Bankruptcy Reform: A Recap

Publication Date: January 2003

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Banking and finance

Type:

Abstract:

2003 will be the sixth year that Congress considers enacting a major overhaul of consumer bankruptcy laws. Originally introduced in 1998, during the second session of the 105th Congress, bankruptcy reform legislation came close to enactment in both the 106th and 107th Congresses. At the conclusion of the 106th Congress, a conference report bill was passed by both the House and the Senate, but was pocket vetoed by President Clinton. Late in the 107th Congress, an informal compromise between representatives of the House and the Senate over the "Schumer Amendment" a provision intended to prevent the discharge of liability for willful violation of protective orders and violent protests against providers of "lawful services," including reproductive health services proved unacceptable to the House. Consequently, the conference report on H.R. 333, 107th Cong., 1st Sess. (2001), did not come up for a vote in either chamber.

Since its introduction in 1998, the reform legislation has employed a complex "means test" for prospective debtors to determine whether they may file under chapter 7 governing liquidations. Failure to satisfy the means test is presumptive abuse of chapter 7, and the disqualified debtor either must file for reorganization under chapter 13, or refrain from filing. Likewise, since 1998, although the various versions of bankruptcy reform have incorporated many amendments, all have retained core features.

The legislation is broad and addresses many areas of bankruptcy practice beyond consumer filings. Topics include small business bankruptcy, tax bankruptcy, ancillary and cross-border cases, financial contract provisions, amendments to chapter 12 governing family farmer reorganization, and health care and employee benefits.

This report reviews many of the core consumer bankruptcy features that have been common to most versions of bankruptcy reform legislation. It is based upon the most recent legislative version, the conference report to H.R. 333, H.Rept. 107-617, 107th Congress, 2d Sess. (2002), which is likely to be the basis for legislation considered in the 108th Congress. It also provides, in chart form, a survey of selected provisions.