According to the Washington Post, the new regulations are "the most significant change in the nation's bankruptcy laws in two decades." They will make it much more difficult for individuals to write off unpayable debts.

The legislation, shepherded through Congress in a bipartisan effort, was approved in the Senate by an 83-15 vote March 15. Two weeks earlier a similar bill passed in the House of Representatives. The vote was 306 to 108 with a solid majority of Republican supporting it along with about 40 percent of the Democrats.

The new law would make it harder for many individuals to erase debts under Chapter 7 of the federal bankruptcy code. About 70 percent of people who file for bankruptcy do so under this chapter. Under its provisions, individuals do not have to prove insolvency to wipe out their debts if they agree to give up most assets, excluding houses and other essential items. A number of debts, including credit card and medical bills are eliminated under this chapter.

Under the draft legislation, people with incomes over each state's median will be compelled to file under Chapter 13, requiring them to repay a portion of their debts over five years.

Median household income stands at around $39,000 nationally. Individuals who file bankruptcy will be forced to pay debts under a court-supervised plan, even if it puts the payment of old credit card bills in competition with child support, alimony, or other court-supervised payments.

A similar bill was passed by Congress under the previous administration, but then-president William Clinton vetoed it in his final weeks in office.

"More Americans file for bankruptcy than graduate from college each year," claimed Thomas Donohue, president of the U.S. Chamber of Commerce, one of the business groups backing the tighter restrictions along with credit-card companies and automobile-finance companies.

Statistics show, however, that most of those filing are working people. According to a 1999 study by federal judges, the median income of those filing for personal bankruptcy was $21,500. Between 1980 and 2000 the number of those seeking bankruptcy protection has risen from 287,500 a year to more than 1.2 million.

Chapter 7 dates from the federal bankruptcy law of 1898. It was aimed at helping impoverished workers--with little property and no prospects of repayment--get a fresh start. In 1938 Congress added the forerunner of today's Chapter 13.

In a March 14 column in the Washington Post entitled "Bad Timing on the Bankruptcy Bill," Robert Samuelson warned that passing this legislation now "could perversely worsen the economic downturn." He pointed to statistics showing that consumer borrowing in the United States expanded from 1995 to 2000, as the population increased personal debts by about 50 percent to roughly $7.5 trillion.

According to Mark Zandi of Economy.com, in 1995 a sixth of households with incomes less than $50,000 devoted more than 40 percent of their income to debt payments.

By 1998 almost a quarter did, and the numbers are continuing to rise. Last year debt payments accounted for 14 percent of disposable income, a near record and up from 12 percent in 1994.  
 
 
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