BOISE – Tougher rules for declaring bankruptcy and a permanent repeal of federal estate taxes will be backed by Idaho’s two U.S. House members in key votes in Congress this week.
Idaho had the 10th-highest number of bankruptcy petitions per household last year, according to the nonpartisan American Bankruptcy Institute. In the last federal fiscal year, 9,790 cases of bankruptcy were filed by Idaho residents, according to the Administrative Office of U.S. Courts. That’s up more than 7 percent from the 9,051 Idaho bankruptcies filed in fiscal 2003.
Almost all Idaho bankruptcy filings seek to erase unpaid bills under Chapter 7 of the federal bankruptcy code. This week, the U.S. House will consider a Senate-passed bill creating a “means test” that would make it harder for people to avoid paying their debts under Chapter 7. The new standards would determine if a filer has the financial resources to repay some or all debts under a court-administered repayment schedule, similar to Chapter 13 bankruptcy procedures.
“When the founders of our country said we weren’t going to have a debtors’ prison, they meant we were going to give everybody the opportunity to work these things out for themselves,” Rep. C.L. “Butch” Otter, R-Idaho, said Monday while introducing a statewide campaign to promote basic money management skills. “If the founders saw what was going on now with these people who go out and get three or four credit cards, run them up to the limit, then walk away, they would say, ‘Get a rope.’ “
Rep. Mike Simpson, R-Idaho, said the new means test would provide financial respite for people truly in need of bankruptcy protection, but crack down on those who try to abuse the system.
“Bankruptcy should not be a form of financial planning and it’s becoming that way for too many people,” Simpson said.
The Idaho lawmakers also plan to support making a 2001 rollback of the federal estate tax permanent, rather than temporary. The House has passed such legislation three times in the past four years, but the measures have failed to win Senate approval.
Before passage of the 2001 tax law, heirs of an estate valued at more than $675,000 were subject to a 55 percent federal tax. The law provided for a gradual decrease in the tax rate and full elimination by 2010, but only for one year. Some lawmakers want to repeal the sunset provision. Others worry that eliminating the tax revenue will worsen the spiraling budget deficit.
Otter believes a compromise may be reached by capping the value of estates exempt from the tax.
“I believe in no cap at all, but I’d be willing to listen to the argument of maybe setting a $50 million limit,” he said.
Simpson also prefers no cap but has backed legislation that would exempt the first $5 million of an estate’s value from the tax.
“We need to make a decision one way or the other because it’s absolutely nuts to have it decline to zero in 2010 and then have it reappear in 2011,” he said.
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