WASHINGTON — That hardy perennial, the bankruptcy reform bill, is back again. Five years after banks, credit card companies and auto finance agencies began to press Congress to let them tighten their grip on borrowers, and 14 months after both the House and Senate passed the kind of bills the creditors want, another showdown looms.
This week negotiators for the two chambers are scheduled to meet again to see if they can iron out the last remaining difference between the versions. If they can, the measure will likely rocket through the House and Senate and be ready for President Bush to sign. If they can’t, the crowded congressional calendar may force the sponsors to try again next year.
This is a case where there is every reason to hope for gridlock.
Gridlock would doom me to write yet again next year on a topic which has been widely ignored except on the business pages in the press. It would require me to rail again about the way in which business lobbying — lavish campaign contributions to President Bush, and pressure from big home-state bank and credit card employers on such Democratic senators as Tom Daschle and Joe Biden — has made this a bipartisan outrage.
But writing repetitious columns is a small price to pay if a bill as filled with inequities as this one is delayed or ultimately defeated.
The issue the conferees will wrestle with this week is completely marginal to the main thrust of the legislation. Sen. Charles Schumer of New York, an abortion-rights advocate, wants to preserve a Senate-passed provision which would prevent people convicted of blockading abortion clinics from avoiding their fines by filing for bankruptcy.
Rep. Henry Hyde of Illinois, an abortion foe, says the Schumer amendment would penalize even peaceful protesters and is far too broadly written. Months of negotiation between their staffs has failed to yield a compromise. The pressure on both men to back off enough to give the banks and credit card companies what they want is intense. So far, neither has been willing to yield.
Credit card companies and the banks that own them claim they are being ripped off by people who run up unsecured debt and then file for bankruptcy to avoid repayment. This bill would basically say that any family or individual whose income at least equals the state median and who has $100 a month left over after paying for food, clothing, housing and transportation would have to work out a five-year repayment plan with the bank, rather than starting over with a clean slate.
Ostensibly, it is designed to catch wealthy scofflaws. But it is likely to be felt most harshly by middle-class individuals who file for bankruptcy — 1.4 million of them last year. Their average income was less than $25,000, and the chief factors that forced them into bankruptcy were layoffs, health problems and divorce — not profligate spending.
Are there some cheats? Of course. But a look at how the credit card companies market their product will tell you they are making so much on the high interest they charge on unpaid balances, they are eager to sign up anybody. When I first wrote about this issue three years ago, I marveled that 3.45 billion — that’s billion, not million — card offerings had been mailed in the previous year. Last year, the number had jumped to 5 billion. Between 1997 and 2001, the number of active subprime or risky accounts tripled.
Does that sound like an industry that is trying to avoid trouble or one that loves to lure people into debt and then put the clamps on them?
The inequities in this bill are rampant. A favorite millionaires’ dodge is to buy a mansion in Florida, Texas or one of the handful of other states with unlimited homestead exemptions before filing for bankruptcy. Then they can stiff the creditors while living in luxury. The Senate voted for a uniform $125,000 cap on homestead exemptions, but the House negotiators would not hear of it, even when the cap was raised to $1 million.
In conference, Sen. Herb Kohl of Wisconsin dropped his effort to set a uniform cap and accepted a compromise which limits the homestead exemption only on property owned for less than 40 months or, in a bow to Enron, by someone convicted of financial fraud. Otherwise, the feds would set no ceiling on homestead exemptions.
This is a bill that will squeeze money from laid-off workers, divorcees and families plagued by health problems, while offering a great escape mechanism for foresighted millionaires.
That’s why it deserves to be hung up on a really irrelevant issue.
David Broder can be reached at The Washington Post Writers Group, 1150 15th St. NW, Washington, DC 20071-9200.
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