Originally created 05/15/98

Panel approves bankruptcy revisions bill



WASHINGTON -- Legislation to overhaul personal bankruptcy laws, supported by the credit card industry and opposed by consumer groups, was approved Thursday by the House Judiciary Committee.

After several days of debate on what has become a highly charged political issue, the panel voted, 18-10, to send the GOP-backed bill to the full House. A similar measure is pending in the Senate. Only two Democrats, Rick Boucher of Virginia and Steven Rothman of New Jersey, voted in favor.

The Clinton administration, which supports some changes in the bankruptcy laws, is threatening a veto of the current legislation.

The far-reaching bill would, among other things, establish a "needs" test to determine how much debt relief people filing for bankruptcy protection should receive and how much they are able to repay.

That requirement has drawn the ire of Democrats, who also contend the legislation would hurt children of single parents.

Democrats backed by Hillary Rodham Clinton have called attention to another provision that they say would make thousands of mothers and children owed support take a back seat to credit card companies in collecting debts from fathers who file for bankruptcy protection.

"We are abusing the American public with this kind of legislation," Rep. Sheila Jackson Lee, D-Texas, said before the vote.

Proponents of the bill have countered that it is pro-family because it would help people with good credit records by cracking down on debtor abuse and thereby lowering interest rates for credit cards.

The measure, sponsored by Rep. George Gekas, R-Pa., would impose a test to determine how much money debtors have.

They would be forced to file under Chapter 13 of the bankruptcy code, subject to a court-ordered repayment plan, if they earned at least 100 percent of the U.S. median income (now some $39,000) and had the ability to repay at least 20 percent of their debt over five years. Their child-rearing expenses, including support payments, would be subtracted before calculating the ability to repay 20 percent of their debt.

Under that scenario, people would not be allowed to file under the more liberal Chapter 7, in which some debts can be erased.

Credit card companies have complained that too many people have taken shelter under Chapter 7 who actually can afford to reorganize their debts under Chapter 13.

In an unusual alliance, Committee Chairman Rep. Henry Hyde of Illinois, a conservative Republican, joined with Ms. Jackson Lee to propose that the harsher standard of 75 percent of median income be changed in the latest version of the bill. Their amendment was adopted by voice vote.

Hyde also criticized what he saw as some abuses by creditors, such as banks and finance companies that send consumers unsolicited "instant" loan checks that carry very high interest rates.

"I'm not so sure you're exercising responsibility," he said.

Lawmakers are alarmed by the rising number of debtors in a strong economy. The number of Americans filing personal bankruptcies last year jumped to 1.2 million -- up more than 300 percent since 1980 -- intensifying criticism that people take court protection from creditors too lightly.

Under the House bill and a companion measure in the Senate, credit card debt incurred 90 days before an individual files for bankruptcy would be considered nondischargeable, meaning it couldn't be erased or written down. Child support and alimony, federal taxes and student loan debts are nondischargeable under current law.

The Democrats contend that would hurt children because nondischargeable debts are considered the most important to pay and usually get paid first, forcing single mothers to compete for payment with credit card companies.

But Gekas and other Republicans dispute that, saying child support would continue to have a higher priority.

Both bills also would put a $100,000 nationwide cap on so-called homestead exemptions for bankruptcy to prevent debtors from shielding their assets in luxury homes. Some states, notably Florida and Texas, allow debtors to exempt their homes from being counted in bankruptcy repayment cases no matter how high their value.

The Senate bill, sponsored by Sens. Charles Grassley, R-Iowa, and Sen. Richard Durbin, D-Ill., also would impose tough new fines for abuses by creditors who try to intimidate or harass consumers into giving up their legal protections.