Copyright 2001 Newsday, Inc.
Newsday (New York, NY)
March 16, 2001 Friday NASSAU AND SUFFOLK
EDITION
SECTION: NEWS, Pg. A07
LENGTH: 1034 words
HEADLINE:
Senate Gets Tough On Debt;
Joins House in plan to limit bankruptcy
BYLINE: By Elaine S; Povich; WASHINGTON BUREAU
BODY:
Washington-The Senate yesterday approved
legislation to dramatically overhaul the nation's bankruptcy laws and to make it
harder for people who get over their heads in debt to discharge their
obligations forever.
The bill was strongly supported by the credit card
and banking industries, which have contributed millions to political campaigns.
The businesses argued that some people who can afford to pay their creditors are
abusing the current bankruptcy system.
The bill would make it harder to
declare Chapter 7 bankruptcy, under which people can have their debts dismissed
after they liquidate certain property. It would put more people into Chapter 13
bankruptcy instead, under which they would have to set up payment plans with
their creditors. The bill will have to be reconciled with similar legislation
that passed the House on March 1. President George W. Bush has indicated he will
sign the bill. Former President Bill Clinton vetoed the legislation last year.
Consumer groups opposed the legislation, saying few people abuse the
system and argued that, under the new law, many people would suffer financial
difficulties for years rather than being able to rid themselves of debts and
start over.
The Senate approved the bill, 83-15, after senators agreed
to cap the exemption for a person's primary residence at
$125,000 in equity. Sen. Herb Kohl (D-Wis.) author of the
amendment, said it was aimed at preventing wealthy debtors from hiding assets in
expensive homes during bankruptcy proceedings.
Some senators argued that
states should have the right to set the amount that homeowners can shield from
creditors during bankruptcy. In New York, for example, a debtor can shield
$10,000 (or $10,000 per homeowner if the house
is jointly owned). Florida and Texas allow unlimited homestead exemptions.
Sen. Kay Bailey Hutchison (R-Texas) maintained the amendment would
threaten the rights of states in bankruptcy proceedings and noted Bush has
expressed opposition to such a change.
But Bush spokesman Ari Fleischer
seemed to be seeking conciliation on the bill, not confrontation.
"The
president is not talking in terms of veto," Fleischer said, refusing to be
specific about how much of a problem would be posed by the homestead provision.
Before passing the bill, senators voted 79-18 to strip out a provision
aimed at blocking the huge Lloyd's of London insurance company from collecting
debts from some United States investors. Secretary of State Colin Powell
testified earlier this week on Capitol Hill that the administration was opposed
to the provision.
Sen. Russell Feingold (D-Wis.), who succeeded in
deleting the provision, said it had nothing to do with bankruptcy law and was an
unnecessary intervention by the Senate in an international legal dispute.
New York Sens. Charles Schumer and Hillary Rodham Clinton, both
Democrats, voted for the bill. Schumer, who voted against the bill last year,
said he voted for the bill because it included a provision he championed to bar
people who are convicted of violating laws protecting abortion
clinics from declaring bankruptcy to avoid the fines associated
with the conviction.
Clinton, who criticized the bill when it passed the
Senate last year, said she voted for it this time because of Schumer's
provision, the cap on the homestead exemption and a provision aimed at ensuring
that child support payments are made by those in bankruptcy.
Child
support and alimony are supposed to take precedence in bankruptcy payments under
the bill, but because credit card and other debt is also included in repayment
plans, experts said that, in practical terms, the credit card debt and
child-support obligations would be equal.
"Reforming the bankruptcy
system will help usher in a new era of greater personal responsibility," said
the legislation's sponsor, Sen. Charles Grassley (R-Iowa). "It will bring more
fairness to those who work hard to pay their bills."
But opponents
maintained lenders should have some accountability for contributing to
bankruptcies through lax lending standards.
"This bill is a wish list
for the credit card industry and a nightmare for vulnerable families and
vulnerable citizens in this country," said the legislation's chief foe, Sen.
Paul Wellstone (D-Minn.).
Impetus for the bankruptcy overhaul began in
1998 when bankruptcies hit a record 1.4 million. And although bankruptcies have
declined in recent years, banking and credit card companies have made millions
in political contributions while pressing for revamping the bankruptcy laws.
Highlights of the Changes CURRENT LAW:
Most people can file for Chapter
7 bankruptcy, which erases all debt after certain assets are liquidated. A
typical couple with less than $20,000 in equity in a home is
allowed to wipe out all their credit-card debt. Their home and other assets are
protected.
People are required to repay only the current market value of
a car, rather than the full amount of an outstanding loan. For example, if a car
is worth $10,000, but the owner faces $15,000
in loan payments, only $10,000 must be repaid.
Obligations such as child support and alimony, which cannot be wiped out
by bankruptcy, are given priority over repaying credit-card debt.
SENATE BILL:
More people would have to file for
bankruptcy under Chapter 13, a stricter program more commonly used by
businesses. Anyone able to repay at least $10,000 or 25 percent
of their debt, whichever is greater, within five years would have to repay the
debt under a court supervised plan. People would no longer be able to wipe out
all debt. Such people also would be required to undergo counseling on handling
credit.
Bankruptcy filers would have to repay the full amount of a car
loan, regardless of the car's market value. For example, if a car is worth
$10,000, but the filer owes $15,000 on an
outstanding car loan, then $15,000 would be due.
Child
support and alimony would retain priority for payment ahead of credit-card debt,
but the practical effect would be that all three must be paid.
SOURCES: U.S. Congress, legal sources.
GRAPHIC: Chart - Highlights of the Changes (SEE END OF
TEXT)
LOAD-DATE: March 16, 2001
