After A Long Journey, Bankruptcy Passage Is Near

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Like a long drive in football, the House and Senate conferees on the bankruptcy reform bill moved the ball almost to the goal line last week when they resolved all but one issue preventing final passage of the credit union-backed measure.

"I definitely see the goal line," said CUNA's chief lobbyist, John McKechnie, who has spent a good deal of his life over the past six years working on this issue.

Resolved during a five-hour conference was the controversial issue of homestead exemption under which wealthy debtors are allowed to shield some equity in their homes from creditors during the bankruptcy process. The major sticking point had been that five states allow unlimited homestead exemptions, including Texas, represented by powerful lawmakers in the House and Senate. As a compromise, the conferees agreed to set a uniform exemption nationwide of $125,000 for those who have lived in a home for at least two-and-a-half years. What apparently pushed the issue to fruition was the emergence of the Enron scandal in which lawmakers fear that some wealthy Enron executives may try to shield some of their assets under Texas's unlimited homestead exemption.

The Schumer Amendment

Still unresolved is the so-called Schumer amendment with which Sen. Charles Schumer (D-NY) has been working on language to prevent abortion clinic protesters, especially those convicted of violence against abortion clinics, from shielding their assets from victims who may bring civil claims against them. That was the case in at least one abortion clinic bombing. The Schumer amendment is opposed by Republicans and some Democrats who see it as non-germane to the bankruptcy bill or believe such protections already exist.

It's not clear what will happen if this final issue is not resolved. Both the House and Senate, each of which passed similar versions of the bill by large bipartisan majorities, could vote the bill with or without the Schumer amendment. Or Sen. Schumer could come to a compromise, still, despite two years of recalcitrance on the matter. "I think the pressure on Sen. Schumer will be significant," said McKechnie.

The bill, you may recall, was designed to help credit unions and other creditors collect more debts from borrowers declaring bankruptcy by making it more difficult for debtors to file for chapter 7 to erase all debts unless they can prove they have little financial means. Those debtors unable to demonstrate a need for chapter 7 would be required to file for chapter 13 to reschedule their debts. The bill also has several other credit union-backed provisions, including mandatory financial education for bankruptcy filers. It would also allow credit unions to continue entering into so- called reaffirmation, or voluntary repayment, agreements with debtors, a long-standing credit union tradition which allows debtors to continue receiving credit union services.

The bill has come close to passage before. In the last Congress it made it all the way to the president's desk to be signed into law but was "pocketed vetoed" by President Clinton when he refused to sign it into law. An almost identical bill passed by the House and Senate last year by wide margins but has been stuck in conference where the minor differences are being worked out. If it passes this Congress, President Bush has promised to sign it into law.

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