Bankruptcy code changes contemplated

Lawmakers are scrutinizing a failed Democratic attempt last week to gut a key provision of the 2005 bankruptcy law as a barometer for a more controversial change to the bankruptcy code.

Last Wednesday, 52 House Democrats joined Republicans to defeat a measure sponsored by Rep. Danny Davis (D-Ill.) that would have made it far easier for people to wipe away student debts in bankruptcy. Had it passed, it would have largely undone a provision of the 2005 law.

{mosads}That vote could indicate the appetite for another bill working its way through Congress: a measure that would allow bankruptcy judges to trim the mortgage debts of millions of sub-prime borrowers.

“I’m certainly going to look at who voted for it. I will probably look at who voted each way,” said one of the bill’s key sponsors, Rep. Brad Miller (D-N.C.).

Noting that the American Banking Association had lobbied against the student-loan measure, Miller added, “I’ll be interested in hearing from people what arguments they were persuaded by.”

The bill squeaked through the Judiciary Committee in December with only one Republican vote, and its prospects remain cloudy. House Speaker Nancy Pelosi (D-Calif.) says she supports it, but a vigorous campaign by the banking lobby and hesitations about reopening the bankruptcy code after the 2005 changes have slowed its momentum.

As one lobbyist put it, “If members and the [banking] industry hadn’t weighed in, this could have already been on the floor.”

Supporters are looking to break the logjam. Last week, the Judiciary Committee drew attention to the legislation in a hearing on the mortgage crisis — an unusual move because the Miller bill had already passed the panel. Miller told The Hill that the legislation could gain support after March, when foreclosures are expected to spike after the next round of resets of adjustable rate mortgages.

Sen. Dick Durbin (D-Ill.), who has authored legislation similar to the Miller bill in the Senate, was pushing behind the scenes for the House vote on the student-loan provision.

As a test for the mortgage legislation, the Davis measure’s defeat was not promising.

Twenty-two members of the Blue Dog Coalition, including the group’s four leaders, voted against the measure. Many Blue Dogs were among the more than 70 House Democrats to support the 2005 bankruptcy overhaul.

Banking lobbyists were cautiously optimistic that the defeat of the student-loan measure would bode poorly for more sweeping mortgage legislation. Both pieces of legislation would change contracts retroactively, making it easier for people to discharge debts in bankruptcy.

“Yes, there are similarities and we were pleased with the vote,” said a top lobbyist for the Financial Services Roundtable, Scott Talbott. “But we are not resting on our laurels because the substance, the dollar amount and quite frankly the politics are different.”

Student loan volume is a fraction of the giant mortgage market.

And the sub-prime mess is creating heat for lawmakers from both parties. A coalition of consumer groups and bankruptcy lawyers is pushing for the legislation.

Miller believes that more Republicans could join Steve Chabot (Ohio), the only Republican in committee to back the measure, to support his legislation. He also found an unlikely ally in former Rep. Jack Kemp (R-N.Y.), who previously served as Housing and Urban Development secretary.

However, the bill stirred controversy at the committee level. In a letter to Judiciary Committee Chairman John Conyers Jr. (D-Mich.), 16 Blue Dogs urged him to go slow when it appeared he would mark up the legislation without holding a full committee hearing. Panel Democrats wrangled over which homeowners the measure should benefit, and ultimately six failed to vote on the bill.