Making consumers pay up

One of the most difficult recessions in recent American history has been marked by record filings for personal bankruptcy - 255,000 cases last year, sharply up from the late 1970s. Many of these cases are related to hard times. But an influential segment of the US business and retail community argues that a not inconsiderable number of bankruptcies stem as much from misuse of consumer credit and charge accounts as hard times. Consequently, the business community is now prodding Congress to make it more difficult for Americans to file for bankruptcy as a way of escaping debt.

Lawmakers should make changes in current bankruptcy laws after only the most careful consideration. The question is whether to revise the Bankruptcy Act of 1978, a ''reform'' bill that made it particularly easy for consumers to declare bankruptcy. Not surprisingly, the rate of filings jumped sharply after the law went into effect in 1979, even before the current recession began. Because of unease about the law - and the number of filings - the Senate Judiciary Committee last year approved a bill by Sen. Robert Dole that would require that, except for cases involving the most dire hardship, debtors would be required to pay off existing debt over a three-to-five-year period. The Dole proposal is once again before the Senate for consideration.

Under Senator Dole's proposal, debtors would not be able to file for Chapter 7 bankruptcy status if they could meet 50 percent of their debts out of future income. Instead, they would have to file for debt relief under Chapter 13 of the Bankruptcy Act and pay off their debt over an extended three-to-five-year period.

The Dole bill, which would exempt persons with severe debt problems stemming, for example, from unexpected medical bills or unemployment, is not an unreasonable approach. Academic studies suggest that as many as 30 percent or so of all debtors seeking bankruptcy status could in fact pay off existing debt over a period of time without undue difficulty. However, it would be cruel to tie up a family (or individual) in endless litigation over debt where genuine hardship existed - and where seizing future earnings would leave few assets to live on. For that reason, the Senate should give serious thought to proposals by Senator Metzenbaum that Chapter 7 provisions be left in place for the time being and that only debts incurred after a person filed for bankruptcy should be considered fraudulent - and thus exempt from bankruptcy status.

Congress should move slowly in the bankruptcy area. Bankruptcy should not be made an easy way out of meeting legitimate obligations. Retail firms, for their part, should be more selective in extending credit to families already burdened by debt. At the same time, given the fact that the US is now trying to come out of a recession, this hardly seems the moment to tighten bankruptcy laws so as to make it difficult for persons truly in distress to find an honorable resolution of their financial problems.

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