WASHINGTON - Bankruptcy reform proponents were scheduled today to begin two days of testimony on Capitol Hill in favor of legislation that would make it harder for filers to liquidate their debts.
Republicans have put the bill on a fast track. Lawmakers are expected to steamroll through hearings set for the next two days in the House Judiciary Committee and for Thursday in the Senate Judiciary Committee. Majority Leader Trent Lott told reporters Tuesday that the full Senate could begin debate on the bill as early as Monday.
The House and Senate passed virtually identical legislation by overwhelming margins last year, but then-President Clinton squelched it with a pocket veto. Its prospects this year rose considerably with the swearing-in last month of President Bush, who, press reports said this week, plans to officially endorse the measure.
Yet industry officials are taking nothing for granted. Their chief effort, now that passage of some kind of reform seems likely, is directed toward limiting attempts by lawmakers to attach amendments that some worry could torpedo the bill's chances once again.
The American Bankers Association is "undertaking a major grassroots effort among its members to firm up votes," said Edward L. Yingling, the group's chief lobbyist. "Our assumption is there will be markups, but they will be controlled with proponents of the bill keeping the bills intact. The one question mark is amendments that might be offered on the Senate floor."
The legislation, which the industry has been pushing for several years, is intended to relieve creditors from having to shoulder most of bankruptcy filers' debts; it would do this by creating a so-called means test that would require those with higher incomes to repay more.
The means test would push more filers into Chapter 13 payment plans - which require most or all of debt to be repaid - instead of having their debts eliminated under Chapter 7 of the Bankruptcy Code. For example, judges could force debtors into Chapter 13 if they could afford to repay the lesser of $10,000 or 25% of unsecured debt over five years.
The legislation also would amend the Truth-in-Lending Act by requiring that credit card issuers not only prominently display warnings on statements about the long-term costs of making minimum payments, but also include a toll-free number that credit cardholders could call to learn how many months it would take to repay a certain balance with minimum monthly payments. It also would require that credit card solicitations disclose when a low introductory rate ends and what the subsequent rate will be.
Credit industry representatives have called this provision acceptable, but they fear that Democrats could try to tighten these provisions by requiring that statements include what one lobbyist called a "burdensome and misleading" calculation for each customer: how much would be paid in interest and how long it would take to pay off a balance.
Further, the bill would limit debtors' ability to protect assets by buying an expensive home to shelter their wealth - the "homestead exemption." Currently there are no federal limits on the value of a homestead that is off-limits to creditors, and both the number and the value of homes recognized as exempt from liquidation requirements vary from state to state. Five states, including Florida and Texas, have no limit on the value of a home that can be sheltered.
The new measure would put a $100,000 cap on a home that a debtor bought within two years of declaring bankruptcy. It would require that an individual had established residency for two years before bankruptcy in order to claim the homestead exemption of a particular state. It also includes a fraud provision that would let creditors seize any home equity acquired as many as seven years before bankruptcy is declared and with the intent to hinder collection efforts.
With its new chairman James Sensenbrenner, R-Wis., at the helm, House Judiciary will hear from bankruptcy reform proponents today and from opponents on Thursday.
The committee on Wednesday will hear from proponents including Kenneth H. Beine, president of Shoreline Credit Union in Two Rivers, Wis.; Bruce Josten, executive vice president of governmental affairs at the U.S. Chamber of Commerce; and Philip Strauss, a lawyer with the San Francisco Department of Child Support Services. Detractors are expected to testify Thursday; they include Damon Silver, a counsel at the AFL-CIO.
(Several of these witnesses and others are tentatively scheduled to appear Thursday before Senate Judiciary.)
While the industry has little to fear from the hearings, both panels are considering holding markups on the legislation as early as this week, Capitol Hill sources said. That could open a Pandora's box by attracting unrelated or unacceptable amendments that could delay or derail passage. "One of my concerns is that they will try to amend it to death with unrelated issues," Sen. Lott said Tuesday. "Now that we're going to go through the whole process, there may need to be some changes" made to the bill. He did not say which changes he would support.
If the bill is opened up for amendment at the committee level, Senate Banking Committee Chairman Phil Gramm will consider taking up the banking provisions in his panel, his spokeswoman said Tuesday.
At the same time, Senate Judiciary Democrats are considering reintroducing amendments that derailed the measure last year, according to aides who did not want to be named. Those provisions include ones that would require credit card companies to provide more elaborate consumer credit disclosures; prevent wealthy debtors from thwarting creditors by buying expensive homes that cannot be seized; and prevent abortion-clinic attackers from using bankruptcy laws to avoid paying for damages they have caused.
Industry proponents are bracing to block such "killer amendments."
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