By a vote of 74-25 last Thursday, the Senate passed the biggest rewrite of bankruptcy laws in 27 years. The legislation, strongly backed by NADA and AIADA, would set up an income-based test for measuring a debtor’s ability to repay debts and stiffen some legal requirements for debtors in the bankruptcy process.
From the auto dealerês standpoint, the bankruptcy reform would extend from 20 to 30 days the time a creditor has to perfect a lien in a financed transaction like the typical vehicle purchase. Whatês more, the American Bankruptcy Institute reports that the legislation could bar as many as 20% of those currently able to shed debt, amounting to 210,000 fewer bankruptcies per year.
The House is expected to pass bankruptcy legislation next month, and President Bush, who made the issue a priority in the last election, is expected to eagerly sign it into law. Coming on the heels of a class action reform bill, it is the second major pro-business win for the administration and the GOP.
I applaud the strong bipartisan vote in the Senate to curb abuses of the bankruptcy system, said President Bush in a statement reported by the Associated Press. Reforming the system with this commonsense approach, more Americans especially lower-income Americans will have greater access to credit.
NADA has been working in support of bankruptcy reform legislation for eight years and views this bill as a priority for the nation’s automobile dealers, said the association. The bill includes a provision that will help dealers protect their secured credit for a motor vehicle when a customer files for bankruptcy.NADA appreciates the assistance of dealers nationwide for making their views heard on this important issue.
Congressional and industry backers of the legislation have long argued that too many people with the ability to repay at least a portion of the money they owe were walking away from all their debts.
Under the new income test, according to the AP, those with insufficient assets or income could still file a Chapter 7 bankruptcy, which if approved by a judge, erases debts entirely after certain assets are forfeited. But those with income above the state’s median income who can pay at least $6,000 over five years $ 100 a month would be forced into Chapter 13, where a judge would then order a repayment plan.
About 70 percent of the people who file for bankruptcy now do so under Chapter 7, while the other 30 percent or so fall under Chapter 13, according to the American Bankruptcy Institute. Most of the Chapter 7 filers don’t have the income to fund a (repayment) plan that won’t fail, said Samuel Gerdano, executive director of the group of bankruptcy judges, lawyers and other experts.
Current law allows a bankruptcy judge to determine under which chapter of the bankruptcy code a person falls.
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