Congress passes bankruptcy legislation after 8 year battle

WASHINGTON -- Tens of thousands of people who want to wipe out their debts in bankruptcy court would have to work out repayment plans instead under legislation Congress approved Thursday.\nA 302-126 vote by the House sent the legislation to President Bush, who is eager to sign it, the biggest rewrite of the bankruptcy code in a quarter-century. It marks the second major change in law to benefit business since Republicans increased their House and Senate majorities in last fall's elections.\nDebate in the House was acrimonious as Democratic opponents warned that the measure would hurt the economically vulnerable.\nAfter eight years of strenuous efforts by congressional backers, banks and credit card companies, the legislation was catapulted toward enactment starting earlier this year. The legislation, which garnered some Democratic votes, cleared the Senate last month on a 74-25 vote.\nThe measure would require people with incomes above a certain level to pay credit-card charges, medical bills and other obligations under a court-ordered bankruptcy plan.\nOpponents say the change would fall especially hard on low-income working people, single mothers, minorities and the elderly and would remove a safety net for those who have lost their jobs or face crushing medical bills.\nThe legislation "protects the credit industry at the expense of the consumer," Rep. Alcee Hastings, D-Fla., declared in House debate. "It will drive more Americans deeper into financial crisis and weaken the nation's economy and social structure."\nBut backers in Congress and the financial services industry argue that bankruptcy frequently is 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.\nRep. David Dreier, R-Calif., said the legislation would save American families an average $400 a year in higher interest rates now charged to consumers to recoup losses from those who abuse bankruptcy proceedings.\nIn a bitter scene on the House floor, Democrats--most of whom opposed the legislation--used an array of parliamentary maneuvers to delay the final vote, forcing an unsuccessful roll call vote on adjourning the session and lining up one by one to register their objections in brief, biting statements.\nDemocrats were furious that the GOP leadership allowed none of the 35 amendments they had proposed earlier to be voted on. They particularly wanted provisions that would exempt from the new bankruptcy requirements military personnel returning from Iraq and Afghanistan, and people whose indebtedness is the result of financial identity theft.\nBetween 30,000 and 210,000 people -- from 3.5 percent to 20 percent of those who dissolve their debts in bankruptcy each year in exchange for forfeiting some assets -- would be disqualified from doing so under the legislation, according to the American Bankruptcy Institute.\nTaking effect six months from enactment, the measure would set up an income-based test for measuring a debtor's ability to repay debts. Those with insufficient assets or income could still file for Chapter 7 bankruptcy, which, if approved by a judge, erases debts entirely after certain assets are forfeited. Those with income above the state's median income 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.\nThe legislation also would require people in bankruptcy to pay for credit counseling.\nUnderscoring the issue's political sensitivity, the liberal group MoveOn was beginning a campaign of radio ads this week against House lawmakers of both parties who support the legislation.\n"We're going to call the Republican agenda what it truly is: a war on the middle class," said Tom Matzzie, the Washington director of MoveOn's political action committee.\nNew personal bankruptcy filings edged down from 1,613,097 in the year ending June 30, 2003, to 1,599,986 in the year ending last June 30, breaking an upward trend of recent years.\nUnder the current system, a federal bankruptcy judge determines whether individuals must repay some or all of their debt.