Consumer Lending and the Bankruptcy Reform Act of 1978

The Bankruptcy Reform Act of 1978, effective October 1, 1979, is the first complete revision of U.S. bankruptcy law since 1898. Since that time, the enormous growth of the consumer credit industry has paralleled that of the number of consumer bankruptcies. The increase in consumer bankruptcies has placed great strain on the bankruptcy court system, while the diversity and number of consumer debt instruments have made the equitable administration of consumer bankruptcy cases more difficult. The equity issue involves not only rehabilitation of consumer debtors and their right to a “fresh start,” but also the right of creditors to equitable distribution of a debtor’s estate. Apart from important administrative changes in the U.S. bankruptcy code address this equity issue; specifically, they relate to valuation of a debtor’s estate and actions creditors can take against debtors.