A bill that would produce the biggest change in federal bankruptcy laws in more than 25 years hit a snag last night just as it appeared to be about to pass.
Senate leaders decided to postpone until today the final vote on the measure, which would make it more difficult for individuals to wipe out debt through bankruptcy. The decision was prompted in part by an amendment proposed by Paul S. Sarbanes (D-Md.), John W. Warner (R-Va.) and Patrick J. Leahy (D-Vt.) that would prohibit an investment bank that advises a company before it files for bankruptcy from continuing to advise it after the company is in bankruptcy.
_____Live Discussion_____
•
Transcript: Sam Gerdano, executive director of the American Bankruptcy Institute, was online to discuss the controversial bankruptcy bill.
|
| |
| | | | _____ Senate Legislation _____ If enacted, the bill would: • Set up a new test for measuring a debtor's ability to repay. People 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 order a repayment plan. Under current law, a bankruptcy judge determines under which chapter of the bankruptcy code a person falls -- whether they have to repay some or all of their debt. • Require people filing for bankruptcy to pay for credit counseling. • Give top priority to a spouse's claims for child support among creditors' claims on a debtor in bankruptcy. • Allow for special accommodations for active-duty service members, low-income veterans and those with serious medical conditions in the new income test for bankruptcy applicants. • Restrict the homestead exemption in states to $125,000 if the person in bankruptcy bought his or her residence at least three years and four months before filing. Florida, Iowa, Kansas, South Dakota and Texas have unlimited homestead exemptions that allow wealthy people to file for bankruptcy and keep their mansions in those states sheltered from creditors. Source: The Associated Press | | | | | | |
 
Friday's Question:
| | |
|
Leahy, who said such arrangements are a conflict of interest, quoted from a letter from Securities and Exchange Commission Chairman William H. Donaldson saying that allowing such dual representation, which is barred under current law, "would be a mistake."
House Republican leaders have promised to take up the bill within weeks if the Senate passes it free of amendments. Senate Republican leaders appeared to be concerned last night because the House leadership had not decided whether it could agree to the investment-banker amendment if it were adopted.
Earlier yesterday, five other proposed changes to the bill were voted down, including one that would have given more protection to single mothers filing for bankruptcy and one that would have made it harder to protect expensive homes from creditors.
If adopted, the legislation would require many people to repay some of their debt under Chapter 13 bankruptcy filings rather than erase it almost entirely under Chapter 7 of the U.S. bankruptcy code. It would impose a detailed formula under which bankruptcy judges would have little leeway in determining who is eligible for Chapter 7, keeping it out of the reach of 30,000 to 100,000 people who file for bankruptcy each year.
Consumer advocates and many Democrats say the bill would be too harsh on people who fall on hard times from sickness, divorce or job loss, and that it retains loopholes that allow rich people who file for bankruptcy to hide millions of dollars in mansions and complex trusts.
The bank, credit card and retail industries, which have pushed for the legislation for more than seven years, argue that changes to the current law are needed to end abuse of the system by people who shirk their financial obligations when they could repay a portion of what they owe.
The bill has been passed before in both the Senate and House over the past three sessions of Congress but never made it into law. President Bill Clinton vetoed it. In 2002 the Republican-controlled House rejected it after an amendment was added that would have prevented people who break the law during anti-abortion demonstrations from using bankruptcy to avoid paying court-imposed fines.
Banking executives hoped, as consideration of the proposal began this session, that the seats the Republican majority gained in the House and Senate in last year's elections would mean that the bill would become law this time. They have been heartened by the success of Senate Republicans in the past week in blocking attempts by Democratic opponents of the bill to attach amendments, including the anti-abortion-protest provision. Other amendments that were defeated, largely along party lines, would have given elderly people more protection to keep their homes during bankruptcy, and required credit card companies to specify the additional interest customers would pay by making only minimum monthly payments.
