Bankruptcy Reform Measure Heads to House Floor

On March 16, the House Judiciary Committee approved, 22-13, the Bankruptcy Abuse Prevention and Consumer Protection Act (S. 256). The Senate approved the measure on March 10 (see The Source, 3/11/05).

In his opening remarks, Chair James Sensenbrenner (R-WI) stated, “The need for bankruptcy reform is long overdue and crucial to our Nation’s economy and the well-being of our citizens. Every day that goes by without these reforms, more abuse and fraud goes undetected. Every abusive bankruptcy filing adversely affects hardworking Americans in the form of higher interest rates and increased costs for goods and services. America’s economy should not suffer any longer from the billions of dollars in losses associated with profligate and abusive bankruptcy filings.”

Ranking Member John Conyers (D-MI) expressed his opposition to specific provisions in the bill, including one of particular interest to women and their families: “To those who claim the bill protects alimony and child support, I would ask them if they are aware that the bill creates major new categories of nondischargeable debt that compete directly against the collection of child support and alimony payments. Whether they are aware the bill allows landlords to evict battered women without bankruptcy court approval, even if the eviction poses a threat to the woman’s physical well-being.”

S. 256 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.

The measure 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 rejected all Democratic amendments, including:

• an amendment by Rep. Mel Watt (D-NC) that would have allowed the tuition costs of each child attending a postsecondary education institution to be counted as an allowable expense under the means test for two years, 10-17;
• an amendment by Rep. Howard Berman (D-CA) that would have permitted an exemption of up to $150,000 in assets in real or personal property for individuals who are medically distressed, 13-18;
• an amendment by Rep. Jerrold Nadler (D-NY) that would have made all judgments, including court-ordered damages, fines, penalties, or attorney fees, resulting from federal or state civil rights violations nondischargeable, 11-17;
• an amendment by Rep. Bobby Scott (D-VA) that would have prevented courts from disqualifying an individual from the means test if a substantial portion of his or her indebtedness was the result of illness, by voice vote;
• an amendment by Rep. Sheila Jackson Lee (D-TX) that would have raised the cap from $1,500 to $3,000 on allowable expenses for elementary and secondary private and parochial schools, 12-21;
• an amendment by Rep. Jackson Lee that would have prevented courts from discharging the debt of an individual if the debt was the result of a sex offense against a minor, 9-20; and
• an amendment by Rep. Maxine Waters (D-CA) that would have prevented a debtor from being evicted if she was the victim of domestic violence and her well-being or her child’s well-being would be threatened if a landlord were provided relief from a stay, and would have prohibited credit card companies from issuing credit cards to any individual under the age of 21 unless he or she has the signature of a parent or guardian indicating joint liability for debts, by voice vote.

The House is expected to consider S. 256 in early April.