Sen. Bankruptcy Plan Would Protect Military Personnel

WASHINGTON – The Senate (search) on Tuesday adopted a GOP-authored plan aimed at shielding active-duty military personnel and some veterans from key proposed changes in bankruptcy laws that would make it harder to shed debts.

The amendment cleared on a mostly party-line vote, 63-32, in the Republican-controlled Senate during its second day of work on sweeping legislation to overhaul the bankruptcy code. Several Democrats crossed over to vote for it, but most of them opposed it because they supported a broader plan that would apply to all military personnel

The broader plan, proposed by Sen. Dick Durbin (search), D-Ill., was defeated 38-58.

The GOP proposal by Sen. Jeff Sessions (search), R-Ala., would allow for special accommodations for active-duty service members, low-income veterans and those with serious medical conditions in a new income test for bankruptcy applicants. Sessions brought it forward after Democrats led by Durbin proposed exempting all members of the military from the new test to measure people's income and assets.

The bill would raise the threshold for erasing credit card and other consumer debts in bankruptcy court. Supporters predicted an imminent victory after nearly eight years of congressional gridlock.

Democrats said earlier they were worried about the financial hardships faced by veterans returning from Iraq and Afghanistan. Some soldiers in the National Guard and Reserves have seen their businesses fail after they were called up to serve, lawmakers said.

"Many men and women in the military are making extraordinary sacrifices," Durbin said. "It's unfair that they should come home to face this new harsh bankruptcy law."

The proposal by Durbin, the Senate's No. 2 Democrat, led Republicans to draft their own amendment aimed at the military.

About 16,000 active-duty members of the military file for bankruptcy each year, according to congressional investigators.

The new "means" test in the legislation is intended to determine whether those seeking bankruptcy protection must repay their debts or have them canceled. Under the current system, bankruptcy judges have the discretion to decide that.

In addition to exempting service members from the test, Durbin's proposal also would have allowed them more generous property exemptions when applying for bankruptcy so that they could keep their homes and vehicles.

In addition, it would have banned creditors from collecting money from service members on any debt with interest exceeding 36 percent. That would apply, for example, to "payday loans," short-term, often high-rate loans against borrowers' paychecks that have become popular among military personnel.

President Bush said Monday that the legislation to revamp the nation's bankruptcy laws offered "commonsense reforms" that would curb abuses. In the House, the chairman of the Judiciary Committee, Rep. James Sensenbrenner, R-Wis., has proposed identical legislation.

Senate Democrats, many of whom support a bankruptcy overhaul but oppose the 500-page bill as written, have prepared many amendments. For example, Sen. Russ Feingold, D-Wis., proposed on Tuesday that older people get special homestead exemptions allowing them to keep their homes when they file for bankruptcy. Currently, such exemptions are determined by the states.

Democrats also are considering trying to attach to the legislation an increase in the minimum wage.

Supporters hope for passage before lawmakers adjourn in mid-March for the spring recess. They say they are heartened by the swift passage two weeks ago of a bill aimed at discouraging class-action lawsuits.

Banks, credit card companies and retailers have pushed since 1997 for a bill overhauling the bankruptcy laws. Consumer and civil rights groups and unions say the legislation would shred a safety net for those who have lost their jobs or face mounting medical bills.

Personal bankruptcies appear to have broken the upward trend of recent years, as new filings fell 3.8 percent last year, according to official figures released Tuesday. They showed 1,563,145 personal bankruptcy filings in 2004, down from 1,625,208 in 2003.

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.