Congress returns to bankruptcy reform

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Bob Moon: Bankruptcy filings are on the rise again in U.S. courtrooms, despite a 2005 reform law designed to cut down on the number of people seeking bankruptcy protection. There was an initial fall-off in bankruptcies after the reforms became law, but the economy has brought bankruptcy rates almost back to pre-reform levels. As a result, reforms are back on the congressional agenda, as John Dimsdale reports from Washington.

John Dimsdale: The four-year old reforms imposed a strict means test on bankruptcy filers. Debtors have to submit income tax forms, credit card bills and lists of expenditures. Fail the means test and the government won’t protect you from creditors.

Some, like Senator Sheldon Whitehouse, a Rhode Island Democrat, say those reforms favored banks at the expense of consumers. He’s sponsoring a bill that targets credit card companies.

Sheldon Whitehouse: Through interest rates and through fees and through penalties, they are exacting interest rates now that are really unconscionable.

The bill prevents lenders who charge ultra-high interest from collecting those debts in bankruptcy. But that would make those loans even more expensive, says the Heritage Foundation’s David John:

David John: If these debts are just automatically gone, that adds yet another level of risk to these loans.

John will have a chance to tell Senator Whitehouse what he thinks of the new Senate bankruptcy reform bill when he testifies at a Senate hearing later this morning.

In Washington, I’m John Dimsdale for Marketplace.