The legislation now moves to the full Senate.
The bill, sponsored by Iowa Republican Sen. Charles
Grassley (news, bio, voting record), would impose a means test to determine if bankruptcy
filers earned more than their state's median income and could
repay at least $6,000 of unsecured debt over five years.
People with incomes above a certain level would not qualify
for Chapter 7 bankruptcy protection under the bill and would
instead fall under Chapter 13 and be forced to repay some debt
while retaining some assets.
The legislation is largely similar to a bankruptcy measure
considered and widely supported in the last Congress. It does
not include, however, a provision aimed at preventing
anti-abortion protesters from citing bankruptcy to avoid paying
court-ordered fines for protest activities.
That provision previously doomed the bankruptcy overhaul
bill in the Senate.
Some Democrats on the committee said they would fight the
legislation's passage on the Senate floor if that provision
were kept out of the bill this year.
"It's an abuse of the bankruptcy law just like other
abuses," said Sen. Charles Schumer (news, bio, voting record), a Democrat from New York.
"I will do everything I can to hold this bill up in any way
until this amendment is in the bill," he told the committee.
Under bankruptcy law, Chapter 7 calls for the liquidation
of assets but allows filers to keep some property, such as a
primary residence. Chapter 12, for family farmers, and Chapter
13, for individuals, call for an adjustment of debts. Those
filers are required to enter repayment plans but are allowed to
keep their assets.
Credit card companies, retailers and auto lenders argue the
legislation is needed to stop consumers from racking up debt
and then turning to the courts to avoid repayment.
But consumer advocates say the proposed bankruptcy measure
simply rewards businesses that aggressively market consumer
loans.
The Judiciary Committee accepted some amendments, but the
Republican leadership urged members to hold most of the
anticipated 54 amendments until the legislation moves to the
Senate floor.
Among accepted amendments, the committee agreed to include
a measure that clarifies that any judgment, order or settlement
agreement for a violation of securities fraud law after the
filing of a bankruptcy case cannot be discharged.
The measure, according to its sponsor, Democratic Sen.
Patrick Leahy (news, bio, voting record), of Vermont, would, for example, keep a corporate
executive from being able to avoid paying a securities fraud
judgment by filing for bankruptcy while securities fraud
litigation was pending.
The committee also accepted an amendment from Massachusetts
Democrat Sen. Edward Kennedy (news, bio, voting record) to expand the authority of the
bankruptcy courts to limit retention bonuses and severance pay
to corporate insiders.
