House Passes Bankruptcy Bill

Racing toward the end of the current session, the House Friday passed major legislation to overhaul the bankruptcy laws and make it tougher for people to erase their debts. The White House renewed its veto threat, and Senate prospects were murky.

The vote was 300-125, splitting the Democrats while the Republicans were in solid support. The measure reconciles sharply different House and Senate bills. The earlier House-passed bill was significantly more stringent than the Senate measure.

Before Friday's House vote, some Democratic lawmakers said the legislation would plunge financially strapped people and families into debt for the rest of their lives.

"Beware, senior citizens; beware, hard-working families," said Rep. Chet Edwards, D-Texas.

While lawmakers in both houses are concerned about the rising tide of personal bankruptcies in a strong economy, prospects for the legislation in the Senate were much less clear.

The number of Americans filing personal bankruptcies last year jumped to almost 1.4 million, up more than 300 percent since 1980.

President Clinton's economic adviser, Gene Sperling, met with Senate GOP backers of the legislation on Thursday to seek a compromise that the president could sign. Both sides reported scant progress in the talks.

The White House raised a veto threat on Thursday and reaffirmed it Friday. Presidential spokesman Joe Lockhart maintained that the package, drafted by House and Senate negotiators in days of closed-door meetings, favors credit card companies at the expense of families, especially single mothers.

In letters to House and Senate leaders, White House Budget Director Jacob Lew said the legislation would impose "a rigid approach that denies bankruptcy judges adequate discretion to decide whether the debtor has the capacity to repay successfully a portion of debts."

Still, Lew added, "We stand ready to work with you and your colleagues to produce (new legislation) that would meet our concerns and the president could sign."

The Clinton administration supports changes in bankruptcy laws and preferred the Senate bill over the House version, but it found the compromise package unacceptable.

Following is a comparison of the different versions of the legislation:

  • House: People who earn at least the median U.S. income would have been required to file for financial reorganization under Chapter 13 of the bankruptcy code, subject to a court-ordered repayment plan, if they could pay back 20 percent of their debt within five years. That would currently cover those with incomes of about $51,000 for a family of four. Credit card companies complain that too many people take shelter under the more lenient Chapter 7, which erases debts, when they could afford to restructure debts under Chapter 13.

  • Senate: Discretion would have been given to the bankruptcy judge, who would have to consider a debtors ability to repay, and Chapter 13 reorganization generally would have been required if the debtor could pay back 30 percent or more within three years.

  • New bill: Judges still would be allowed to determine case-by-case a debtor's ability to repay. But in addition, an IRS standard would be used to estimate living expenses and calculate whether the payback could be 25 percent or more in three years, in which case the debtor would be forced into a Chapter 13 repayment plan. The White House believes that would give inadequate discretion to bankruptcy judges.

As alarm grew over the rising tide of personal bankruptcies and credit card companies mounted an intense lobbying campaign, the House passed its tougher version in June. In contrast to the Senate's near-unanimous approval last month, the House vote was 306-118.

Written By Marcy Gordon, AP Business Writer