Bill Brings Tougher Rules on Bankruptcy as Debt-Eraser

WASHINGTON - People will soon find it harder to dissolve medical bills and credit-card debt in bankruptcy under a bill clearing its last major Senate hurdle yesterday after negotiations with the House.

Senate passage later this week and anticipated action by the House next month would deliver to President Bush the second of his pro-business legislative priorities after Republicans increased their majorities on both sides of the Capitol in November.

Last month, Congress sent Mr. Bush a law making it harder for injured plaintiffs to join each other and win multimillion-dollar class-action judgments against corporations.

Banks, credit card issuers, and retailers have pushed for eight years for an overhaul of bankruptcy laws to force more people to repay at least part of the debt they owe. It nearly passed Congress in 2002, but it failed over a Democratic measure approved by the Senate and rejected by House Republicans to prohibit protesters from using bankruptcy to avoid paying court fines for blocking abortion clinics.

This year, with the Republicans' ranks in the Senate swelled by four members after last fall's elections, the abortion plank was rejected on a 53-46 vote. Later, the Senate voted 69-31 to limit further amendments and close the debate and hold a final vote this week.

The bill sets up a new test to measure people's income and assets against the median income in their state.

Those with insufficient assets or income could still file a Chapter 7 bankruptcy, which erases debts entirely after certain assets are forfeited. Those with income above the state's median income who can pay at least $6,000 over five years would be forced into Chapter 13, where a judge would then order a repayment plan.

According to current law, a bankruptcy judge determines under which chapter of the bankruptcy code a person falls. Feeling a long-elusive victory to be close, Republican backers exulted and urged colleagues to move speedily through the remaining Senate deliberations.

"The sooner we finish work in the Senate and get the bill to the House, the sooner our bankruptcy system will be focused as it should be on helping those with real need, and less vulnerable to abuse by consumers who have the ability to repay their debts," said Senator Grassley, an Iowa Republican and the bill's primary author.

Frequently, supporters of the bill argued, bankruptcy is the last refuge of gamblers, impulsive shoppers, divorced or separated fathers avoiding child support, and multimillionaires - often celebrities - who buy mansions in states with liberal homestead exemptions to shelter assets from creditors.

Opponents, too, have a litany of stories. Senator Kennedy, a Massachusetts Democrat, speaks of Zoraya Marrero, a single mother with three children from Woodbridge, Va., the eldest of whom has spina bifida. Having had to return $60,000 in state disability benefits and medical coverage for the child, and paying medical expenses, Ms. Marrero recently filed for bankruptcy.

Most applicants "did not seek bankruptcy relief willingly," Mr. Kennedy said. "Millions of ...Americans in similar situations have filed for bankruptcy only after exhausting all other options."

A Harvard University study published recently found that costly illnesses led to about one-half of all personal bankruptcies and that most people who file for bankruptcy protection because of medical problems actually have health insurance. Consumer and civil rights activists and unions say the legislation is unfair to low-income working people, among other groups.