ABI Testifies on Bankruptcy Reform Bill

<p>Bankruptcy reform moved into high gear in March, with three days of hearings before the House Judiciary

Committee Subcommittee on Commercial and Administrative Law, on H.R. 833. The subcommittee also held a

joint hearing with the Senate Judiciary Committee Subcommittee on Administrative Oversight and the Courts.

H.R. 833, a bipartisan bill introduced by Rep. George Gekas (R-PA), is identical to the Conference Report on H.R.

3150 from the last Congress. It is expected that the bill will change during the mark-up process but that the basic

structure will remain intact.

</p><p>The Senate is working from a different bill. Introduced on March 16, S. 625 contains a familiar framework to last

year's product, but it also has some key differences from its House counterpart. The Senate version, introduced by

Sen. Charles Grassley (R-IA), also has bipartisan sponsorship. It adopts a more relaxed means test than H.R. 833,

allowing judges more discretion in deciding whether to transfer a chapter 7 debtor to chapter 13. It also raises the

minimum dollar amount from $5,000 to $15,000, with the effect that fewer debtors will be covered by the means

test.

</p><p>Although both bills make many important changes to commercial bankruptcy practice, means-testing of consumer

debtors continues to be at the heart of the debate. A new study on the repayment capacity of consumers has

determined that 10 percent of filers in chapter 7 have the capacity to repay 53 percent of their total debts, under H.R.

833's means-testing formula. The creditor-financed study by Ernst &amp; Young asserts that these filers could repay $3

billion in unsecured non-priority debt over five years.

</p><p>The bills also broaden the scope of non-dischargeable debts and restrict the practice of lienstripping in chapter 13.

Key commercial provision include streamlined procedures for small business cases, an expansion of the special rules

for single-asset real estate cases, and a fixed time limit on lease assumption or rejection. Each of the provisions has

attracted some controversy.

</p><p>Both bills will be on a fast schedule in committee, with the mark-up process expected to be completed by the end of

April. The bill sponsors are very conscious of the legislative calendar and the need to move quickly. One or more of

the bills could be passed by Memorial Day.

</p><p>Interestingly, consumer bankruptcy filings have dropped dramatically nationwide in January and February, after three

consecutive years of record filings.

</p><p>The ABI Annual Spring Meeting, April 15-18, will focus on the details of the legislation and the prospects for

reform.