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as looking primarily to whether a debtor had acted in bad faith in failing to make loan payments before filing bankruptcy. Another “best interpretations” recommendation was that student loans be subject to separate classification in Chapter 13 plans so that debtors might be able to pay some part of such debts in their plans. On the legislative level, the recommendations included that Congress should allow discharge of student loans under the pre-1987 “seven-year rule;” in other words, if a debtor has been unable to repay the debt within seven years of when it first became payable, the debt should be dischargeable without necessity of proving undue hardship. Prior to the seven-year period, the undue hardship test would still apply. Other legislative recommendations included that section 523(a)(8) of the Bankruptcy Code should only apply to student loans made, guaranteed or insured by a governmental unit, with nongovernmental loans given no protection from discharge.
Other Chapter 13 recommendations included increasing the debt limit for Chapter 13 relief to three million dollars and eliminating the distinction between secured and unsecured debt, and that the limit would apply to each debtor in a joint filing. The Commission encouraged courts to allow plans to create a reserve fund in a reasonable amount, so that debtor who incur an emergency expense would have some ability to pay the expense without impairing ongoing plan payments.
Racial justice in bankruptcy has received attention in the press and academic studies, illustrating that African Americans are both disproportionately more likely to file Chapter 13 and less likely to obtain discharge than debtors of other races, and the Commission encouraged several actions to ensure that all individuals have equal access to justice in the bankruptcy system.
The Commission also submitted suggested changes to Federal Rule of Bankruptcy Procedure 3002.1 prior to the release of the Final Report, because the Commission was aware that the National Association of Chapter 13 Trustees (“NACTT”) was submitting similar changes to the Advisory Committee on Bankruptcy Rules, and that Committee is currently studying both the Commission’s and NACTT’s recommendations for that Rule. Other Rule proposals are found throughout the Commission’s Final Report.
The Commissioners sought to reach consensus on the various issues found in the Final Report, but consensus was not always possible. For example, the Commission could not agree on a single solution to the current difficulties of payment of fees faced by attorneys representing debtors in need of Chapter 7 relief, but the Report suggests alternatives that Congress should consider.
The Report does not necessarily represent the views of any individual member of a committee or the Commission; rather, the Report describes a deliberative process in which difficult issues were fully examined, discussed and then considered in formulation of the Commission’s recommendations.
In seminar presentations subsequent to the release of the Final Report in April, a frequent question is related to expectations of actions that may be taken on the various recommendations found in the Report. Activity is occurring on various levels. Commissioners have testified before congressional committees on some of the recommendations contained in the Report, such as student loan issues, Chapter 7 trustee compensation, and in support of the HAVEN Act and other protections for veterans. Several proposed changes to the Federal Rules of Bankruptcy Procedure were part of the Report’s recommendations, and the Advisory Committee on Bankruptcy Rules is currently considering some of those proposals, including changes to Bankruptcy Rule 3002.1. One or more of the Commission’s recommendations have been cited in court opinions, and references to the Report by various courts is expected to continue. As with ABI’s Chapter 11 Commission, immediate adoption by Congress, courts or administrative agencies of the Consumer Commission’s report was never expected; instead, the Commission saw its work as part of a law-reform contribution to long-term improvements in the consumer bankruptcy system. As that process continues, the Final Report itself is an excellent research tool, thanks to the outstanding work of the Commission’s Reporter, Professor Robert M. Lawless of the University of Illinois College of Law.