ARKANSASa OKLAHOMA

BOB JOHN enecudve vfce presid€nt

fUnne are a number of pieces of leg- I islation addressing consumer bankruptcy reform pending in Congress. All of these separate bills have at least one common denominator, the universal recognition that reform to the current bankruptcy system is needed.

Personal bankruptcies have risen dramatically in Arkansas and Oklahoma since the 1978 Bankruptcy Law became effective. In the past three years bankruptcies continued to run at a nationwide annual rate of about 450,m0 or 20090 of the rate for the 12 years prior to enactment of the 1978 law. Even considering th€ depth and length of the recent recession, economic conditions cannot justify this bankruptcy rate nor account for the record number of debtors who have been counseled to discharge all of their debt in a "straight" Chapter 7 bankruptcy as opposed to completing repayment through a court supervised Chapter 13 program.

Two bills, S. ,145 and HR 1800, have the best chance for Congressional approval during the 1984 session.

Kansas Senator Dole introduced S. 4'y''5, the "Omnibus Bankruptcy Improvements Act of 1983." Title I of the bill contains numerous consumer bankruptcy amendments which were approved by the Senate Judiciary Committee last year. The most important amendment during Senate Committee considerations was the adoption of the "substantial abuse" provision supported by Oklahoma Congressman Mike Synar in the House. This provision replaced the "threshold test" or future income test which limits eligibility for Chapter 7 liquidation for debtors. Under this test, if the debtor can pay a reasonable portion of his non-mortgage debts out of discretionary income (available after deducting family living expenses), the debtor would have to proceed under Chapter 13 to obtain bankruptcy relief or forego protections of the bankruptcy courts.

In the House, a coalition of creditors and retailers is supporting the efforts of Synar who introduced HR 1800 last year. The bill essentially represents a compromise between comprehensive bankruptcy legislation (HR 4786) which had garnered over 270 co-sponsors last year and a bill backed by House Democratic leadership and sponsored by Judiciary Chairman Peter Rodino (HR ll47) which contains little consumer bankruptcy reform.

The House Judiciary Committee has already approved its version of the bank- ruptcy judge system legislation and is awaiting a rule for floor consideration. Synar is currently seeking additional cosponsors for his bill, HR 1800, and is seeking a rule from the House Rules Committee to allow consideration of consumer bankruptcy amendments. Synar has 148 co-sponsors at the present time. ruptcy clerk's office to acknowledge receipt of the claim. We say that because the vast majority of bankruptcy judges hold that the filing of a proof of claim within that 90 day period is jurisdictional and you have no rights as a creditor unless the claim is filed.

In October 1983, Congressional supporters of HR 1800 who serve on the Rules Committee met with Speaker O'Neil. The Speaker said, surprisingly, that he backed both the judges and consumer bankruptcy bills, but that both bills were 1984, not 1983, issues. Significantly, on March 31, 1984, interim bankruptcy rules expire. These rules are currently governing all federal bankruptcy proceedings in light of the recent Supreme Court unconstitutionality ruling on the 1978 Bankruptcy Reform Act. O'Neil referred to this deadline date when he stated that, "We (Congress) have three months to do this thing." In other words, Congress has three months in 1984 to approve a bankruptcy judges reform bill and presumably include consumer bankruptcy reform in the effort.

Meanwhile, House Republicans have initiated their own bankruptcy effort. On November 2, 1983, Congressman Kindness introduced a discharge petition for the judges bill from the Judiciary Committee including provisions which would allow the consumer bankruptcy bill, HR 1800, to be considered on the floor ofthe House. This petition currently has a few signatories (218 are required), but petition sponsors are confident that even the threat of a petition will stir Judiciary Committee leadership into action on the bills.

ef,ecuUYe vlce preddent

N AUGUST I, 1983, new rules were adopted by the United States Supreme Court for the bankruptcy courts. Two of the rules have a substantial effect on creditors. Prior to the new rules, credi tors had six months from the date of the first meeting of creditors within which to file their claims with the clerk of the bankruptcy court. The new rules now reduce that period to 90 days. It is important thatyou keep that period inmind because in bankruptcy, there can be no distribution in a liquidation case to unsecured creditors, even though there may be assets, unless the creditor files a claim. We have always recommended that creditors file claims even in no asset cases.

There is no cost in filing the claim and there is always a possibility of assets showing up. Today, the majority of bankruptcy courts will, when they send the notice of the first meeting of creditors, include a sentence that generally states that the case is a no asset case and it is not necessary for creditors to file claims. The notice goes on and says that if assets appear, then the creditors will be notified to file claims. This comes about because the people in most bankruptcy clerk's offices are government employees. These are very busy offices with employees who would like to avoid as much work as possible.

Our recommendation is that you ignore that statement and file a claim anyway, and when you do, ask the bank-

The other matter under the new rule which will affect creditors is the period of time within which objections must be filed to the discharge of the bankrupt. That period is now 60 days from the date of the first meeting of creditors.

If you receive a notice of bankruptcy and you feel that your debt may be nondischargeable, contact your lawyer immediately to determine whether or not an objection should be filed and then get the objection on file. The reasons for a debt being nondischargeable are technical and you will need legal advice. Objections include such things as obtaining credit through the use of a materially false financial statement or the debt being incurred through fraud and similar reasons. The bankruptcy court is the only court which has the jurisdiction and authority to pass on the question.