Congress slamming door on some bankruptcies

Congress is likely to make the most sweeping bankruptcy changes in more than 25 years, making it more difficult for individuals to wipe out debt. Yesterday's 74-25 Senate vote in favor of the bill that would restrict bankruptcies was propelled by a 55-member Republican majority who voted in unison, joined by 18 Democrats and one independent.

The legislation was blasted by consumer groups and the majority of Senate Democrats, who say most people filing for bankruptcy protection were forced into it by medical crises, job loss or divorce — not irresponsible spending. Critics said the bill would be unduly harsh on ordinary debtors, without closing loopholes still open to wealthy debtors and corporations.

Congress slamming door on some bankruptcies
By Seattle Times news services

WASHINGTON — Congress is likely to make the most sweeping bankruptcy changes in more than 25 years, making it more difficult for individuals to wipe out debt.

Yesterday's 74-25 Senate vote in favor of the bill that would restrict bankruptcies was propelled by a 55-member Republican majority who voted in unison, joined by 18 Democrats and one independent. Sens. Patty Murray and Maria Cantwell, D-Wash., voted against the measure.

House Republican leaders have promised to take up the bill as early as next week — and to deliver the votes to pass it. That commitment was based on the Senate keeping the bill free of major new amendments. President Bush has said he would sign the bill.

Each year, somewhere between 30,000 and 210,000 people — from 3.5 percent to 20 percent of those who currently dissolve their debts in bankruptcy — would be disqualified from doing so under the legislation, according to the American Bankruptcy Institute, a group of bankruptcy judges, lawyers and other experts.

The legislation was blasted by consumer groups and the majority of Senate Democrats, who say most people filing for bankruptcy protection were forced into it by medical crises, job loss or divorce — not irresponsible spending. Critics said the bill would be unduly harsh on ordinary debtors, without closing loopholes still open to wealthy debtors and corporations.

"All that matters in this bill is for the credit-card companies to have more profits," said Sen. Ted Kennedy, D-Mass.
Democrats tried unsuccessfully to amend the bill to exempt veterans, active-duty troops, senior citizens and families facing staggering medical bills. Republicans shot down dozens of proposed amendments, including efforts to link the bill to a minimum-wage increase, an abortion provision and an effort to cap credit-card interest rates.

Sen. Joe Biden, D-Del., who sided against his party to support the bill, argued that it would fix serious problems with the bankruptcy system, including a provision that allowed debtors to stop paying child support if they filed for bankruptcy protection.

Wall Street investment bankers won a provision that would enable banks to advise companies both before and after bankruptcy filings. Securities and Exchange Commission Chairman William Donaldson opposed that aspect of the bill; he said it would undermine investor confidence already shaken by the Enron, WorldCom and other corporate scandals.

The legislation would represent the second major victory for big business in Bush's second term, following passage last month of legislation intended to curb class-action lawsuits against corporations.

The president would like to follow up with curbs on asbestos lawsuits and caps on medical-malpractice awards, but those efforts face a tougher sell.

"I applaud the strong bipartisan vote in the Senate to curb abuses of the bankruptcy system," the president said in a statement. "Reforming the system with this common-sense approach, more Americans — especially lower-income Americans — will have greater access to credit."

The Senate-passed bill would require many consumers filing for bankruptcy-court protection to repay a portion of their debt under Chapter 13 of the bankruptcy code rather than allowing them to erase it almost entirely.

"It will have a real impact on real people all over this country," said Sen. Russ Feingold, D-Wis.

The bank, credit-card and retail industries, which have pushed for the legislation for more than seven years, argue that changes to current law are needed to end abuse of the system by consumers who shirk their financial obligations when they could repay a portion of what they owe.

"Those who can pay their bills should pay their bills. That's the American way," said Sen. Orrin Hatch, a Utah Republican.

Compiled from The Associated Press, The Washington Post, Gannett News Service and Reuters. Copyright
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