Copyright 2001 Journal Sentinel Inc.
Milwaukee
Journal Sentinel
March 16, 2001 Friday FINAL EDITION
SECTION: NEWS; Pg. 01A
LENGTH: 994 words
HEADLINE:
Senate approves bankruptcy bill;
Overhaul would make it harder to wipe out
debts
BYLINE: PHILIP SHENON New York Times
BODY:
Washington -- The Senate voted overwhelmingly
Thursday to approve a bill that would overhaul the nation's bankruptcy laws and
make it harder for people to erase their debts.
The lopsided vote,
83-15, makes it far more likely that the federal bankruptcy code will be
rewritten this year. The House has passed a similar bill, and President Bush has
signaled that he will sign whatever compromise is reached in a House-Senate
conference committee.
Support for the bill was largely bipartisan, with
36 Democrats joining 47 Republicans in the evenly divided Senate to vote for the
overhaul. President Clinton vetoed similar legislation in his final weeks in
office, describing it as too harsh on consumers. The resurrection of a
bankruptcy overhaul bill so quickly after the inauguration of Bush is evidence
of the growing power of business lobbyists in a government in which the White
House and both houses of Congress are run by business-friendly Republicans.
Some of the same lobbyists had a significant victory last week, when
both the House and Senate voted to overturn regulations intended to protect
workers from repetitive- stress injuries.
Forced to pay debts
For many of the more than 1 million Americans whose financial troubles
are expected to force them into bankruptcy next year, the bill would end their
ability to use the bankruptcy system to wipe out credit-card bills and other
loans that are not secured by homes or other assets.
Instead, they will
be forced to pay off some or all of those debts under a court-supervised plan,
even if that puts the payment of old credit-card bills in competition with the
payment of child support, alimony and other court-ordered expenditures.
The credit industry says it has been damaged by dramatic growth in the
number of personal bankruptcies, which rose from about 700,000 in 1990 to nearly
1.3 million last year.
The bill's critics say that credit-card companies
and other lenders are themselves largely to blame for the explosion in
bankruptcy -- specifically, that their mass solicitations for high-interest
credit cards and other loans have encouraged irresponsible spending that has
landed borrowers in bankruptcy court.
During debate on the Senate floor
Thursday, the bill's sponsors said it would end abuses by people who have the
ability to pay off some of their debts but who choose instead to erase them
entirely by filing for bankruptcy. They said that abusive debtors who entered
bankruptcy had forced up the cost of borrowing for all other consumers.
Effect on lenders
Opponents say the bill would provide billions
of dollars in extra profits to credit-card companies and other lenders over the
next decade at the expense of vulnerable debtors, many of them forced into
bankruptcy because of medical bills, job loss or divorce.
Sen. Paul
Wellstone (D-Minn.), who was the most vocal opponent of the bill on the Senate
floor, said that the bankruptcy system was meant to be a safety net to honest
debtors "and it's being shredded by this piece of legislation -- this bill is a
wish-list for the credit-card industry and a nightmare for vulnerable families."
Senators approved the bill after agreeing on a voice vote to adopt a
Democratic amendment that would end what is often singled out as the most
flagrant abuse of the bankruptcy system: moves by high-income debtors to shift
millions of dollars into the purchase of a house that can be shielded from
creditors under the so-called homestead exemption.
The amendment --
which was fiercely opposed by lawmakers from Florida and Texas, where a house of
any value can be exempted, even a multimillion-dollar mansion -- would place a
$125,000 limit on the value of a home that could be shielded.
Sen. Herb Kohl (D-Wis.), who sponsored the amendment, cited several
instances in which high-income debtors had take advantage of the loophole in
recent years, including actor Burt Reynolds, who wrote off more than
$8 million in debt through bankruptcy but was still able to
hold onto his $2.5 million Florida estate, named Valhalla.
" There is no greater bankruptcy abuse than this," Kohl said.
Although its critics have all but conceded that some version of the
bankruptcy bill will become law, the legislation still faces hurdles in the
House-Senate conference committee.
Republicans are expected to try to
strip the compromise bill of a home equity cap and a provision that would force
people involved in violence against abortion clinics to pay
legal judgments resulting from the violence, even if they file for
bankruptcy.
The White House has said that Bush also
opposes the $125,000 cap. But his spokesman, Ari Fleischer, did
not suggest that the provision threatened the president's support for the
overall bill. "We're going to continue to work with leaders on the hill,"
Fleischer said. "The president is looking forward to the presentation of a bill
that he can sign."
Republican supporters of the legislation made it
clear on the floor of the Senate that they were stung by the claims that their
votes were swayed by large political donations.
"There are a lot of
trade associations that are interested in getting this bill passed -- I'm not
oblivious to that," said Sen. Charles E. Grassley (R-Iowa), who helped write the
bill. "But where did I first hear about abuses of the bankruptcy laws? It was
from the small business people of Main Street U.S.A.
"People are not
paying their bills, and the small business person is being stuck with it," he
said, adding that the bipartisan support of the bill " shows the rightness of
it."
KEY POINTS
-- Under the bill, if a debtor can repay at
least 25% of debts over five years, a reorganization plan generally would be
required instead of having the debt dissolved.
-- The bill requires
debtors to participate in credit counseling programs before they file for
bankruptcy.
-- It gives highest priority among debts to child support
payments.
LOAD-DATE: March 16, 2001
