Soaked By Congress

CHRIS USHER FOR TIME
LOSING THE HOME: After his wife's death from diabetes, Allen Smith faces losing his modest Delaware home. He fell behind on mortgage payments and other bills. Creditors will divide the proceeds from the sale of what little he has

STEVE LISS FOR TIME

JOB LOSS: After 13 years with a Fayetteville, Ark., law firm, Marilynn Curry lost her job as a secretary. The single mother found another job, but it pays $15,000 less. Now she's in bankruptcy court

Congress is about to make life a lot tougher--and more expensive--for people like the Trapp family of Plantation, Fla. As if their life isn't hard enough already. Eight-year-old Annelise, the oldest of the three Trapp children, is a bright, spunky, dark-haired wisp who suffers from a degenerative muscular condition. She lives in a wheelchair or bed, is tied to a respirator at least eight hours a day, eats mostly through a tube and requires round-the-clock nursing care. Doctors have implanted steel rods in her back to stem the curvature of her spine.

Her parents, Charles and Lisa, are staring at a medical bill for $106,373 from Miami Children's Hospital. Then there are the credit-card debts. The $10,310 they owe Bank One. The $5,537 they owe Chase Manhattan Bank. The $8,222 they owe MBNA America. The $4,925 they owe on their Citibank Preferred Visa card.

The $6,838 they owe on their Discover card. The $6,458 they owe on their MasterCard. "People don't understand, unless they have a medically needy child, these kinds of circumstances," says Charles Trapp, 42, a mail carrier.

Why would Congress add to the burdens of folks like the Trapps? The family has filed for bankruptcy, and Congress wants to make it a lot more difficult for other Americans to do the same, a change that would hit especially hard at women. And poor people. And the recently jobless. And the sick.

Under legislation Congress is expected to take up soon, families like the Trapps will be required to go through a series of means tests to justify their medical and other expenses. That will cost them: more money in legal bills, more days lost from work, more mental aggravation. Even worse, in the end they still might not qualify for bankruptcy assistance.

Most members of Congress believe in what they are doing. Senator Charles Grassley, an Iowa Republican, speaks for many of his colleagues when he says, "I hope this bill does make bankruptcy more embarrassing--and more difficult. In fact, I plead guilty that that is a motive behind our legislation."

The House passed its version of the bankruptcy bill last year. The Senate enacted its bill in February. Now members of both chambers are meeting in secret to iron out differences and put their finishing touches on what they call the Bankruptcy Reform Act, which has the ostensible goal of curbing abuses.

What is the real reason Congress is doing this? Because the legislation is just what banks, credit-card companies, debt consolidators and other financial-services businesses ordered. To get it, they retained high-powered Washington lobbyists, among them Haley Barbour, former chairman of the Republican National Committee, and Lloyd Bentsen, onetime Senator and Treasury Secretary. The price tag for lobbying: more than $5 million.

At the same time, the lending industry poured contributions into the coffers of the national committees of both political parties and into the campaigns of individual lawmakers whose support was crucial. Some of the giving was appropriately timed. A $200,000 contribution to the National Republican Senatorial Committee by MBNA Corp.--which is to credit cards what Pepsi is to soft drinks--was delivered on the day of an earlier House vote on the bankruptcy bill. It passed handily, 300 to 125. The price tag for political contributions: more than $20 million. Says a Capitol Hill staff member who worked on the bankruptcy legislation: "If this were NASCAR, the members would have to have the corporate logos of their sponsors sewn to their jackets."

The Bankruptcy Reform Act is typical of legislation that Congress writes for the benefit of special-interest groups that are hefty campaign contributors--at the expense of ordinary Americans who contribute nothing. The proposed legislation would treat a bankrupt man's credit-card debt the same as his obligation to pay child support, meaning that MasterCard and an unmarried mother would compete for the same limited pool of cash. And the law would create hurdles intended to discourage or prevent people from filing for bankruptcy protection.

If, for example, a bankruptcy filer was left with more than $1,200 a year (beyond his basic expenses) over five years, that would be considered an abuse. If a mother tapped an atm to buy necessities such as food or prescription drugs six weeks before filing for bankruptcy, the withdrawal could be considered a fraudulent transaction. If a family planned to file for bankruptcy, it would first have to undergo credit counseling, in some cases at its own expense. If a child or some other member of the family received medical treatment within 90 days before the bankruptcy filing, the bills could never be written off, no matter how poor the family.

To get into bankruptcy court, a filer would have to produce a variety of financial documents, including statements of projected monthly income and expected pay raises over the next year, and tax returns for the previous three years. No one of these requirements may look particularly onerous. But taken together, these and other provisions would impose additional burdens and legal costs on individuals and families already struggling to survive. "It's a thousand paper cuts," says Elizabeth Warren, a Harvard Law School professor and bankruptcy specialist. "And some people will bleed to death from a thousand paper cuts."