Bankruptcy reform legislation likely to pass

WASHINGTON — The House is expected to pass a sweeping Senate bankruptcy reform bill Wednesday that could change the landscape for debt-saddled consumers more than at any other time in a quarter century.

"The bill has passed the House five times before — and I expect it will be a lopsided vote again," said Rep. Chris Cannon, R-Utah, who plans to manage the legislation when it comes up for a House vote.

President Bush supports the legislation and says he will sign it.

The problem in the past has been the U.S. Senate, but this year senators passed the House version of the bill first, making it all but certain the bill will become law.

Cannon, who co-sponsored the House legislation in the past and has been a leading advocate for reforms as chairman of the Commercial and Administrative Law Subcommittee, said the legislation is long overdue.

"I believe in markets and personal responsibility," Cannon said. "When someone takes out bankruptcy, everyone else pays higher rates. People are responsible for their own credit."

During a committee hearing earlier this year, Cannon said the legislation is intended to reduce fraud and promote responsibility by ensuring that borrowers are made aware of not only the consequences of excessive borrowing, but also the alternatives to bankruptcy. The current system, he said, has "been staggering beneath the burden of abuse."

"The potential for abuse of the system and the widespread gaming of current bankruptcy laws have led to the perception that bankruptcy is an accepted feature of American economic life, reaching record levels in recent years," Cannon said.

"These abuses undermine the foundation of personal responsibility and legal obligation that are essential to the integrity of our financial and economic systems," he added.

The legislation is likely to hit Utahns harder than most. There were 20,629 bankruptcies in Utah in 2004, and the last time national figures were compiled Utah had the highest numbers of bankruptcies per household in the nation.

The new bill would make it harder for some consumers to write off all their debts by creating a "means" test for Chapter 7 bankruptcies, where debtors who earn more income than the state's median wage — in Utah that is a family income of $62,000 a year — could not have debts erased unless they had discretionary income of less than $100 per month.

There are other factors that come into play, all designed to make it so that those who earn more, and in theory have a greater earning capacity, would be required to pay back more debts incurred for credit cards, medical bills and other obligations.