October 3, 2022
Chairman Nadler Postpones Congressional Hearing on Consumer Bankruptcy Reform
As reported by AIS, the Judiciary Committee of the U.S. House of Representatives scheduled a hearing on consumer bankruptcy for September 29, 2022.1 On the day before the hearing, the Warren-Nadler consumer bankruptcy reform bill was re-introduced in both the House and Senate.2 But hours before the hearing, Judiciary Committee Chairman Jerrold Nadler postponed the hearing indefinitely.
Before the postponement, witnesses were scheduled to testify, and five written statements were submitted for the record. The following is a synopsis of the written statements:
- Robert Lawless, Professor of Law at the University of Illinois College of Law
Professor Lawless explained how bankruptcy "helps all of us" but requires updating. Professor Lawless said that bankruptcy costs too much because of unnecessary requirements imposed on debtors and fails to provide relief to debtors burdened by student loans, as well as criminal fines and penalties. He also asserted that "nonuniform and racially disparate outcomes" harm minority groups. Professor Lawless proposed Congress enact legislative changes to allow consumer debtors to pay attorney fees over time, "simplify and eliminate paperwork," allow private student loans to be discharged on the same basis as other debts, strengthen the discharge injunction to provide further protection for debtors, and change the treatment of debts owed in a criminal case.
- Pamela Foohey, Professor of Law at the Benjamin N. Cardozo School of Law
Professor Foohey also argued in favor of statutory changes that would reduce barriers that currently discourage consumer debtors from filing for bankruptcy relief. Professor Foohey recommended policy changes included reducing paperwork burden on debtors, eliminating the requirement for credit counseling, easing discharge standards for student loans, expanding the discharge of criminal fines and fees, increasing exemptions so debtors can keep more of their property, and restricting debt collection practices. In addition, Professor Foohey urged Congress to allow debtors to strip-down liens on home mortgages and auto loans. Among other things, she also endorsed significant principles in the Warren-Nadler bill, including the creation of a new chapter 10 to essentially replace the separate chapter 7 and 13 processes.
- Kara Gendron, private practitioner on behalf of the National Association of Consumer Bankruptcy Attorneys
Ms. Gendron recommended that student loans be discharged more easily, paperwork requirements on debtors be relaxed, and mandatory credit counseling be eliminated. She also proposed minimum federal exemptions that are more favorable to debtors.
- Todd Zywicki, Professor of Law at the Antonin Scalia School of Law, George Mason University
Professor Zywicki argued that the current bankruptcy laws are working well by providing relief to debtors who lack non-bankruptcy alternatives while at the same time "limiting fraud and abuse of the system." He noted the current economic challenges facing consumers but ascribed them to government action. He concluded that permanently amending the Bankruptcy Code is not the "solution to problems caused by poor economic policy." Professor Zywicki was also critical of more lenient student loan forgiveness policies, noting they disproportionately favor wealthier students who also carry more student loan debt.
- The American Bankers Association (ABA)
The ABA discussed the successful balancing of debtor-creditor interests under current bankruptcy law, partly due to the major reforms enacted in 2005, and provided statistical data to support its position. Among other things, the ABA showed that higher bankruptcy risk causes higher interest rates on loans and other adverse economic consequences that are borne by non-debtor consumers and small businesses. The ABA directly challenged the changes proposed in the Warren-Nadler bill, including liberalizing the exemption scheme, expanding "cram-down" rights against automobile lenders, and providing such rights for the first time against mortgage lenders.
AIS will continue monitor and report on any hearing updates.
1 More specifically the hearing was before the Subcommittee on Antitrust, Commercial, and Administrative and the hearing was titled: "Oversight of the Bankruptcy Code, Part 2: Ensuring a Fresh Start for Consumers.”
2 The Warren-Nadler bankruptcy reform bill, which would restructure the bankruptcy system and provide more benefits to individual debtors who file for bankruptcy, was summarized by AIS in an earlier report.