House OKs bill tightening debt rules

Bankruptcy law will make financial fresh starts harder

Bush is eager to sign measure

April 15, 2005|By COX NEWS SERVICE

WASHINGTON - The House gave final approval yesterday to legislation that would make it harder for some consumers to get a fresh financial start through bankruptcy protection.

By a vote of 302-126, the House sent the most sweeping rewrite of the bankruptcy code in a quarter of a century to President Bush, who is eager to sign it into law.

"These common-sense reforms will make the system stronger and better so that more Americans - especially lower-income Americans - have greater access to credit," Bush said.

The financial-services industry has been seeking the law for nearly a decade, and Bush made it part of his legal reform agenda this year.

The measure passed the Senate last month on a 74-25 vote and will become effective six months after the president signs it.

The law would force higher-income consumers to file under a section of the bankruptcy code that requires debtors to participate in repayment plans, rather than one in which a judge can wipe out part of their debts.

It also keeps judges from wiping out some kinds of debts, such as student loans and child support, and restricts the ability of debtors in some states, such as Florida and Texas, to protect their assets by buying a home.

Consumer advocates berated the bill.

"It's not a reform bill; it's a special-interest special," said Travis Plunkett, legislative director of the Consumer Federation of America, a nonprofit research and advocacy group.

"It's a triumph of big banks and other lenders over the public interest. It's going to make it more difficult for families who have suffered genuine financial misfortune to get a fresh start in bankruptcy, and it rewards reckless and sometimes abusive practices by the credit card companies."

Edward L. Yingling, executive vice president of the American Bankers Association, said the measure is "a carefully crafted compromise" that will "ensure that bankruptcy protection is fully available for the neediest Americans, while reining in some filers who wrongly use the system as a financial planning tool."

It is unclear how many Americans will be affected by the new law and whether it will produce a rush to file for bankruptcy before the law takes effect.

The American Bankruptcy Institute estimates that 30,000 to 210,000 people filing for bankruptcy could be forced into debt-repayment schedules under the new law.

Last year, about 1.6 million Americans filed for bankruptcy, a slight decline after several years of steady increases.

Although the new bill received significant bipartisan support in both houses, most of the opposition came from Democrats. They staged delaying tactics on the floor yesterday after the Republican leadership of the House prohibited amendments.

"Once again, the majority has squelched debate for no good reason," said Rep. Alcee L. Hastings, a Florida Democat.

Supporters of the bill, led by Rep. Phil Gingrey, a Georgia Republican, said members have had ample opportunities to amend the measure in the eight years it has been under consideration in Congress.

Expressing the common sentiment of the bill's supporters, Gingrey said, "Bankruptcy reform is about financial accountability. ... It should be available for legitimate emergencies only."

Banks and credit card companies have long argued that they have been victimized by people who deliberately run up debts - or buy mansions in states with liberal homestead exemptions - with the intention of seeking using the bankruptcy laws to protect those assets.

"This bill will help stop fraudulent, abusive, and opportunistic bankruptcy claims by closing various loopholes and incentives that have produced steadily cascading bankruptcy claims," said Rep. F. James Sensenbrenner Jr., the Wisconsin Republican who chairs the House Judiciary Committee.

Rep. David Dreier, a California Republican, said the legislation will save families an average $400 a year in higher interest rates because companies will no longer have to recoup losses from those who abuse bankruptcy proceedings.

Opponents contend that the measure is too harsh on Americans who go into debt because they lost their job or encounter a health crisis in the family.

"This is the most special interest-invested bill that I have ever dealt with in my career in Congress," said Rep. John Conyers Jr. of Michigan, a 41-year House veteran who is the senior Democrat on the Judiciary Committee. "It massively tilts the playing field in favor of banks and credit card companies and against working people and their families."

Enactment of the law will mark the second major pro-business legislative victory in the early months of Bush's second term in the White House.

Earlier, Congress passed legislation to give federal courts jurisdiction in some class action lawsuits.

Congress is nearing a vote on another major objective of the GOP, the permanent repeal of the tax on million-dollar estates, prompting the liberal group MoveOn to target supporters of the bankruptcy measure with critical radio ads.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.