House Passes Bankruptcy Reform in Bid for Conference with Senate

By David Hansen, CCH Washington Staff Writer

The House of Representatives, by a vote of 265-99 on January 28, 2004, once again passed its principle bankruptcy reform measure, the Bankruptcy Abuse Prevention and Consumer Protection Bill of 2003. The bill was attached to a different Senate-approved measure that renewed recently expired bankruptcy protections for farmers. The maneuver enables the House to request a new joint conference with the Senate for hammering out a final bankruptcy reform measure, a process that broke down last year when no agreement could be reached.

The House originally passed a bankruptcy reform measure on March 19, 2003, that mirrored bankruptcy legislation from 2002. However, that bill failed to garner passage in the Senate due to a controversy about allowing abortion protestors to discharge fines from illegal protests in bankruptcy court. The Senate version would prevent the discharge of these types of debts; the House approved a measure without this language.

Except for technical changes such as revising the year of enactment, the new bill is the exact same measure as the original. It would require debtors with the ability to pay to file under Chapter 13, where courts establish repayment plans, instead of Chapter 7, which erases debts. The legislation would apply a means test, under which a debtor who has sufficient income to repay at least 25 percent of the debt over five years or earn at least the state median income, would be forced to enter a repayment plan.

The bill also would cap homestead exemptions, which some argue have been misused by debtors to unfairly evade their financial obligations. The bill would cap most debtors' homestead exemptions to a maximum of $125,000 if the debtors acquired such property within less than 40 months preceding filing of the bankruptcy case. The bill also would lower the cap further for those who obtain a home through fraud.

The bill's tax provisions would: prohibit discharge under a Chapter 13 bankruptcy filing of any debt for fraudulent tax payments; provide greater protection for holders of ad valorem tax liens on real or personal property; simplify the process for filing of claims by states for certain fuel taxes; set a priority for tax claims and simplify the calculation of interest applicable to tax claims.

Because of the need for Congress to address Chapter 12 bankruptcy protections for farmers that expired on January 1, House Republicans used the opportunity to revive foundering efforts to overhaul bankruptcy laws. Proponents of reform argue that record filings for bankruptcies in recent years show the system is being abused by some debtors.

The Senate-passed Chapter 12 bill originally would have granted a six-month extension to these farmers' protections. The House stripped out this language because their version makes Chapter 12 permanent, as part of an overall reform package. It is not clear whether the Senate will agree to a conference report reconciling the two bills or whether it will insist on addressing Chapter 12 separately from overall reform.

Critics of the reform legislation say the measure is being pushed by the credit card industry, and that it would remove a legitimate safety net for low-income people and others suffering from sudden hardships such as medical emergencies, job losses, divorces or deaths.

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