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February 3, 2000, Thursday, Late Edition - Final

SECTION: Section A; Page 1; Column 6; National Desk

LENGTH: 1186 words

HEADLINE: SENATE APPROVES A BILL TO TOUGHEN BANKRUPTCY RULES

BYLINE: By ERIC SCHMITT

DATELINE: WASHINGTON, Feb. 2

BODY:
The Senate approved a sweeping overhaul of the nation's bankruptcy laws today, decisively passing a measure that would make it harder for people to seek legal protection from payment of their debts.

But in a move that could complicate final passage of the legislation, it also included in the measure a $1 increase over three years in the minimum wage to $6.15 per hour.

Major differences still exist in the details of the bankruptcy overhaul passed today and a rival House version approved last year. But lawmakers from both parties and Clinton administration officials expressed confidence today that Congress could produce a compromise bankruptcy bill that Mr. Clinton could sign into law this year. Less certain is how Democrats and Republicans will resolve their differences over the minimum wage. Democrats had wanted the $1 increase be phased in over two years.

The Senate vote today passing the Bankruptcy Reform Act came after Democrats summoned Vice President Al Gore from the campaign trail in Manhattan to break a possible tie vote on a contentious abortion rights amendment to the bill. The measure would bar people convicted of crimes against abortion clinics from using bankruptcy protection to avoid paying civil judgments.

Republicans, who had vigorously opposed the amendment, abandoned their opposition once Mr. Gore took his seat as president of the Senate, letting the measure pass handily. Page A20.

Senators later voted 83 to 14 to approve the overarching legislation that was proposed by the nation's largest banks and credit-card companies, but opposed by consumer and civil rights groups. One reason the outcome was so lopsided was that the campaign contributions and lobbying muscle come mainly from the politically powerful financial community, concentrated in New York.

The banking industry has grown increasingly concerned that too many people with money are taking advantage of the bankruptcy laws and skipping out on mountains of debt. "Despite their ability to pay, wealthier filers walk away from an estimated $3 billion per year in debt," said Edward L. Yingling, chief lobbyist for the American Bankers Association.

The measure imposes new income requirements on people seeking a fresh start by using the nation's debt-forgiveness laws and limits a loophole used by the wealthy to shield their homes. And the bill requires credit-card companies to disclose interest rates and fees more prominently on monthly statements.

"It was time for Congress to close the loopholes that let big spenders walk away from debts and update the code to achieve a healthier balance between consumers and creditors," said Senator Charles E. Grassley, an Iowa Republican who sponsored the bill.

Negotiators from the Senate will now meet with their counterparts from the House to reconcile competing bills. Last year, the House approved, 313 to 108, a bill with even stricter provisions on debtors. The White House said both versions are unacceptable, calling the House version too harsh and inflexible and the tax breaks attached to the minimum-wage provision in the Senate measure unacceptable.

A spokeswoman for Hillary Rodham Clinton, who in her campaign for the Senate in New York has criticized the bankruptcy legislation for being unfair to women and children, declined to comment today on the Senate's action.

Under the Senate bill, the minimum wage would increase to $6.15 from $5.15 over three years, instead of over two years as Democrats want. Senate Democrats also object to $76 billion in tax breaks over 10 years that Republicans say would help small businesses adjust to the rising minimum wage. Democrats had proposed $29 billion package over 10 years. The House bill does not have a minimum-wage provision.

"The amendment in the bill includes a poorly targeted tax package with tax breaks that are skewed disproportionately to upper income people," said a letter signed by all 45 Senate Democrats to the lawmakers who will negotiate the House-Senate compromise.

The thrust of both House and Senate bills is to make it more difficult for people to discharge their debts. Both measures try to make debtors accept more responsibility by making it more difficult to file Chapter 7 bankruptcies, which allows consumers to discharge unsecured debts that remain after assets are liquidated. Lawmakers aim to make Chapter 13, which requires reorganization of debt under a repayment plan, the bankruptcy of choice.

With Americans filing a record 1.4 million bankruptcies in 1998, Senator Jeff Sessions, an Alabama Republican, said the bill "closes loopholes and ends unfairness in provisions that are totally being abused and making a mockery out of legitimate bankruptcy law."

But critics of the measure, like Senator Edward M. Kennedy, Democrat of Massachusetts, said today "the industry's cure is worse than the disease." Bankruptcy filings dropped by 112,000 in 1999 from 1998, Mr. Kennedy said, and the bill's provisions make it more difficult for thousands of debtors who file for bankruptcy because of corporate layoffs and downsizing because of mergers.

At issue in several days of floor debate and outside Capitol Hill today, was whether it is the banks or their customers who are responsible for the growth in bankruptcy filings.

The chairman of the Consumer Federation of America, Howard M. Metzenbaum, a former Democratic senator from Ohio, said the Senate bill "will deny many families in financial crisis a fresh start while spurring more reckless and irresponsible lending by credit-card issuers."

House and Senate negotiators have a tough road ahead. There are several crucial differences between the two bills. Both measures impose a new income requirement. The Senate bill generally says that anyone with the ability to make at least $15,000 in payments over five years would not be able to have their debts forgiven. Under the House bill, the threshold is $6,000 over five years.

The Senate bill is more generous than the House in shielding, or creating "safe harbors" for debtors who make less than the median income in their state or regions.

For Chapter 7 bankruptcy filers, the Senate puts a $100,000 cap on housing equity they can exempt from creditors' motions. The House bill has a cap of $250,000, but allows states to opt out, an important distinction for wealthy bankruptcy filers in Texas and Florida.

Finally, the Senate bill provides new consumer protections, like the disclosures on credit cards. The House protection is more limited and more generic.

Senator Robert G. Torricelli, Democrat of New Jersey, said of the bill, "The proverbial small type that hides fees and interest costs will be converted to large font so that consumers can make informed purchases, determine the best repayment schedule and manage family expenses."

While adopting the abortion rights amendment, senators rejected several others, including one offered by Senator Carl Levin, Democrat of Michigan, that would have prohibited gun makers and dealers from using bankruptcy to escape debts incurred in civil lawsuits.
http://www.nytimes.com

GRAPHIC: Photo: Vice President Al Gore joined Senate Democrats yesterday in securing passage of an abortion rights measure. (Justin Lane for The New York Times)(pg. A20)

LOAD-DATE: February 3, 2000