Bankruptcy News

Senate Passes Schumer Amendment To Bankruptcy Bill To Crack Down On Predatory Loans

Measure Forces Predatory Lenders To Pass Along Liability To Buyers of Loans During Chapter 11 Proceedings, Making it More Difficult to Discharge Assets

The US Senate unanimously accepted an amendment to the Bankruptcy Reform Act of 2001 this evening proposed by US Senator Charles E. Schumer that will prevent predatory lenders from using bankruptcy law to shield themselves from liability and cut off consumer claims and defenses.

Schumer's amendment protects consumers from purchasers of predatory loans who know the consumer's rights to recover are terminated with the loan's sale. In essence, the amendment precludes lenders from "laundering" dirty loans through bankruptcy.

"Predatory lenders are able to rob homeowners of their livelihoods and then hide behind our bankruptcy laws and pass off their bad loans to other buyers," said Schumer. "My amendment makes that much harder. The consumer retains her rights regardless of who buys the loan or the original lender remains liable. Either way, the consumer can recover."

In recent months, several large subprime lenders have sold their loans in bankruptcy court without passing along the liability that comes with making predatory loans to the new buyer. As a result, the predatory lender is able to discharge its liability without incurring penalties and consumers who later attempt to challenge these loans are told the buyer and the original predatory lender are both free from liability.

"By making banks and other loan buyers liable for violations of federal fair lending laws, buyers will use more discretion when buying loans and predatory lenders won't be able to get off the hook so easily," said Schumer. "Right now, two wrongs take place: when the predatory loan itself is made and when the predatory lender passes off the loan in bankruptcy proceedings and the consumer loses the right to recover. This amendment, potentially, could correct both."

The amendment will be included in the final Senate version of the bankruptcy reform bill which will be voted on later this week. The final Senate version will then go to a joint House-Senate conference committee that will reconcile the differences between the two versions of the bills. Schumer will sit on the conference committee.

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	Did You Know?
	Can Co-Signers Be Protected If you file Chapter 7 bankruptcy, the creditor can proceed against your co-signers, according to the terms of the debt agreement. However, if you file a Chapter 13 debt adjustment, a co-signer is protected if the following conditions are met. The debt must be a consumer debt. Also, the debt may not be incurred in the ordinary course of business, and the co-signer cannot benefit from the proceeds of the debt.