ARTICLE: CREDITORS WITH UNCLEAN HANDS AT THE BAR OF THE BANKRUPTCY COURT: A PROPOSAL FOR LEGISLATIVE REFORM. Skip over navigation
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Copyright 1983 New York University Law Review.

New York University Law Review

ARTICLE: CREDITORS WITH UNCLEAN HANDS AT THE BAR OF THE BANKRUPTCY COURT: A PROPOSAL FOR LEGISLATIVE REFORM.

DECEMBER, 1983

New York University Law Review

58 N.Y.U.L. Rev. 1383

Author

LUIZE E. ZUBROW *

Excerpt

INTRODUCTION

This Article proposes modifications of the Bankruptcy Reform Act of 1978 1 (the Act) that would reduce the bankruptcy recovery of creditors that engage in unconscionable collection practices before commencement of the bankruptcy case. 2 Reducing the misbehaving creditor's bankruptcy dividend would augment the bankruptcy estate available to satisfy the claims of conscionable creditors and to afford the debtor 3 a "fresh start," thereby furthering the fundamental goals of the bankruptcy law. Specifically, this Article recommends that Congress enact standards defining what conduct constitutes "creditor overreaching" 4 during the prebankruptcy period. These standards would supplement the inadequate state laws presently incorporated in the Act in a manner that creates uncertainty and the potential for needless, costly litigation.

Despite the labyrinth of nonbankruptcy state and federal consumer credit protection legislation and decisional law, creditor overreaching occurs with frequency. Often the standard form consumer credit contract, drafted by creditors and their attorneys, discourages the debtor from asserting meritorious claims and defenses through confession of judgment clauses, broad definitions of what constitutes default, and waivers of venue favorable to the debtor. 5 In addition, such contracts frequently authorize third-party contacts, irrevocable assignments of the debtor's wages, and the pyramiding of late charges. 6 Other unconscionable prebankruptcy collection practices permissible under state and federal law occur without explicit authorization in the credit agreement. Creditors pressure cosigners who are unaware of the legal consequences of their signatures 7 and contact debtors' employers, soliciting their help in collecting balances due. 8

Bankruptcy ...
 
 
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