- The Washington Times - Wednesday, March 9, 2005

From combined dispatches

Efforts to soften the effect of tougher bankruptcy rules on families with children and close a loophole for the wealthy were rejected by the Senate yesterday as the legislation moved toward expected passage.

A final vote on the measure, making it more difficult for consumers to erase their debts in bankruptcy court, was expected to wait until today as debate continued on amendments.

Banks, credit-card companies and retailers have sought the changes for years, arguing that bankruptcy has become too easy. The measure is also favored by the White House.

Critics charge the measure is too harsh and rewards lenders who have encouraged consumers to take on higher debt burdens.

The legislation contains a means test that would force more filers to enter compulsory repayment plans, rather than having their assets liquidated to repay creditors.

With Senate approval virtually assured after the bill cleared two key hurdles on Tuesday, backers yesterday rejected proposals to ease the impact of the legislation on families with children, young people below age 21 and people with below-median incomes.

They also rejected a proposal by Sen. Edward M. Kennedy, Massachusetts Democrat, to close a loophole that benefits wealthier people in states with unlimited homestead exemptions, such as Texas and Florida.

His amendment would have capped the amount allowed for homestead exemptions at $300,000. It was rejected 53-47.

Senate backers of the bill said they were trying to avoid amendments because House leaders have pledged to act promptly if the Senate does not make major changes. House leaders hope to vote early next month on the bill and send it to President Bush for signing into law.

But Sen. Christopher J. Dodd, Connecticut Democrat, said the bill puts a straitjacket on families with children.

“Clearly, there is a need to reform the bankruptcy laws. But it requires a sense of balance,” he said.

His amendment would have made the means test more flexible to help families with children, by allowing larger education payments and ensuring that child-support payments are not diverted to creditors. It was rejected 58-42.

Senators also rejected 60-40 a proposal by Sen. Barbara Boxer, California Democrat, to ask judges to consider if a person under age 21 has been issued at least seven credit cards. Mrs. Boxer said credit-card companies were acting irresponsibly, “enticing” young people into debt.

Critics say the bill hurts people burdened with medical debt or who have lost their jobs.

“It makes it harder to get a fresh start,” said Maureen Thompson, executive director of the National Association of Consumer Bankruptcy Attorneys. “Most people file for bankruptcy only when they have no other options. Most often, they have tried to pay back that debt.”

Others say innocent people will suffer because of the credit abuses of a few.

“The overall concern is that this bill takes a sort of ‘scorched earth’ approach to bankruptcy reform,” said Travis Plunkett, legislative director of the Consumer Federation of America, a consumer-advocacy group. “There are some so-called ‘abusers’ of the system. The dispute is whether this bill is a proportional response to the problem.”

A recent Harvard University study found that costly illnesses led to about half of all personal bankruptcies.

The bill’s main sponsor, Iowa Republican Sen. Charles E. Grassley, insisted the measure was fair and necessary, saying there had been an “explosion” in bankruptcy filings.

“It’s become an economic problem where the average person in America is paying $550 for goods and services because somebody else didn’t pay their bills,” Sen. Grassley said.

Tom Ramstack contributed to this report.

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