Women and children will likely be the real losers under proposed federal bankruptcy reforms, according to critics of a recently passed bankruptcy bill.
Earlier this month, the U.S. House approved legislation that would make it harder for consumers to discharge their debts. Part of that legislation included child support provisions that would do little to help women secure money owed to them by men who file for bankruptcy protection, said Joan Entmacher, vice president of the National Women's Law Center, a nonprofit organization for women's rights based in Washington, D.C.
Even though the provisions give first priority status to child support claims under Chapter 7 filings, allowing debts to be liquidated, Entmacher said the conditions are meaningless because other parts of the bill elevate claims owed to credit card companies and used car dealerships.
"Women and children will lose out to commercial creditors who are the real winners under the bankruptcy bill," she said. "The important thing to realize is that even today, less than 4 percent of Chapter 7 debtors have any assets to distribute. . . . The bill gives women and children the right to stand first in line to get nothing."
Entmacher, part of a panel of bankruptcy experts who debated the issue Friday in a teleconference sponsored by the Virginia-based American Bankruptcy Institute, said current law requires child support debts to be paid in full before a bankruptcy plan is approved and discharged. However, under the new legislation, more unsecured debts will have to be paid, leaving less money for child support arrears.
"More debts will have to paid under a Chapter 13 plan under this bill in addition to support to families. And the reality is that even now two-thirds of Chapter 13 plans fail."
Chapter 13 allows debts to be repaid over a three- to five-year period.
Yet Philip Strauss, an attorney with the National Child Support Enforcement Association, said the new provisions will provide an enormous service for women and children, who require support during bankruptcy proceedings. He said child support payments through income withholding can be blocked at the time of a bankruptcy filing.
"Currently a Chapter 13 debtor can obtain all of the benefits of bankruptcy and ironically not pay one cent of court-ordered ongoing child support," Strauss said. "The current status of the law puts the debtor's children and very frequently the mother of the children at enormous economic risks when the debtor seeks bankruptcy protection. And the problem, of course, is magnified when these women cannot afford representation."
Strauss said the new provisions will allow collection of child support even after a filing. Roughly 57 percent of child support collections are paid through income withholding, he said.
"Income withholding will cease being affected by bankruptcy. Therefore, when a bankruptcy is filed, even a Chapter 13, there will be no interference with the continued collection of support through that technique."
Still, Entmacher said the problem with the legislation — parts of which she praised for simplifying the procedures for collecting child support — lies not in the domestic support provisions but in the rest of the bill, allowing credit card companies a limited value security interest and right to payment in full.
"These child support provisions are minimal, probably a net loss, not because of what is in the domestic support provisions but because of the rest of the bill is a wish list for commercial creditors," she said. "When you look at other low-income women and children, the bill as a whole is a disaster."
Karen Cordry, an attorney with the National Association of Attorneys General, said the association has not taken a position on the bill but conceded the proposed provisions are an improvement over current law.
"Our view is that whether it passes or not at its very least it should have better provisions dealing with child support and domestic support collection, and we think these have done it."
The House has passed similar bankruptcy reform measures six times during the past three congresses. This is its seventh attempt at overhauling the system.
The National Women's Law Center reports women are the largest group of bankruptcy filers, representing about 39 percent of total filings. That compares to 29 percent of individual filings by men and 32 percent for married couples.
It is estimated that roughly 200,000 women are owed child support by men who file for bankruptcy each year. In addition, more than 200,000 women owed child support are forced into bankruptcy themselves.
"The domestic support provisions do nothing to help them," Entmacher said. "And those women are only a fraction of the more than 1 million women who file for bankruptcy overwhelmingly because of problems related to job loss, medical expenses and family breakups."