Bankruptcy Reform

Abstract

In the past, bankruptcy was not considered a wise business decision like it is today. It was attached to a stigma that people did not want to associate themselves with. However, these days bankruptcy has become a way of life for many people in our society. Many companies use it as a way to ward off creditors for years. Due to the recent economic slowdown, bankruptcy has become a very popular topic, and within the last few years, the number of personal bankruptcies filed has increased dramatically. In the second quarter of 2001, bankruptcy filings rose by 28.9 percent in Southeast Michigan. In 1990 the number of filings nationwide was about 700,000 per year, and by 2000 the number had grown to more than 1.2 million. Individuals run up large amounts of debt, usually credit card, and then are able to file and have the debt disappear. Many individuals file for bankruptcy when in reality they have the ability to pay back their debt. According to the Chairman of the Senate Finance Committee Charles Grassley (R-Iowa), ''There's people that have the ability to repay. They go into bankruptcy. They go into Chapter 7. Everything would be wiped clean. Somebody else would pick up for them. They're not paying their bills." (CNN 3/15/01). For this reason and others, Sen. Grassley and his colleagues have been pushing for bankruptcy reform. The reform will be the most sweeping overhaul of bankruptcy in the past 20 years and President Bush has said that he will sign a House-Senate version when it reaches him. A version of the bill was vetoed by President Clinton last year since he felt that it did very little to protect the needy debtor. The reforms that are being proposed currently are being supported largely by the large credit card companies and appear to be the most stringent set of reforms possible. Bankruptcy reform is necessary, it will always be necessary, and with our economy in its current condition we need to decide if such drastic measures are necessary. In this Senior Individualized project, you will find information regarding a summer internship at a law firm that specializes in bankruptcy and corporate reorganizations. Following the experiential section, you will find a brief history of bankruptcy and bankruptcy law. Included in the research section, are some of the reforms that are being proposed in Washington, along with the ramifications for the individual or corporate debtor. While reform of some sort is necessary, since it has become very easy to file for bankruptcy, the reforms on the floor of the House and the Senate are very stringent, especially in these times of economic slowdown. It has become easy to file for bankruptcy, but since credit card companies are giving out credit cards to basically anyone, the question is, should we make it harder for these people to get relief? The bankruptcy reform bill has created a means testing, which means that each case's income will be judged against a national average, and if the income amount exceeds it, then you do not receive the help that you want. This seems logical to those who are far removed from bankruptcy situations, and the debate is over weather it is or not. Sometimes things happen, like illness or death, which may cause them to file and what happens if they do not fall into the mean? While there are people out there who have not learned how to properly manage money or are taking advantage of the system, is there enough of them to warrant such drastic reforms?