he House of Representatives and the Senate have passed, bankruptcy reform legislation, which now await the Presidents signature. The legislature's goal is to prevent people with the ability to repay their debt from filing for bankruptcy and walking away debt free. The planned provisions for the current Bankruptcy Code would grant relief in certain circumstances, requiring individuals seeking bankruptcy to a wealth test. The test compares the income of the individual seeking bankruptcy to the average national income, $50,000 for a family of four. In 1997, nearly 1.5 million personal bankruptcy petitions were filed, making it an all-time record. Over 70% of the bankruptcy petitions filed last year were for Chapter 7 granting complete relief. Consumer borrowing is rising each year and now stands at $1.27 trillion. Last year, more than $40 billion dollars were lost in bankruptcies, costing every American household an estimated $400 in higher prices for goods and services. In contrast, the new law would require individuals to repay some of their debt in most cases, potentially reducing interest rates to consumers. In addition, those who have a monthly net income greater than $50 and the ability to pay at least 20% of their unsecured, non-priority debts over five years, would also be entered into a repayment plan under Chapter 13. A debtor who is filing for Chapter 7, complete relief, but is ineligible to file under the needs-based provisions of the bill would instead be required to file Chapter 13. The Bankruptcy Reform Act of 1998 is expected to divert new applicants from filing for bankruptcy. A study of bankruptcy petitions performed by Ernst & Young found that people who filed last year could have repaid a significant portion of what they owed. The Clinton administration supports a change in the bankruptcy laws to protect consumers who aren't overextending their credit. Supporters of the legislation maintain that the current bankruptcy code hurts credit active consumers by driving up prices on merchandise and interest rates for credit. However, some consumer advocates oppose the legislation, arguing that it favors the banks and card issuers who they claim have made credit too easily available, thereby fueling the rise in bankruptcies.
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