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Bankruptcy Bill on Brink of Passing

Wed Mar 9, 7:55 AM ET Top Stories - Los Angeles Times

By Mary Curtius Times Staff Writer

WASHINGTON — A sweeping overhaul of bankruptcy rules long sought by credit card companies and banks seemed poised to become law after two key Senate votes Tuesday.

The legislation, a top item on the Republican agenda, would force more people who file for bankruptcy to pay back some of their debts.

The GOP appeared to have overcome the final hurdles to the bill's enactment in the Senate's Tuesday votes — one that defeated an abortion-related amendment to the measure and another that set a limit on further debate.

The votes paved the way for the bill to pass the Senate as early as today. In the House, GOP leaders have promised to act quickly on the bill if it is sent to them without major amendments, as now appears likely.

Proponents say the bill would stem abuses of bankruptcy law by some debtors and cause more Americans to be financially responsible. They have noted that 1.6 million Americans filed for bankruptcy last year, compared with slightly fewer than 300,000 in 1985.

Critics say the bill would not protect those who have been wiped out by crushing medical bills or other unforeseen calamities, and that the wealthy would still benefit from loopholes.

Even after their victories Tuesday, some Republicans noted that similar legislation had passed the Senate on three previous occasions but had failed to become law.

Sen. Jeff Sessions (R-Ala.) said the bankruptcy legislation had taught him "a political lesson: No matter how much support a bill has … things can go awry."

Still, GOP leaders expressed confidence that this time, after eight years of effort by its supporters, the measure would become law.

"It's quite exciting," said Senate Majority Whip Mitch McConnell (R-Ky.). "It's been a very good day."

The bill's core provisions would impose a means test on debtors to determine whether they had enough assets to pay back at least some of their debts. Those filing for bankruptcy whose annual household income falls below the median level in their state could apply for complete debt forgiveness. Those who make above the median would have to develop a repayment plan.

California's median household income is about $50,000.

Republicans said that those saddled with crippling medical bills would be protected by the means test, and said that it should be left to the states to decide how much of a home's value should be protected from seizure during bankruptcy. Democrats lost a bid to protect $150,000 of the value of homes owned by people facing medical hardships from being seized by bankruptcy courts to pay creditors.

The White House supports the legislation, and its passage would be an important victory for President Bush at a time when he is struggling to build support for Social Security reform with a skeptical public and skittish Republican lawmakers.

During more than a week of debate on the bill, Democrats put forth a series of amendments that were defeated, largely along party lines. These included proposals to exempt seniors and people facing medical hardship from some of its provisions, as well as a bid to increase the federal minimum wage.

But Republicans considered the abortion-related amendment offered by Sen. Charles E. Schumer (D-N.Y.) the greatest threat to the bill.

The amendment would have barred violent protesters from filing for bankruptcy to avoid paying court-ordered fines for their actions. Although it would have applied to any such protester, it was spurred by reports in the late 1990s that some antiabortion activists were divesting themselves of assets before taking part in illegal protests.

A similar amendment passed by a wide margin in the Senate's 2001 version of the bankruptcy bill. But the provision sparked controversy in the House among abortion foes, and that eventually thwarted the legislation.

Abortion rights groups had portrayed Tuesday's vote on Schumer's amendment as the first test of how the Senate, with its increased Republican majority after November's elections, can be expected to act on abortion-related legislation this year.

"What it says is: It's uphill sledding" for abortion rights advocates, Sen. Dianne Feinstein (D-Calif.) said after the amendment was defeated, 53 to 46. Feinstein and Sen. Barbara Boxer (D-Calif.) both voted for the amendment.

Several Republicans who had voted for Schumer's amendment in 2001 said Tuesday that they were determined to do nothing this time to cause the House to reject the bill. Some said they also were convinced that the measure was unnecessary because courts could block protesters from using bankruptcy law to avoid fines.

"Rather than go down this fruitless road again, I'm asking my colleagues to vote it down once and for all," said Sen. Orrin G. Hatch (R-Utah), who co-wrote the amendment in 2001 with Schumer. "You just have to know that eight years is enough time to work on one bill. To blow up this once again over an incendiary, 'poison pill' amendment is just not right."

But Schumer said the amendment was about protecting the rule of law, not going after antiabortion activists who stay within legal limits when they protest at clinics.

"People have done a 180-degree about-face" in the Senate, Schumer complained, "because of a small group in the House who don't represent mainstream views of the House, or even of the Republican Party of the House."

The bankruptcy bill is the second in a series of bills backed by Republicans that they say are necessary to end abuse of the legal system. The first — passed by Congress last month and signed into law by Bush — shifted many class-action lawsuits out of state courts and into federal courts, where the bill's supporters say judges are more conservative in their decisions and awards.

Debates are expected on a bill that would put caps on liability payments in medical malpractice cases and another that would protect businesses from asbestos-related lawsuits by creating a trust fund to pay victims' claims. Still another measure would limit the liability of gun manufacturers whose weapons were used to commit crimes.

Votes on the bankruptcy legislation have underscored the importance to the GOP of the four Senate seats it gained in the 2004 elections, giving the party 55 of the chamber's 100 members. This majority not only enables Republicans to more easily derail Democrat-backed amendments but, as shown Tuesday, gain the 60 votes needed to end debate on a bill.

The motion to limit remaining debate on the bankruptcy bill passed easily, 69 to 13. Feinstein and Boxer voted against that measure, but 14 Democrats voted for it.

Schumer and Sen. Edward M. Kennedy (D-Mass.) had indicated that they might push for a filibuster of the bill. But not enough Democrats decided to join that effort. Some said the party might resort to a filibuster for more important fights over Social Security, some judicial nominees and tax reform.

In a speech on the Senate floor, Feinstein noted that she had voted for the bankruptcy bill the last time the Senate considered it. But this time, she said, she would vote against it, in part because Republicans had defeated an amendment that would have required credit card companies to disclose to consumers how long it would take them to pay off a debt if they only made the minimum payments.

"The fact of the matter is that this bill is really all for the credit card companies," Feinstein said. "I felt that the bill should be balanced and that we should see that the consumer is also protected in this process."

Republicans argued that there were already enough safeguards to protect consumers.

"At a certain point, the time comes to move forward with what we have," Sessions said. "The large majority recognizes that we are not doing anything radical in this bill."

Sen. Charles E. Grassley (R-Iowa), one of the bill's sponsors, said, "The sooner we finish work in the Senate and get the bill to the House, the sooner our bankruptcy system will be focused, as it should be, on helping those with real need, and less vulnerable to abuse by consumers who have the ability to repay their debts."

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