Senate refuses to close wealthy loophole on bankruptcy
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Senate Nixes Efforts to Soften Bankruptcy Rules
Wed Mar 9, 2005 05:30 PM ET
By Susan Cornwell
WASHINGTON (Reuters) - Efforts to soften the effect of tougher bankruptcy rules on families with children and close a loophole for the wealthy were rejected by the U.S. Senate on Wednesday as the legislation moved toward expected passage.
A final vote on the measure, making it harder for consumers to erase their debts in bankruptcy court, was expected to wait until Thursday as debate continued on amendments.
Banks, credit card companies and retailers have sought the changes for years, arguing that bankruptcy has become too easy. The measure is also favored by the White House.
Critics charge the measure is too harsh and rewards lenders who have encouraged consumers to take on higher debt burdens.
The legislation contains a means test that would force more filers to enter compulsory repayment plans, rather than having their assets liquidated to repay creditors.
With Senate approval virtually assured after the bill cleared two key hurdles on Tuesday, backers on Wednesday rejected proposals to ease the impact of the legislation on families with children, young people below age 21 and people with below-median incomes.
They also turned thumbs down on a proposal by Massachusetts Democrat Sen. Edward Kennedy to close a loophole that benefits wealthier individuals in states with unlimited homestead exemptions, such as Texas and Florida.
"Millionaire deadbeats buy a huge mansion in Florida and Texas to shield their wealth from creditors. The harsh rules of bankruptcy being established by this bill will trap hard working middle class families, but the unlimited homestead exemption will allow rich debtors to escape," Kennedy argued.
His amendment would have capped the amount allowed for homestead exemptions at $300,000. It was rejected 47-53.
Senate backers of the bill said they were trying avoid amendments because House of Representatives leaders have pledged to act promptly if the Senate does not make major changes. House leaders hope to vote early next month on the bill and then sent it to President Bush for signing into law.
But Sen. Chris Dodd, a Connecticut Democrat, said the bill puts a straitjacket on families with children.
"Clearly there is a need to reform the bankruptcy laws. But it requires a sense of balance," he said.
His amendment would have made the means test more flexible to help families with children, by allowing larger education payments and insuring that child support payments are not diverted to creditors. It was rejected, 42-58.
Senators also refused 40-60 a proposal by California Democrat Sen. Barbara Boxer to ask judges to consider if a person under age 21 has been issued at least seven credit cards. Boxer said credit card companies were acting irresponsibly, "enticing" young people into debt.
The bill's main sponsor, Iowa Republican Sen. Charles Grassley, insisted the measure was fair and necessary, saying there had been an "explosion" in bankruptcy filings.
"It's become an economic problem where the average person in America is paying $550 dollars for goods and services because somebody else didn't pay their bills," he said.
On Tuesday the bill cleared a key hurdle as the Senate rejected a controversial abortion-related amendment that had scuttled it in previous years. Senators also voted to limit debate, but Democratic opponents of the bill appeared determined to use up the remaining time allowed.