House Vote On Tougher Bankruptcy Law
Congress has breathed new life into legislation that would make it more difficult for consumers to erase their debts in bankruptcy court.
The measure was coming before the Republican-dominated House on Wednesday after speeding through a hearing, drafting session and party-line vote this month in the Judiciary Committee. It had failed last year because of a dispute over bankruptcy provisions affecting anti-abortion protesters.
Banks, credit card companies and retailers have pushed since 1997 for the legislation, which the House was voting on Wednesday. The record pace of new personal bankruptcies in 2002 is expected to continue this year.
The vote follows House passage last week of another pro-business measure, a bill designed to limit jury awards in medical malpractice cases by capping at $250,000 non-economic damages - such as compensation for loss of a limb or sight.
Lawmakers of both parties - and President Bush - support an overhaul of the federal bankruptcy laws. Consumer and civil rights groups and unions oppose it, saying it is unfair to low-income working people and would remove a safety net for those who have lost their jobs or face mounting medical bills.
In the Senate, Judiciary Committee Chairman Orrin Hatch, R-Utah, has promised to move quickly on the bankruptcy legislation. But it isn't clear whether proponents in the closely divided body would be able to muster the 60 votes needed to proceed to a vote on the bill.
Last week, the House Judiciary Committee's 18-11 vote approving the bill was a victory for the Republican majority. Democrats voted against the bill because they wanted it to have a provision barring anti-abortion protesters from using bankruptcy laws to avoid paying court fines.
Inclusion of that provision in last year's legislation had led conservative anti-abortion Republicans to join with those House Democrats who oppose overhauling bankruptcy laws. The bill that ultimately failed was a House-Senate compromise that came the closest to passage of any of the six previous years' versions.
More than 225 groups, including the AFL-CIO, Consumer Federation of America, church groups, the NAACP, the National Organization for Women and Public Interest Research Group, signed a letter recently to House leaders asking them to reject the new bill as written.
"At a time when many Americans have been harmed by a very shaky economy and a massive wave of corporate scandals, moving forward ... would be a mistake," the groups said. "Rising bankruptcies are driven by economic difficulties. The timing of this bill could not be worse."
Proponents of the legislation say it is needed to stop abuse of the bankruptcy system by people who can afford to repay their debts. The abuse, they say, 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.
Under current law, Chapter 7 of the U.S. Bankruptcy Code allows people to erase their credit-card and other debts, usually in exchange for giving up some personal assets. Filings under Chapter 13 force people to repay debts over time in accordance with a court-approved plan.
A bankruptcy judge or a private attorney appointed by the Justice Department usually decides whether someone qualifies for dissolution of debts or should be forced to repay under a reorganization plan.
The legislation would apply a new standard in which, if a debtor had sufficient income to repay at least 25 percent of the debt over five years or earned at least the median income for his state, he or she would be forced into a Chapter 13 repayment plan.
By Marcy Gordon