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Congress toughens bankruptcy filings

Bush to review measure favoring repayment plans

WASHINGTON -- Tens of thousands of people who want to wipe out their debts in bankruptcy court would have to work out repayment plans instead under legislation Congress approved yesterday.

A 302-to-126 vote by the House sent the legislation to President Bush, who said he was eager to sign the measure, the biggest rewrite of the bankruptcy code in a quarter-century. It marks the second major change in law to benefit business since Republicans increased their House and Senate majorities in last fall's elections.

Debate in the House was acrimonious as Democratic opponents warned that the measure would hurt the economically vulnerable.

After eight years of strenuous efforts by congressional backers, banks, and credit-card companies, the legislation was catapulted toward enactment starting earlier this year. The legislation, which garnered some Democratic votes, cleared the Senate last month on a 74-to-25 vote.

The measure would require people with incomes above a certain level to pay credit-card charges, medical bills, and other obligations under a court-ordered bankruptcy plan.

Opponents say the change would fall especially hard on low-income working people, single mothers, minorities, and the elderly, and would remove a safety net for those who have lost their jobs or face crushing medical bills.

The legislation ''protects the credit industry at the expense of the consumer," Representative Alcee Hastings, Democrat of Florida, declared in House debate. ''It will drive more Americans deeper into financial crisis and weaken the nation's economy and social structure."

But backers in Congress and the financial services industry argue that bankruptcy frequently is the last refuge of gamblers, impulsive shoppers, divorced or separated fathers avoiding child support, and multimillionaires -- often celebrities -- who buy mansions in states with liberal homestead exemptions to shelter assets from creditors.

Representative David Dreier, Republican of California, said the legislation would save American families an average of $400 a year in higher interest rates charged to consumers to recoup losses from those who abuse bankruptcy proceedings.

''These common-sense reforms will make the system stronger and better so that more Americans -- especially lower-income Americans -- have greater access to credit," Bush said after the vote.

In a bitter scene on the House floor, Democrats -- most of whom opposed the legislation -- used an array of parliamentary maneuvers to delay the final vote, forcing an unsuccessful roll-call vote on adjourning the session and lining up one by one to register their objections in brief, biting statements.

Democrats were furious that the GOP leadership allowed none of the 35 amendments they had proposed earlier to be voted on. They particularly wanted provisions that would exempt from the new bankruptcy requirements military personnel returning from Iraq and Afghanistan, and people whose indebtedness is the result of financial identity theft.

Between 30,000 and 210,000 people -- from 3.5 percent to 20 percent of those who dissolve their debts in bankruptcy each year in exchange for forfeiting some assets -- would be disqualified from doing so under the legislation, according to the American Bankruptcy Institute.

Taking effect six months from enactment, the measure would set up an income-based test for measuring a debtor's ability to repay. Those with insufficient assets or income could still file a Chapter 7 bankruptcy, which, if approved by a judge, erases debts entirely after certain assets are forfeited. Those with income above the state's median income who can pay at least $6,000 over five years -- $100 a month -- would file Chapter 13, where a judge would then order a repayment plan.

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