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Bankruptcy Bill Advances

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From Associated Press

The Senate passed legislation Thursday that would make it harder for Americans to rid themselves of debt by filing for bankruptcy.

The House is expected to pass the measure next month, delivering to President Bush a second victory this year on pro-business legislation he had sought.

The vote was 74-25 to approve the most thorough overhaul of bankruptcy laws in a quarter-century.

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California’s two Democratic senators, Barbara Boxer and Dianne Feinstein, voted against the measure.

Congressional and industry backers of the legislation have been pushing for it for eight years, but it repeatedly got stalled.

This year, with Republican majorities increased in both the House and Senate in November’s elections, the bill’s fortunes reversed.

Before the vote and in Senate deliberations over much of the last 10 days, majority Republicans knocked down Democratic efforts to ease the impact of the legislation on people facing huge debts they cannot pay down, including single parents, the unemployed and the ill.

The Senate instead handed Wall Street investment firms a bonus, defeating a Democratic amendment that would have restricted their ability to work for companies before and after those companies file for bankruptcy.

Senators acted against the advice of Securities and Exchange Commission Chairman William H. Donaldson, who said such a restriction was needed to build up investor confidence shaken by the Enron, WorldCom and other corporate scandals.

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For two straight days, Democratic opponents tried to soften the bill’s impact on single parents and other groups, and to restrict credit industry practices that lawmakers said especially hurt the poor.

Critics said the bill would remove a safety net for those who have lost their jobs or face big medical bills.

“It will have a real impact on real people all over this country,” Sen. Russell D. Feingold (D-Wis.) said.

Republican supporters of the bill said bankruptcy often was the last refuge of gamblers, impulsive shoppers, divorced or separated fathers avoiding child support, and multimillionaires -- often celebrities -- who buy mansions in states with liberal homestead exemptions to shelter assets from creditors.

“The short answer is fairness,” said Sen. Orrin G. Hatch (R-Utah).

“Those who can pay their bills should pay their bills. That’s the American way.”

As many as 20% of those who dissolve their debts in bankruptcy would be disqualified from doing so under the legislation, according to American Bankruptcy Institute estimates. The institute is a group of bankruptcy judges, lawyers and other experts.

The legislation would set up an income-based test for measuring a debtor’s ability to repay debts. It would require people in bankruptcy to pay for credit counseling and stiffen some legal requirements for debtors in the bankruptcy process.

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The measure would ease some requirements for creditors and enable credit card issuers, retailers and other lenders to recover more of what is owed them.

Under the new income test, those with insufficient assets or income could still file a Chapter 7 bankruptcy, which if approved by a judge erases debts entirely after certain assets are forfeited. But those with income above the state’s median who can pay at least $6,000 over five years -- $100 a month -- would be forced into Chapter 13, where a judge would then order a repayment plan.

About 70% of the people who file for bankruptcy now do so under Chapter 7, while the rest fall under Chapter 13, according to the American Bankruptcy Institute.

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