An editorial / By Dale McFeatters
Scripps Howard News Service
March 11, 2005
A political victory for Bush and the credit-card and banking industries, yes. But as for "sweeping" and "significant," only time will tell.
A preliminary glance at the final product suggests that it is considerably more modest than "sweeping." And how controversial could a measure be that passed the fractious Senate 74-25?
It would affect, according to bankruptcy experts, somewhere between 30,000 and 210,000 people a year, largely by forcing them to opt for Chapter 13 bankruptcy, where some repayment is required, rather than Chapter 7, which erases debts altogether. And it does underscore a fundamental commercial principle that good-faith loans should be repaid.
The terms of the bill are hardly Dickensian. In essence, bankruptcy filers with incomes above their state's median income and with the wherewithal that a judge determines would allow them to repay $100 a month over five years - a total of $6,000 - would have to file under Chapter 13.
The bill also tightens a loophole that allowed potential bankrupts to shield their assets by buying extravagant homes in states like Florida and Texas. The "homestead exemption" has been tightened to $125,000 for property bought within 30 months of filing.
The bill shields retirement benefits up to $1 million, but it also ordains that child support, alimony, student loans and most tax obligations cannot be wiped out by filing for bankruptcy.
There is a large loophole for those who open state-sanctioned asset-protection trusts, trusts shielded from the bankruptcy laws set up by people who have some expectation of being sued, like doctors, but increasingly by executives wary of the new corporate liability laws.
As with so much legislation, the pros and cons of the bankruptcy bill were argued anecdotally. Supporters said that current bankruptcy laws provided too easy an out for compulsive gamblers and shoppers, deadbeat dads trying to escape child support and stingy millionaires sheltering assets.
But skeptics pointed out that close to half of all bankruptcies are caused by medical expenses and most of the rest by job loss or divorce.
Once having made this bankruptcy bill law, Congress has an obligation of its own. Lawmakers must be vigilant to see that the act is not an insurance policy for reckless lenders. And while Congress can't do much about divorce or job loss, it can try to ensure that severe illness is not an automatic economic catastrophe for low- and middle-income families.
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