Landmark Credit Union supports The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, H.R. 685, which was introduced in the House by Rep. F. James Sensenbrenner (R-Wis.). The bill currently has 83 sponsors, and President George W. Bush has indicated he would sign it into law if it reaches his desk.
The companion bill in the Senate was passed on March 9 with a vote of 74 to 25.
We recognize that some people legitimately need the option to declare bankruptcy. What concerns us, however, are the cases of abuse by those who file Chapter 7 and totally walk away from their debt, even though they clearly have the ability to repay all or part of it under Chapter 13.
Credit unions have consistently had three top priorities for bankruptcy reform legislation: a needs-based formula, mandatory financial education and maintaining the ability of credit union members to voluntarily repay certain debts.
The current bill does a good job of addressing these issues.
In 2004, Landmark experienced 261 Chapter 7 member bankruptcies totaling more than $1.4 million in losses.
Nationwide, the number of bankruptcy filings affecting all financial institutions was nearly 1.21 million in the first nine months of 2004. Results suggest that full-year filings will exceed 1.61 million, double the 1994 rate and six times higher than the total in 1984.
Data from the National Credit Union Administration (NCUA) estimate roughly 275,000 credit union member-borrowers will have filed bankruptcy in 2004. This record number is 40 percent higher than the level in 2000. CUNA, the Credit Union National Association, estimates that more than 40 percent of all credit union losses in 2004 will be bankruptcy-related, totaling approximately $900 million.
In Wisconsin, credit unions expect more than 28,000 total bankruptcy filings from 2004, a 2 percent increase over 2003. The total is on track to be 70 percent higher than in 2000.
Credit unions clearly recognize the value of financial counseling for their members. According to a recent CUNA bankruptcy survey, 70 percent of credit unions counsel financially troubled members at the credit union. A similar percentage of credit unions also may refer members to an outside financial counseling organization, such as the Consumer Credit Counseling Service (CCCS), and many do both.
We strongly support the provision in the bill that would require a bankrupt debtor to complete a course in personal financial management.
Financial education would help some of our young adult members make different decisions than they do. In one case, a member took out a car loan through a dealer. She never made the first payment and stated it was too high, despite her clear ability to afford the payments. Due to buyer’s remorse, she turned in the car and filed bankruptcy. Landmark Credit Union lost $11,000.
In another case, a young member decided that a debit of $8,000 from student loans and credit cards was too much and filed bankruptcy. The member’s future earning potential was such that the debts could have been paid over time without severe hardship. Landmark Credit Union incurred a loss of $1,500.
Even with financial counseling, we recognize instances in which bankruptcy may be the only alternative, the way for a member to get a much needed "fresh start." But we are not convinced that in either of these examples, bankruptcy was the right solution.
Because credit unions are not-for-profit financial cooperatives owned by and for members, losses directly affect the entire membership, due to a potential increase in loan rates or decrease in savings rates.
Credit unions strongly believe that reaffirmations are a benefit both to the credit union and to the member/debtor.
For example, we had a member file bankruptcy, then reaffirm his car loan, personal loan and credit card. Landmark Credit Union incurred no losses. The member was able to use his credit card for travel expenses, including renting a car to see his ill mother in Florida. Eventually he was granted a car loan from Landmark, and he remains a member in good standing.
We believe that "needs-based bankruptcy" presents the best opportunity to achieve real reform. Consumers who have the ability to repay all or part of their debts should be required to file under Chapter 13, rather than have all their debt erased in Chapter 7.
We support the needs-based provision contained in the bill. It takes direct aim at those who abuse the system.
People should not be able to use the bankruptcy code as a tool to avoid inconvenient obligations by transferring their debts to fellow consumers – our members. This is wrong. This is abuse.
Ron Kase is president of Landmark Credit Union, which has 11 locations serving members living or working in Milwaukee, Ozaukee, Waukesha, Washington, Dodge, Racine, Kenosha, Walworth or Jefferson counties.
March 18, 2005, Small Business Times, Milwaukee, WI
