Senate OKs bankruptcy plan

WASHINGTON — The Senate on Tuesday adopted a GOP-authored plan aimed at shielding active-duty military personnel and some veterans from key proposed changes in bankruptcy laws that would make it harder to shed debts.

The amendment cleared on a mostly party-line vote, 63-32, in the Republican-controlled Senate during its second day of work on sweeping legislation to overhaul the bankruptcy code. Several Democrats crossed over to vote for it, but most of them opposed it because they supported a broader plan that would apply to all military personnel.

The broader plan, proposed by Sen. Dick Durbin, D-Ill., was defeated 38-58.

The GOP proposal by Sen. Jeff Sessions, R-Ala., would allow for special accommodations for active-duty service members, low-income veterans and those with serious medical conditions in a new income test for bankruptcy applicants. Sessions brought it forward after Democrats led by Durbin proposed exempting all members of the military from the new test to measure people's income and assets.

The bill would raise the threshold for erasing credit card and other consumer debts in bankruptcy court. Supporters predicted an imminent victory after nearly eight years of congressional gridlock.

Democrats said earlier they were worried about the financial hardships faced by veterans returning from Iraq and Afghanistan. Some soldiers in the National Guard and Reserves have seen their businesses fail after they were called up to serve, lawmakers said.

"Many men and women in the military are making extraordinary sacrifices," Durbin said. "It's unfair that they should come home to face this new harsh bankruptcy law."

The proposal by Durbin, the Senate's No. 2 Democrat, led Republicans to draft their own amendment aimed at the military.

About 16,000 active-duty members of the military file for bankruptcy each year, according to congressional investigators.

The new "means" test in the legislation is intended to determine whether those seeking bankruptcy protection must repay their debts or have them canceled. Under the current system, bankruptcy judges have the discretion to decide that.

In addition to exempting service members from the test, Durbin's proposal also would have allowed them more generous property exemptions when applying for bankruptcy so that they could keep their homes and vehicles.

In addition, it would have banned creditors from collecting money from service members on any debt with interest exceeding 36 percent. That would apply, for example, to "payday loans," short-term, often high-rate loans against borrowers' paychecks that have become popular among military personnel.