Bankruptcy Requirements to Get Tougher

WASHINGTON —  Congress gave final approval Thursday to new bankruptcy rules that would require a larger number of insolvent Americans to pay back at least some of their debts, a change that proponents said would curb abuses and that critics argued would tighten the screws on hard-pressed families.

The bankruptcy legislation has been a priority of credit card companies for about a decade, and it is the first rewrite of the bankruptcy code in a quarter of a century.

It passed the House of Representatives by a vote of 302 to 126. The Senate approved it last month, 74 to 25.

President Bush expressed support for the bill and said he would sign it into law.

“These common-sense reforms will make the system stronger and better so that more Americans -- especially lower-income Americans -- have greater access to credit,” Bush said in a statement.

The legislation would impose a new means test on Americans who filed for bankruptcy protection. Those with incomes above the median for their state, and who can pay at least $6,000 over five years, would have to develop a plan to repay creditors.

Under current law, they have the option of asking a bankruptcy judge to erase their debts in return for forfeiting some of their assets. The median household income in California is about $50,000.

The new law also would require those who go into bankruptcy protection to receive credit counseling.

Democrats split on the legislation, with about one-third -- six of them from California -- voting with Republicans in favor of the bill.

“I believe bankruptcy should be a last resort allowing people who need protection to receive it and people who can repay all or some of their debts to do so,” said Rep. Ellen O. Tauscher (D-Walnut Creek), who voted for the bill. “Our current system isn’t good for consumers, families or a society that values individual responsibility.”

Others argued that the legislation would undermine a fundamental principle of bankruptcy law dating back centuries: that debtors, especially those hobbled by misfortune, should be given a fresh start in their economic lives. Although their remaining assets can be seized to pay debts, their future earnings should not.

The new law would “bind hardworking Americans to credit card companies as modern indentured servants,” said Rep. Nancy Pelosi (D-San Francisco), the House minority leader.

Republicans have long complained about problem debtors who run up credit card bills and file for bankruptcy protection. They argued that those people caused increases in interest rates and fees for more scrupulous consumers, costing an average American family about $400 a year.

“We must stop abuse,” House Speaker J. Dennis Hastert (R-Ill.) said in a statement. “Those who abuse the system make getting credit more expensive for everyone. Bankruptcy is for those who need help, not those who want to shift costs to other hardworking Americans.”

But opponents said only a small percentage of bankrupt Americans were problem debtors.

“With 90% of bankruptcies attributable to job loss, divorce or excessive medical bills, it is clear that better economic policies, social services and affordable healthcare is the way to reduce bankruptcy,” said Rep. Lynn Woolsey (D-Petaluma).

Democrats who opposed the legislation argued that aggressive marketing techniques and excessive fees by credit card companies were to blame for enticing consumers to take on more debt than they could handle.

“Major corporations have been pushing for this legislation for almost a decade to trim their own costs,” said Rep. George Miller (D-Martinez). “Now they have found a willing ally in the White House, House and Senate, all controlled by the Republican majority.”

The bankruptcy bill is the second of half a dozen proposed changes to the legal system to win approval from Congress, amid backing by pro-business lobbies.

The first was a bill imposing restrictions on class-action lawsuits that passed in February.

Other measures on the Republican agenda include a trust fund to pay victims of asbestos poisoning, caps on the size of medical malpractice awards and new limits on liability for gun manufacturers.

The Republican leadership is eager to pass as many of the legal measures as possible before the Senate becomes embroiled in a dispute over judicial nominations that could stall most legislation.

As a result, the bankruptcy bill was put on a fast track in the Republican-controlled House, which refused to allow Democrats to offer or debate 35 proposed amendments to the version passed by the Senate.

Democrats were outraged by the limitation and, in protest, forced five votes on procedural matters.

One of them was a vote to adjourn the House, an unusual move led by Woolsey.

“Unfortunately, the majority didn’t allow any amendments, even though mine was to simply waive any fee charged for credit counseling for service members returning from a combat area for a period of two years,” Woolsey said. “We must not penalize our troops for serving our country. It is appalling that any veteran would face bankruptcy because of their sacrifice.”

Personal bankruptcy filings hit a high of about 1.6 million in 2003 but have since dropped.

According to the nonpartisan American Bankruptcy Institute, an association of lawyers and bankruptcy professionals, the legislation would force 3.5% to 20% of those who filed for bankruptcy protection to pay back more of their debts.

The legislation would also make it harder for debtors to escape making alimony and child support payments, and it would permit them to continue paying health insurance premiums.

It excludes from the means test veterans disabled during a tour of duty.

All of California’s Republican representatives voted in favor of the bill.

Six of the state’s 33 Democratic representatives supported the legislation. In addition to Tauscher, they were: Reps. Joe Baca of San Bernardino, Dennis A. Cardoza of Atwater, Jim Costa of Fresno, Jane Harman of Venice and Mike Thompson of St. Helena.

Two Californians were recorded as missing the vote: Reps. Hilda L. Solis of El Monte and Tom Lantos of San Mateo.

Solis’ office said she left Washington before the vote to return to Los Angeles because of a family emergency.

Lantos’ office said he cast a ballot against the bill, but it was not recorded for unknown reasons. Lantos was working to have his vote recorded, said his spokeswoman, Lynne Weil.

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The California vote

How members of the California delegation in the House of Representatives voted on the bankruptcy legislation. All of the state’s Republican members voted in favor of the measure.

Democrats opposed

Xavier Becerra, Howard L. Berman, Lois Capps, Susan A. Davis, Anna G. Eshoo, Sam Farr, Bob Filner, Michael M. Honda, Barbara Lee, Zoe Lofgren, Doris Matsui, Juanita Millender- McDonald, George Miller, Grace F. Napolitano, Nancy Pelosi, Lucille Roybal-Allard, Linda T. Sanchez, Loretta Sanchez, Adam B. Schiff, Brad Sherman, Pete Stark, Maxine Waters, Diane E. Watson, Henry A. Waxman and Lynn Woolsey

Democrats in favor

Joe Baca, Dennis A. Cardoza, Jim Costa, Jane Harman, Ellen O. Tauscher and Mike Thompson

Democrats not voting

Tom Lantos and Hilda L. Solis

Source: Associated Press

Los Angeles Times