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The bankruptcy reform bill now pending in Congress may wreak financial havoc on single parents who rely on child support and alimony, warn divorce lawyers and women’s groups. The Bankruptcy Reform Act of 2001 would place some credit card debt on an equal footing with child-support payments, allowing credit debts to survive bankruptcy. Under current law, court-ordered child support and alimony are among a select few types of debts that must be paid by a bankrupt debtor. Although one section of the proposed legislation makes it easier to collect child support at the initial filing of a petition, Charles C. Shainberg, president of the American Academy of Matrimonial Lawyers, says that change is minor when compared with the overall effects of the legislation. By making most credit card debt for “luxury goods” purchases nondischargeable, he says, the law will compel debtors to split their assets between credit card debt and child-support and alimony obligations. “Why should children be placed at the same level as credit card debt?” he says. Vetoed last year by President Clinton, the bill was reintroduced on Jan. 31. Since then, separate versions have passed the House of Representatives and the Senate, and President George W. Bush has said he will sign the final bill. But the process has hit a snag. As the first legislation in the 107th Congress to require a conference committee to rectify competing versions, the act has fallen victim to the 50-50 party split in the Senate. Democrats want equal representation on the conference committee, while Republicans are insisting on a one-vote majority. A spokeswoman for Senator Paul Wellstone, D-Minn., the bill’s chief Senate opponent, said on March 30 that an agreement is still out of reach. Senate Judiciary Committee Counsel Rita Jochum, an aide to the bill’s chief sponsor, Senator Charles Grassley, R-Iowa, agreed, adding that any eventual agreement may serve as a template for future conference committees. ‘A ZERO-SUM GAME’ Credit card companies say they lose $50 billion a year in purchases discharged by personal bankruptcies. The new law installs a means test requiring any debtor who can afford to pay 25 percent of his or her “nonpriority unsecured claims” over five years to enter a court-supervised reorganization. The debtor would be forgiven up to $750 in debt for cash advances or “luxury” purchases made shortly before bankruptcy. (A House bill proposes less.) Shainberg’s group, which boasts a membership of 1,600 divorce attorneys, contends that many in Congress mistakenly believe that the current bills, S. 220 and H.R. 333, adequately protect child-support payments. Divorce lawyers specifically question Section 310 of the Senate version of the bill, which would forgive up to $750 in credit card debt related to cash advances or “luxury” item purchases — if incurred in the three months before a bankruptcy is approved. The House bill contains a threshold of $250. The academy says that 500,000 women are receiving child support or alimony from men who have been through bankruptcy in the past six years. “The fundamental problem is that bankruptcy is a zero-sum game. As long as you have other creditors who are demanding more of the bankrupt person’s resources, you are going to have a problem that can’t be solved,” says Joan Entmacher, vice president of the National Women’s Law Center. But Jochum dismisses these concerns, saying that under the new law “child-support agencies would be notified” of bankruptcy petitioners with support obligations and that “they would go in ahead of every other creditor.” Philip Anker, a bankruptcy expert at the Washington, D.C., office of Wilmer, Cutler & Pickering, says that divorce lawyers are exaggerating. Representing AT&T Universal Card on March 29, Anker prevailed when the full 5th U.S. Circuit Court of Appeals held that credit card debt is nondischargeable in bankruptcy if the creditor can show that the cardholder never intended to pay. “I would be surprised if empirical data five years from now lends much support to the proposition that spouses have been unable to collect child support and alimony because they’ve been competing with credit card companies,” he says. “You have to assume the same debtor owes child support and alimony, and that they would have paid the child support and alimony but for the credit card debt.” Entmacher says that the new law will also deplete a debtor’s finances before bankruptcy is complete because it would prevent bankruptcy trustees from “cramming down” the value of certain items. Under current law, she says, debtors wanting to hold on to property in which a creditor holds a security interest, such as a car, could pay the actual value of the item. Under the bill, she says, debtors will have to pay off the entire amount. “If you want to hang onto a car worth $5,000 that you borrowed $18,000 for, you [will] have to pay the whole debt.” One section of the act affirms a child-support exception to the automatic stay on creditors triggered by the filing of a bankruptcy petition. Although she approves of the provision, Rapid City, S.D., lawyer Linda Lea Viken, head of the academy’s effort opposing the new law, says that “what happens during the stay is not significant” to credit card companies. “What they care about is the end result. “One of my partners got $100,000 worth of balance transfer checks in the past month,” says Viken. “We should feel sorry for these companies when the dog gets a credit card?” Bankruptcy used to help single mothers collect support by clearing away other debts. But the new law will make bankruptcy less appealing, giving creditors more leverage to have debtors reaffirm debts rather than file for protection, Shainberg says. In practice, he says, divorce lawyers will have little leverage in trying to get child support or alimony when faced with competing debt. “You’ve got to advise your client that if you get divorced, you’re not going to be able to get hubby to pay,” he says. “The credit card companies are going to go to court and say we are entitled to our fair share.”

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