James Sensenbrenner, April 15, 2005

America’s bankruptcy system was established to help provide a fresh start for individuals who are truly in tough financial straits. People who were down on their luck were offered a second chance. But, when people who have the ability to pay their bills don’t do so, all Americans suffer.

It has been estimated that every American household bears a hidden $400 annual ‘tax’ for wasteful and abusive bankruptcy filings. As a result, every abusive bankruptcy filing impacts hardworking Americans in the form of higher interest rates and increased costs of goods and services.

To stop people from taking advantage of this system, the House of Representatives has passed legislation - repeatedly - that would end this exploitation, only to be foiled by the Senate or the previous administration. After nearly a decade of extensive congressional review, the House this week overwhelmingly approved S. 256, the Bankruptcy Abuse Prevention and Consumer Protection Act. This bipartisan bill, which has already passed the Senate, is based on the simple premise that if you can pay your bills, you should. If you can’t pay your bills, you are entitled to a fresh start.

The goal of this legislation is simple - curb abuse of the bankruptcy system by closing numerous loopholes and implementing reforms to help people in need. For example, under the Act, spousal and child support payments are given the highest priority - deadbeat parents would not be able to use bankruptcy to dodge their child support responsibilities. Should a bankrupt deadbeat parent fail to fulfill his or her spousal or child financial obligations, then that parent’s driver’s license could be withheld, or his or her professional/occupational license could be suspended.

Central to this legislation is a merit-based test that reflects the common sense proposition that those who are capable of repaying their debts after seeking bankruptcy relief must actually repay their debts. This legislation applies an income and expense analysis to verify whether a debtor has a demonstrated ability to repay the majority of his or her debts. If it is resolved that the debtor has the ability to repay, he or she will be directed into a form of bankruptcy relief that requires repayment.

The bill includes many vital consumer protections. It requires credit card companies to include important disclosures and explanatory statements on a broad range of credit terms and conditions, including introductory interest rates and minimum payments. This bill also helps America’s family farmers confronting economic hard times by providing more tools to assist in their bankruptcy reorganization. Additionally, S. 256 gives courts greater powers to dismiss abusive bankruptcy cases and to punish attorneys who encourage their clients to file such claims.

Our economy and the hardworking Americans who sustain it should not suffer any longer from the billions of dollars in losses associated with abusive bankruptcy filings. I am pleased that after passing a bill in the House eight times, this legislation will finally be signed into law, and I look forward to joining President Bush at the White House to witness this event.

Congressman James Sensenbrenner, a Republican, represents the Fifth Congressional District of Wisconsin. He serves as chairman of the House Committee on the Judiciary. The Fifth District of Wisconsin forms an arc surrounding Milwaukee to the North and West, and includes parts of Jefferson, Milwaukee and Waukesha counties, and all of Ozaukee and Washington counties.