This week, the Senate began its consideration of the Bankruptcy Abuse Prevention and Consumer Protection Act (S. 256). The Senate Judiciary Committee approved the measure on February 17 (see The Source, 2/18/05).
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 Senate approved, 63-32, an amendment offered by Sen. Jeff Sessions (R-AL) clarifying that the “safe harbor” would include debtors whose financial problems were a result of medical expenses, those called or ordered into active duty in the Armed Forces, and low-income veterans.
The Senate defeated a number of amendments offered by Democrats, including:
Introducing his amendments, Sen. Kennedy stated, “We know at the present time there are 1.5 million people who go into bankruptcy every year. Half of those people go into bankruptcy because of medical bills. About three-quarters of those individuals who go into bankruptcy because of the medical bills have health insurance, but nonetheless the explosion of costs in health care have added such a burden to these families that they have had to go into bankruptcy. It does seem to me if the purpose of this legislation is to try to deal with spendthrifts and those who are abusers of credit, we ought to be able to distinguish between hard-working Americans, basically middle-class working families who have health insurance or those right on the margin who wish they had health insurance, who perhaps lost their health insurance because of a change in their employment, and then suddenly are facing catastrophic health needs, and those who irresponsibly acquire debt.”
Explaining that he shares Sen. Kennedy’s concerns about hard-working families, Sen. Orrin Hatch (R-UT) stated, “I do not believe these two amendments are the answer to their problems. We accepted the Sessions amendment yesterday. It speaks directly to the circumstances surrounding medical conditions, which would be a major change over current law that I believe the distinguished Senator from Massachusetts and others…will vote against in the end because they don’t agree with some aspects of this bill. I don’t agree with some aspects of this legislation, but I have worked my guts out to try and get a compromise here that will help the poor, that will help our society and will make people more honest, that will stop some of the fraud and abuse.”
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 when the Senate continues its consideration of S. 256 next week.
