Bankruptcy Legislation
In 1997, a National Commission on Bankruptcy Reform recommended
hundreds of changes to the Bankruptcy Code to Congress. The objective
of the group was to modify the code to give relief to debtors who truly
need it, while preventing the filing by those who may not really require
relief from debts and allowing creditors to receive compensation from
individuals who are able repay.
One of the recommendations made by the Commission was a change
in the Bankruptcy Code which would have allowed student loans to be
dischargeable in bankruptcy. The Commission argued that many filers
are the victims of questionable schools and are saddled with student
loan debt that is not accompanied by any valuable education. This recommendation
prompted opposition from schools and lenders, who warned that such a
change could result in students declaring bankruptcy immediately upon
graduation, wiping out student loan debt and eliminating their obligation
to repay funds lent in good faith.
This change was not ultimately adopted in viable legislation
proposing changes to the Bankruptcy Code. However, currently two bills
that would modify the Bankruptcy Code are being considered by the Congress.
The House measure (H.R. 3150), championed by Representative George Gekas
(R-PA), would establish a policy of means-testing in bankruptcy filing,
and would require taxpayers to pay by debts according to their ability
to do so, based on income. The Senate bill (S. 1301), sponsored by Senator
Charles Grassley (R-IA), makes changes that affect the legal recourse
of both debtors and creditors in the process of filing for bankruptcy.
It is unclear what the prospects are for final enactment of bankruptcy
legislation. President Clinton has issued a veto threat on the House
measure, and consideration of the Senate measure in that chamber could
be slowed or precluded by other legislative business.
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