Partisan squabbling is threatening to derail legislation to reform the bankruptcy code this year.
The fighting is likely to erupt publicly at Thursday's markup of Rep. George Gekas' needs-based bill in the House Judiciary Committee's commercial and administrative law subcommittee. The Pennsylvania Republican, chairman of the panel, is pushing a formula that would determine which debtors must use Chapter 11 and repay at least some unsecured credit.
The leading critic of the Gekas approach is Rep. Jerrold Nadler, the subcommittee's ranking Democrat. He has proposed his own needs-based system that would let many more people use Chapter 7, which lets people eliminate all debts.
Partisan bickering could make it impossible to move a bill in this Congress, whose session will be shortened by the November elections. "I don't see how this can help the bill," a banking lobbyist said. "It has become extremely partisan. If this is carried over to the Senate side, it could be the end of this bill for this Congress."
In a letter Friday to Rep. Gekas, Rep. Nadler predicted "a lengthy and contested markup" unless the bill were significantly changed.
The New Yorker urged Rep. Gekas to drop his bill and accept the Democrats' approach. Failing that, Rep. Nadler said, Rep. Gekas should drop his needs-based formula and commission a study on the causes behind the rapid rise in consumer bankruptcy filings. He also should protect retirement funds from the bankruptcy process and make it easier for judges to bar high-income debtors from using Chapter 7, Rep. Nadler said.
Rep. Nadler also asked that Thursday's subcommittee vote be delayed so both parties may work on a compromise. "Taking the time necessary to work out the complicated details of this legislation and the underlying factual questions seems to me the basic due diligence we owe to the taxpayers on this important matter," he wrote.
Republican sources on Capitol Hill said Rep. Gekas hopes to satisfy some of the Democrats' concerns but predicted that the needs-based part of the bill would remain unchanged. The sources also said the markup would proceed as scheduled.
"The chairman is not inclined to delay," one Republican source said. "It is time to move."
Another industry lobbyist said Rep. Nadler was purposely trying to politicize the bill as a means of delaying it. The lobbyist noted that Rep. Nadler has repeatedly urged lawmakers to postpone action until the General Accounting Office completes a study of the factors leading to record bankruptcy filings.
Lobbyists also said they anticipate that Democrats will offer amendments changing the Fair Debt Collections Act or other laws that are outside the Judiciary Committee's purview. This would require a referral to the House Banking Committee, delaying the bill even further.
Still, William P. Binzel, vice president of government relations at MasterCard International, predicted legislation eventually would pass. "I have yet to hear a public policy argument being made to allow debtors who have an ability to repay their debts to be allowed to walk away," he said. "There is no sound public policy defense to the current system."
A Senate Judiciary Committee subcommittee approved needs-based bankruptcy reform on April 2. The bill, sponsored by Sen. Charles Grassley, R-Iowa, would let creditors ask a judge to force a person into bankruptcy to repay some unsecured debts. To win, the creditor would have to prove the debtor was abusing the system. Abuse is defined as any attempt to eliminate debts in Chapter 7 when one could afford to repay at least 20% of unsecured credit over five years.