We at CUNA are encouraged at the alacrity with which bankruptcyreform has come to the forefront. Nearly overnight, the long-soughtlegislation has been brought up in first the Senate (see relatedstory on page 4), and then the House. We are optimistic that thisyear may finally be the one in which reform becomes reality. Yet,our optimism is tempered by today's reality, as there are stillsome major hurdles ahead. Yet those hurdles, plus the many years ofwork we have already put in, make it all the more important that wedo everything we can to ensure that the balance of events does nottilt in the wrong direction and derail this latest run at theseneeded changes. Credit unions recognize that many peoplelegitimately need the option to declare bankruptcy. What concernsus, however, are the cases of abuse by those who file Chapter 7 andtotally walk away from their debt, even though they clearly havethe ability to repay all or part of that debt. In seeking reform ofbankruptcy laws, CUNA has consistently held three top priorities: Aneeds-based formula, mandatory financial education, and maintainingthe ability of credit union members to voluntarily reaffirm theirdebts. The legislation before Congress now (which could be debatedon the floor of the Senate during our Governmental AffairsConference), while a product of compromise, does a good job ofbalancing these issues. We strongly urge the 109th Congress to passthis compromise bill as soon as possible. Any further dilutions mayresult in this bill not addressing the real bankruptcy problemsfacing America's consumers. Let me put that into perspective:Nationwide non-business bankruptcy filings were nearly 1.21 millionin the first nine months of 2004. While final full-year data is notyet available, the results from the first nine months suggest thatfull-year filings will exceed 1.61 million – nearly equaling the1.62 million record level set in 2003. The 2004 total is likely tobe about 15 lower than in 2003, but the slight slow-down isn'tsurprising given the improving economy. However, viewed in abroader historical context the results are disturbing: 1.21 millionfilings is one-third higher than the 2000 total, over double thenational total recorded in 1994 and six times higher than the totalin 1984. Furthermore, the current near-record level of filings hasoccurred in a sharply improving economy. The U.S. economy grew 4.4%in 2004, its fastest increase since 1999. The U.S. unemploymentrate averaged 5.2% in 2004, its lowest showing since 2001. While weexpect the economy to continue to grow at a healthy pace, we alsoexpect bankruptcy filings to rise as higher market interest ratesimpose a heavier debt service burden on the nation's consumers.Household debt levels are at all-time highs and debt serviceburdens (the amount of take home pay consumers devote to payingdebts) are near all-time highs. Credit unions continue to be veryconcerned about these trends because their experiences with creditunion members who file mirror the national experience. Data fromcredit union call reports to the National Credit UnionAdministration (NCUA) suggest that roughly 275,000 credit unionmember-borrowers will have filed in 2004 – a record number. Thisfigure is 40% higher than the level of filings we witnessed in2000. In addition, CUNA estimates that more than 40% of all creditunion losses in 2004 will be bankruptcy-related, and those losseswill total approximately $900 million. Credit unions, for the mostpart, are careful lenders. They cannot afford to be otherwise. Butthey also, for the most part, make every effort to work with theirmembers by letting them know the credit union is there to help themthrough their financial difficulties. That's why credit unionssupport the legislation with the three key elements: *We supportfinancial counseling because it clearly is valuable to the creditunion and the member. According to a recent CUNA bankruptcy survey,70% of credit unions counsel financially troubled members at thecredit union. A similar percentage of credit unions may also refermembers to an outside financial counseling organization, such asthe Consumer Credit Counseling Service (CCCS), and many do both.Any sensible bankruptcy reform (as does the current legislation)should include education requirements to give debtors the toolsthey need to make wise decisions about filing for bankruptcy and tosucceed financially after bankruptcy. *We support reaffirmationsbecause it reduces losses that ultimately affect the membership asa whole. Because CUs are not-for-profit financial cooperatives,losses have a direct impact on the entire membership due to apotential increase to loan rates or decrease in dividends/intereston savings. Reaffirmations keep the credit union and its membersfrom suffering a loss, and has the further benefit of maintainingthe member's access to financial services and the reasonably pricedcredit that credit unions offer. *We support “needs-basedbankruptcy” because it ensures that those who truly can repay allor some part of their debts will be required to do so under Chapter13 (rather than have all of their debts erased, as under Chapter 7bankruptcy). Truly, this is the heart of the legislation – it takesdirect aim at those who abuse the system. And that is a problemthat continues to draw concern. As pointed out in the 2002 reportof the U.S. Trustee Program (the component of the Department ofJustice responsible for overseeing the administration of bankruptcycases and private trustees), “one of the Program's most criticalresponsibilities is to combat fraud and abuse in the bankruptcysystem . This effort was undertaken to respond to mounting publicconcern that the bankruptcy system was being abused and that moreshould be done to protect the system by identifying and takingaction against such wrongdoers.” Credit unions are on the rightside of this issue, and have the right positions in buildingsupport for ultimate passage of legislation addressing this issue.While CUNA will continue to work vigorously on achieving otherlegislative goals – including passage of regulatory relief in theform of a new CURIA-like bill, for example – we are deeplyencouraged by the Congress' action on this long-standing goal forcredit unions. We will continue to work diligently for bankruptcyreform.