Dueling Bankruptcy Bills Set Stage for Brutal House Battle

The bankruptcy reform debate erupted in the House Tuesday as the ranking Republican and Democratic members of a key subcommittee introduced conflicting bills.

Rep. George W. Gekas, chairman of the House Judiciary Committee's commercial and administrative law subcommittee, unveiled a pro-creditor, needs-based bankruptcy system that would prevent high-income borrowers from eliminating their debts.

But Rep. Jerrold Nadler, the subcommittee's ranking Democrat, presented a debtor-friendly bill that would punish lenders who extend credit to consumers who already have significant debt.

The introduction of conflicting bills begins what many expect will be a bitter fight over changes in the bankruptcy code. The battle is unfolding as consumer bankruptcy filings continue to set records, though the rate of growth has slowed slightly.

"We know there will be opposition," Rep. Gekas said. "We know there will be acrimony and delay tactics."

Still, Rep. Gekas said, he plans five hearings in March on his bill and expects the House to vote on it by the end of July. That would give the Senate about four weeks to act before Congress adjourns for the mid-term elections.

The Gekas bill institutes needs-based bankruptcy using a formula to determine whether consumers may eliminate debts in Chapter 7 or must repay debts in Chapter 13.

The consumer would subtract from his gross monthly income living expenses and mortgage, car, alimony, and child support payments. If he had at least $50 left over and could afford to repay at least 20% of his unsecured debts, then the consumer would be required to file a Chapter 13 payment plan. If not, he could eliminate the unsecured debt in Chapter 7.

The Nadler bill would offer automatic discharge of unsecured debts that exceed 40% of annual gross income and of credit card cash advances taken from automated teller machines in or adjacent to casinos.

To cut back on debtor abuses, the bill would prevent consumers who could afford to repay all their debts from filing for Chapter 7. It also would prevent debtors from shielding assets by buying high-priced homes.

Industry officials endorsed the Gekas bill, but consumer law groups signed on to the Nadler approach.

"There is strong bipartisan support for the approach taken by the Gekas legislation," said William P. Binzel, vice president of government affairs at MasterCard International.

Mr. Binzel criticized the Nadler bill for doing nothing to reduce abuse of the bankruptcy system by high-income debtors. "The intention behind the Nadler bill is to muddy the water and delay congressional proceedings," he said.

But Ike Shulman, legislative chairman of the National Association of Consumer Bankruptcy Attorneys, said the Gekas bill would prevent consumers burdened by illness, job loss, and child care costs from seeking relief. "The Nadler bill is narrowly targeted to address the abuses by taking a middle-of-the-road approach," he said.

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