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March 4, 2005
Senate Rejects Efforts to Alter Bankruptcy Legislation
By STEPHEN LABATON

WASHINGTON, March 3 - The Senate rejected several Democratic amendments to the bankruptcy legislation on Thursday, including one that would have closed a loophole that lets wealthy people protect millions of dollars in assets from creditors even after filing for bankruptcy.

The votes, victories for the bill's sponsors and setbacks for its critics, illustrated the broad support for the legislation, which has long been sought by credit card companies, banks and retailers.

Supporters said that if the legislation was relatively unaltered, it was likely to move swiftly through the House.

Still, supporters and opponents were preparing for a fight as early as next week over an amendment that would prohibit protesters of abortion clinics from using the bankruptcy law to shield themselves from judgments for violations of the Freedom of Access to Clinic Entrances Act.

In previous Congressional sessions, that provision has doomed the legislation, although it is not clear that supporters of the clinic access provision have enough votes for that amendment, or to sustain a filibuster in the Senate if it is rejected. Sixty votes are needed to break such an effort and limit debate.

The centerpiece of the legislation is a provision that would limit access by individuals to Chapter 7 of the bankruptcy code. It enables individuals to sharply limit payments on their obligations and get a "fresh start."

The bill would instead impose a means test that would prompt many people to instead file for bankruptcy protection under Chapter 13, which requires a repayment plan.

The means test would not be applied to debtors who earn less than the median income in their state. Those who earn more than that and can pay at least $6,000 over five years would have to seek protection under Chapter 13.

Supporters say the measure is necessary to curb the abusive overuse of bankruptcy. But critics say it would impose heavy new costs on bankruptcy filers and it would be particularly hard on women and families devastated by high health care costs. They also say that, while the legislation hits poor and moderate income families, it ignores bankruptcy abuses by companies and wealthy people.

Senator Charles E. Schumer, Democrat of New York, proposed the amendment to limit the use of so-called asset protection trusts. His amendment would have limited the use of the trusts to shield assets only up to $125,000.

Since 1997, five states have adopted laws that exempt from the bankruptcy code assets held domestically in asset protection trusts.

People who want to establish such trusts can reside anywhere in the nation - they only have to set up the trust through an institution in one of the five states.

"Deadbeats exist in all tax brackets," Mr. Schumer said. "I hope my friends on the other side of the aisle aren't going to protect wealthy deadbeats from the same punishment they are doling out to those who are not so financially fortunate."

The amendment failed 56 to 39, and Mr. Schumer managed to get the support of only one Republican, Senator Lincoln D. Chafee of Rhode Island. Mr. Schumer said after the vote that based on his discussions with other members, he believed that at least 10 other Republicans would have voted for the measure but were instructed by the leadership to oppose all amendments.

"They said, 'you're right, but we're voting against all amendments,' " Mr. Schumer said. "So now we have a bill that says a family won't be protected if it has $50,000, but it will if it has $5 million."

After the vote on the Schumer amendment, the Senate by a vote of 54 to 40 rejected a proposal by Senator John D. Rockefeller IV, Democrat of West Virginia, to protect employees of companies that go into Chapter 11 by permitting them to get up to $15,000 in back pay or other compensation. It then rejected an amendment by Senator Richard Durbin, Democrat of Illinois, to curtail what he called the abusive practices of executives at companies like Enron and WorldCom who received millions of dollars in compensation shortly before the companies filed for bankruptcy protection.

The chamber also defeated an amendment proposed by Senator Mark Dayton, Democrat of Minnesota, that would have imposed a 30 percent annual limit on credit card interest rate charges. And it rejected an amendment by Senator Bill Nelson, Democrat of Florida, to exempt debtors from the means test if their problems were caused by identity theft.



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