Bankruptcy Bill Nears Passage -- Again
It seems a bill that would make it more difficult for consumers to avoid paying off credit card debts by filing for personal bankruptcy has more lives than a B-movie monster.
In a rush to wrap up its legislative business before the summer break, lawmakers on Capitol Hill seem poised finally to enact a bankruptcy reform bill that has come close to becoming law on at least four other occasions. And if approved, the bill would be a big victory for the credit card and banking industries, which have given millions of dollars in campaign contributions to both political parties over the past few years.
In theory, the proposal would mean more revenue for big credit card issuers such as MBNA (KRB), Citigroup (C) and Bank One (ONE), because it would force some individuals filing for bankruptcy to continue paying off a portion of their credit card debts. Bankruptcy judges would employ a "means test" to determine whether an individual has the financial resources to pay back up to 25% of his debts -- or between $10,000 and $15,000 -- over a five-year period.
That's an important change from the current law, which permits individuals to essentially erase all their unsecured debts, which typically include things like credit card debts, utility bills and some auto loans.
Stocks JumpIndeed, news that congressional negotiators had reached a tentative agreement late Thursday on a bankruptcy bill helped prop up shares of MBNA, the nation's biggest credit card company, which rose 68 cents, or 4.19%, to $16.90. The Wilmington, Del.-based company has been one of the most forceful corporate lobbyists for the bankruptcy proposal and was a big contributor to the 2000 presidential campaign of President Bush, who has supported the reform measure in the past. But despite the aggressive lobbying by financial-services firms like MBNA, many industry experts say the bankruptcy reform bill won't be as big a boon to the income statements of credit-card lenders as some investors may think. "We're making no changes in our estimates," said Fox-Pitt Kelton financial-services analyst Reilly Tierney. Tierney says card companies such as MBNA are not likely to see more than a 5%-10% reduction in the dollar value of the credit-card debts they write off each year due to personal bankruptcy filings. And while that's not an insignificant number, he says no credit card company is likely to experience a revenue bonanza from the changes in the bankruptcy law.
Small MinorityIndeed, a study last year by the American Bankruptcy Institute found that only 3% of personal bankruptcy filers would probably qualify under the means test and be required to continue making partial payments on their unsecured debts.
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