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Bankruptcy overhaul sails through House

The GOP solidly backs the bill making it harder for people to wipe out debt. Democrats are split.

©New York Times

© St. Petersburg Times, published March 2, 2001

WASHINGTON -- The House on Thursday overwhelmingly approved a bill championed by the banking industry and credit card companies that will overhaul the nation's bankruptcy system and make it much harder for people to wipe out their debts.

The bill, which may be the first major piece of legislation to be signed by President Bush, still must be approved in the Senate, where Democrats are vowing to amend it significantly to make it less onerous on debtors.

President Clinton vetoed a nearly identical bill in his final weeks in office, describing it as anti-consumer. Bush has indicated that he would sign the bill, the most sweeping overhaul of bankruptcy laws in 20 years, if it reached his desk.

The vote in the House was 306-108, with majority Republicans solidly in support and Democrats split in their votes. The full Senate is expected to begin debating its version of the bill on Monday.

In urging support for the bill, its House Republican sponsors said that the legislation would end abuses of the bankruptcy system by debtors who are able to repay some of their loans. "Bankruptcy should never be an item of financial planning," said Rep. James Sensenbrenner, R-Wis., who is chairman of the House Judiciary Committee.

Supporters contend the legislation is needed to stem a tide of bankruptcy filings and abuse of the court system. They say bankruptcy abuse creates a hidden tax of about $400 a year on every American family through higher interest rates passed on by consumer credit businesses and other charges.

The legislation "strikes the proper balance" between debtors and creditors, Rep. Dave Weldon, R-Fla., said in debate before the vote. "It is a good bill and it protects consumers."

Opponents portrayed the bill as a gift to the banking and credit card industries, which produced major donations last year for Bush's presidential campaign and other political candidates, Democrats and Republicans alike. The opponents said that the legislation would be disastrous for workers with good credit histories who might lose their jobs if the economy continues to sour.

Rep. Jerrold Nadler, D-N.Y., said the bill was "rotten" and the result of intense lobbying pressure on members of Congress by the financial industry. "It is a wish list of every big-money special interest group," he said.

The bill would disqualify many debtors from filing for what is known as a Chapter 7 bankruptcy, which allows them to wipe out credit card debts and other unsecured loans, and force them into Chapter 13, which requires some repayment.

Supporters say the overhaul would end abuses by debtors who continue to have high incomes after bankruptcy and can pay off much of what they owe.

"More Americans file for bankruptcy than graduate from college each year," said Thomas Donohue, president of the U.S. Chamber of Commerce, in welcoming the House vote. "Congress needs to send a message to wealthy debtors that it's time to pay their bills."

Opponents point out that most people who enter bankruptcy do not have high incomes -- a 1999 study by federal judges found the median income of debtors seeking bankruptcy was $21,500 -- and that the bill would put credit card companies on an equal footing with women and children in seeking the assets of bankrupt fathers.

"The American people should know that a debtor can live in a mansion in Florida worth millions . . . and not worry," said Rep. William Delahunt, D-Mass. But, he added, "If you are barely making it . . . woe is you: Those credit card companies will be able to chase you forever."

New data by the Administrative Office of the U.S. Courts show that personal bankruptcy filings fell from a peak of about 1.4-million in 1998 to 1.3-million in 1999 and to 1.2-million last year.

Opponents of the legislation have cited the decline in filings as lessening the need for a bill.

In a related move Wednesday, the House overwhelmingly passed a bill to allow farmers filing for bankruptcy to continue to receive special protection so they would not have to sell their equipment.

- Information from the Associated Press was used in this report.

Legislation highlights

Applies a new standard for determining whether people filing for bankruptcy should be forced to repay their debts under a court-approved reorganization plan rather than having them dissolved. If a debtor is found to have sufficient income to repay at least 25 percent of the debt over five years, a reorganization plan generally would be required.

Limits repeat bankruptcy filings.

Requires debtors to participate in credit counseling programs before they file for bankruptcy court protection unless special circumstances prevent it. Credit counselors generally inform consumers about the consequences of bankruptcy, such as its potential impact on a debtor's credit rating, and provide guidance on managing finances.

Gives highest priority among debts to child support payments, putting them ahead of credit card debt and other obligations.

Blocks foreign courts from collecting judgments against U.S. investors if the investors can demonstrate they were victims of misrepresentations or omissions from 1975 through 1994.

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