CNN.com Carries Zywicki Bankruptcy Reform Comments
Professor Todd Zywicki credits the rapid rise in consumer bankruptcy filings during a period of prosperity in the U.S. with fueling recent efforts to reform laws governing bankruptcy actions. A CNN.com Special Report that included an examination of the effects of the 2005 amendments to the 1978 bankrupcy law carried extensive comments by Zywicki on the rationale for amending law to reduce perceived fraud and abuse in bankruptcy filings.
Jury still out on bankruptcy reforms, CNN.com Special Report: Debt Today, January 4, 2007. By Manav Tanneeru.
"The 2005 law, a set of amendments to bankruptcy law passed in 1978, was precipitated by a concern among lawmakers that the bankruptcy system was too lenient and was being abused, observers say.
"'[During] the last 10 or 20 years, we saw a rapid rise in consumer bankruptcy filings, and it was a period of prosperity,' said Todd Zywicki, a law professor at George Mason University, who worked at the Federal Trade Commission in 2003-04.
"'There was a perception that that was out of whack, that bankruptcy filings should not have been rising so rapidly when the economy was in good shape.
"'There was also a widespread impression that fraud and abuse in the bankruptcy system had been rising over time,' he said, with people taking advantage of loopholes and sometimes walking away from debts they could afford to pay.
"'There was an erosion of the stigma associated with filing bankruptcy, so more people were willing to file bankruptcy as a first resort rather than a second or third resort,' he said.
"Legislative wrangling over reforms began in 1998, four years after Republicans took control of Congress. The law was finally passed seven years later, implementing a new set of guidelines for bankruptcy filings and safeguards to cut down on potential fraud and abuse.
"The law applied a 'means test' to determine whether a person qualifies for Chapter 7 bankruptcy, which erases debts, or Chapter 13, which establishes a payment system. The goal was to force more people to repay what they could.
"Other changes included mandatory credit counseling prior to filing for bankruptcy, requiring pay stubs and tax returns to verify income, and extending the period between when a person can again file for bankruptcy."