- The Washington Times - Friday, March 2, 2001

The House yesterday passed a bankruptcy overhaul bill intended to curb abuses of a system that handled 1.25 million cases last year.

The bill, which passed 306-108, would force more debtors to pay back at least some of their obligations. The Senate is expected to address its own version of the measure next week, and President Bush has indicated he supports the bill.

President Clinton, who said the bill would hurt families that had fallen on financial misfortune, let it lapse on his desk late last year.

"Abuse is rampant in the bankruptcy system. Those of wealth are gaming the system as a financial planning tool," said a statement by Rep. George W. Gekas, Pennsylvania Republican, who sponsored the measure.

Bankruptcies rose to a record 1.44 million in 1998, when bankruptcy-reform legislation was first considered. Rates fell last year, but some analysts say they expect cases to rise again as the economy slows.

The bill would apply a means test to those filing for bankruptcy. If debtors are found to have sufficient income to repay at least 25 percent of their obligations over five years, they would be required to repay under a court-approved reorganization plan rather than having debts forgiven.

Individuals can now choose to file for Chapter 7 or Chapter 13 bankruptcy. The former virtually absolves them of their obligations, but would more negatively affect future credit reports; the latter requires they repay some debts.

Debtors would also be compelled to undergo credit counseling before filing for bankruptcy.

At a Senate Judiciary Committee hearing three weeks ago, witnesses said the American public views the bankruptcy system as riddled with abuses, a haven for people who want to wriggle out of financial obligations.

The banking and credit-card industries have thrown heavy support behind the bill, saying it will allow them to recoup the $4 billion they lose each year because of bankruptcy system misuse.

"The concept behind [bankruptcy] is a fresh start," said John Hanley, director of legislative strategy for the Independent Community Bankers of America, which represents about 5,300 banks, most commercial.

He said consumers bear the burden for abuses of the system, because companies pass on costs from debts they cannot recover. This restricts the flow of money in communities, which affects his members, Mr. Hanley said.

Critics of the measure say it is too harsh on families that truly do need to file by making it more difficult to enter bankruptcy.

Rep. John J. LaFalce, New York Democrat, said yesterday at a news conference that the bill fails to hold the real culprits credit-card companies and unscrupulous lenders responsible for their contributions to bankruptcy levels.

The credit-card industry has come before Congress to argue it needs this legislation, "yet the same companies continue to aggressively market to our most financially vulnerable citizens," he said.

A representative of the Consumer Federation of America, which has lobbied against the bill, said his organization will focus on efforts such as a recently announced savings campaign should the measure pass.

"We will continue working hard to help Americans get their financial house in order if this bill takes effect," said Travis Plunkett, legislative director of the group.

The measure would go into effect six months after presidential approval.

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