WASHINGTON — In a startling defeat for retailers, the House on Thursday rejected bankruptcy reform legislation that was designed to make it more difficult to wipe out debts entirely in bankruptcy court.

This story first appeared in the November 15, 2002 issue of WWD.  Subscribe Today.

The bill had been a top priority for retailers for six years, as legislation kept falling short of becoming law, including a pocket veto by President Clinton in 2000. Clinton saw the measure as anticonsumer.

Defeat came this time over a narrow issue involving the politically hot topic of abortion. The bill was killed on a procedural vote by conservative House Republicans protesting a provision intended to bar the discharge of debts incurred as a result of abortion clinic violence.

Eighty-seven Republicans joined 155 Democrats voting against the measure. Democrats largely opposed the bill because they said it favored business interests over consumers.

Under current law, people can escape paying any of their credit card and other debts when they file under Chapter 7 of the Bankruptcy law. Reform proponents estimated consumers have to pay $400 a year to subsidize the cost of higher interest rates and bad debt created by those who could otherwise repay.

The abortion clinic controversy has been brewing for months since Sen. Charles Schumer (D., N.Y.) inserted an amendment addressing the issue. Slight changes were later made in the amendment’s wording, but objections persisted despite strong support among Republicans and a contingent of Democrats for the rest of the bill.

With Congress set to adjourn for the year — it’s in a lame-duck session — GOP House leadership decided to cross their Republican colleagues waging the abortion clinic battle and brought the bill to a vote. GOP leaders were under immense pressure from business to act, including a cadre of retail chief executives from stores such as Neiman Marcus and Target. The Senate also signaled it was ready to vote on the measure.

Bankruptcy reform backers, including retailers, appeared confident in the bill’s passage. However, the measure never got to a final vote and was the object of last-minute lobbying by the Catholic church. On a 172 to 243 procedural vote, the conservative lawmakers bucked their GOP leaders, President Bush and their business supporters by killing the bill’s chances of even being considered.

“I have never been as disappointed with a vote as I am with this one. I can’t recall a single piece of legislation our industry has worked so hard on for it to go down to defeat,” said Tracy Mullin, president and ceo of the National Retail Federation. “The thing I find so disheartening is this issue has important economic consequences that have seemed to be lost with all the controversy around abortion.”

The reform bill would have affected individuals making more than $50,000 a year. Under a formula taking into account living expenses and the like, debtors deemed eligible would have been required to repay at least a portion of what they owe.

The massive bill would have also made several changes to business bankruptcies. One provision affecting retailers, which they fought, required lessees to assume or reject their leases within 120 days of filing for bankruptcy, with the chance of another 90-day extension. Now judges have more discretion in allowing retailers to maintain leases while they draw up reorganization plans.

Meanwhile, retailers and other apparel importers scored a victory earlier in the day when the Senate passed a port security bill designed to curb cargo theft and keep terrorists out. The House is slated to consider the bill today.

Last night, the House was set to vote on a terrorism insurance bill, something all business, including shopping mall developers, have pressed for since the Sept. 11 attacks.

Insurance policies have since canceled terrorism coverage or excessively increased deductibles. Under the legislation, the federal government would provide a federal backstop for damages caused by terrorist attacks.