Obama proposes easing consumer bankruptcy laws

POWDER SPRINGS, Georgia Tue Jul 8, 2008 11:37am EDT

1 of 5. Democratic presidential candidate Senator Barack Obama speaks during a town hall meeting at McEachern High School in Powder Springs, Georgia, July 8, 2008.

Credit: Reuters/Tami Chappell

POWDER SPRINGS, Georgia (Reuters) - Democratic presidential candidate Barack Obama proposed overhauling bankruptcy laws on Tuesday to ease the impact on people unable to pay their bills because of medical expenses or military service.

Obama, an Illinois senator, took aim at a 2005 overhaul of bankruptcy laws, which was strongly supported by credit card companies and other consumer lenders, that made it tougher for people facing personal bankruptcy to discharge debt.

"I'll reform our bankruptcy laws to give Americans who find themselves trapped in debt a second chance," Obama said at a town hall event in Powder Springs, Georgia, outside of Atlanta.

"While Americans should pay what they owe and we should be fair to those creditors who were fair to their borrowers, we also have to do more for the struggling families who need help the most," he added.

The 2005 bankruptcy law was passed by a Republican-led Congress and signed by President George W. Bush.

Obama and Republican John McCain, who will face each other in the November election, have been squaring off this week over the economy as they court voters who are increasingly anxious over soaring energy costs and a deteriorating job market.

Refocusing his message on the economy after a trip to Latin America last week, McCain on Monday pledged to balance the budget within four years if he is elected.

SEEKING TO LINK MCCAIN TO BUSH ON ECONOMY

Obama has sought to link McCain, an Arizona senator, to Bush's policies on the economy, which the Democratic candidate contends have favored the wealthy and left the middle class struggling.

He accused McCain of having "sided with the big banks" to support the rewrite of the bankruptcy laws.

But McCain spokesman Tucker Bounds pointed out the bankruptcy law was supported by 18 Senate Democrats and passed the Senate by a strong majority. He said Obama's opposition showed a lack of willingness to reach across party lines.

"Barack Obama's rigid partisanship and self-promoting political attacks show that he's a typical politician -- which is the problem in Washington, not the solution," Bounds said.

Obama said about half of all personal bankruptcies result in part from the burden of high medical expenses.

He said he would change the law so that Americans who can prove their bankruptcies resulted from high medical costs could get some relief from their debts.

Obama would also create a "fast-track" bankruptcy process for people serving in the military and their families who get behind on expenses because of long deployments, repeated moves and predatory lenders.

"If you're serving our country, you should be protected no matter where you live," Obama said.

In addition, he would make it easier for people over 62 to keep their homes if they are facing bankruptcy and give some relief to people burdened by bills because of a natural disaster.

Amid worries the U.S. economy may be sinking into a recession, personal bankruptcy filings are on the rise.

Such filings jumped 30 percent in the first six months of this year compared to the same period in 2007, according to the American Bankruptcy Institute, a research organization.

Rising mortgage costs in a slumping housing market and high levels of other household debt led to the jump in bankruptcy filings, the institute said.

(Editing by David Wiessler)

(To read more about the U.S. political campaign, visit Reuters "Tales from the Trail: 2008" online at blogs.reuters.com/trail08/)

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