Congress moving on legislation to curb dissolution of debts

WASHINGTON -- After getting very close to passage last year, legislation making it more difficult for consumers to wipe away their debts in bankruptcy court is moving in Congress again.

Key Republican lawmakers want to move quickly to draft and vote on a bill, "but we will be thoughtful in the process," Rep. Christopher Cannon, R-Utah, chairman of a House Judiciary subcommittee, said at a hearing Tuesday.

Rep. Mel Watt, D-N.C., said he supports changes in the bankruptcy laws in principle but not the House legislation as written, which he said would create "a paupers' bankruptcy court."

Banks, credit card companies and retailers have pushed for the legislation, which arises again as the record pace of new personal bankruptcies in 2002 is expected to continue this year.

Lawmakers of both parties support an overhaul of the federal bankruptcy laws. Consumer and civil rights groups and unions oppose it, saying it is unfair to low-income working people and would remove a safety net for those who have lost their jobs or face huge medical bills.

Rising tide of filings

Bankruptcy filings jumped to a record high last year, gaining 5.7 percent over 2001, according to data released last month.

More than 225 groups, including the AFL-CIO, Consumer Federation of America, church groups, the NAACP, the National Organization for Women and the Public Interest Research Group, signed a letter Monday to House leaders asking them to reject the new bill as written.

"At a time when many Americans have been harmed by a very shaky economy and a massive wave of corporate scandals, moving forward mechanically with ... (the bill) would be a mistake," the groups said. "Rising bankruptcies are driven by economic difficulties. The timing of this bill could not be worse."

Under current law, Chapter 7 of the U.S. Bankruptcy Code allows people to erase their debts, usually in exchange for giving up some personal assets. Filings under Chapter 13 force people to repay debts over time in accordance with a court-approved plan.

A bankruptcy judge or a private attorney appointed by the Justice Department usually decides whether someone qualifies for dissolution of debts or should be forced to repay under a reorganization plan.

The legislation would apply a new standard: if a debtor had sufficient income to repay at least 25 percent of the debt over five years or earned at least the median income for his state, he or she would be forced into a Chapter 13 repayment plan.