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Democrats press bankruptcy bill provision

Senate Democrats pressed Tuesday to protect U.S. military personnel from provisions in a pending bankruptcy bill that would make it much more difficult to get rid of debts.
/ Source: The Associated Press

Senate Democrats on Tuesday offered a plan they said would shield military personnel from some proposed changes in bankruptcy laws that would make it harder to shed debts.

With supporters predicting victory soon after nearly eight years of congressional gridlock, the bill would raise the threshold for erasing credit card and other consumer debts in bankruptcy court by setting a new income test for applicants.

Democrats worried about the financial hardships faced by veterans returning from Iraq and Afghanistan. Some soldiers in the National Guard and Reserves have seen their businesses fail after they were called up to serve, lawmakers said.

“Many men and women in the military are making extraordinary sacrifices,” said Sen. Dick Durbin, D-Ill. “It’s unfair that they should come home to face this new harsh bankruptcy law.”

His amendment would exempt members of the military from that new test to measure people’s income and assets. It is intended to determine whether those seeking bankruptcy protection must repay their debts or have them canceled. Under the current system, bankruptcy judges have the discretion to decide that.

Durbin’s proposal would allow service members more generous property exemptions when applying for bankruptcy so that they could keep their homes and vehicles. It also would ban creditors from collecting money from service members on any debt with interest exceeding 36 percent. That would apply, for example, to “payday loans,” short-term, often high-rate loans against borrowers’ paychecks that have become popular among military personnel.

About 16,000 active duty members of the military file for bankruptcy each year, according to congressional investigators.

The proposal by Durbin, the Senate’s No. 2 Democrat, led Republicans to draft their own amendment aimed at the military.

Sen. Jeff Sessions, R-Ala., described it as more “constrained” than the Democrats’ and focused on active duty service members, low-income veterans and those with serious medical conditions.

President Bush said Monday that the legislation to revamp the nation’s bankruptcy laws offered “common-sense reforms” that would curb abuses. In the House, the chairman of the Judiciary Committee, Rep. James Sensenbrenner, R-Wis., has proposed identical legislation.

Senate Democrats, many of whom support a bankruptcy overhaul but oppose the 500-page bill as written, have prepared many amendments. For example, Sen. Russ Feingold, D-Wis., proposed on Tuesday that older people get special homestead exemptions allowing them to keep their homes when they file for bankruptcy. Currently, such exemptions are determined by the states.

Democrats also are considering trying to attach to the legislation an increase in the minimum wage.

Supporters 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.

Banks, credit card companies and retailers have pushed since 1997 for a bill overhauling the bankruptcy laws. Consumer, 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, slipping 0.8 percent in the 12 months ending June 30, the most recent figures. 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.