Sen. Christopher Dodd, a presidential candidate and chairman of the Senate Banking Committee, said: "Most often, individuals are forced into bankruptcy by a devastating medical event or the loss of a job."

The Connecticut Democrat said his bill would allow judges to consider the individual circumstances of debtors in bankruptcy cases so that families and children are protected.

The bill would ensure that medical debts can always be discharged in bankruptcy and that mortgages can be restructured to help borrowers stay in their homes, he said.

Student loans would also be dischargeable under the bill, and child support and alimony payments would be settled first.

"Our bankruptcy laws should not punish these vulnerable members of our society, but instead should help them get back on their feet while protecting them and their families from added suffering at the hands of creditors," Dodd said.

The bill would seek to undo some aspects of bankruptcy reform passed in 2005, which Dodd said he opposed at the time.

Some of Dodd's Senate colleagues and lawmakers in the House of Representatives have sponsored their own versions of bankruptcy reform, but no single bill has won widespread support.

Last month, the House Judiciary Committee debated but could not pass a far-reaching measure that would let bankruptcy judges erase mortgage debt.