Efforts to quickly enact bankruptcy reform hit a political brick wall Thursday during a rare joint hearing of Senate and House Judiciary subcommittees.
The same issues that stymied reform last year still divide Republicans and Democrats: protecting child support payments from creditors, overriding state laws safeguarding a debtor's home, and requiring more extensive credit card disclosures. House Judiciary leaders also sniped at each other over the pace of debate.
"American families may be about to get the bum's rush from Congress," warned Rep. Jerrold Nadler, D-N.Y. "I hope we don't try to rush last year's product through the system."
Rep. George W. Gekas, R-Pa., and chairman of House Judiciary's administrative law subcommittee, fired back: "I won't abide any innuendo that we are bludgeoning our way through this process."
The caustic exchange occurred after Rep. Gekas announced three hearings next week on bankruptcy reform and a subcommittee vote on his bill during the week of March 22.
The Gekas bill targets debtors who could afford, after living expenses, to repay either 25% of unsecured debt or $5,000 over five years. It is referred to as needs-based bankruptcy reform. Most debtors who could make these payments and earned more than the median family income would be forced to repay unsecured debts in Chapter 13 rather than eliminating them in Chapter 7.
Several lawmakers said they wanted to amend the bill. Sen. Christopher J. Dodd, D-Conn., said more protections are needed to ensure child support payments would not be diverted to repay credit card debts.
Other lawmakers disputed whether to prevent bankruptcy filers from keeping expensive homes. Some states such as Florida and Texas allow debtors to keep their homes, even if they are worth millions of dollars. Several Democrats suggested limiting the protection to homes worth less than $100,000, but Republicans objected to overturning any state homestead laws.
Democrats also said the bill must require credit card companies to detail how long it would take a consumer to repay his balance if he only made the minimum monthly payment. Credit card officials have previously said such disclosures would be too costly.
Lawmakers have little time to compromise. To become law this year, Sen. Joe Biden, D-Del., said Senate leaders want the legislation on the Senate floor within a few months. "If we don't get something moving soon, it won't get it done this year," Sen. Biden said.
But industry lobbyists remain hopeful.
"The Senate and House both need to move quickly," said Lamar Smith, senior vice president for government relations at Visa U.S.A. "But the groundwork has been laid. There is a consensus that the needs-based approach is the way to go."
Creditors used the hearing to make their case. "The current bankruptcy system unnecessarily harms consumers and creditors alike because of a fundamental flaw-it allows a debtor to discharge debts even if the debtors can repay some or all of those debts," said Bruce L. Hammonds, senior vice chairman and chief operating officer of MBNA Corp.
Larry Nuss, CEO of Cedar Falls (Iowa) Community Credit Union, said half of all credit union losses are a result of rising consumer bankruptcies, which hit 1.4 million last year.
"Credit unions are very anxious to see Congress enact meaningful bankruptcy reform and believe needs-based bankruptcy presents the best opportunity to achieve this important public policy goal," Mr. Nuss said. "Consumers who have the ability to repay all or some part of their debts should be required to file for Chapter 13."
But Gary Klein, senior attorney at the National Consumer Law Center, questioned the need for reform. "The reality is that more debtors use the bankruptcy system because more debtors are having serious financial problems," he said.
Of Rep. Gekas' 302-page bill, Mr. Klein said, "There is something on almost every page that advantages lenders over debtors."
Several lawmakers tried to drum up bipartisan support. "This is a balanced, bipartisan bill," said Rep. Jim Moran, D-Va. "We have a bankruptcy system that is out of control right now ... Each year we don't pass it, the situation gets worse."
Sen. Charles E. Grassley, R-Iowa, agreed. "Bankruptcy reform is all about closing loopholes so well-to-do scoundrels can get out of paying their fair share," he said. Sen. Grassley said he will introduce his bill on Monday.
Bankruptcy reform was approved by the House last year, but died in the Senate.