GOP Senate rejects effort to soften bankruptcy law

WASHINGTON -- Senate Democrats were thwarted Wednesday in their attempts to soften the impact on seniors and sick people of a proposed law making it harder to erase debts in bankruptcy.

Mostly along party lines, the GOP-controlled Senate voted 59-40 to reject an amendment that would have allowed older people to get special homestead exemptions to keep their homes when they file for bankruptcy. Currently, such exemptions are determined by the states.

Also rebuffed, 58-39, were two proposals focused on people whose significant medical expenses for illness force them to file for bankruptcy.

The first would have allowed people to keep at least $150,000 of the equity in their primary residence. If, in addition, the medical bills exceed 25 percent of the person's income, the second proposal would have exempted them from a new test in the legislation measuring income and assets of bankruptcy applicants to determine if debts can be discharged.

Under unlimited homestead exemptions in a half-dozen states, "fat cats who go into bankruptcy don't lose their mansions," said Sen. Edward M. Kennedy, D-Mass., author of the twin amendments. "Where is fairness in this bill?"

By another 59-40 tally, the Senate defeated a Democratic proposal to require that credit card statements show how long it would take the consumer to pay off his or her debt by making only the minimum monthly payment, and what the total interest charges would be.

It was the second day of defeat for Democratic amendments to the sweeping bill to overhaul the bankruptcy code. On Tuesday, the Senate accepted a more limited GOP provision that would give a break to active-duty military personnel and some veterans who file for bankruptcy.

As work on the legislation grinds on in the Senate, Kennedy will try to get an increase in the minimum wage -- a top priority of the Democrats -- attached to the bill, aides said. Kennedy's proposal would lift the hourly minimum from $5.15 to $7.25 over two years.

The bankruptcy overhaul bill would raise the threshold for dissolving credit card and other consumer debts in bankruptcy court. Supporters are predicting a swift victory after nearly eight years of congressional gridlock and feverish lobbying by banks and other credit-card issuers.

The new "means" test in the legislation is intended to determine whether those seeking bankruptcy protection must repay their debts or are allowed to have them canceled. Under the current system, bankruptcy judges have the discretion to decide that.

The Republican leadership maintained tight discipline, as Sen. Orrin Hatch, R-Utah, warned against "killer amendments" that could jeopardize the bill's acceptance by the House.

Objecting to Feingold's proposal targeting seniors, Hatch argued that the bankruptcy overhaul bill as written already provides protections for elderly people and that, when it comes to homestead exemptions, "The choice belongs to the states."

Supporters of the bill hope for passage before lawmakers adjourn in mid-March for the spring recess. They say they are heartened by the swift passage two weeks ago of a bill aimed at discouraging class-action lawsuits. The White House expressed support on Monday.

Banks, credit card companies and retailers have pushed since 1997 for a bill overhauling the bankruptcy laws. Consumer and civil rights groups and unions say the legislation would shred a safety net for those who have lost their jobs or face mounting medical bills.

Personal bankruptcies appear to have broken the upward trend of recent years, as new filings fell 3.8 percent last year, according to official figures released Tuesday. They showed 1,563,145 personal bankruptcy filings in 2004, down from 1,625,208 in 2003.

Some experts say the decline means that while the level of bankruptcies is still high compared with four years ago, some consumers finally have been able to benefit from an improving economy and low interest rates.