Bankruptcy overhaul set to be enacted

Changes would force filers to pay back some debt

A top item on GOP agenda

Republicans overcome Democratic hurdles

March 09, 2005|By Mary Curtius | Mary Curtius,LOS ANGELES TIMES

WASHINGTON - A sweeping overhaul of bankruptcy rules long sought by credit card companies and banks seemed poised to become law after two key Senate votes yesterday.

The legislation, a top item on the Republican agenda, would force more people to pay back some of their debts if they file for bankruptcy.

The GOP appeared to have overcome the final hurdles to the bill's enactment in the Senate votes yesterday - one that defeated an abortion-related amendment to the measure and another that set a limit on further debate.

The votes paved the way for the bill to pass the Senate as early as today. In the House, GOP leaders have promised to act quickly on the bill if it is sent to them without major amendments, as appears likely.

Proponents say the bill would stem abuses of bankruptcy law by some debtors and cause more Americans to be financially responsible. They have noted that 1.6 million Americans filed for bankruptcy last year, compared with slightly fewer than 300,000 in 1985.

Loopholes for rich?

Critics say the bill would fail to protect those who have been wiped out by crushing medical bills or other unforeseen calamities and that the wealthy would still benefit from loopholes in the law.

Even after their victories yesterday, some Republicans noted that similar legislation passed the Senate on three previous occasions but failed to become law. Sen. Jeff Sessions, an Alabama Republican, said the bankruptcy legislation had taught him "a political lesson - No matter how much support a bill has ... things can go awry."

Still, GOP leaders expressed confidence that this time, after eight years of effort by its supporters, the measure would become law.

"It's quite exciting," said Sen. Majority Whip Mitch McConnell, a Kentucky Republican. "It's been a very good day."

The bill's core provisions would impose a "means test" on debtors to determine whether they had enough assets to pay back at least some of their debts. Those filing for bankruptcy whose annual household income falls below the median level in their state would be able to apply for complete debt forgiveness.

Those who make above the median would have to develop a repayment plan.

Left to the states

Republicans said that those saddled with crippling medical bills would be protected by the means test, and said it should be left to the states to decide how much of a home's value should be protected from seizure during bankruptcy. Democrats lost a bid to protect $150,000 of the value of homes owned by persons facing medical hardships from being seized by bankruptcy courts to pay creditors.

The White House supports the legislation, and its passage would be an important political victory for President Bush at a time when he is struggling to build support for Social Security reform with a skeptical public and skittish GOP lawmakers.

During more than a week of debate, Democrats put forth a series of amendments to the bill that were defeated, largely along party lines. These included proposals to exempt seniors and those facing medical hardship from some of its provisions, as well as a bid to increase the federal minimum wage.

Greatest threat

But Republicans considered the abortion-related amendment offered by Sen. Charles E. Schumer, a New York Democrat, the greatest threat to the bill.

The amendment would have barred violent protesters from filing for bankruptcy to avoid paying court-ordered fines for their actions. Although it would have applied to any such protester, it was spurred by reports in the late 1990s that some anti-abortion activists were deliberately divesting themselves of assets before taking part in illegal protests.

A similar amendment passed by a wide margin in the Senate's 2001 version of the bankruptcy bill. But the provision sparked controversy in the House among abortion foes, and that thwarted the legislation.

Abortion-rights groups had portrayed yesterday's vote on Schumer's amendment as the first test of how the Senate, with its increased Republican majority after November's elections, can be expected to act on abortion-related legislation this year.

"What it says is, it's uphill sledding" for abortion-rights advocates, Sen. Dianne Feinstein, a California Democrat, said after the amendment was defeated, 53-46.

The bankruptcy bill is the second in a series of bills backed by Republicans that they say are necessary to end abuse of the legal system. The first - passed by Congress last month and signed into law by Bush - shifted many class-action lawsuits out of state courts and into federal courts, where supporters say judges are more conservative in awarding damages.

Future debates are expected on a bill that would put caps on liability payments in medical malpractice cases and another that would protect businesses from an avalanche of asbestos-related lawsuits by creating a trust fund to pay claims to victims. Still another measure would limit the liability of gun manufacturers whose weapons are used to commit crimes.

Schumer and Sen. Edward M. Kennedy, a Massachusetts Democrat, had indicated that they might push for a filibuster. But not enough Democrats decided to join that effort. Some said the party might resort to a filibuster for more important fights over Social Security, some judicial nominees and tax reform.

The Los Angeles Times is a Tribune Publishing newspaper.

The legislation

Purpose: To reduce bankruptcy abuses, primarily through "needs-based relief." It would allow a bankruptcy court to force an individual to repay more debt than is now required.

What it does: A "means test" would measure people's income and assets against median income in their state. Those with insufficient assets or income could file under Chapter 7, which erases debts after certain assets are forfeited. Those with income 25 percent above the state's median income would be forced into Chapter 13 and a repayment plan.

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