H-3667.1  _______________________________________________


                     HOUSE JOINT MEMORIAL 4026



State of Washington      55th Legislature     1998 Regular Session


By Representatives Dunn, Pennington, Mielke and Boldt


Prefiled 01/09/98.  Read first time 01/12/98.  Referred to Committee on Financial Institutions & Insurance.

Requesting United States Congress to enact needs-based consumer bankruptcy reform legislation.


    We, your Memorialists, the Senate and House of Representatives of the State of Washington, in legislative session assembled, respectfully represent and petition as follows:

    WHEREAS, The number of consumer bankruptcy filings reached a record one million one hundred thousand in 1996.  This represents a twenty-six percent increase in 1996 and nearly a fourfold increase since 1980.  During 1996, more than one in every one hundred United States households declared bankruptcy; and

    WHEREAS, Consumer bankruptcies result in billions of dollars in losses each year.  In 1996, due to consumer bankruptcies, the bankcard industry alone lost an estimated six billion dollars, and retail card issuers lost more than one billion dollars; and automobile lenders, mortgage lenders and other consumer lenders also suffered significant bankruptcy losses.  A major portion of these losses must be passed on to all consumers in the form of higher prices for goods and services and increases in credit costs.  In addition, credit grantors are forced to be more restrictive at the margins in offering consumer credit, thus limiting credit availability for many consumers who need it most.  Ultimately, bankruptcy-related losses affect the ability of all Americans to pay their bills and to save and invest for the future; and

    WHEREAS, It was once assumed that bankruptcies reflect general economic trends, the correlation no longer exists.  In 1995, a year of low inflation, low unemployment, and a growing economy, bankruptcies occurred at a rate nearly three times that of 1981, when the economy was in a recession and inflation and unemployment were at record highs.  Although bankruptcies were previously primarily filed by consumers unable to repay debts because of such catastrophic events as costly medical emergencies and unemployment, bankruptcies are increasingly filed by consumers as a form of financial planning, by consumers whose financial difficulties could be addressed with less drastic relief than a discharge of all debts; and

    WHEREAS, Creditors have developed sophisticated credit-scoring methods yielding approximately ninety-seven percent accuracy in granting credit approval to individuals who pay their obligations. Before extending credit, creditors engage in careful risk analysis.  This risk analysis precedes preapproved offers of credit that are mailed to potential customers as well as approval of credit applications received directly from customers.  However, even the best credit-scoring methods cannot predict the increasing number of bankruptcies; and

    WHEREAS, It has been nearly two decades since the last comprehensive revision of the bankruptcy laws.  The Bankruptcy Code needs to be updated to reflect that today's consumers obtain and use credit for an increasingly broad array of goods and services, from groceries to tax payments, and to reflect that today's consumers increasingly look beyond local providers to finance purchases.  The Bankruptcy Code should also reflect the reality that in evaluating applications for credit, today's creditors rely less upon the consumers' collateral and assets and more upon the consumers' record of making payments out of income; and

    WHEREAS, Congress should examine the Bankruptcy Code with view to making changes that would provide for discharges based on true inability to pay, without restricting access to bankruptcy to those who truly need this relief.  Relief should continue to be granted to the extent, but only to the extent, that it is needed.  The Code should both require and encourage consumers to pay their debts to the extent they are able to do so.  There is also a need to address procedural provisions of the Code which delay the prompt resolution of bankruptcy cases;

    NOW, THEREFORE, Your Memorialists respectfully pray that the Congress of the United States enact needs-based consumer bankruptcy reform legislation and establish a system by which consumers receive only the relief they need.

    BE IT RESOLVED, That copies of this Memorial be immediately transmitted to the President of the United States Senate, the Speaker of the House of Representatives, and each member of Congress from the State of Washington.


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