Byline: Joyce Barrett

WASHINGTON — A credit compliance attorney for Dayton Hudson Corp. told a Senate panel Friday that a change in bankruptcy laws to require some repayment of consumer debt was one answer to the surge in personal consumer bankruptcy filings.
Donald B. Banks, director of legal services for Retailers National Bank, a subsidiary of Dayton Hudson, testified before the Senate Judiciary Subcommittee on Administrative Oversight and the Courts on behalf of the National Retail Federation.
Dubbed the Needs Based Bankruptcy Reform, the program would insure that consumers would only get the amount of debt relief they need, Banks said.
He also defended lending practices of retailers. “We use tremendous resources to try to determine who, among the people who want credit, is likely to repay the loans they want,” he said.
Under the bankruptcy reform plan, if debtors can afford to repay some of their debts, they must do so through an established repayment plan. A debtor who can fund a repayment plan would not be allowed to file a Chapter 7 bankruptcy. The plan also would permit creditors to challenge the accuracy of information filed by a debtor and to seek to have a bankruptcy case transferred from one chapter to another.
“I believe there is an urgent need for action to stem the staggering growth of unnecessary losses being experienced today,” Banks said. “Everyone I know of in the industry would welcome a complete examination of the consumer bankruptcy process.”
Bankruptcy losses in absolute dollars and as a percentage of all credit losses have “accelerated alarmingly,” Banks said. He blamed the increase not on errors in granting credit, but on outdated bankruptcy laws.
“Increasingly, notices of bankruptcy filings surprise creditors,” he said. “Almost half the time, the debtor has shown no serious delinquency prior to the notice.”
According to Edward Bankole, vice president of Moody’s Investors Service, nonbusiness bankrupt-cies rose nearly 30 percent in 1996 to a record 1.1 million cases. He predicted 1.5 million bankruptcy cases for 1997 and blamed the increases on reductions in household incomes from layoffs and divorces, and unexpectedly large expenses.

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