Democratic presidential candidate Barack Obama on Tuesday proposed overhauling bankruptcy laws 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, Ga., 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."

The 2005 bankruptcy law was passed by a Republican-led Congress and signed by President Bush. Obama and Republican presidential candidate John McCain have been squaring off this week over the economy as they court voters who are anxious over soaring energy costs and a deteriorating job market.

Obama has sought to link McCain, an Arizona senator, to Bush's policies on the economy, which Obama 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 has 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.

Obama said about half of all personal bankruptcies result in part from the burden of high medical expenses. He wants to change the law so that Americans who can prove their bankruptcies resulted from high medical costs could get some relief from their debts.

Obama also has said he wants to 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% in the first six months of this year compared to the same period in 2007, according to the American Bankruptcy Institute. Rising mortgage costs in a slumping housing market and high levels of other household debt led to the jump in bankruptcy filings, the ABI reported.

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