By Jeff Carlson, CCH Washington Staff Writer

After eight years of congressional efforts, marked by bitter partisan fighting over the course of two different presidential administrations, lawmakers in Washington D.C. are poised to enact comprehensive bankruptcy reform legislation.

During that time, the House of Representatives and the Senate passed many differing versions of reform that ultimately could not be reconciled between the two chambers. And once in 2000, when agreement had been reached, then-President Bill Clinton vetoed the bill just weeks before leaving office. Since then, disagreements by lawmakers on minor provisions in the reform package have held up overall passage, despite broad bipartisan agreement on the basic framework and objectives of the legislation. Until now.

The Senate on March 10 wrapped up its debate over the bankruptcy overhaul and voted for final passage 74 to 25, moving the measure closer to law as both the House and President George W. Bush have signaled their approval of the legislation.

House GOP leaders have pledged to take it up quickly if the Senate passed it without controversial amendments. Senate Finance Committee Chairman Grassley (R-Iowa) told reporters the measure would move swiftly through the House and wind up on the President's desk soon after that. "The House will take it as is and the president could be signing it in less than a month," said Grassley.

Some 29 amendments to the Senate bill were proposed, but only three passed, concerning the eligibility rules for low-income or disabled veterans, active duty members of the military, seriously ill patients, and persons convicted of corporate fraud. Most significantly, the Senate defeated an amendment by Sen. Charles Schumer (D-N.Y.) that would prevent abortion protesters from filing for bankruptcy to avoid paying fines for criminal activity at clinics.

The bankruptcy bill is similar to legislation that passed the House in the 108th Congress in 2003-2004, but ultimately stalled--as it had during the previous Congress--over the language in Schumer's provision.

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 would make it more difficult for consumers to avoid repayment of debts under bankruptcy protection, as it would subject them to a means test to determine their ability to pay. The measure would require debtors who have the means to pay to enter a repayment plan in Chapter 13, rather than having their debts canceled under Chapter 7 of the Bankruptcy Code.

In addition, the homestead exemption, which allows a debtor to protect some portion of the value of a home from creditors' claims, would be subject to a look-back period of 1,215 days prior to filing for bankruptcy. Any interest in the home in excess of $125,000 that was acquired during this look-back period would not be protected, unless the current home was bought with the proceeds of the previous home (also subject to the same look-back). Moreover, the exemption would be reduced or eliminated if the debtor were to be found guilty of certain types of criminal felonies or civil monetary judgments.

The White House and the financial services and credit card industries support the bill. The Administration describes the legislation as "common sense reforms" of the nation's bankruptcy system, which will help curb abuses of bankruptcy protections, and reduce uncertainty in financial markets through improved financial contract netting rules. The bill would also increase financial education to prevent unnecessary filings and help avoid future credit problems.

The effective date of the bill would be 180 days after enactment, which means that the new rules could be in place by as early as the autumn of 2005.

For more information on the current rules of bankruptcy and how they interact with a comprehensive asset protection plan for your small business, check out our book, Safe Harbors: An Asset Protection Guide for Small Business Owners, available at major book sellers. New, stricter rules for debtors will be part of any bankruptcy reform, and you may want to consider what it could mean to you and your business before it's too late.

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