Debtor’s prison 2004
will be just as onerous

If HR 975 passes the House and Conference Committees in Washington, rest assured that -- given the political influence of credit card companies, banks and credit unions and the millions they contribute to politicians -- "debtor's prisons" will make a comeback in America.

The gist of the HR 975 Bankruptcy Abuse Protection and Consumer Protection Act of 2003 is to drastically curb the possibility of declaring Chapter 7 bankruptcy. What was once a way for suffering debtors to gain a fresh start after enduring unfortunate circumstances -- loss of a job, divorce or uninsured medical expenses -- will be gone six months after a willing president signs this bill. Instead of wiping out legitimate debts, debtors will be obliged to pay back most every cent over a period of three years, no matter what.

"No matter what" means wage garnishment, losing professional licenses (yes, doctors, lawyers, hair stylists and airline pilots) and even drivers' licenses. There would be no bars on these new debtor's prisons, but debtors would, in effect, be under "house arrest," unable to practice their professions or drive themselves to work.

Chapter 7 bankruptcy involves hiring an attorney and appearing before a federal bankruptcy court. A few months later, legitimate debts are wiped out. Despite the negative impact on a debtor's credit report -- bankruptcies are included for up to 10 years -- many find they can immediately obtain car and home loans. Credit card and car sales companies regularly scour for "discharged" bankruptcies and begin sending offers. For the average debtor, the opportunity to get back on his or her feet after many months or years of mounting and crushing debt is real and comforting.

This new bill would make it much more difficult to file Chapter 7. Among the requirements is that a debtor must first attend credit counseling and money management classes at their own expense. Bankruptcy attorneys would be lumped in with "debt relief counselors," which means they can provide only limited advice or face professional sanctions. Some bankruptcy lawyers are considering leaving their practices as a result of this bill. Every possible obstacle to filing bankruptcy seems to be included HR 975. If you think "consumer protection" refers to the debtor, realize that the actual consumer protected is the credit industry.

The bill is progressing toward the president's desk -- but not before the November elections. Politicians fear a backlash from their constituents, many of whom are unfortunate debtors who got into financial trouble through no direct fault of their own. Yet, these same politicians easily label all bankruptcy sufferers as "gamers," a reference to the 3 percent of all filers who deliberately misuse the current bankruptcy laws. The present law could have been revised to prevent these abuses, instead of being weighted to greatly benefit the credit industry.

The result of HR 975 will have the Federal Bankruptcy Court acting as the collection agency for the credit industry. Debtors will be required to pay back much of their debt through the oversight of a "trustee" in as few as three years, instead of five years as is currently the practice. Internal Revenue Service national standards will determine the monthly amount, not a Hawaii trustee.

In spite of declining bank-ruptcy filings -- a quarter fewer this year -- this ominous bill presses toward an eager president. Exacerbating the situation here, the Hawaii District Federal Bankruptcy Court faces a 30 percent budget reduction in the next fiscal year. It now takes from four to six months to go through the bankruptcy process. Who knows what this budget shortfall and the bill's impositions will do to that.

If today's average debtor can overcome the basic fear of filing Chapter 7 -- the fear of embarrassment (very few speak to their families or friends about bankruptcy) -- then that person should consider filing within the next several months to avoid the onerous effects of this new law. Hire the most experienced bankruptcy lawyer possible and get done with debt.

If you don't, "Welcome to debtor's prison 2004."