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As you read this, champagne corks might still be popping at state and national credit union association headquarters and elsewhere, as bankruptcy reform legislation, as of press time, appeared close to finally becoming reality. Doing something about the steadily rising number of personal bankruptcies and growing bankruptcy abuses has long been at the top of priority lists for CUNA, NAFCU, credit card companies, bankers, and miscellaneous other financial entities. Conspicuous by their absence from the coalition were any consumer groups. The reform process actually got started about eight years ago. Between then and now, it came close to passing several times, in large part thanks to strong and unwavering support from the credit union industry. As long as any proposed legislation contained means testing, reaffirmation, and counseling, credit union lobbyists pushed hard for passage. Credit union industry optimists thought it would be passed each of the past three years. But controversial amendments such as those dealing with abortion managed to kill the proposal each time. Through some very effective lobbying by credit union groups and their pro-reform allies, and some skillful politicking by bill sponsors and committee chairmen, those landmines were brushed aside this time around allowing the bill finally to move through the lawmaking process rather quickly. Was I surprised? In my 2005 prediction column I said the following: “After years of coming close but no cigar, a bankruptcy proposal acceptable to both CUNA and NAFCU will pass relatively easy considering the measure’s past track record. No sooner will it pass than a wide range of groups will cry foul.” Opponents to this particular bankruptcy reform package were voicing their objections and concerns long before an approved bill was being readied for the signature of President Bush. High on their collective list of complaints were the real and perceived loopholes that appear to favor the wealthy. For example, efforts to eliminate a provision that protects assets represented by home ownership failed. Thus, those with smarts can pour a ton of money into a high priced home just before declaring bankruptcy and feel secure that that significant portion of their assets will be off limits as a source of funds to pay back debts. There is and will be a much larger hue and cry by those who saw little if any need for reform, on behalf of those unlucky souls who are hard hit with astronomical medical bills that virtually wipe them out. But in general, the big beef that has already started to hit the talk show circuit is that the Chapter seven doorways will be much harder to get through. Many who would have chosen this route are being factored over to Chapter 13 bankruptcies. The difference is significant. To put it in an oversimplified way, Chapter seven bankruptcies allow those filing to pretty much walk away from their debts while Chapter 13 requires a formula and time talbe for payback. Even in some high profile credit union circles there is little joy for what it took credit unions and their allies so long to accomplish. Among this group there is a fear that credit unions will now be spoken about in the same breath as payday and predatory lenders among others. And, they add, it follows that the very little guy that credit unions have so closely identified with since their inception could very well be the big losers. In other words, a controversial piece of proposed legislation remains controversial as it makes its way into the law of the land. Take the current Credit Union Times Internet poll (www.cutimes.com) as further proof of divided opinions. Of 10 possible choices in response to the poll question, “Do you support bankruptcy legislation?” the number one choice so far is, “Yes, it will force those who can pay back to do so.” Almost tied with the first choice, the second is, “Yes, it will stop people from abusing bankruptcy.” But number three and gaining says, “No, it does nothing to curb abusive lending practices.” In other words, the controversy continues thereby creating a challenge for credit union leaders and officials. As the pros and cons play out over the next few weeks and months, one thing is certain. Credit unions will need to do a Herculean job of educating their own industry regarding exactly what the new law means to credit union members, both those bankruptcy prone and those who pay their bills on time. I have no doubt that the average credit union member, employee, and volunteer, don’t really have a clear understanding regarding what the three provisions really mean that credit union industry lobbyists insisted be included in the final bill to get and keep their support. What does “means test” actually mean? Does it effectively block the scam artists who have used bankruptcy as a way to run up irresponsible debt knowing full well they would at some point bail out via the bankruptcy method? Or does it mean that the lowest wage earner with rock solid reasons for encountering financial turmoil will be drained financially dry to satisfy his or her debts above all else? What does “reaffirmation” really mean other than the simplistic definition of “continuing to pay?” And exactly how does “counseling” work? Are there going to be mandatory classes to attend? Or will a brief chat with a credit union staffer suffice? Getting bankruptcy reform passed was a big job and credit union supporters are to be congratulated for their good intentions and perseverance. But a much bigger job will be to explain exactly how it is supposed to work and in the case of credit unions for sure, make certain, everyone is treated fairly and the scale of justice does not tilt towards those with the big bucks. The price for not doing this is high, a membership that might think credit unions aren’t so different after all, at least when it comes to bankruptcy issues. Comments? Call 1-800-345-9936, Ext. 15, or Fax 561-683-8514, or E-mail [email protected]

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Peter Westerman

Credit Union Times

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