Clinton threatens to veto bankruptcy overhaul legislation

WASHINGTON - President Clinton, who supports rewriting the bankruptcy laws in principle, threatened to veto legislation in Congress that he said is unfair to ordinary debtors in its current form.

In a letter to congressional leaders Friday, Clinton said he especially objected to provisions that would limit the amount of money some bankrupt consumers could keep in their retirement accounts and allow debt collectors to charge people high fees if they failed to make good on bounced checks within a month.

''We ... must ensure that a reasonable fresh start is available for those who turn to bankruptcy as a last resort when facing divorce, unemployment, illness and uninsured medical expenses,'' Clinton wrote.

At the same time, Clinton said, he recognized the need to reduce abuses of the bankruptcy court system by a few debtors, including some wealthy individuals.

Sen. Charles Grassley, R-Iowa, a chief sponsor of the bipartisan legislation, criticized Clinton's letter, calling it ''an 11th-hour message'' that undercuts Democratic lawmakers who have been negotiating with members of the GOP majority.

''Together we have achieved a balanced bill that strengthens the safety net for those who need a fresh start and closes the loopholes that let big spenders walk away from debts they could repay,'' Grassley said in a statement.

Lawmakers have been working for weeks behind closed doors to try to reconcile differing House and Senate bills, both passed by veto-proof margins, that would make it harder for people to sweep away their debts in bankruptcy proceedings. The bills would apply new standards for determining whether people filing for bankruptcy should be forced to repay their debts under a court-approved reorganization plan instead of having them dissolved.

The legislation, pushed by banks, credit card companies and other consumer-credit businesses, has raised protests recently from consumer advocates, unions, women's groups and religious leaders.

Clinton called the House-passed bill ''so one-sided'' toward creditors that he would veto it. He said the Senate version is more balanced in its treatment of people who owe money and companies seeking to collect debts, but he still had serious concerns about some provisions.

The provision related to retirement accounts, for example, would limit to $1 million the amount of money that some insolvent consumers could keep in their retirement accounts. Grassley, its author, has said he was seeking to prevent wealthy debtors who file for bankruptcy protection from shifting their assets into protected retirement accounts to escape repaying debts.

But critics from both parties said the provision would encourage credit card companies, banks and retail businesses to put into fine print waivers requiring consumers to forfeit pensions and other retirement assets in the event of bankruptcy.

The debt-collection provision would exempt collectors from current law prohibiting harassment of creditors, if the bounced checks in question have been outstanding for 30 days or more. Creditors would be allowed to use tactics such as late-night telephone calls to debtors and repeated dunning over the phone.

On the other side of the ledger, Clinton said he also was concerned that the legislation doesn't adequately crack down on wealthy debtors who use homestead exemptions in some states to shield their assets from creditors in bankruptcy proceedings.

And he said he was disturbed by the absence in the House bill of a Senate provision that would prohibit people found to have violated laws protecting abortion clinics from using bankruptcy proceedings to escape fines and civil judgments.

The provision's author, Sen. Charles Schumer, D-N.Y., has cited the case of Operation Rescue founder Randall Terry, who filed for bankruptcy court protection in November 1998, blaming heavy debts owed to women's groups and abortion clinics that have sued him.