Congress gave final approval Thursday to an overhaul of the bankruptcy system that would require more insolvent Americans to pay back at least some of their debts, a change that proponents said would curb abuse of the system and critics alleged would tighten the screws on hard-pressed families.
The bankruptcy legislation has been a top priority of credit card companies for nearly a decade, and it is the first rewrite of the bankruptcy code in a quarter century. It passed the House of Representatives by a 302-196 vote. The Senate approved it last month on a 74-25 vote.
President Bush expressed support for the bill and said he would sign it into law.
"These common-sense reforms will make the system stronger and better so that more Americans -- especially lower-income Americans -- have greater access to credit," the president said in a statement.
The legislation will impose a new means test on Americans who file for bankruptcy. Those with incomes above the median for their state will have to develop a plan to repay creditors. Under current law, they had the option of asking a bankruptcy judge to erase their debts in return for forfeiting some of their assets.
The new law also will require people who go into bankruptcy to receive credit counseling.
"I believe bankruptcy should be a last resort allowing people who need protection to receive it and people who can repay all or some of their debts to do so," said Rep. Ellen Tauscher, D-Calif., who voted for the bill. "Our current system isn't good for consumers, families, or a society that values individual responsibility."
But others argued that the legislation would undermine a fundamental principle of bankruptcy law dating back centuries: that debtors, especially those hobbled by misfortune, should be given a fresh start on their economic lives. While their remaining assets can be seized to pay current debts, their future earnings should not.
The new law will "bind hard-working Americans to credit card companies as modern indentured servants," warned Rep. Nancy Pelosi, D-Calif., the House minority leader.
Republicans have long complained about problem debtors who routinely run up credit card bills and then file for bankruptcy.
They argued that those people raise interest rates and fees for more scrupulous consumers, costing an average American family about $400 a year.
"We must stop abuse," House Speaker Dennis Hastert, R-Ill., said in a statement. "Those who abuse the system make getting credit more expensive for everyone. Bankruptcy is for those who need help, not those who want to shift costs to other hard-working Americans."
But opponents said only a small percentage of bankrupt Americans are problem debtors.
Democrats who opposed the legislation argued that aggressive marketing techniques and excessive fees by credit card companies also were to blame for enticing consumers to take on more debt than they could handle.