Posted on: Friday, April 15, 2005
Bankruptcy bill goes to Bush
| • | Here's how a debtor is affected |
By Marcy Gordon
Associated Press
WASHINGTON — Bankruptcy lawyers expect thousands of debt-burdened people to rush to courthouses to beat a new law making it harder to wipe the slate clean of credit-card bills and other obligations.
The biggest changes in U.S. bankruptcy laws in a quarter-century will occur 180 days after President Bush signs a bill that Congress sent him yesterday. The 30,000 to 210,000 people that the American Bankruptcy Institute estimates will be affected by the new law can escape its impact if they file for bankruptcy before then.
"We will be up working late trying to get those petitions filed before the deadline," said Eric Roland Spencer, a bankruptcy attorney practicing in Roanoke, Va.
In recent weeks as Congress has debated the legislation, Spencer said, he's seeing seven to eight clients a day, up from four a day beforehand.
The bill passed the House yesterday on a 302-126 vote. Hawai'i's representatives were split, as Neil Abercrombie voted against the bill and Ed Case voted for it. The Senate passed the bill last month, 74-25.
The measure requires people with incomes above a certain level to pay credit-card charges, medical bills and other obligations under a court-ordered bankruptcy plan.
Opponents 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.
The 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."
But 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.
Bush said he was eager to sign the bill to curb abuses of the system. "These commonsense reforms will make the system stronger and better so that more Americans — especially lower-income Americans — have greater access to credit," he said.
In 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.
Democrats were angry 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.
Between 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.
Taking effect six months from enactment, the bankruptcy 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 a 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.
Hawai'i's median household income is $50,110, according to the state Department of Business, Economic Development and Tourism.
