Marginal Successes, Revised Expectations, Broken Promises – A Presidency in Review

Part 6: Bankruptcy Relief Extended for Some Military Families

In a July 8, 2008, speech to a Powder Springs, Georgia, audience, Democrat presidential candidate Obama gave his promise to reform existing bankruptcy laws to assist military families in debt.

Obama promised change to the U.S. Bankruptcy Code to create a bankruptcy “fast track” for military service members and their families needing debt relief. At Powder Springs, Obama’s campaign spokesperson, Bill Burton, fed AP reporters this summary of what President Obama would do for debt-ridden military families:

“Protect military service members and their families. If you’re protecting America, America should be protecting you from unfair bankruptcy laws. That’s why Obama will create a ‘fast-track’ bankruptcy process for military families, simplifying the steps and offering greater safeguards.”

These reforms would speed up the bankruptcy process for military families and exempt them from the “harsh means test, unnecessary paperwork, and token counseling.”

This fast track would allow military families to side-step at least two of the procedural requirements of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA), a bill that Senator Obama voted against in 2005. The promised bankruptcy reforms would allow military petitioners to skip over the Means Test, thereby avoiding any presumption of abuse for filing Chapter 7, and also skip the credit counseling – two mandatory requirements for individuals filing Chapter 7 bankruptcy.

Given that credit counseling takes very little time to complete, involves minimal cost (typically less than $50 per person), and may be conducted online from any location, over the telephone, or in person, it is the lesser issue in Obama’s promised reform. Beneficial? Yes. Important reform? No. Avoiding the Means Test, however, would help many military service members qualify for a Chapter 7 Liquidation, thereby avoiding the complexities of a multi-year plan under a Chapter 11 Reorganization or a Chapter 13 Wage Earner reorganization plan. What is significant though, is the absence of any mention of military bankruptcy reform in the Office of the President-Elect’s Obama-Biden Plan...