Rewriting the Rules on Bankruptcy

Republicans are reviving a Clinton-vetoed bill making it harder to file for debt relief -- and Bush is ready to sign

Congress is poised to deliver President Bush his first big victory for business: An overhaul of the American bankruptcy system that would make it harder for individuals and some businesses to file for debt relief.

GOP congressional leaders have decided to put bankruptcy legislation on a fast track this session, with plans to send a final measure to the President by spring. A virtual copy of the proposed legislation was approved by comfortable margins in both the House and Senate last year. But President Clinton, who felt the changes would be unfair to ordinary debtors and working families who fall on hard times, vetoed the bill. Bush, on the other hand, endorsed the legislation during the 2000 campaign and is expected to sign it.

This time around, the victory margins will probably deflate -- last year, many Democrats could safely cast yes votes to please their business constituents, knowing that Clinton would never sign the measure. And, as was true last time, there could be scores of attempted amendments. But few doubt that a major reworking of bankruptcy laws will pass this year. "This legislation is on a downward ski slope, never to be stopped," said Representative Sheila Jackson Lee (D-Tex.) at a House Judiciary Committee hearing on Feb. 7.


  The new push comes at a time when bankruptcy filings, after falling 12% from a high of 1.47 million in fiscal year 1998, show signs of ticking up again. One preliminary tally shows filings up about 15% in January over a year ago. Bankruptcy is designed to offer down-and-out businesses and individuals a way to stave off the collectors while they reorganize their affairs. But a powerful alliance of banks, credit-card issuers, and other credit providers complain that too many people are using the bankruptcy system to simply walk away from their debts.

As was true last year, the new bill would establish a "needs-based" bankruptcy process. A formula would determine whether debtors can repay part of their debts under a court-supervised plan rather than have them dissolved. Those earning at or above the median for their area would be required to make good on at least part of their obligations. Before filing, debtors would be required to get credit counseling. "The cost of abusive bankruptcy filings affects everyone who extends or uses credit," Bruce Josten, the U.S. Chamber of Commerce's executive vice-president for government affairs, told the House panel.

Consumer groups, unions, and other opponents have the same objections this year as last. They say the sweeping changes would hurt families hit by job losses, catastrophic medical expenses, or other unforeseeable hardships -- especially now, with the economy slowing. They want single mothers who collect alimony and support payments from bankrupt fathers to get priority treatment in bankruptcy proceedings.


  "At this point, it's reckless to put very stringent bankruptcy provisions on the books," says Travis Plunkett, legislative director of the Consumer Federation of America. "[It] goes against the supposed intent of the bill, which was to truly focus on those abusing the system."

Opponents also complain that the bill does little to hold credit providers accountable for aggressively pushing the availability of debt, by offering credit cards to college students or high-interest loans to the poor and those with bad credit histories, for example. "Is there any responsibility on the part of the credit community?" laments Representative William Delahunt (D-Mass.) "Shame on those that extend that kind of credit."

But for better or worse, it looks like the first major overhaul of bankruptcy law in a decade will be one of George W. Bush's first achievements as President.

By Christopher Schmidt in Washington

Edited by Douglas Harbrecht

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