Bankruptcy terms toughen

"This new law will leave a more middle-class people in a desperate situation," warns David Himmelstein, an-author of the report. "This will close the door for a whole lot of people."

Hospitals, which often are owed the debt, may turn to collection agencies rather than writing off the debt. "It means more people will be dunned by collection agencies," Dr. Himmelstein says. He anticipates doctors will be forced to do the same thing, or worse. "As more and more people are uninsured and coverage worsens, doctors are already making decisions on what patients to accept. This law makes it more difficult." A doctor himself, he adds that most physicians are not aware if their patients are in bankruptcy.

Supporters of the legislation say it doesn't portend a return of Dickensian debtor prisons. "For 90 percent of the people who file for bankruptcy, there will be no effect," says Laura Fisher, a spokeswoman for the American Bankers Association. "It will only affect people who have the means to pay some of their debt, a portion of it."

She estimates lenders lose about $60 billion a year as a result of bankruptcy filings. This includes department stores, mortgage companies, credit-card companies. And, she says individuals with large medical bills may still be able to get their debts wiped clean.

In the proposed bill is wording that allows a judge to take into account special circumstances such as large medical bills. Still the process imposes burdens such as legal costs on individuals, even if they win relief from their debts.

GOP sponsors say that the means test is targeted at a narrow group of individuals - only about 7 to 10 percent of bankruptcy filers who have above-average incomes and the means to pay back their debts. If the means test only weeds out 100,000 to 150,000 abusive filings, as much as $3 billion could be recovered and passed through to other consumers, experts told senators last month.

Bankruptcy reform has been a top priority of banks, credit-card companies, and retailers for the past decade. Finance and credit-card companies have contributed more than $40 million to federal candidates since 1990, most to Republicans, according to the Center for Responsive Politics. Consumer groups say that is reflected in a bill that is skewed toward corporate interests and does not place needed restrictions on abusive lending by creditors, especially those who target vulnerable consumers.

"Creditor practices are literally driving consumers into default," says John Rao, staff attorney of the National Consumer Law Center. "By the time these people land in bankruptcy, they owe more in interest and fees than they do on the original loan."

Retailers, another group in favor of the proposed bill, hope it will help them recoup some of their losses and could result in lower prices for consumers. "The numbers we have seen is the average consumer pays $400 more in higher prices than they would if the bankruptcy laws were not abused," says J. Craig Shearman, a vice president at the National Retail Federation, which has worked for the legislation for the past ten years.

Credit-card companies estimate that about 20 percent of all bankruptcy filers have some assets or means to pay off their debts. But after special circumstances, only 10 percent of all filers will be affected. "Not a high number numerically, but its a lot of money," says Jeff Tassey, who manages the bankruptcy coalition.

If credit card companies can recoup some of that money, will they reduce credit card interest rates? Possibly, says Mr. Tassey. Or, they may add more airline miles or rebates or any of the other ways they market the cards, he says. "To some extent, they will be able to extend more credit at competitive prices."

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