Consumer Bankruptcy: How Unsecured Lenders Fare

Abstract

On September 8, 2003, the Payment Cards Center of the Federal Reserve Bank of Philadelphia hosted a workshop on consumer bankruptcy and its effect on unsecured lenders. Professor Melissa Jacoby of Temple University's School of Law led the workshop. A leading bankruptcy scholar, Jacoby described the current bankruptcy system and the potential impact of Chapter 7 reforms on the rights of unsecured creditors. This paper summarizes Jacoby's presentation and the ensuing discussion. It offers a brief overview of consumer bankruptcy and the rights of unsecured creditors that lend money to individuals who ultimately file for bankruptcy. It also discusses the proposed amendments to the bankruptcy code being debated in Congress. Finally, the paper concludes with Jacoby's assessment of how unsecured lenders, such as credit card issuers, would likely be treated in the proposed system.

Keywords: Bankruptcy