Bush signs bankruptcy bill

WASHINGTON — President Bush signed a bill Wednesday that will make it harder for debt-ridden people to wipe clean their financial slates by declaring bankruptcy.

The legislation was strongly opposed by consumer rights activists who said it would prevent vulnerable Americans from getting the fresh start they need. But Bush said the law was "restoring integrity to the bankruptcy process."

"Bankruptcy should always be a last resort in our legal system," he said. "If someone does not pay his or her debts, the rest of society ends up paying them."

Many people in debt will have to work out repayment plans instead of having their obligations erased in bankruptcy court, according to the law, which takes effect in six months.

People with incomes above their state's median income will have to pay some or all of their credit-card charges, medical bills and other obligations under a court-ordered bankruptcy plan.

"This practical reform will help ensure that debtors make a good-faith effort to repay as much as they can afford," Bush said. "This new law will help make credit more affordable because when bankruptcy is less common, credit can be extended to more people at better rates."

Those who fought against the legislation said the change will hurt low-income working people, single mothers, minorities and the elderly and will remove a safety net for people who have lost their jobs or face major medical bills.

"The big winners under the new law will be the special interests that literally wrote it, particularly the credit card industry," said Travis B. Plunkett, legislative director of the Consumer Federation of America. "This is particularly ironic because reckless and abusive lending practices by credit card companies have driven many Americans to the brink of bankruptcy."

The financial services industry made the case that bankruptcy frequently is the last refuge of gamblers, impulsive shoppers, divorced or separated fathers avoiding child support, and multimillionaires who buy mansions in states with liberal exemptions to shelter assets from creditors.

Mallory Duncan, senior vice president and general counsel of the National Retail Federation, said bankruptcy filings have increased nine-fold since 1978, when bankruptcy laws were last updated. "Bankruptcy has gone from a stigma to a financial planning tool for many," Duncan said.