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Senate Committee Approves Bankruptcy Reform Bill

On February 17, the Senate Judiciary Committee approved, 12-5, the Bankruptcy Abuse Prevention and Consumer Protection Act (S. 256). The committee held a hearing on the bill on February 10 (see The Source, 2/11/05).

Sponsored by Sen. Charles Grassley (R-IA), the measure would establish a “flexible means test” for debtors seeking to file for bankruptcy under Chapter 7, which excuses unpaid balances once debtors liquidate most of their assets. The aim of S. 256 is 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.

Under the bill, “domestic support obligations,” such as alimony and child support, would be 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, S.256 would make support payments the first priority among nondischargeable debts. Under current law, support payments are ranked seventh. The bill also requires debtors to pay dischargeable debts, such as credit card charges, if the charge was incurred to pay a debt that must be paid under bankruptcy proceedings.

S. 256 would allow a debtor to legitimately claim as necessary, expenses incurred to maintain the safety of the debtor and the debtor’s family from domestic violence; 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.

During consideration of the bill, the committee approved, without objection, an amendment by Sen. Ted Kennedy (D-MA) that would allow the inclusion of reasonable health and disability expenses in the means test to determine whether an individual qualifies for Chapter 7 bankruptcy.

Sen. Charles Schumer (D-NY) did not offer an amendment to the bill that would bar anti-abortion protestors from declaring bankruptcy to avoid paying court-ordered fines. He has announced his intention to offer the amendment during floor consideration.

The House and Senate considered a similar legislation last year, but a conference committee could not come to a final agreement before the 108th Congress adjourned for the year (see The Source, 1/30/04).

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