Fact Sheet

& Staff








Commissioners John A. Gose and Jeffery J. Hartley concur with the dissent; however, they do not necessarily share all of the views and statements contained therein.

Without question, the most contentious issues to be considered by the Commission relate to consumer bankruptcy. As Commission deliberations begin, one glaring shortcoming became more and more apparent -- the lack of meaningful data regarding consumer bankruptcies would force decisions to be made largely on an anecdotal basis. This unreliable information, coupled with the strong philosophical divisions inherent in all socioeconomic systems, has had, at best, mixed results.

Initially, the Commission's work on consumer bankruptcy issues was intended to improve the entire system by promoting efficiency, increasing uniformity and decreasing costs. For various reasons, the Commission's deliberations were unable to adhere to its own stated and agreed upon to process. While the working group concept was effective for the most part, it was not as successful regarding this most important and visible issue. As a result, the Commission adopted what is commonly now known as the consumer "Framework". Supporters claim that the Framework is a viable alternative to the current consumer bankruptcy system. We disagree.

After much consternation and discussion, the Framework was finally adopted by the full Commission on a tenuous 5-4 vote. The closeness of this vote reflects the sharply divided viewpoints and the competing expectations that individual Commissioners have for the consumer bankruptcy system. On one hand, you have those who think the consumer system is too permissive lacking any measure of personal responsibility. On the other hand, however, you have those Commissioners who view the concept of a "fresh start" as sacrosanct, something to be protected at all costs. The truth actually falls somewhere in the middle.

The availability of bankruptcy protection and a "fresh start" are cornerstones to the American insolvency system and should be treated accordingly. When an individual files bankruptcy they immediately receive a tremendous advantage over their creditors by way of the automatic stay. This benefit should be coupled with a corresponding amount of responsibility. But, in the current consumer system, this burden of responsibility is often not met and it is here that the tension is greatest.

Who should control the ebb and flow of a case, the debtor or the creditors? Much of the evidence presented to the Commission contends that the debtor has too much postpetition discretion. But in all fairness, manipulation of the bankruptcy system comes from all sides -- debtors, creditors, trustees and, sometimes, even judges. To stifle some of this manipulation, the Framework offers some worthwhile suggestions with which we agree:

  • A national filing system
  • Heightened requirements for accurate information
  • Random audits
  • Financial education
  • Measures to enhance the integrity of the system

But where the Framework falls short is its attempt to simplify and improve the system while maintaining its current balance. The basis for our votes against the Framework is that in comparison to the current consumer system, it is not an improvement. Unfortunately, the Framework was put forth on a "take it or leave it" basis. In an attempt to "balance" competing proposals, the Framework actually offers uncertainty, confusion and increased litigation. Many of its substantive proposals are both unfeasible and, if adopted, would put unnecessary strain on the current consumer system.

Congress gave the Commission limited instruction as to what specific changes they envisioned for the current consumer system. They did state, however, that the fundamental tenants of the current bankruptcy system should not be disturbed. Nevertheless, the Framework offers wholesale changes with uncertain results.

Judge Jones' counter proposal to the Framework, defeated on an equally close 4-5 vote, avoids the fatal all-or-nothing approach and was offered as a collection of individual amendments. The Jones proposal is admittedly less debtor-friendly than either the current system or the Framework and promotes more debtor responsibility.

The Jones' proposal expands the obligations on individual debtors who choose to file bankruptcy. Because of the dramatic increase in the number of consumer bankruptcies and the comparable amount of money that moves through the system, it is more important than ever that the integrity of the system be protected and, if possible, improved. In our view, many of Judge Jones' proposals accomplish this goal more efficiently than the Framework. The most positive aspects of the Jones' proposal include:

  • Enhancement of Federal rule of Bankruptcy Procedure 9011
  • Limited benefit from late filed amendments to schedules and statements of affairs
  • Required submission of tax returns with a petition
  • Affirmative statement by trustee that necessary documentation has been furnished
  • Banning or revocation of discharge for material false statements or omissions
  • Enhanced regulation of debtor's attorney's fees
  • Reasonable uniform federal exemptions
  • Protection of various contract rights
  • Enhanced use of affidavit practice

Our concurrence with Judge Jones' proposal results from a combination of our agreement with many of its substantive proposals as well as the need to offer an alternative to the Framework.

When it became apparent that the Framework would be adopted by a slim majority, it became equally apparent that an alternative, Judge Jones' alternative, should also be put forth as well. Because of the Framework's limited utility, Congress is going to be searching for options. Judging from the comments and submissions received to date the Framework is largely unpopular in the bankruptcy community.

Next year, if Congress begins the bankruptcy reform process as anticipated, the current system, the Framework and Judge Jones' proposal, are excellent places to begin the debate.

The national dialogue fostered by the Commission's deliberations of consumer reform and the divergence of the two proposals put forth is exactly what Congress had in mind when establishing this panel. It would have been a mistake for the Commission to not offer competing proposals. This is an instance when more is better. Although far from perfect, this report and its competing consumer proposals will be an enormous benefit as future policy decisions are made.

The Commission has created an abundant record of widely divergent views that could only be collected through the apparatus of such a commission. Individuals representing interest never involved in the policy making process have finally had an opportunity to participate. This benefit and its long range, positive effects cannot be overstated. We never understood the Commission's role as the problemsolver of all the current consumer system's ailments. The Commission's role was to offer alternatives and options. We have accomplished this goal.

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