WASHINGTON -- A measure that seeks to reform the overburdened bankruptcy system cleared the Senate Judiciary Committee yesterday, but faces opposition from consumer groups who charge that it would undermine debtors' rights.
The recent surge in bankruptcy filings prompted Sen. Howell Heflin, D-Ala., to propose the reform.
The bill would encourage debtors to use Chapter 13 bankruptcies, in which debtors pay off their debt within three to
five years, instead of filing under Chapter 7, which cancels all debts.
Nearly 1 million American individuals and businesses filed for bankruptcy in 1991, a 21 percent increase from 1990, according to the American Bankruptcy Institute, a non-profit group.
"I want to reiterate my belief that bankruptcy reform is needed now," said Mr. Heflin, who sits on the Judiciary Committee.
He acknowledged that "this bill will not be all things for all people." Mr. Heflin has argued that the majority of individuals who file for bankruptcy want to pay their debts, rather than erase them completely.
The bill has drawn fire from consumer groups who argue that, though some provisions of the measure favor debtors, it is riddled with pro-creditor provisions that erode protections designed to give financially strapped consumers a new start.
"In its current form, it is a blow to families already facing tough times. We find it hard to believe that our leaders would turn the screws on families already devastated by the current recession," said Michelle Meier, government affairs counsel for Consumers Union, the non-profit publisher of Consumer Reports magazine.
Ms. Meier's group supports a section of the bill that would bar bankruptcy courts from considering debtors' future income when determining whether they can file for bankruptcy. Currently, the bankruptcy code does not prohibit courts from using future earnings as a factor.
The bill would also establish a national commission to review the complicated bankruptcy code, which was last revised in 1978, and make suggestions to Congress on how it can be updated.
New bankruptcy rules for small businesses also would be created to simplify the current process.