House OKs Bankruptcy Reform to Curb Ability to Forgo Debts

The House on Thursday overwhelmingly approved a major bankruptcy reform bill that seeks to squeeze more payments out of people with delinquent credit card accounts and other kinds of debt.

Republican backers predicted swift Senate action and enactment into law of a measure that the financial services industry has long sought. Then-President Clinton vetoed nearly identical legislation late last year, but President Bush has indicated he supports the bankruptcy reform effort.

Thursday’s vote marked the first time since Bush took office that the GOP-led Congress has resurrected a bill thwarted by a Clinton veto.

Rep. Pete Sessions (R-Texas), who helped shepherd the bill on the House floor, said he expects Bush to sign the measure when it lands on his desk.

“Absolutely he will sign this bill,” Sessions said. “We have received assurances from the White House.”

The White House press office did not respond with a comment after the House vote.

The bill passed 306 to 108, with Republicans backing it en masse and Democrats split.

The legislation, written by Rep. George W. Gekas (R-Pa.), would force more people to repay their debts under court-approved reorganization plans rather than have their debts dissolved. Debtors generally would be required to submit to such plans if they have enough income to repay a quarter of their debts within five years.

The measure also would limit repeat bankruptcy filings and cap at $100,000 the amount of equity debtors can shield in a home. But the bill would not stop debtors from obtaining exemptions to that cap under state laws in Florida and Texas, provided that they establish residency in those states two years before filing for bankruptcy, a Gekas spokesman said.

Rep. Dave Weldon (R-Fla.) said the bill “strikes the proper balance” between debtors and creditors.

But some consumer groups have attacked the measure as a giveaway to the rich and a betrayal of small-time debtors who have legitimate need for bankruptcy protection. And critics in Congress noted that well-heeled and well-informed debtors might be able to avoid the crackdown.

“A debtor can live in a mansion in Florida worth millions . . . and not worry because these assets are exempt and creditors cannot touch them,” Rep. William D. Delahunt (D-Mass.) said. But for the less well-to-do, he said, “Woe is you. . . . Those credit card companies will be able to chase you forever.”

Foes also said credit card firms share the blame for some bankruptcies through their aggressive solicitation of customers who then prove unable to repay their debt.

But Sessions, noting the bipartisan support for the legislation, said it would deter flagrant abuses of current bankruptcy laws. “We must end the days when debtors who are able to repay some portion of their debt are allowed to game the system,” he said.

The legislation is moving at a time when bankruptcy filings, on the upswing for much of the last decade, have declined slightly.

Data from the Administrative Office of the U.S. Courts show there were 1.25 million bankruptcy filings in 2000, more than 97% of them by individuals and other nonbusiness debtors. That is a drop from the all-time high of 1.44 million filings in 1998.

Advocates of the legislation say that regardless of that drop, bankruptcy is too often used by many Americans as a financial planning tool rather than a refuge of last resort.

They claim that, on average, Americans are hit by hundreds of dollars a year in hidden costs of credit and other goods stemming from the debt accumulated by those who seek to shield themselves from creditors under the current laws.

The measure could face a few hurdles in the Senate, which is evenly divided between the parties. But last year’s bill passed the Senate by a wide margin and the legislation’s new version was narrowly approved earlier this week by the Senate Judiciary Committee.

Opponents were pessimistic about their chances of derailing the bill.

“This is literally bought and paid for,” said Delahunt, accusing Congress of giving in to the influence of business interests.