Byline: Joyce Barrett

WASHINGTON — Retailers — who say they lose up to an estimated $4 billion annually to bankruptcy filings — blasted the report released Monday by the National Bankruptcy Review Commission, saying it makes it too easy for consumers to shirk their debts.
“The Commission’s recommendations do nothing less than provide a financial incentive for debtors to walk away from their obligations and stick good customers with the bill,” said Tracy Mullin, president of the National Retail Federation.
The report makes more than 170 recommendations on reforming bankruptcy law, which has seen no major reform since 1984. The nine-member independent Commission, created by Congress three years ago, makes no mention of a proposal that has been strongly pushed by business: that debtors with higher incomes should be forced to file under Chapter 13, which requires a repayment plan.
However, the report did recommend that nearly all credit-card debt incurred during the 31 days before filing for bankruptcy under Chapter 7 be forgiven. Current law exempts luxury goods from debt forgiveness.
“The report,” Mullin said in a statement, “has failed dismally to address this growing problem, opting instead to encourage more people to file under Chapter 7, which would extinguish nearly all of their debt. The current system is bad — what the Commission is proposing would make it a disaster.”
In total, bankruptcy losses to creditors nationwide last year reached an estimated $33 billion, with a 28 percent increase in 1996 filings over 1995, according to the NRF. Some 1.1 million people filed bankruptcy in 1996.
The Commission said that because the mandate given it by Congress in 1994 was to “not disturb the fundamental tenets of current law,” no proposals for radical or structural change were offered.
The commission vote on the document was 5-4, and the lack of consensus could affect the weight given the document by Congress, a Senate aide said. The Senate Judiciary Subcommittee on Administrative Oversight, chaired by Sen. Charles Grassley (R., Iowa), plans a hearing today to review the report.
Grassley is writing his own bankruptcy reform, expected to be introduced before Congress adjourns for the year in November. He appears to be more sympathetic to the plight of retailers. “I want to see bankruptcy reform that will help creditors get more of what they are owed and enhance protections for debtors from harsh or abusive conduct by creditors,” Grassley said in a statement.
In a preemptive strike against the recommendations, Kirk R. Simme, vice president, credit, for Charming Shoppes Inc., based in Bensalem, Pa., and Bret W. Levy, vice president, treasurer, Gottshalks, Fresno, Calif., came to Capitol Hill late last week — under NRF auspices — to make the case for better retail protection in bankruptcy reform.
Last year Charming Shoppes suffered more than $10 million in bankruptcy losses, Simme said. The retailer is the 17th largest issuer of private label cards, he said.
“We want Congress to look at a needs-based bankruptcy reform,” Simme said. Under such a reform, consumers who could afford to pay a portion of their debts would be required to do so.
Levy told a story of how a Gottshalks clerk overheard a conversation among two customers, one of whom was on a shopping spree because she was planning to file bankruptcy and under current law would not be responsible for the bills she was running up. “Because of the loyalty of that clerk, the shopper’s activities were reported to store management, and she was stopped,” Levy said.
Retailers also have rallied around a House bankruptcy proposal introduced by Rich Boucher (D., Va.) and Bill McCollum (R., Fla.). The bill would limit the amount of debt relief by basing it on a need-based system. It also would make it tougher for some filers to avoid paying the debts and is aimed at streamlining the bankruptcy process. The amount of relief would be calculated based on a formula that uses a debtor’s income and obligations to determine ability to repay.
The House bill also would prevent people from filing for bankruptcy if they have filed more than once in the previous year and restricts an individual’s ability to buy a large item on secured credit and then declare bankruptcy soon afterwards.

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