By Stephen Cooper and John Scorza, CCH Washington Staff Writers

Chances for comprehensive bankruptcy reform legislation paled in early May as the Senate's GOP leadership expressed frustration over successful efforts by a lone senator to filibuster the bill. Meanwhile, behind-the-scenes lobbying and negotiating continues on the measure, which passed both houses of Congress months ago and is now awaiting the selection of a conference committee to settle the differences.

Senate Majority Leader Trent Lott (R-Miss.) told reporters on Capitol Hill on May 2, 2000, that he is willing to let the bankruptcy reform legislation die during this election year because the Senate doesn't have enough time in the legislative calendar to break a Democratic filibuster by Sen. Paul Wellstone (D-Minn.)

In order to sidestep Wellstone's ability to prevent the Senate from convening a formal conference on the bill, GOP staffers on the House and Senate Judiciary committees began conducting a so-called "shadow conference" to work out a final conference agreement. The product of that shadow conference would then be added to an unrelated and noncontroversial conference report on legislation dealing with digital electronic signatures.

However, that plan ran afoul of Democrats on the House Judiciary Committee. In a May 2, 2000, letter, ranking minority Rep. John Conyers, Jr. (D-Mich.) and Rep. Jerrold Nadler (D-N.Y.) said convening a shadow conference goes against House rules and restricts Democrats from being involved in the legislative process.

They wrote to Judiciary Committee Chairman Rep. Henry Hyde (R-Ill.), complaining that the minority is unable to make its views known on objectionable parts of the bankruptcy bill such as needs-based bankruptcy, property cramdowns, pension plans, homestead exemptions, small business protections and spousal support.

At a press conference on the bankruptcy bill, Sen. Wellstone vowed to continue fighting the legislation, which he said harms the economic security of working families and financially vulnerable seniors. Instead, the bankruptcy bill will actually encourage and reward reckless and predatory lending by credit card companies and banks.

The bill's message to lenders is clear: "make risky loans, discourage savings, promote excess and Congress will bail you out by letting you be more coercive in your collections, by putting barriers in between your customers and bankruptcy relief, and by ensuring that the debtor will emerge from bankruptcy with his bondage to you intact," Wellstone said.

Despite the delays and complaints, the bill is not dead yet, according to a spokesman for Rep. George Gekas (R-Pa.), chairman of the House Subcommittee on Commercial and Administrative Law. "There are still meetings going on and some progress is being made," said Kent Wissinger, Gekas's spokesman. He predicted that the impasse over the bankruptcy conference report will likely be settled by mid-May.

New Pension Provision Debated

In the meantime, the specifics of the bill continue to evolve. Sens. Charles E. Grassley (R-Iowa) and Jeff Sessions (R-Ala.) have agreed to drop a controversial provision from the Senate's version that would have threatened a debtor's pension funds. The senators instead will push for substitute language that would protect retirement assets up to a cap up $1 million.

Grassley and Sessions came under fire for their support of Section 303(c) of the Senate-approved bankruptcy bill. Under that section, credit card companies and other lenders would have been allowed to claim pension fund assets of debtors in personal bankruptcy.

Instead, the senators proposed what they describe as "a retirement savings proposal that is fair to both debtors and creditors." The new proposal, which also is likely to stir controversy, would allow a 65-year-old debtor in bankruptcy to keep $1 million in retirement assets. Younger debtors in bankruptcy would be allowed to keep progressively less money, down to $250,000 for 21-year-old debtors.

"Our plan would let an individual in bankruptcy keep a million dollars in a retirement account, while at the same time prohibiting a debtor from stashing millions more in retirement accounts as a way to avoid paying what's owed to creditors," Grassley and Sessions said in a statement.

The House bill does not contain any similar language. If and when a conference committee from the House and Senate is named, they would need to iron out differences between their two versions of the bill before it could be reapproved by Congress and sent to the President for his signature.

Influence of Special Interests

Many critics of the reform bill claim the measure, and the whole process, has been tainted by influences of lobbyists and political contributions.

"This bill has the potential to be one of the great injustices of (this) Congress," Wellstone told a news conference. "It also has the potential to represent the worst way to conduct business here."

The consumer credit industry spent more than $7.5 million on political contributions in 1999 alone, according to a recent report by government reform group Common Cause. Since Congress began active consideration of the bankruptcy issue in 1997, creditors have donated almost $25 million to both parties.

"This legislation is the poster child for the need for campaign finance reform," Nadler said. "It is probably the worst special-interest bill I have seen in my public life."

Supporters of the overhaul point to an explosion in the number of U.S. bankruptcy filings over the 1990s as evidence current law encourages "bankruptcies of convenience" by people who could afford to pay back some of their debts.

"The fact remains that our bankruptcy system is flawed, and that wealthier filers continue to use it as a financial planning tool," the National Consumer Bankruptcy Coalition, which represents credit card companies and bank and retail trade associations, said in a statement.

Opponents counter that the "bankruptcy crisis" has already been defused, citing a more than 8 percent drop in filings in 1999--the largest one-year decrease on record--from the peak of 1.4 million in 1998.

While claiming what Wellstone called "a small victory" on the pension issue, they vowed to continue to work to block the entire bankruptcy overhaul, saying it was packed with provisions that were bad for consumers.

"If we keep it up and the word gets out about this bill, maybe we can actually stop this thing," said Sen. Russ Feingold (D-Wis.).

Related items:

Senate Approves Bankruptcy Reform Act of 1999, Includes Minimum Wage Increase

Decline in Personal Bankruptcies Downplays Need for Bankruptcy Reform Bill

House Passes Its Version of Bankruptcy Reform Act of 1999

Bankruptcy Reform Act of 1999 Introduced in the House

Bankruptcy Reform Stalls in the Senate