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Senate approves bankruptcy reform bill

Differences with the version passed by the House will have to be worked out now.

The Senate on Thursday overwhelmingly approved a bankruptcy bill that would make it harder for many to erase their debts and stop wealthy debtors in Florida and other states from shielding their assets in luxury homes.

The lopsided vote, 83-15, makes it far more likely the federal bankruptcy code will be rewritten this year. The House has passed a similar bill, and President Bush has signaled he will sign whatever compromise is reached in a conference committee.

The bill is designed to reverse a 15-year surge in the number of bankruptcy filings and to extract more money from borrowers whose debts now are erased.

The act is expected to be worth billions of dollars to the banking and credit card industries, which spent much of the 1990s _ and more than $37-million in the last election cycle _ lobbying for it.

But several of the provisions added Thursday addressed objections from consumer groups. One amend-ment would override laws in states including Florida, Texas and Kansas that allow formerly wealthy debtors, such as movie star Burt Reynolds and former corporate raider Paul Bilzer-ian, to emerge from bankruptcy with-out losing their multimillion-dollar homes.

Support for the bill was largely bipartisan, with 36 Democrats joining 47 Republicans in the evenly divided Senate to vote for the overhaul. Flori-da's senators, both Democrats, split on the bill: Bob Graham voted for it and Bill Nelson against it.

The act's core component is a "means" test designed to force more debtors out of Chapter 7, in which their obligations are essentially erased, and into Chapter 13, which places debtors on a repayment plan. If the bill becomes law, debtors who make more than their state's median income and can afford to pay at least $6,000 _ or 25 percent of their debts _ will not be eligible for Chapter 7.

A study by the American Bankruptcy Institute, a non-partisan research group, found that 3 percent, or 25,000, of the people who wipe out their debt under Chapter 7 bankruptcy could afford to repay a portion of their debt under Chapter 13. Lobbyists for the credit card industry say the figure is closer to 10 percent, or 84,000 people.

The credit industry says it has been damaged by dramatic growth in the number of personal bankruptcies, which rose from about 700,000 in 1990 to nearly 1.3-million last year.

The banking industry contends bankruptcies are driving up borrowing costs for everyone else by $400 to $500 a person annually.

The bill's critics say that credit card companies and other lenders are themselves largely to blame for the explosion in bankruptcy _ specifically, that their mass solicitations for high-interest credit cards and other loans have encouraged irresponsible spending that has landed borrowers in court.

Senators approved the bill after agreeing on a voice vote to adopt a Democratic amendment that would end what is often singled out as the most flagrant abuse of the bankruptcy system: moves by high-income debtors to shift millions of dollars into the purchase of a house that can be shielded from creditors under some states' unlimited homestead exemptions.

Senators debated states' rights before they accepted the amendment by Sen. Herb Kohl, D-Wis., allowing debtors in bankruptcy proceedings to keep no more than $125,000 of the equity in their homes.

Kohl had examples: actor Burt Reynolds, who wrote off millions in debt in bankruptcy court but kept his $2.5-million Florida estate, Valhalla; and former corporate raider Paul Bilzerian, convicted of securities fraud, who filed twice for bankruptcy protection but kept his mansion, Hillsborough County's largest home.

Congressional investigators have found that some 400 homeowners in the two states, all with more than $100,000 in home equity, profit from the exemption each year, Kohl said.

Florida Sen. Graham said Kohl's provision "would threaten homeownership for millions of American families."

The House version is more complex. It would permit bankruptcy filers to keep home equity of up to $250,000 if the home was purchased within two years of filing for bankruptcy. The equity in homes purchased before then would be subject to state homesteading laws, including those of Texas, Florida and Kansas, which have no limits on the value of homes consumers can keep when in bankruptcy.

Opponents are expected to try to remove the amendment when it is considered by the conference committee.

The White House has said that Bush opposes the $125,000 cap. But his spokesman, Ari Fleischer, did not suggest that the provision threatened the president's support for the overall bill.

"We're going to continue to work with leaders on the hill," Fleischer said. "The president is looking forward to the presentation of a bill that he can sign."

The Senate also deleted a provision that remains in the House version of the bill. It would shield 300 American investors, including 20 millionaires, from having to pay $15-million in debt British courts have ruled they owe to insurance giant Lloyd's of London.

Thursday's vote came after an aggressive lobbying campaign by credit card companies, banks and retailers. Their lobbying was supported by millions of dollars in political donations to members of Congress in the last election cycle and some of the largest corporate contributions to the Bush campaign.

Ranked by donations from its employees and their families, MBNA Corp. of Delaware, which describes itself as the largest independent credit card issuer in the world, was the biggest corporate donor to Bush's campaign. The chairman of the company's bank unit was one of Bush's largest fundraisers.

Republican supporters of the legislation made clear in the debate that they were stung by the claims that their votes were swayed by large donations.

"There are a lot of trade associations that are interested in getting this bill passed _ I'm not oblivious to that," said Sen. Charles Grassley, R-Iowa, who helped write the bill. "But where did I first hear about abuses of the bankruptcy laws? It was from the small business people of Main Street USA.

"People are not paying their bills, and the small business person is being stuck with it," he said, adding that the bipartisan support of the bill "shows the rightness of it."

_ Information from the Los Angeles Times, New York Times, Washington Post, Dallas Morning News and Associated Press was used in this report.

Bankruptcy bill highlights

Requires more people to to repay their debts under a reorganization plan rather than having the debt dissolved.

Puts a $125,000 cap on the amount of home equity that debtors can keep out of the reach of creditors in bankruptcy court.

Limits repeat bankruptcy filings.

Requires debtors to participate in credit counseling programs.

Gives highest priority among debts to child support payments.