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Bankruptcy reform gets Senate's approval

The overhaul of bankruptcy laws would override a Florida provision that allows debtors to exempt a home's full value.

The Senate approved sweeping legislation Wednesday that would significantly rewrite the nation's bankruptcy laws and, in doing so, override a Florida provision that allows debtors to shield the full value of their homes from creditors.

The bill also includes a proposal to raise the hourly minimum wage by $1 to $6.15 over three years and cut an array of business taxes by $76-billion over the next decade to help employers defray the costs of increased wages.

The bill, approved overwhelmingly, 83-14, would make it harder for consumers to wipe out their debts by forcing more people who file for bankruptcy to do so under provisions requiring them to repay some debts instead of erasing all their obligations after liquidating their assets.

House and Senate negotiators will now meet to work out a final version of the bill. In May, the House passed similar legislation 313-108 _ also a veto-proof margin _ but it had no minimum wage or tax provisions. There are also differences over bankruptcy that need to be resolved.

President Clinton has said he would veto the bill if it includes the Republican minimum wage increase. The administration wants to phase in the increase over two years and disagrees with many of the business tax breaks.

If enacted, the legislation would likely take effect next year and would be the first overhaul of bankruptcy law in twenty years.

Last year, more than 78,000 Floridians filed for protection under consumer bankruptcy laws and 1,900 businesses filed for bankruptcy. Florida ranks 22nd in the nation for the number of bankruptcy filings. In the United States, 1.4-million consumer bankruptcies were filed in 1998.

The rate declined last year, though, as an estimated 112,000 fewer people received bankruptcy court protection than in 1998. Some consumer advocates have attributed the decline largely to consumers speeding up repayment of their credit card debts.

Florida's senators were split in their opinion of the bill. Republican Sen. Connie Mack voted in favor of the legislation while Democratic Sen. Bob Graham, a vocal opponent of a provision that would limit the amount of home equity that can be shielded from creditors, voted against the bill. While Mack also disagrees with the limit, he said that overall, the bill is a "good package."

Currently, Florida is one of five states, including Kansas and Texas, that allow debtors to exempt the full value of their homes when figuring their assets. The Senate bill would limit the amount of home value that could be shielded to $100,000. Six other states allow more than $100,000 to be excluded in certain cases, but the majority of states limit exemptions to $60,000 or less.

The House version of the bankruptcy bill limits the amount of home value that can be shielded to $250,000 but allows states to "opt out" of the federal limit. In November, during debate on the bill, Graham and Sen. Kay Bailey Hutchison, R-Texas, failed in an attempt to include a similar option in the Senate bill.

Hutchison and Graham now hope that House and Senate negotiators will choose to include the House provision in the final version of the bill. Hutchison told reporters that she plans to meet with the bill's author, Sen. Charles Grassley, R-Iowa, to secure his support for the "opt out" language. If the final version of the bill does not allow states to choose to set their own exemption limits, Hutchison said that she would do everything possible to prevent passage of the bill, including a filibuster.

During debate on the bill, supporters of the limit said that Florida's law makes it a haven for crooked millionaires who, knowing that they would be filing for bankruptcy, dumped their homes in states such as New York and New Jersey to buy lavish homes in Florida with cash.

"This bill will end the free ride for wealthy freeloaders and deadbeats who walk away from their debts," Sen. Orrin Hatch, R-Utah, chairman of the Senate Judiciary Committee, said before the vote.

According to opponents, the Senate limit is arbitrary and does not take into account that in all but four states, median home value exceeds $100,000. The Senate limit, they say, could force many middle-class filers to leave their homes and uproot their families. According to a government study, debtors who shield expensive homes make up about 1 percent of all bankruptcy filers.

Explaining his vote, Graham said, "It is unfortunate that the Senate's final legislation bankrupts the idea of states' rights."

Senators on both sides said current bankruptcy law too often encourages abuse and sought to clamp down on them by imposing a means test on who can qualify for Chapter 7, which wipes out debt obligations, rather than the law's Chapter 13 designation designed to force people with means to set up a repayment schedule to pay back at least a portion of their debt.

Under the proposed legislation, more Americans would be forced into Chapter 13. This would apply to those who can over five years repay the greater of $15,000 or 25 percent of their unsecured debt. Allowances also would be made for some expenses, such as housing and food.

There is also a provision for exemptions for "special circumstances," with bankruptcy trustees having discretion in such cases.

_ Information from the Washington Post and Chicago Tribune was included in this report.