WASHINGTON – Legislation making it harder for consumers to erase their debts in bankruptcy court is advancing in the Senate, but there is renewed debate over an issue that has blocked the measure before: Can abortion protesters declare bankruptcy (search) to escape court fines?
The Senate Judiciary Committee on Thursday held its first hearing on the legislation in four years. Senate Majority Leader Bill Frist, R-Tenn., recently said the proposal was a priority for the new Congress, and the committee could approve it by next week.
"The vast majority of people believe that individuals who file for bankruptcy should be required to pay back some of their debts if they have the means to do so," the bill's author, GOP Sen. Charles Grassley of Iowa, said at the hearing. "This is precisely what the bankruptcy reform legislation does."
Banks, credit card companies and retailers have pushed for this plan since 1997. Consumer and civil rights groups and unions say the legislation is unfair to 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 mounting medical bills.
Democrats, meanwhile, want to the bill to prohibit protesters from using bankruptcy to avoid paying court fines for blocking abortion clinics (search) if the demonstrators knowingly violated the law.
Because this idea has been removed from the latest version of the legislation, "Perpetrators of clinic violence can continue to seek shelter in the nation's bankruptcy courts," said Sen. Patrick Leahy of Vermont, the committee's top Democrat. "That is simply wrong."
Bankruptcy legislation nearly passed Congress in 2002 but failed over the clinic protesters provision. It won substantial support from senators of both parties, but drew sharp opposition from House Republicans. Bush has supported bills that do not include the plan.
Grassley called it "the poison-pill abortion amendment."
"All of the other compromises made at the request of our Democratic colleagues have been preserved intact in this bill," he said.
The cost of health care is another issue coming to the fore in the bankruptcy debate.
A Harvard University study found that costly illnesses led to about one-half of all personal bankruptcies and that most people who file for bankruptcy protection because of medical problems have health insurance.
"Overwhelmingly, American families file for bankruptcy because they have been driven there -- largely by medical and economic catastrophe -- not because they want to go there," Elizabeth Warren, a Harvard Law professor and expert in bankruptcy law, told the committee. "Your legislation should respect that harsh reality and the families who face it."
But Grassley dismissed as a myth the idea that most bankruptcies are driven by medical costs. His legislation would not harm bankrupt people with large medical-care debts, he said.
Personal bankruptcies appear to have broken the upward trend of recent years, slipping 0.8 percent in the 12 months ending June 30, according to figures released in August.
Some experts say the decline means that while the level of bankruptcies is still high compared with four years ago, some consumers finally have been able to benefit from an improving economy and low interest rates.
New personal bankruptcy filings declined to 1,599,986 from 1,613,097 in the year ending last June 30, according to the data from the Administrative Office of the U.S. Courts (search).