WASHINGTON – Comprehensive bankruptcy reform legislation championed by Sen. Chuck Grassley was signed into law today. Grassley first began investigating possible reform to the bankruptcy code in 1994 when he coauthored a law with the late Sen. Howell Heflin, of Alabama, that created the National Bankruptcy Review Commission.

"I’ve been working for years to make common sense reforms to the current bankruptcy system so that people who are responsible and pay their bills on time don’t have to subsidize the irresponsible actions of a few," Grassley said. "The President signing this bill into law is the product of many years of hard work."

The bankruptcy bill sets up a flexible means test to assess an individual's ability to repay their debts. The formula takes into account whether the filer earns more than the state median income and can repay at least $100 a month of their unsecured debt over five years. Legitimate expenses, such as food, shelter, clothing, medical, transportation, attorneys' fees and charitable contributions, are taken into account in this analysis.

The means test allows every consumer to show "special circumstances," so that they wouldn’t have to enter a repayment plan if they are in bankruptcy by no fault of their own. The means test also allows battered women to deduct domestic violence expenses and protects their privacy.

"The bankruptcy bill preserves a fresh start for people who are overwhelmed by medical debts, loss of a job, or sudden unforeseen emergencies. It also makes sure that the poor are protected by exempting entirely people who earn less than the median income for their state. The end result is that people who earn below the median income can still file under Chapter 7, but the free ride is over for people who have higher incomes and can repay their debts." Grassley said.

The bill also strengthens protections for child support and alimony payments by giving family support obligations a higher priority in bankruptcy. In the bill, parents and state child support enforcement collection agencies are given notice when a debtor who owes child support or alimony files for bankruptcy. It also requires bankruptcy trustees to notify child support creditors of their right to use state child support enforcement agencies to collect outstanding amounts due.

Grassley also included a provision to make a Chapter 12 a permanent section of the bankruptcy code. Chapter 12 is tailored to help farmers reorganize debt and stay in the business of farming.

Chapter 12 was first written to help family farmers survive the Great Depression. The law expired in the early 1950s. During the farm crisis in the mid-1980s, Grassley worked to bring back this safety net for family farmers facing economic collapse.

It addresses the unique risks associated with a family farming operation. Chapter 12 gives financially-strapped farmers a cushion to reorganize debt without the consent of creditors. And unlike Chapter 7, which is a form of liquidation under the bankruptcy code, a farmer seeking bankruptcy protection doesn't have to surrender the farm to creditors if he is able to make rental payments.

The bill would also expand family farmer eligibility for Chapter 12 bankruptcy protection and reduce the capital gains tax burden for farm assets sold as part of a reorganization plan. This would allow farmers to sell grain, livestock and other farm assets to generate cash flow which is essential to maintaining a farm operation.

The bill also requires credit card companies to disclose the dangers of making only minimum payments and prohibits deceptive advertising of low introductory rates. It strengthens enforcement and penalties against abusive creditors for predatory debt collection practices. And, it establishes new education and counseling programs to teach financial management and punishes IRS and other creditors who refuse to negotiate out-of-court repayment plans.

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