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March 19, 2001

U.S. Bankruptcy Court Judge Eugene R. Wedoff believes the bankruptcy reform legislation recently approved by the House and Senate comes with good intentions but ultimately will fall short accomplishing its goals.

Judge Wedoff, speaking at the 5th Annual National Collections & Credit Risk Conference in Las Vegas, outlined three major points of the legislation; to prevent wealthy people from discharging all debts by filing for Chapter 7 bankruptcy, to increase the number of consumers who must file for the more strenuous Chapter 13, and to allow poor and moderate income consumers the ability to continue wiping out their debts under Chapter 7.

"The actual impact of the legislation is contrary to these three points," he said, during his Monday morning speech.

Consumers will be able to manipulate the means test that is meant to determine who has the ability to repay some debts under Chapter 13. It can be hard to track "legitimate expenses and consumers will find loopholes, such as deducting all of their secured debt. "It will not be hard for someone making $120,000 a year to find a way to qualify under Chapter 7," Wedoff says.

He added that the legislation has various built-in disincentives for Chapter 13 filing, which ultimately will flip many to Chapter 7. And, low-income debtors could be harmed by the legislation, Wedoff says, because among other things of an expected increased cost of getting legal representation.

Bankruptcy reform next will go to a House/Senate conference committee that will iron out some minor differences between the legislation approved by both bodies. It's expected President Bush will be asked for his signature sometime in April. He is expected to approve the legislation. (03/19)

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