A federal panel's recommendations for improving the federal bankruptcy system arrived with a thud Monday on Capitol Hill. Top Republican lawmakers vowed to go beyond the commission's proposal and actually try to make it tougher for people to go broke.
Those close to the issue say Congress surely would not deal with bankruptcy reform until next year. Moreover, any reform effort could die in a pitched battle pitting lenders and retailers -- who want tougher standards -- against lawyers who don't.
Only one thing seems certain: Congress isn't ready to blindly accept the proposal put forth by the National Bankruptcy Reform Commission.
"The commission report contains a number of recommendations which I intend to support and other recommendations which I believe are ill-conceived," said Sen. Charles E. Grassley, R-Iowa, chairman of the subcommittee that oversees bankruptcy law.
Grassley is preparing legislation to make it more difficult for debtors to escape their debts through filing for bankruptcy. His bill will be similar to one proposed by Rep. Bill McCollum, R-Fla., which would set up an entirely new bankruptcy system in which debtors would be forced to repay whatever they could afford when they go bankrupt.
"By refusing to even cast a vote on needs-based reform, the bankruptcy commission has failed to address the problem at the very heart of our nation's personal bankruptcy crisis," McCollum said. "At a time when we need to be encouraging more personal responsibility, the commission is taking us further away from the goal of responsible borrowing."
The national commission -- which has been at work on its report for three years -- recommended minor adjustments to the current system. Along with many uncontroversial proposals, the 1,300-page report suggests:
Random audits of individual bankruptcy cases and stiffer penalties for false claims.
New limits against repeat bankruptcy filings.
Making consumers responsible for credit-card debts incurred within 30 days of their bankruptcy filing.
Allowing student loans, except those for medical school, to be forgiven immediately, rather than after seven years.
A new national standard, replacing state standards, by which debtors could keep $20,000 of household goods and up to $100,000 in home equity after a bankruptcy filing.
The proposals drew immediate fire from bankers and retailers.
"They just chose to tinker around the edges," said Duncan Mallory, general counsel for the National Retail Federation. "And on credit-card debt, they took a step backward," since the current law makes debtors liable for luxury purchases made less than 60 days prior to their bankruptcy filing.
The proposal makes no effort to collect more debt from people who can actually afford to make some repayment, said Matthew Schiro, the administrative vice president who supervises the credit-card program at Buffalo's M&T Bank.
"It's disappointing," Schiro said. "It doesn't look like it offers any big help for the banks."
Bankruptcy attorneys were far less critical of the commission's work.
"I generally didn't see anything in there that was really harmful" to consumers seeking bankruptcy protection, said Jeffrey M. Freedman, a Buffalo lawyer who specializes in such cases. "We couldn't find a lot we didn't like."
In other words, the commission proposal moves in the opposite direction that top Republican members of Congress favor.
McCollum, for example, is proposing a tougher "needs-based" bankruptcy system aimed at preventing people from escaping from debts they can afford to pay back.
"We are seeing countless numbers of 'bankruptcies of convenience,' as more and more people are encouraged to choose bankruptcy as a financial-planning tool," McCollum said. "Congress has a responsibility to address this issue by ensuring bankruptcy laws operate fairly, efficiently and free of abuse."
Such an approach has already won bipartisan support. Rep. Rick Boucher, D-Va., is cosponsoring McCollum's bill, and Sen. Richard J. Durbin, D-Ill., is cosponsoring Grassley's proposal.
"I think there are quite a few members of Congress who are concerned about all the good consumers who are paying the bills for those who declare bankruptcy," Mallory said. "There is great concern that unless Congress does something, bankruptcies will continue to increase."
Consumer bankruptcy filings have nearly tripled nationwide in the last decade, and in Western New York, they have doubled since 1991.
But that does not mean that it will be easy for Congress to reform the system.
Congress is set to adjourn for the year in less than three weeks, putting action on the issue off until an election year, when political pressures often limit the number of important bills that get passed.
Congress itself created the bankruptcy commission to come up with a consensus for reforming the system, but that consensus never developed.
The commission's nine members, appointed by President Clinton, the Democratic Congress of 1994 and Chief Justice William H. Rehnquist, split 5-4 on many of their most contentious issues.
To some degree, the commission's work was limited by the charter that Congress gave it. Democrats who wrote the bill creating the commission said that Congress "is generally satisfied with the basic framework established in the current Bankruptcy Code" and that the commission should "not disturb the fundamental tenets of current law."