Military Gets a Break From Senate in Bankruptcy Bill

The Senate voted Tuesday to exempt active-duty military and some veterans from key provisions of pending legislation that would make it harder for millions of Americans to erase their debts by filing for bankruptcy protection.

The bankruptcy bill -- long sought by credit card companies and close to becoming law in the past -- would force many consumers to pass a new “means test” to qualify for debt forgiveness.

Republican congressional leaders pushing the bill contend that too many Americans are abusing the current law by spending unwisely and then avoiding some of the consequences by filing for bankruptcy. The Republicans want to force those with an annual income above the median for their state to come up with a repayment plan instead of simply having their debts erased.

“For too many people, bankruptcy is no longer a last resort. It has become a first stop,” Senate Majority Leader Bill Frist (R-Tenn.) said as he opened the first full day of debate on the measure, which he hoped to pass by the end of the week. “Opportunistic debtors who have the means to repay use the law to evade personal responsibility.”

But some Democrats contend that most debtors are victims of bad luck, such as sudden illness or unemployment, and that the bill should not tear holes in a long-established safety net. They contend that especially for lower-income Americans, the means test would erode the principle that those who experience misfortune should be given a clean start.

“We got rid of debtors’ prisons almost two centuries ago for a reason,” said Sen. Edward M. Kennedy (D-Mass.) “It is the American spirit to help these families through financial disasters. But this bill will destroy that financial safety net for many, many of our citizens who deserve help.”

Democrats pressed Tuesday to protect members of the military from the bill’s new provisions, saying that some service members called to duty in Iraq and Afghanistan had lost small businesses or been forced into bankruptcy by other financial hardship.

“Many men and women in the military are making extraordinary sacrifices,” Sen. Richard J. Durbin (D-Ill.) said. “It’s unfair that they should come home to face this new harsh bankruptcy law.”

But Republicans defeated on a straight party-line vote, 58 to 38, an amendment sponsored by Durbin that would have created a broad exemption from the means test for members of the armed forces. Instead, the Senate approved a more narrow provision, sponsored by Sen. Jeff Sessions (R-Ala.), to exempt active-duty military, low-income veterans and those with serious medical problems.

Eight Democrats, including Sen. Dianne Feinstein (D-Calif.), crossed party lines to vote for the amendment, which passed 63 to 32. Sen. Barbara Boxer (D-Calif.) opposed it.

The bankruptcy bill has been in the works for eight years and has passed the Senate three times. Once it died when President Clinton did not sign a measure sent to him, and twice it ran aground in disputes with the House over conflicting provisions.

The bill is the second of half a dozen measures that Republicans say need to be adopted to rein in what they consider abuses of the court system.

Last month Congress passed and President Bush signed into law a measure that will shift many class-action lawsuits -- such as those on behalf of smokers against tobacco companies -- out of state courts and into federal courts, where some judges have been more conservative with decisions and damages.

Many Democrats contend that the GOP’s legal reform agenda would unfairly shift the balance of power toward business and away from consumers.

Still, some Democrats supported the class-action bill. And those supporting the bankruptcy bill said it would improve the law by giving top priority to child support and alimony payments and tightening provisions to seize more assets from those convicted of fraud and other financial crimes.

Durbin and other Democrats who oppose the bill said it unfairly benefits credit card companies, which make billions in profits by enticing consumers into accepting credit they cannot afford.

“This bill is all about creditors winding up with more money at the end of bankruptcy,” Durbin said.

One issue expected to cause lengthy debate in the Senate is how much of the value of a debtor’s home should be protected from being sold to pay debts. Sen. Russell D. Feingold (D-Wis.) introduced an amendment Tuesday to protect $75,000 of the value of the homes of debtors 62 and older.

“In many cases, the home may be an elderly individual’s only significant asset, representing an entire life savings,” Feingold said. “Federal law should protect seniors in states where the homestead exemption is very low.”

A second issue concerns whether those convicted of blocking abortion clinics or other businesses as part of protests should be able to get out of paying court fines by filing for bankruptcy.

Antiabortion lawmakers have balked at similar amendments, stalling action on previous bankruptcy bills.

But Senate Minority Leader Harry Reid (D-Nev.), who is cosponsoring an amendment to require repayment of such fines, insisted that it was not primarily about abortion but about curtailing an abuse of the bankruptcy system.

“No matter how many times they say an abortion amendment should not be on bankruptcy, this is a bankruptcy amendment,” said Reid, who opposes abortion. “It’s a true, true, true bankruptcy amendment.”