RESTORING BANKRUPTCY FAIRNESS.

CONGRESSMAN PETE SESSIONS (R-TX)

Earlier this year, the House of Representatives passed the Bankruptcy Reform Act of 1998 (H.R. 3150), a bill that contains important provisions for the National Apartment Association.

I believe that bankruptcy reform will restore personal responsibility and fairness to our failed bankruptcy system. For too long now, our flawed bankruptcy laws have provided complete debt relief to individuals who have enough income to repay at least some of what they owe. As a result, the overwhelming majority of Americans who pay their bills on time are forced to pick up the tab - to the tune of almost $400 per household - for those who walk away from their debts.

Rental property owners have been particularly affected by bankruptcy filings because of the automatic stay provision. An automatic stay is a petition which suspends virtually all litigation and other action by creditors against a debtor. The reason for this is to provide debtors with a break in payments or suspend eviction action while the debtor works to reorganize or liquidate his assets.

An increasing number of residents have been abusing the protections granted under the Bankruptcy Code by using the automatic stay provision in order to live in their apartments without paying rent. Some residents who file for bankruptcy list their apartments as an asset which is protected by the automatic stay. This is clearly an abuse because the resident does not have a legal interest in the apartment for purposes of bankruptcy reorganization. Although the bankruptcy courts have been reasonable in granting property owners relief from stays, allowing them to evict nonpaying residents, these court actions always take time, often months, during which residents live in the apartments rent-free.

The Bankruptcy Reform Act protects lessors of residential leases, clarifying that the automatic stay does not bar a property owner from recovering rental property due to a resident's bankruptcy filing.

Because of the lost rents incurred by owners, as well as court costs in pursuing these evictions, this change in the bankruptcy code should be a welcome change for the National Apartment Association and its members. In addition, other renters should benefit from this change as well because rental property owners are often forced to pass along some of the costs of these bankruptcy filings, as are other businesses.

The most unfair part of this situation is that those filing for bankruptcy can often afford to pay a portion of their debt. We think of a bankrupt person as someone with no means at all - flat broke and out of work. Folks in that situation need the bankruptcy system. But many of those who file bankruptcy aren't broke many hold jobs, even high-paying ones. Yet, more often than not, they are allowed to walk away from their debts. For some people, bankruptcy has become just another financial management tool.

In Texas, we have an excellent program that could serve as a model for educating the nation's debtors. Our bankruptcy trustees require that people in Chapter 13 attend financial counseling sessions. In return, after completing a repayment plan, they are able to get credit at normal interest rates for homes, cars, and bank cards. The program has been so successful that creditors report above average payment records for these people. A similar counseling provision is included in the House-passed Bankruptcy Reform Act of 1998. I believe it will have a great impact in reversing the rising trend of bankruptcies we've been experiencing.

Property owners have an in-depth look at the financial state of renters. Despite your best efforts at credit scoring a potential resident and the booming economy, there will continue to be bankruptcies. However, as Congress continues to push the Bankruptcy Reform Act through the Senate, we are that much closer to restoring the balance needed. U