toledoblade.com --

WASHINGTON - After eight years of debate, the Senate yesterday voted 74-25 for landmark changes in bankruptcy laws that will make it more difficult for many Americans to walk away from their debts but still will shelter significant assets for the wealthy.

House GOP leaders said they would act swiftly to pass a House version to send the legislation to President Bush, who has promised to sign it.

House Republican leader Tom DeLay (R., Texas) said there is "no doubt" the House will pass the bill.

Senate passage of the controversial bill was Mr. Bush's second major legislative victory in recent weeks. He recently signed into law a provision making it more difficult to file class-action lawsuits for consumers.

The final vote also was a coup for Senate GOP leader Bill Frist of Tennessee, who is considering a possible bid for the presidency in 2008.

Democrats attempted to moderate the impact of the bill, for example, denying multimillionaires in several states such as Florida and Texas the right to keep large estates lived in for more than 40 months despite filing bankruptcy. Most homeowners with homes worth more than $125,000 will have to sell them to repay their debts. Also, debtors filing bankruptcy will be able to shelter up to $1 million in retirement benefits.

The 500-page bill, if enacted, would deny many debtors the right to file Chapter 7 bankruptcies, the preferred form because it lets them erase most and in some cases all of their debts so they can start over with a "clean financial slate."

Instead of leaving discretion to bankruptcy judges on who may file Chapter 7, the legislation would impose a strict "means test" that will deny Chapter 7 to millions. The means test will be based on median income, which is different in each state every year. The U.S. Census Bureau says in 2003 the median income ranged from $46,169 for a family of four in West Virginia to $87,412 in New Jersey.

Under the bill, many of those lower-income and middle-income families will have to file Chapter 13 bankruptcies, which means they will have to repay most of their debts over a three to five-year period, set by a judge.

Under the plan, if a person filing bankruptcy has even $100 a month more than living expenses allowed by the Internal Revenue Services, that person must file Chapter 13 and repay debts, including taxes, alimony, medical bills, child support, and student loans, as well as credit card debt and recent personal loans of more than $500.

The problem for many people in credit card debt is that late fees, rising interest fees, and penalties keep adding to the debt so that many people never pay off their debts. It is not unusual for credit card debt of $50,000 to escalate to $100,000 in a few years, even with no more spending and regular payments.

In many cases, because of 29 percent penalty interest rates and $39 a month late fees, consumers pay back thousands more than their original loans. A consumer who fails to make payments on time for a year could easily see a $2,000 bill turn into a $5,000 bill. Efforts by some Democrats to put a cap on such fees failed.

Sen. Orrin Hatch (R., Utah), floor manager of the bill, conceded that many Democrats don't like the changes and that nearly all of their 125 amendments to modify the bill were beaten back by Republicans. In addition to raising fees for filing bankruptcy, the bill also directs consumers filing bankruptcy to pay for credit counseling. Some Democrats complained that this is another unfair burden on the financially vulnerable. Democrats also said the bill fails to do anything to keep credit card companies from enticing young people who lack sufficient incomes into getting a national average of six credit cards each.

Major backers of the legislation have been credit card companies, retailers who say unpaid credit card debt results in higher prices for goods and services, and banks. Last year 1.56 million Americans filed bankruptcy, which is nearly double the figure a decade ago.

Ohio's Republican senators, Mike DeWine and George Voinovich, voted for the bankruptcy bill as did Sen. Debbie Stabenow (D., Mich.). Sen. Carl Levin (D., Mich.) voted against it.

Contact Ann McFeatters at:
amcfeatters@nationalpress.com
or 202-662-7071.

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