The House Judiciary Committee adopted a bankruptcy reform bill Thursday, but it was forced to accept several pro-consumer provisions to ensure passage.
The 18-to-10 vote ended three days of partisan bickering over the legislation, which would create the so-called needs-based bankruptcy system advocated by lenders for the past two years.
The bill, which is expected to go to the floor next week, would use a formula based on income and living expenses to determine whether debtors would be required to repay some unsecured creditors in Chapter 13 or be permitted to eliminate all debt in Chapter 7.
"The legislation recognizes the fact that the system should be reformed to require debtors who can afford to repay to do so," said William P. Binzel, vice president of government affairs at MasterCard International. "This advances needs-based bankruptcy."
The committee adopted three critical amendments during the final 30 minutes of debate. One would give anyone earning less than 100% of the national median income the automatic right to file for Chapter 7, even if he could afford to repay some debt. Earlier versions of the bill had limited this special right to those earning less than 75% of the median national income.
Judiciary Committee Chairman Henry J. Hyde said the amendment should silence critics who charge that the bill is too harsh on debtors. "The amendment moderates the needs-based formula," he said.
Rep. Jerrold Nadler, D-N.Y., a leader of opposition to the bill, said the change was insufficient. He urged that the bill be amended to give judges greater discretion to force debtors out of Chapter 7 and into Chapter 13. The committee did not act upon that suggestion.
"This will not be terribly problematic," said Michael J. McGarry, director of public affairs at Visa U.S.A.
The committee also approved an amendment by Rep. Melvin Watt, D-N.C., to allow anyone who receives an unsolicited loan check or credit card to automatically discharge the credit in bankruptcy, regardless of income. Also, the committee approved an amendment by Rep. Bill McCollum, R-Fla., requiring bankrupt debtors to receive credit counseling.
Debate on the bill began Tuesday afternoon but did not get really heated until Wednesday morning, when Rep. Nadler and other Democrats offered more than a dozen amendments to exempt child support payments from the needs- based system.
Rep. George W. Gekas, a Pennsylvania Republican and architect of the bill, accepted several amendments from Rep. Rick Boucher, D-Va., which clarified that repayment of child support takes precedence over repayment of credit card debt.
However, the committee repeatedly rejected amendments by Rep. Sheila Jackson Lee, D-Tex., and Maxine Waters, D-Calif., which would have deducted child support payments from the calculation of a debtor's family income. Rep. Gekas charged that the amendments would result in child support being double-counted because a child's living expenses already are taken into account in the needs-based formula.
"This has nothing to do with taking food from children's mouths," Rep. Gekas said. "Children will be protected."
Thomas Layman, chief economist at Visa, noted that the needs-based bill would prevent only 3,000 parents who receive child support from eliminating all their debts in Chapter 7. That is less than three-tenths of 1% of all filers, he said.
Mr. Binzel said the Democratic amendments would have crippled needs- based bankruptcy. "The idea is to have a system based on need," he said. "You want it to accurately account for income and expenses."
