Mar. 9, 2005 – The most sweeping overhaul of bankruptcy legislation in over a quarter century will likely be signed into law as soon as next week, after two Senate votes yesterday removed the few remaining political obstacles.
The new law would require many indebted individuals filing for bankruptcy to do so under Chapter 13, in which the debtor is required to set up a repayment plan; instead of Chapter 7, in which some assets are seized, but debts are erased.
The credit industry heavily backed the bill, arguing that the changes are needed to prevent people from abusing the current system. A coalition of credit companies -- including Visa, MasterCard, the American Bankers Association, MBNA America, Capital One, Citicorp, the Ford Motor Credit Company and the General Motors Acceptance Corporation -- spent more than $40 million in political fundraising and lobbying for the changes, according to the Center for Responsive Politics (CRP), a government watchdog group that tracks money and politics.
CRP also reports that finance and credit companies donated more that $7.8 million to political campaigns during the 2004 election cycle. Sixty-four percent went to Republican candidates and 36 percent went to Democrats. Additionally, according to CRP, credit card giant MBNA gave more than $1.5 million and the American Bankers Association, which is the main lobbying organization for the banking industry, contributed more than $2.2 million to candidates and parties.
Supporters of the new bill say increasing numbers of bankruptcy filings illustrates the need for restrictions. However, the billâ€™s opponents contend that the increase is the result of a rise in debt, often resulting from burdensome medical and education expenses.
A Harvard University study published in February in the journal Health Matters found that, in the two years before filing for bankruptcy, 19 percent of families went without food, 40 percent lost their phone service, 43 percent could not afford to fill a prescription and 53 percent went without vital medical care. About half of the 1,771 individuals interviewed for the study cited medical expenses as a cause of their bankruptcy.
"This bankruptcy bill is mean-spirited and unfair," Senator Edward Kennedy, (D-Massachusetts) told the New York Times. "In anything like its present form, it should and will be an embarrassment to anyone who votes for it. It's a bonanza for the credit card companies, which made $30 billion in profits last year; and a nightmare for the poorest of the poor and the weakest of the weak."
In a hearing before the Senate Judiciary Committee this February, reported in the Houston Chronicle, Harvard Law School professor Elizabeth Warren, who opposes the bill, noted, "A family driven to bankruptcy by the increased costs of caring for an elderly parent with Alzheimer's disease is treated the same as someone who maxed out his credit cards at a casino." She added, "A person who had a heart attack is treated the same as someone who had a spending spree at the shopping mall. A mother who works two jobs and who cannot manage the prescription drugs needed for a child with diabetes is treated the same as someone who charged a bunch of credit cards with only a vague intent to repay."
The Senate rejected several proposals to tighten bankruptcy regulations that allow the wealthy to shelter assets to protect them from being seized during bankruptcy proceedings. Senators also rejected an amendment that would have made it more difficult for individuals convicted of violence while protesting abortion to escape fines by declaring bankruptcy. The Senate will vote on the bill as early as today.
House leaders told the New York Times that they expect to pass the legislation as soon as this week. President Bush has already said he will sign it.