Bankruptcy expert Elizabeth Warren calls it the "vampire bill." That's because legislation designed to make it tougher for people to dissolve their debts in bankruptcy court has been pushed on Congress for seven years by banks, credit-card companies, retailers, and other financial institutions. The bill passes either the House or the Senate, even both houses in 2002. Yet it still dies. Then like the mythical vampire, the bill comes back to life in the following year.
Most bankruptcy lawyers, and Ms. Warren, a Harvard University law professor, wish Congress would put a stake through the heart of the bill. But it's likely to return next year. How come?
"There is money behind it," says Warren. "This is about paying off big contributors."
Credit-card firms and banks give generously to the reelection campaigns of members of Congress.
The bill has greater significance than whether debtors will have more difficulty discharging their obligations in bankruptcy court. It could also impact the sturdiness of the economic expansion. That's because more and more Americans are up to their eyeballs in debt and interest rates are rising. If the cost of servicing debt soars, consumers carrying big credit-card balances and other debts may stop spending as much, dampening economic growth.
Retail sales in June were possibly a warning. They dropped 1.1 percent, the biggest decline since February 2003.
"The US economy relies primarily on consumer spending, but rising levels of household debt can put a heavy burden on families," states Samuel Gerdano, executive director of the American Bankruptcy Institute (ABI). "When families sustain an unexpected financial setback on top of this burden, they often resort to bankruptcy as a way out."
Recent statistics are "troubling," says Travis Plunkett, legislative director of the Consumer Federation of America. Among them:
* Personal bankruptcies peaked in 2003 with a record 1.6 million cases filed - a rate of 185 an hour. That annual total is nearly double the 812,898 filings in 1993.
* Household debt stood at $8.9 trillion last year, a record high relative to disposable income, that is, income after taxes.
* Credit-card defaults rose more than 55 percent in the past four years.
* Home mortgage foreclosures are up 45 percent in the same time span.
Mortgage foreclosures, Warren says, not only may force a family into homelessness, but can hurt home values on the entire street.
Proponents of the tougher bankruptcy measures say too many people are gaming the system, engaging in a spending splurge, going bankrupt to clear their debts, and then repeating the …