By ROB HOTAKAINEN
Minneapolis-St. Paul Star Tribune
April 15, 2005
In a major victory for lenders, the House voted 302-126 to approve the bill, which passed the Senate last month. President Bush is expected to sign the bill soon, marking the largest overhaul of the nation's bankruptcy laws since 1978.
Backers of the bill said it would help all consumers, who now pay a $400 "hidden tax" on the price of goods and credit due to abuses.
"The only winner in the current bankruptcy system are those who game the system for personal gain," said Rep. James Sensenbrenner, R-Wis., the chairman of the House Judiciary Committee.
Opponents said the bill said would do nothing to prevent lenders from charging exorbitant fees and that it would hurt people who file bankruptcy only because they've lost jobs or gotten ill.
"This bill is great for credit card companies and banking industries, but bad for everyone else," said Rep. Jim Oberstar, D-Minn. "In fact, it hurts those who most need the second chance offered by bankruptcy."
Republican leaders were jubilant after ending eight years of failed attempts to change the law. It's expected to take effect six months after its enactment.
House Speaker Dennis Hastert, R-Ill., said Congress sent "a firm and resounding message" that the federal bankruptcy system "will no longer be a shelter for abuse." And Rep. Phil Gingrey, R-Ga., said the new law would change America's "when-in-doubt-bail-out" system of dealing with debts.
Opponents of the bill said it passed only after lobbyists for the financial services industry spent $40 million.
"Let's not kid ourselves: This bill was written for and by the credit card industry," said Rep. William Delahunt, D-Mass. "It's got nothing to do with the consumer."
The new law is aimed at making it harder for consumers to file for bankruptcy under Chapter 7, which allows debtors to erase their debts after they sell some of their assets. It will set up a new "means test" that will send more debtors into Chapter 13, forcing them into court-ordered payment plans. People with incomes above a state's median income who could pay at least $6,000 over five years would be expected to make payments.
Rep. David Obey, D-Wis., said the means test would take power away from judges, who now have the discretion to deny bankruptcy protection if they believe the law is being abused. He said too many families are "just one medical bill or pink slip away" from financial disaster.
"If Congress is going to strip away protections for families who have lost their health insurance, then Congress has the responsibility to get off its duff and make sure every American has access to health care," Obey said.
Opponents of the bill cited a study done by Harvard University in February that found that half of all personal bankruptcies are the result of medical bills. House Minority Leader Nancy Pelosi, D-Calif., called the bill "mean and harsh" and predicted that many of the court-ordered payment plans will fail because people will lack the money. And Rep. Doris Matsui, D-Calif., called it "misguided," saying it would particularly hurt children and families.
In previous years, bankruptcy bills had passed both the House and Senate, only to stall as members tried to negotiate differences in conference committee.
This time, Republican leaders changed their strategy, preventing opponents from offering amendments and forcing the House to pass the same bill that cleared the Senate on a 74-25 vote. As a result, there will be no conference committee and the legislation can go directly to the White House.