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Published: Friday, 4/15/2005

Bankruptcy reform OK'd by Congress; tighter rules will begin 6 months after Bush signs

BY ANN McFEATTERS
BLADE WASHINGTON BUREAU CHIEF

WASHINGTON - President Bush won a big victory yesterday as the House passed the Senate's bill to overhaul federal bankruptcy law, meaning that in six months, thousands of Americans over their heads in debt will have a more difficult time wiping it out.

Mr. Bush is expected to sign the bill, which easily passed both the House and Senate, although it swept them into debate.

The bill passed the House 302-126. Not one Republican voted against it. Seventy-three Democrats and 229 Republicans voted for the bill; 125 Democrats and one independent voted against it.

The Senate passed the bill 74-25 last month.

Some Democrats argue the measure will mean that many middle-class families in debt because of medical bills, divorce, or job loss will not get a second chance to start over.

They also said the bill doesn't help those in the National Guard or other service members who may lose their homes while serving in Iraq. They said it makes bankruptcy more difficult for financially troubled single parents relying on child support.

The President expressed support for the bill.

"These common-sense reforms will make the system stronger and better so that more Americans - especially lower-income Americans - have greater access to credit," he said.

Sen. Charles Grassley (R., Iowa), the chief sponsor of the bill, said the bill would preserve two key principles: Those able to pay some of their debts would have to do so, and those who need a fresh start would still be able to extinguish their debt through bankruptcy.

Consumer advocacy groups and many Democrats disagree, arguing that lenders' liberal credit policies and aggressive sales practices have been equally responsible for putting many Americans over their heads in debt. They say the new legislation would be too harsh.

Critics also said the bill doesn't do enough to prevent millionaires filing for bankruptcy from safeguarding assets by buying mansions in states such as Texas and Florida, which let bankrupt families keep their homes.

Democrats were prevented from amending the bill to try to protect consumers from being wiped out through identity

fraud in which their Social Security number or other vital data is stolen, forcing them into serious financial jeopardy. Some wanted a provision to prohibit credit-card companies from marketing cards to college students who may end up unable to pay thousands of dollars of debt.

Because Republicans wanted a "clean bill" that would move quickly to the White House for Mr. Bush's signature, they prevailed in setting rules that kept the bill from being changed.

But many Democrats complained that democracy had broken down because no amendments were permitted and debate was limited.

Supporters said the bill, which goes into effect six months after Mr. Bush's signature, will prevent thousands of trivial bankruptcies that raise the cost of credit and goods and services for other Americans. They also said the bill will keep many millionaires from hiding assets in expensive homes because of a new three-year residency requirement. And they said it was time to change a law that had been the same for nearly three decades.

In essence, the bill sets up a new test for income. If a family in financial trouble is above the median income for their state they would have to file Chapter 13. That means they still would have to pay off their debts over several years based on a court-ordered schedule.

Chapter 7, which many families in financial trouble file now because it wipes out most if not all debt, would be restricted.

The bill also would require families to pay for credit counseling six months before filing for bankruptcy.

Bankruptcy courts are braced for a deluge of bankruptcy petitions in the next six months as families try to beat the deadline.

A letter to Congress written by 104 bankruptcy law professors before the Senate vote said states such as Ohio, Indiana, Mississippi, Idaho, Utah, Tennessee, Georgia, Nevada, Alabama, and Arkansas would feel the impact of the new law the most.

The bill was lobbied for by the credit card industry and retail industries, which do not want money owed them by bankrupt families erased.

Rep. John Conyers of Michigan, top Democrat on the House Judiciary Committee, said, "This is the most special-interest-invested bill I have ever dealt with in my career in Congress. It massively tilts the field for credit card companies and banks and against working families."

But Sen. James Sensenbrenner (R., Wis.), chairman of the committee, said the bill would make credit cheaper and make Americans more responsible in handling credit.

"This bill will help restore responsibility and integrity to the bankruptcy system by cracking down on fraudulent, abusive, and opportunistic bankruptcy claims," he said.

AFL-CIO President John Sweeney said the vote "sends a dangerous signal to working families that Congress will systematically gut protections for workers who have lost jobs or face crushing medical bills."

Information from the Blade's wire services were used in this report.

Contact Ann McFeatters at:

amcfeatters@nationalpress.com

or 202-662-7071.



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