Republican lawmakers were poised late Wednesday to push legislation through the House that would make it tougher for consumers with high disposable incomes to eliminate unsecured debts in bankruptcy.
Passage was expected after Democrats failed to defeat the rule governing debate. Republican leaders also picked up support from some moderate Democrats by endorsing credit card disclosure provisions.
Adopted on a voice vote, the amendment would require credit card lenders to disclose, when an account is opened, several examples of how long it would take to retire a debt by making only the minimum monthly payment. It also would require "clear and conspicuous" disclosure of late fees and other penalties, and subject credit offers made through the Internet to the same rules as traditional loan solicitations.
(For updated coverage, visit www.americanbanker.com.)
The House scheduled more than six hours of debate on HR 833, which would bar consumers from eliminating all unsecured debt in Chapter 7 if they could afford, after living expenses, to repay $6,000 over five years. To determine living expenses, the bill relies on Internal Revenue Service estimates, modified to include more funds for food, clothing, and education. Those earning less than the regional median income would automatically qualify for Chapter 7, regardless of their ability to repay unsecured debts.
"The bankruptcy system should provide the amount of relief a consumer needs-no more and no less," said Rep. Pete Sessions, R-Tex.
The bill also would create an expedited bankruptcy procedure for small businesses, limit class actions stemming from reaffirmation agreements, and impose a national $250,000 cap on the amount of home equity that consumers may shield from creditors, though states may opt out of the limit.
Still be to decided Wednesday night was an amendment sponsored by House Judiciary Committee Chairman Henry J. Hyde to drop the IRS guidelines and let judges decide whether living costs are "reasonable." was rejected, 238- 184.
Still to be decided Wednesday night was an amendment that would replace the Republican bill with an Democratic alternative that would let judges, on a case-by-case basis, decide whether a consumer should be in Chapter 7 or Chapter 13. It also includes many pro-consumer provisions, including one requiring credit card lenders to disclose on monthly statements how long it would take to retire the debt by making only the minimum monthly payment.
Prospects for bankruptcy reform this year remain in doubt. The Clinton administration has threatened to veto the House bill, saying it prefers the Senate approach.
The Senate is expected to consider bankruptcy legislation next month. That bill would require judges to force consumers into Chapter 7 if they could afford to repay at least $15,000 in unsecured debt over five years.
Much of the House debate centered on whether credit card lenders were responsible for the 95% rise in bankruptcy filings from 1990 to 1997, when they hit 1.4 million. Rep. Jerrold Nadler, D-N.Y., said credit card lenders are liable, because bankrupt consumers have a 125% ratio of debts to income today, compared with a 74% ratio in 1974.
"It used to be hard to get credit," the New York Democrat said. "Today they shove it at high school kids. That is the problem. It is irresponsible lending by credit card companies."
"If we insist on responsible lending by the credit card industry, we will see a decrease in bankruptcy filings," said Rep. William D. Delahunt, D-Mass.
Yet the arguments were not enough to persuade most Republicans and a handful of Democrats. Rep. James P. Moran, D-Va., said only 3.7% of household debt is from credit card lending. "That is hardly enough to cause a bankruptcy crisis," he said.
"HR 833 restores fairness ... to a bankruptcy code that is out of control," said Rep. Ed Bryant, R-Tenn.
Rep. Nadler said, "It will pass. The only question is, will it get enough votes to sustain a veto?"
Rep. Rick Boucher, D-Va., said the record bankruptcy filings cost the average American family $550 a year in higher prices and interest rates. "Bankruptcy was never meant to be used as a financial planning tool, but it is increasingly becoming a first step rather than a last resort," he said.
In early votes, the House approved an amendment preventing debtors from eliminating in bankruptcy education loans from private lenders. Government- backed student loans already are nondischargable. The House also adopted on a voice vote a provision making it easier for small businesses to sit on Chapter 11 reorganization committees.