A Bankrupt 'Reform'

washingtonpost.com

A Bankrupt 'Reform'

By David S. Broder

Sunday, March 13, 2005; Page B07

When it comes to blatant hypocrisy, nothing beats the Senate record on the just-passed bankruptcy bill.

This "reform," which parades as an effort to stop folks from spending lavishly and then stiffing creditors by filing for bankruptcy protection, is a perfect illustration of how the political money system tilts the law against average Americans.

The simple fact that for eight straight years it has gained a place on a crowded congressional calendar is testimony to the impact of the millions of dollars that banks and credit card companies have spent on lobbyists and campaign contributions.

What happened -- and didn't happen -- during two weeks of Senate debate demonstrates just how the powerful exert their influence. It's all too typical of what takes place now in Washington with most issues.

Few policy battles, Social Security being a current example, draw enough public and press interest for the legislators to feel real scrutiny. Most are in a netherworld where media coverage is cursory and interest groups' pressure determines the outcome. That's how bankruptcy reform made it through the Senate and why it will soon pass the House and be signed into law by President Bush.

The recent decade's rise in the number of bankruptcy cases has been dramatic, and it is not difficult to find cases of abuse. But most bankruptcy petitions are filed by people with real financial problems, often the result of family illness, divorce or loss of jobs. This bill will make it harder for everyone -- chiselers and innocent victims alike -- to get a clean start without the overhang of mounting interest payments on unpaid credit cards and other debt.

For two weeks the Senate sponsors shot down virtually every attempt to separate the sheep from the goats and carve out protections for the average family trapped by circumstances. The dry language of the Congressional Record recites a series of one-sided votes rejecting amendments "to protect service members and veterans . . . to exempt debtors whose financial problems were caused by serious medical problems . . . to preserve existing bankruptcy protections for individuals experiencing economic distress as caregivers to ill or disabled family members . . . to exempt debtors if their problems were caused by identity theft." Nothing would be allowed to stand in the way of the creditors' pursuit of those folks.

On the other hand, when an amendment was offered to restrict so-called "asset protection trusts," used by wealthy individuals to shelter their portfolios from creditors, it was rejected. Five states -- Alaska, Delaware, Nevada, Rhode Island and Utah -- have changed their laws to let people who live anywhere in the country establish trusts of unlimited size that cannot be reached by federal bankruptcy proceedings. The amendment would have limited this "millionaires' loophole" to $125,000. But Sen. Charles Grassley of Iowa, the bill's chief sponsor, intent on blocking any amendment that might prove indigestible in the House, said, "This is an issue that just needs more time for us to determine whether there is an abuse that needs to be corrected." With no more debate, it was rejected.

These amendments came from the liberal camp -- senators such as Edward Kennedy, Russ Feingold, Richard Durbin and Charles Schumer -- and were easily dismissed by the Republican majority. Even more instructive was what happened when a staunch conservative, Republican Sen. John Cornyn of Texas, tried to put a little balance into the bill.

When he was attorney general of Texas, Cornyn said, the notorious Enron bankruptcy case "opened my eyes to a very real abuse in the current bankruptcy system," the loophole that allows corporations to go "judge-shopping" for jurisdictions with permissive standards. Enron, which had 7,500 employees in Houston, filed for bankruptcy in New York, where it had 57 workers, because New York, along with Delaware, is known for being lenient on big business.

Congress recently passed a law restricting plaintiffs in class-action lawsuits from judge-shopping in the state courts, and Cornyn argued that it should also require corporations' bankruptcy cases to be filed in their principal place of business. Citing cases of Polaroid, Kmart, WorldCom and Enron, he said the judge-shopping loophole "serves to unfairly enable corporate debtors to evade their financial commitments, [and] it badly disables consumers, creditors, workers, pensioners, shareholders and small businesses from pursuing and receiving reasonable compensation from bankruptcy proceedings."

No one rose to dispute Cornyn. So what happened? He withdrew the amendment, without a vote, "out of respect to the managers of this bill who say that amendments to this bill would endanger its ultimate passage."

A Cornyn spokesman told me that the bill sponsors said his amendment would cost them the support of the two Democratic senators from Delaware -- that favorite haven for big business. And, except for the lobbyists, no one even noticed.

davidbroder@washpost.com