WASHINGTON -- A study released yesterday found that industry-sponsored legislation to rewrite U.S. bankruptcy laws would have forced thousands of bankrupt consumers to make repayments even though they lacked sufficient funds.
The study by two professors at the Creighton University Law School in Omaha, Neb., said that far fewer debtors had the ability to repay, in contrast to an earlier study financed by the credit-card industry.
They found that had House-passed legislation become law, only 3 percent of debtors would have had sufficient income to be moved from Chapter 7, which can wipe away debts, into Chapter 13, which can require debtors to repay some or all of their debts.
The new study, funded by the nonprofit American Bankruptcy Institute, is in sharp contrast to an earlier study financed by the credit-card industry which found five times as many Chapter 7 debtors had the ability to repay.
The new report is expected to intensify the already fierce debate over the effort to rewrite the bankruptcy laws, one pushed strongly by the nation's banks and credit-card associations such as Visa Inc. and MasterCard Inc. A bankruptcy modernization bill died in the Senate in October but it's widely expected that the industry will push the measure again next year.
Rep. Jerrold Nadler, Democrat of New York and an opponent of the Republican-sponsored bankruptcy bill, said the new study confirms his suspicions that "when it comes to bankruptcy statistics, you can't trust numbers bought and paid for by the credit-card industry."
The National Retail Federation said the Creighton study was flawed and misleading. The authors "used old data and a nonrepresentative sample to draw an invalid conclusion," said Mallory Duncan, the group's general counsel.
A Visa lobbyist also took issue with the methods of the Creighton study, yet found the report confirmed a basic finding in the industry studies.
"Everyone who's looked at this issue has drawn the same basic conclusion -- that a significant number of bankruptcy filers have an ability to repay a portion of their debts," said Michael McGarry, the Visa lobbyist.
A study in February by Ernst & Young LLP found that as many as 14 percent of Chapter 7 filers could have repaid an average of 62 percent of their debts over five years.
In the new study, Creighton Professors Marianne B. Culhane and Michaela M. White found just 3 percent of debtors had enough income to be barred from Chapter 7 bankruptcy. "We were surprised that the differences in our findings were so dramatic," White said.
Pub Date: 12/02/98