11, United States Code, is amended by adding at the end the
following:

`(k)(1) If, in a case of an individual debtor, following an
objection filed by the debtor, a claim (other than a claim for a debt
for alimony or child support) is disallowed or reduced by an amount
representing more than 5 percent of the original filed claim or $500,
whichever is less, the court shall award the debtor reasonable
attorneys' fees and costs.

`(2) If, in a case of an individual debtor, the court finds
that the position of any claimant with respect to whom an objection is
timely filed under this section is not substantially justified, the
court shall also award damages in the amount of $5,000 and may, in
appropriate circumstances, award punitive damages.'.

(2) EXCEPTIONS TO DISCHARGE- Section 523(d) of title 11,
United States Code, is amended to read as follows:

`(d) If a creditor requests a determination of dischargeability
of a consumer debt under this section (other than under paragraph (5) or
(15) of subsection (a)), and such debt is discharged, the court shall
award to the debtor reasonable attorneys' fees and costs. If the court
finds that the position of any creditor proceeding under this section is
not substantially justified, the court shall also award three times
actual damages (but not less than $5,000) and, may, in appropriate
circumstances, award punitive damages.'.

(3) EFFECT OF DISCHARGE- Section 524 of title 11, United
States Code, is amended by adding at the end the following:

`(i) A creditor's failure to credit payments received under a
plan confirmed under this title in the manner and amounts required by
the plan shall be considered to be an act described in subsection (a)(2)
or, if such failure occurs before the discharge, an act in violation of
section 362(a) of this title.

`(j)(1) A creditor may not charge a debtor or a debtor's
account for attorney's fees or costs related to work performed in
connection with a case under this title except to the extent that such
fees are reasonable under the standards of section 330(a) of this title
for actual, necessary services rendered, approved by the court, and
consistent with applicable contracts and nonbankruptcy law.

`(2) A charge made in violation of paragraph (1) shall be
considered to be an act described in subsection (a)(2) or, if such
charge occurs before the discharge, of section 362(a) of this
title.

`(k) An individual injured by any willful violation of
discharge in a case under this title shall recover 3 times actual
damages but not less than $5,000, plus costs and attorneys' fees, and,
in appropriate circumstances, may recover punitive damages.'.

(4) AUTOMATIC STAY- Section 362(h) of title 11, United
States Code, is amended--

(A) by striking `actual damages, including' and
inserting `3 times actual damages (but not less than
$5,000)',

(B) by inserting `(1)' after `(h)', and

(C) by adding at the end the following:

`(2) If the court finds that the position of any creditor
filing a motion for relief from a stay under this section is not
substantially justified, the court shall award damages in the amount of
3 times the debtor's actual damages (but not less than $5,000) plus
costs and attorneys' fees.'.

(5) ELIGIBILITY FOR RELIEF- Section 109 of title 11, United
States Code, is amended by adding at the end the following:

`(h) If a creditor files a motion to dismiss a case on the
grounds that the debtor may not be a debtor under the chapter under
which the case is pending and if such motion is denied or withdrawn, the
court shall award the debtor a reasonable attorney's fee and costs. If
the court finds that the position of any party filing a motion under
this section is not substantially justified, the court shall award to
the debtor damages in the amount of 3 times the debtor's actual damages
incurred in opposing such motion (but not less than $5,000) and, in
appropriate circumstances, may award punitive damages.'.

(b) DISMISSAL- Section 707 of title 11, United States Code, is
amended by adding at the end the following:

`(c) If a creditor files a motion to dismiss a case under this
section and such motion is denied or withdrawn, the court shall award
the debtor a reasonable attorney's fee and costs. If the court finds
that the position of any party filing a motion under this section is not
substantially justified, the court shall award to the debtor damages in
the amount of 3 times the debtor's actual damages (but not less than
$5,000) and may, in appropriate circumstances, award punitive
damages.'.

(c) PROHIBIT REAFFIRMATIONS AND THREATS OF REPOSESSION AGAINST
DEBTORS WHO ARE CURRENT IN THEIR PAYMENTS-

(1) EFFECT OF DISCHARGE- Section 524 of title 11, United
States Code, is amended--

(A) in subsection (a)--

(i) in paragraph (2) by striking `and' at the
end,

(ii) in paragraph (3) by striking the period at the
end and inserting `; and', and

(iii) by adding at the end the
following:

`(4) operates as an injunction against any act to enforce
against property of the debtor any lien to the extent that lien secures
any such debt, or to accelerate any such debt, based solely upon the
commencement of a case under this title, the insolvency or financial
condition of the debtor, or on appointment of or taking possession by a
trustee in a case under this title, notwithstanding any provision in an
agreement, transfer instrument, or applicable law, whether or not
discharge of such debt is waived.',

(B) in subsection (c) by striking `is enforceable' the
first place it appears and all that follows through the period at the
end, and inserting `is not enforceable, whether or not discharge of such
debt is waived.', and

(C) by striking subsection (d).

(2) REDEMPTION- Section 722 of title 11, United States
Code, is amended--

(A) by--

(i) striking `tangible' and all that follows
through `use', and inserting `property, other than real property subject
to a security interest', and

(ii) by striking `dischargeable
consumer',

(B) by inserting `(a)' after `Sec. 722',
and

(C) by adding at the end the following:

`(b) The debtor may pay the amount necessary to redeem the
property under subsection (a) of this section in installments over such
period, and on such terms, as the court may order.'.

SEC. 5. IMPROVE DEBTORS' UNDERSTANDING OF BANKRUPTCY OPTIONS AND
ALTERNATIVES.

Section 521 of title 11, United States Code, is amended by
adding at the end the following:

`(6) With the petition for relief, an individual or joint
debtor filing for relief under chapter 7 or chapter 13 shall file a
statement acknowledging receipt of an explanation on an Official Form
promulgated by the Judicial Conference of the United States of the
relief available under both chapters, and of the relief which is
provided by private credit counseling agencies. Such an explanation
shall also include detailed information regarding the sources of funding
for private credit counseling agencies.'.

SEC. 6. INCREASE INCENTIVES FOR VOLUNTARY REPAYMENT PLANS.

(a) AMENDMENT TO FAIR CREDIT REPORTING ACT- Section 605(a)(1)
of the Fair Credit Reporting Act (15 U.S.C. 1681c(a)(1)) is amended to
read as follows:

`(1) Cases under--

`(A) chapter 7 or 11 of title 11 of the United States Code
that, from the date of entry of the order for relief antedate the report
by more than 10 years;

`(B) chapter 12 or 13 of title 11 of the United States Code
in which a discharge has been entered, that, from the date of entry of
the order for relief antedate the report by more than 5 years;

`(C) chapter 12 or 13 of title 11 of the United States Code
in which a discharge has not been entered, that, from the date of entry
of the order for relief antedate the report by more than 10 years;
and

`(D) when information can no longer be reported based on
subparagraph (B), no consumer reporting agency may make any consumer
report containing any of the information provided for under paragraphs
(1) through (6) which antedates the order for relief in the case covered
by subparagraph (B).'.

(b) EFFECTIVE IMPLEMENTATION OF CHAPTER 13 PLANS- Section 1325
of title 11, United States Code, is amended by adding at the end the
following:

`(d) A court may not require as a condition of confirmation
under subsection (a)(3), payments to holders of allowed unsecured claims
that exceed the greater of the amount required under subsection (a)(4)
or the amount required under subsection (b).'.

(c) CLASSIFICATION OF CLAIMS IN CHAPTER 13- Section 1322(b)(1)
of title 11, United States Code, is amended to read as follows:

`(1) designate a class or classes of unsecured claims, as
provided in section 1122 of this title, but may not discriminate
unfairly against any class so designated; however, such plan may
designate different treatment for claims for a debt of the debtor
if--

`(A) an individual is liable on such debt with the
debtor; or

`(B) such debt is of a kind excepted from discharge
under section 1328(a) of this title;'.

(d) 5-YEAR CHAPTER 13 PLANS- Section 1322(d) is amended to read
as follows:

`(d) The plan may not provide for payments over a period that
is longer than 3 years, unless the debtor proposes a longer period, but
the court may not approve a period that is longer than 5 years.'.

(e) VALUATION OF SECURED CLAIM AT CONFIRMATION- Section 1327(a)
of title 11, United States Code, is amended by adding at the end the
following:

`If a plan proposes to value property to determine a creditor's
secured claim pursuant to section 506(a), and the creditor receives
notice of proposed valuation and confirmation hearing, such value shall
be established by the confirmed plan, whether or not the holder of the
claim has filed a proof of claim. If the plan does not so provide, any
party may obtain a determination of the amount of an allowed secured
claim, either before or after the confirmation, whether or not the
holder of the claim has filed a proof of claim.'.

(f) PROTECTING CHAPTER 13 DEBTOR'S PROPERTY DURING CASE-
Section 1306(c) of title 11, United States Code, is amended by adding at
the end the following:

`(c) During the pendency of a chapter 13 case, section 362
shall protect property of the estate which has revested in the debtor to
the same extent as it protects other property of the estate.'.

(g) INCENTIVES FOR CONSENSUAL MODIFICATION OF MORTGAGES-
Section 1322 of title 11, United States Code, is amended by adding at
the end the following:

`(f) Notwithstanding subsection (b)(2) and applicable
nonbankruptcy law, the rights of a holder of a secured claim may be
modified with the consent of the holder of the claim by capitalizing the
amount of any default, and amortizing any balance over an agreed term
not less than the existing term of the loan, at an interest rate
equivalent to or below the interest rate in effect on that claim at the
time of modification. If a modification agreement is filed with the
court at the time it is made, relief from the automatic stay shall
thereafter be granted pursuant to section 362(d)(1) of this title upon
motion, if the debtor is more than 60 days delinquent pursuant to the
agreement at the time of the hearing on the motion.'.

SEC. 7. PROVIDE FAIR PROPERTY EXEMPTIONS AND PREVENT HIGH-ROLLERS
FROM ABUSING THE SYSTEM.

(a) PERMIT EFFECTIVE USE OF EXEMPTIONS- Section 522 of title
11, United States Code, is amended by adding at the end the
following:

`(n) If, in the 1-year period ending on the date of the filing
of the petition and while the debtor was insolvent, the debtor makes
property exempt under subsection (b) by converting property to a form of
property that is exempt in an unlimited amount, such property shall not
be exempt under this section to the extent that the value of the
debtor's interest in the property that is converted exceeds $100,000.
Such conversion shall not otherwise be a basis for denying an exemption
and shall not be the basis for denying the debtor other relief under
this title.'.

(b) ESTABLISH A MODEST FLOOR FOR EXEMPTIONS- Section 522(b)(1)
of title 11, United States Code, is amended by striking `unless the
State law that is applicable to the debtor under paragraph (2)(A)
specifically does not so authorize'.

SEC. 8. PREVENT ABUSE OF BANKRUPTCY SYSTEM BY DEBTORS WHO CAN
AFFORD TO PAY THEIR DEBTS.

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