On March 19, the House passed, 315-113, legislation (H.R. 975) designed to prevent bankruptcy abuse. The measure, approved by the Judiciary Committee last week (see The Source, 3/14/03), aims to make it more difficult for individuals to declare insolvency in order to avoid paying their debts.
Sponsored by Rep. James Sensenbrenner (R-WI), the bill would establish a means test for debtors seeking to file for bankruptcy under Chapter 7, which excuses unpaid balances once debtors liquidate most of their assets. The legislation aims to make it more difficult for individuals judged as qualified to be able to pay some of their bills to walk away from their debts.
Several aspects of the measure would affect women and their families. In 2001, nearly 1.5 million American families filed for bankruptcy. Under H.R. 975, “domestic support obligations,” such as alimony and child support, are classified as nondischargeable, which means they must be paid despite a bankruptcy filing. Although current law also lists alimony and child support as nondischargeable debts, H.R. 975 would make support payments the first priority among nondischargeable debts. Under current law support payments are ranked seventh.
The bill also would allow a debtor to legitimately claim as necessary those expenses incurred to maintain the safety of the debtor and the debtor’s family from domestic violence, those expenses incurred for the care and support of an elderly, chronically ill, or disabled family member, and expenses up to $1,500 per child per year for public or private elementary and secondary school.
Additionally, the bill would protect most tax-exempt retirement savings accounts from creditor claims and would protect most education savings account deposits made one year prior to filing for bankruptcy.
Proponents argued that the bill would stop consumers from accumulating massive debts and turning to the courts to file for bankruptcy to avoid repayment. They contended that the measure would restore personal responsibility to the bankruptcy system and would provide important protections for consumers.
Opponents contended that the legislation would be harsh on people losing jobs in a faltering economy, while rewarding businesses and credit card companies. They argued that the bill would make credit card debt nondischargeable, putting it in the same category as child support. They also pointed out that most bankruptcies are a result of job loss, divorce, or high medical bills.
“In order to stop the 3 percent who abuse the system, the bill takes the dramatic sweeping step of harming 97 percent of people who are forced to seek protection under the Bankruptcy Code because of illnesses, unemployment, or divorce,” argued Rep. Louise Slaughter (D-NY). “Middle-class families are only one serious illness away from financial collapse, and the impact of medical costs is highest on women, families headed by women, and older people,” she added.
“H.R. 975 is a compassionate bill: People who seek bankruptcy because of job loss, medical problems, divorce or other personal problems will be unaffected by this legislation,” argued Rep. Marsha Blackburn (R-TN). “Those who have the means to repay their debts should do so,” she said.
“While punishing seniors, single mothers, and middle-class Americans, the bill does absolutely nothing to hold big banks and credit card companies accountable for their behavior,” contended Rep. Zoe Lofgren (D-CA). “It does nothing to protect consumers from predatory lenders. It requires no additional disclosures that make it easier for consumers to understand their debt,” she added.
Rep. Melissa Hart (R-PA) disagreed. “I support H.R. 975 because it protects consumers,” she said. “It helps women and children who will be hurt by the filing of a bankruptcy by the person who is supposed to be paying support,” she argued. “It makes education savings accounts and certain retirement accounts a priority, so it protects families,” she added.
The House adopted, by voice vote, an amendment by Reps. Chris Cannon (R-UT) and Bill Delahunt (D-MA) that would increase the monetary cap, from $4,650 to $10,000, on wage and employee benefit claims entitled to priority repayment in bankruptcy cases.
The House rejected, 150-276, an amendment by Rep. Sheila Jackson Lee (D-TX) to recommit the bill to the Judiciary Committee with instructions to add a provision that would have protected alimony and child support payments from competition with credit card companies.
The House rejected, 128-296, a Democratic substitute by Rep. Jerrold Nadler (D-NY) that would have modified the means test and added a provision designed to prevent protesters, including anti-abortion protesters, from filing for bankruptcy to avoid paying court-ordered fines.