HOUSE OK’S BANKRUPTCY BILL
Byline: Joyce Barrett
WASHINGTON — Retailers scored a victory Wednesday when the House passed an ambitious reform of the U.S. bankruptcy system that will make it tougher for consumers to escape their debt.
With the House passage of the controversial measure, in a 306-118 vote, and Senate consideration expected by the end of July, the prospects of bankruptcy reform appear likely, but the ultimate extent is still uncertain.
The House agreed to a substitute for the original bankruptcy bill, maintaining the core tenets of the measure, broadening the availability of debt counseling to consumers and narrowing the definitions of consumer fraud.
Both the House and Senate bills would require consumers seeking protection from debtors to take a needs-based test — consisting of six questions regarding income and expenses — to determine whether they can repay some of their obligations. The House bill automatically moves consumers with minimum incomes of $50,000 from Chapter 7, which permits liquidation of most of their debts, to Chapter 13, which requires debt restructuring. The Senate bill does not provide for an automatic switch but instead requires creditors to petition for the move.
Rep. George Gekas (R., Pa.), chairman of the House Commercial and Administration Law Subcommittee and bill sponsor, said that when the two bills are reconciled in conference he would fight to maintain the automatic move.
“To force creditors to petition for the change would put every bankruptcy case before bankruptcy court,” he said in an interview.
Consideration of the Senate bill will not be without its problems, however. Sponsored by Sen. Charles Grassley (R., Iowa), it faces a possible filibuster, and Sen. Edward Kennedy (D., Mass.) has indicated he will seek to attach his proposal to raise the minimum wage by $1 to the bill, something that’s anathema to business. Kennedy’s minimum-wage hike would raise the $5.15 wage floor to $6.15 by 2000.
The House debate focused on creditors’ practices of sending out unsolicited offers for credit and whether they should be blamed for recent increases in personal bankruptcy filings, which reached 1.3 million last year. While retailers’ losses to consumer bankruptcy filings are uncertain, the industry estimates it loses $2 billion yearly.
Rep. Chet Edwards (D., Tex.) argued that credit-card companies should “take responsibility for unsolicited credit-card mailings.” But Rep. Scott McInnis (R., Colo.) retorted, “If you can’t afford it, don’t buy it, and if you do buy it, don’t blame it on the merchant.”
Rep. Jerrold Nadler (D., N.Y.), who led the opposition to the measure, agreed that he favored requiring consumers to pay their debts if they could. His opposition to the bill was instead based on the means test, which did not make any allowances for personal circumstances, he said.
“One central purpose of this bill is to take large sums of money from mid- and low-income families in distress and give it to their credit-card companies. This is a bill of, by, and for the credit-card companies that have waged a long and expensive lobbying campaign,” he said.
Rep. Steve Chabot (R., Ohio) defended the test and the automatic switch from Chapter 7 to 13 for some consumers. “This will protect consumers and businesses from debtors who are capable of paying their debts but choose to hide behind bankruptcy protection rather than paying,” he said. He blamed recent increases on the number of filings on a system that “discourages personal responsibility.
“Our current bankruptcy laws allow those who can afford to pay their bills to walk away debt-free.”