Today Congressman Adam Smith (D-Wash.) will vote in favor of the “Bankruptcy Abuse Prevention and Consumer Protection Act,” H.R. 975, to overhaul bankruptcy law to require debtors to take responsibility for their debts and repay them when they are financially able.

“Requiring people to pay off the debt they incur when possible is a very basic tenet of personal responsibility,” said Smith. “People who can afford to repay their debts should do so.  The formula in this bill is very balanced and fair.  There are exemptions that ensure that if you earn up to four times the poverty level, which works out to around $80,000 a year, this legislation doesn’t affect you.  What it does do is make sure that you, the average American consumer, aren’t paying to retire the debts of people making hundreds of thousands of dollars.  This is a bill that will help, not hurt, low- and middle-income people.”

Under current law, bankruptcy filers may file under Chapter 7 and be absolved of all debt, or file under Chapter 13, preventing repossession of property but agreeing to repay some or all of their debt. H.R. 975 institutes a needs-based formula to steer more debtors into Chapter 13 and thereby require greater debt repayment.

This bill has no effect on people living below the median income of $80,000.  Only those living above the median income and who have the ability to pay off some or all of their debt are required to enter a repayment plan.  H.R. 975 provides allowances for living expenses, exempts child support payments, secured debts such as mortgage and car payments, retirement and education savings and determines an individual’s ability to pay their debt.  If there are extenuating circumstances, such as job loss or medical emergency, a judge can still opt to forgive the debt.  If it is determined that the debtor can afford to repay some of the debt, he or she is required to do so.

“Frankly, bankruptcy needs to be more of a last resort instead of a first action.  This conference report requires greater personal responsibility from debtors by ensuring that those who have the ability to pay off some of their debt do,” said Smith.  “It supports consumers by reducing irresponsible bankruptcy filings.  It is unfair that many higher-income families are declaring bankruptcy even when they have the ability to repay some of their debts, costing the average family hundreds of dollars a year in higher prices, limits access to credit (especially for those who already have trouble getting credit.”

Small businesses are another victim of irresponsible bankruptcy filings, according to Smith. “A small business can be devastated by just one or two debtors declaring bankruptcy and not paying their bills,” he explained. “The Bankruptcy Abuse Prevention and Consumer Protection Act will change this by only allowing those consumers truly in need of bankruptcy filing to be absolved of their debts.” 

Since coming to Congress in 1997, Representative Adam Smith has been a leading Democrat in favor of Bankruptcy reform.  As a leader of the New Democrats in the House, Smith has long fought for common sense changes to bankruptcy laws.  The New Democrat Coalition has co-sponsored bankruptcy reform for the last three session of Congress and has continually provided key Democratic support for the issue.  Last March when the House considered H.R. 333, "The Bankruptcy Abuse Prevention and Consumer Protection Act of 2001," it was approved by a vote of 306-108, with 75 percent of all voting New Democrat members voting yes.