Bankruptcy Bill Near Final Passage in Senate

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The Senate marched Wednesday toward passage of landmark legislation that would make it harder to erase medical bills, credit card charges and other debts by declaring bankruptcy (search).

Democratic opponents made last-ditch attempts to soften the bill's impact and restrict practices of the credit industry that they said were especially hurting the poor.

Not a dent was made in the legislation, which was armor-plated by the Senate's Republican majority against amendments and enjoyed bipartisan support. With Senate passage expected Thursday and House approval likely next month, the bill would deliver to President Bush (search) the second of his pro-business legislative priorities since the GOP augmented its majorities in both chambers in November's elections.

Ordering the most sweeping overhaul of U.S. bankruptcy laws in a quarter-century, the legislation would rework the centuries-old system — created soon after the Republic was founded — under which indebted people meet their obligations to creditors while also being able to get a fresh start.

It would establish a new income-based test for measuring a debtor's ability to repay debts, require people in bankruptcy to pay for credit counseling, stiffen some legal requirements for debtors in the bankruptcy process while easing some for creditors, and enable credit card issuers, retailers and other consumer lenders to recover more of what is owed them.

Opponents say it would fall 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 mounting medical bills.

"The bankruptcy courts are filled with cases of hardworking single mothers who were pushed over the financial brink because they failed to get the child support they deserve," said Sen. Edward M. Kennedy (search), D-Mass., author of an amendment addressing single parents. "Yet this bill would only tighten the screws, looking to squeeze out a few more dollars for the credit card companies."

Backers have been pushing the legislation for eight years, arguing 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.

New personal bankruptcy filings declined to 1,599,986 from 1,613,097 in the year ending last June 30, breaking an upward trend of recent years.

In a series of near-party-line votes Wednesday, the Senate quickly dispensed with several Democratic amendments. Some targeted credit card companies, which have championed the bankruptcy overhaul legislation and are accused by critics of granting credit irresponsibly.

Banks, credit card issuers and retailers have lobbied vigorously for bankruptcy revisions that would force more people to repay at least part of their debt. Such a bill nearly passed in 2002. But it failed when the Senate accepted, but House Republicans rejected, a Democratic amendment barring anti-abortion protesters from using bankruptcy to avoid paying court fines for blocking abortion clinics.

This year, with four more GOP senators, the abortion provision was rejected Tuesday on a 53-46 vote. Later the Senate voted 69-31 to limit further amendments, close the debate and hold a final vote this week.

The bill would create a new test for measuring a debtor's ability to pay.

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 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.

Critics say that's unfair because many people who file for bankruptcy have lost their jobs, or are going to lose them.

Under current law, a bankruptcy judge determines under which chapter of the bankruptcy code a person falls — whether the debtor must repay some or all of the debt.

In the earlier pro-business legislative victory for Bush, Congress sent him a law last month placing most large multistate class action lawsuits under federal court jurisdiction, making it harder for plaintiffs to join together and win multimillion-dollar judgments in state courts.