Once again in 1998, the number of consumer bankruptcy filings will exceed 1,000,000, surpassing the record set last year. In response to the declining stigma associated with seeking bankruptcy protection, on June 10, 1998, the U.S. House of Representatives voted overwhelmingly in favor of H.R. 3150, which outlines drastic changes to consumer bankruptcy law. Unless H.R. 3150 is modified by the U.S. Senate's version of consumer bankruptcy reform legislation, or absent a veto by the President, consumer lenders and borrowers can expect the following changes:
- extending the time between Chapter 7 discharges from six years to ten years.
- adding a new five-year minimum period between Chapter 13 discharges.
- extending payment plans in Chapter 13 to a minimum of five years and up to seven years.
- redefining eligibility for relief under Chapter 7 based on financial need (and considering a family's income vis-a-vis the national median income).
- making consumer debts (with some exceptions) incurred within ninety days of bankruptcy presumptively non-dischargeable under the fraud exception to discharge.
- compelling consumer debtors to reaffirm or redeem all obligations secured by purchase money security interests in personal property in order to retain possession of such property.
- amending the "ordinary course" defense to preference actions to include transfers made either: (i) according to the standards of the relevant industry (objective standard); or (ii) according to the actual course of dealing between the debtor and the creditor (subjective standard).
- mandating that all appeals from bankruptcy court decisions go directly to the Circuit Courts of Appeal (rather than the Bankruptcy Appellate Panel or U.S. District Court).
- redefining "small business" reorganization to include debtors holding a single asset (real estate), or having non-contingent liquidated debts of $5 million or less in the aggregate.
- enhancing the priority, protection, and payment of alimony and child support obligations in all cases.