[Congressional Record Volume 140, Number 44 (Wednesday, April 20, 1994)]
[Senate]
[Page S]
From the Congressional Record Online through the Government Printing Office [www.gpo.gov]


[Congressional Record: April 20, 1994]
From the Congressional Record Online via GPO Access [wais.access.gpo.gov]

 
                   BANKRUPTCY AMENDMENTS ACT OF 1993

  The Senate continued with the consideration of the bill.
  Mr. HEFLIN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Alabama is recognized.


                           Amendment No. 1633

  (Purpose: To amend section 524 of title 11, United States Code, to 
          authorize the issuance of supplemental injunctions)

  Mr. HEFLIN. Mr. President, I send an amendment to the desk on behalf 
of Senator Brown and ask for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

        The Senator from Alabama [Mr. Heflin], for Mr. Brown, for 
     himself and Mr. Graham, proposes an amendment numbered 1633.

  Mr. HEFLIN. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       On page 211, after line 21 insert the following:

     SEC. 222. SUPPLEMENTAL INJUNCTIONS.

       Section 524 of title 11, United States Code, is amended by 
     adding at the end the following new subsection:
       ``(g)(1)(A) After notice and hearing, a court that enters 
     an order confirming a plan of reorganization under chapter 11 
     may issue an injunction to supplement the injunctive effect 
     of a discharge under this section.
       ``(B) An injunction may be issued under subparagraph (A) to 
     enjoin persons and governmental units from taking legal 
     action for the purpose of directly or indirectly collecting, 
     recovering, or receiving payment or recovery of, on, or with 
     respect to any claim or demand that, under a plan of 
     reorganization, is to be paid in whole or in part by a trust 
     described in paragraph (2)(B)(i), except such legal actions 
     as are expressly allowed by the injunction, the confirmation 
     order, or the plan of reorganization.
       ``(2)(A) If the requirements of subparagraph (B) are met at 
     any time, then, after entry of an injunction under paragraph 
     (1), any proceeding that involves the validity, application, 
     construction, or modification of the injunction or of this 
     subsection with respect to the injunction may be commenced 
     only in the district court in which the injunction was 
     entered, and such court shall have exclusive jurisdiction 
     over any such proceeding without regard to the amount in 
     controversy.
       ``(B) The requirements of this subparagraph are that--
       ``(i) the injunction is to be implemented in connection 
     with a trust that, pursuant to the plan of reorganization
       ``(I) is to assume the liabilities of a debtor which at the 
     time of entry of the order for relief has been named as a 
     defendant in personal injury, wrongful death, or property-
     damage actions seeking recovery for damages allegedly caused 
     by the presence of, or exposure to, asbestos or asbestos-
     containing products;
       ``(II) is to be funded in whole or in part by the 
     securities of 1 or more debtors involved in the plan of 
     reorganization and by the obligation of such debtor or 
     debtors to make future payments;
       ``(III) is to own, or by the exercise of rights granted 
     under the plan could own, a majority of the voting shares 
     of--
       ``(aa) each such debtor;
       ``(bb) the parent corporation of each such debtor; or
       ``(cc) a subsidy of each such debtor that is also a debtor; 
     and
       ``(IV) is to use its assets or income to pay claims and 
     demands; and
       ``(ii) the court, at any time pursuant to its authority 
     under the plan, over the trust, or otherwise, determines 
     that--
       ``(I) the debtor may be subject to substantial future 
     demands for payment arising out of the same or similar 
     conduct or events that gave rise to the claims that are 
     addressed by the injunction;
       ``(II) the actual amounts, numbers, and timing of such 
     future demands cannot be determined;
       ``(III) pursuit of such demands outside the procedures 
     prescribed by the plan may threaten the plan's purpose to 
     deal equitably with claims and future demands;
       ``(IV) as part of the process of seeking approval of the 
     plan of reorganization--
       ``(aa) the terms of the injunction proposed to be issued 
     under paragraph (1)(A), including any provisions barring 
     actions against third parties pursuant to paragraph (4)(A), 
     shall be set out in the plan of reorganization and in any 
     disclosure statement supporting the plan; and
       ``(bb) a separate class or classes of the claimants whose 
     claims are to be addressed by a trust described in clause (i) 
     is established and votes, by at least 75 percent of those 
     voting, in favor of the plan; and
       ``(V) pursuant to court orders or otherwise, the trust will 
     operate through mechanisms such as structured, periodic or 
     supplemental payments, pro rata distributions, matrices, or 
     periodic review of estimates of the numbers and values of 
     present claims and future demands or other comparable 
     alternates, that provide reasonable assurance that the trust 
     will value, and be in a financial position to pay, present 
     claims and future demands that involve similar claims in 
     substantially the same manner.
       ``(3)(A) If the requirements of paragraph (2)(B) are met 
     and the order approving the plan or reorganization was issued 
     or affirmed by the district court that has jurisdiction over 
     the reorganization proceedings, then after the time for 
     appeal of the order that issues or affirms the plan of 
     reorganization--
       ``(i) the injunction shall be valid and enforceable and may 
     not be revoked or modified by any court except through appeal 
     in accordance with paragraph (6);
       ``(ii) no entity that pursuant to the plan of 
     reorganization or thereafter becomes a direct or indirect 
     transferee of, or successor to any assets of, a debtor or 
     trust that is the subject of the injunction shall be liable 
     with respect to any claim or demand made against it by reason 
     of its becoming such a transferee or successor; and
       ``(iii) no entity that pursuant to the plan of 
     reorganization or thereafter makes a loan to such a debtor or 
     trust or to such a successor or transferee shall, by reason 
     of making the loan, be liable with respect to any claim or 
     demand made against it, nor shall any pledge of assets made 
     in connection with such a loan be upset or impaired for that 
     reason;
       ``(B) Subparagraph (A) shall not be construed to--
       ``(i) imply that an entity described in subparagraph (A) 
     (ii) or (iii) would, if this paragraph were not applicable, 
     have liability by reason of any of the acts described in 
     subparagraph (A);
       ``(ii) relieve any such entity of the duty to comply with, 
     or of liability under, any Federal or State law regarding the 
     making of a fraudulent conveyance in a transaction described 
     in subparagraph (A) (ii) or (iii); or
       ``(iii) relieve a debtor of the debtor's obligation to 
     comply with the terms of the plan of reorganization or affect 
     the power of the court to exercise its authority under 
     sections 1141 and 1142 to compel the debtor to do so.
       ``(4)(A)(i) Subject to subparagraph (B), an injunction 
     under paragraph (1) shall be valid and enforceable against 
     all persons and governmental units that it addresses.
       ``(ii) Notwithstanding section 524(e), such an injunction 
     may bar any action directed against a third party who--
       ``(I) is identifiable from the terms of the injunction (by 
     name or as part of an identifiable group); and
       ``(II) is alleged to be directly or indirectly liable for 
     the conduct of, claim against, or demands on the debtor.
       ``(B) With respect to a demand (including a demand directed 
     against a third party who is identifiable from the terms of 
     the injunction (either by name or as part of an identifiable 
     group) and who is alleged to be directly or indirectly liable 
     for the conduct of, claims against, or demands on the debtor) 
     that is made subsequent to the confirmation of a plan against 
     any person or entity that is the subject of an injunction 
     issued under paragraph (1), the injunction shall be valid and 
     enforceable if, as part of the proceedings leading to its 
     issuance, the court appointed a legal representative for the 
     purpose of protecting the rights of persons that might 
     subsequently assert such a demand.
       ``(5) In this subsection, the term `demand' means a demand 
     for payment, present or future, that--
       ``(A) was not a claim during the proceedings leading to the 
     confirmation of a plan of reorganization;
       ``(B) arises out of the same or similar conduct or events 
     that give rise to the claims addressed by the injunction 
     issued under paragraph (1); and
       ``(C) pursuant to the plan, is to be paid by a trust 
     described in paragraph (2)(B)(i).
       ``(6) Paragraph (3)(A)(i) does not bar an action taken by 
     or at the direction of an appellate court on appeal of an 
     injunction issued under paragraph (1) or of the order of 
     confirmation that relates to the injunction.
       ``(7) This subsection applies to an injunction of the 
     nature described in paragraph (1)(B) in effect, and any trust 
     of the nature described in paragraph (2)(B) in existence, on 
     or after the date of enactment of this subsection.
       ``(8) This subsection does not affect the operation of 
     section 1144 or the power of the district court to refer a 
     proceeding under section 157 of title 28 or any reference of 
     a proceeding made prior to the date of enactment of this 
     subsection.
       ``(9) Nothing in subsection (g) shall affect the court's 
     authority to issue an injunction (including an injunction 
     that requires claims and demands to be presented for payment 
     solely to a trust or any other type of court approved 
     settlement vehicle) which is entered pursuant to an order 
     approving a plan of reorganization.
       ``(10)(A) If, upon a motion by a representative appointed 
     by the court identified in paragraph (1)(A) to protect the 
     interests of persons with demands of the kind described in 
     paragraph (2)(B)(ii)(I) or on its own motion, the court 
     finds, as a result of enhanced credible estimating procedures 
     with respect of such demands, inequities in the distribution 
     process of a trust of the nature described in paragraph 
     (2)(B), the court shall have, in addition to the powers over 
     the trust that the court may lawfully exercise under 
     applicable nonbankruptcy law, plenary equitable power to 
     reform, restructure, or modify the trust, the procedures 
     under which it operates, or the timing, manner, and amount of 
     distributions to its beneficiaries and other rights of the 
     beneficiaries, giving special attention to cases presenting 
     exigent circumstances, as it shall determine to be fair, 
     just, and reasonable in light of the circumstances prevailing 
     at the time of reformation, restructure or modification.
       ``(B) Nothing in this paragraph shall be construed to grant 
     the court authority to modify or in any way alter the 
     debtor's obligation to comply with the terms of the plan of 
     reorganization.''.

  Mr. BROWN. Mr. President, the proposed amendment would codify a 
court's existing authority to issue a permanent injunction to channel 
claims to an independent trust funded by the securities and future 
earnings of the debtor. In plain English, this means that when an 
asbestos-producing company goes into bankruptcy and is faced with 
present and future asbestos-related claims, the bankruptcy court can 
set up a trust to pay the victims. The underlying company funds the 
trust with securities and the company remains viable. Thus, the company 
continues to generate assets to pay claims today and into the future. 
In essence, the reorganized company becomes the goose that lays the 
golden egg by remaining a viable operation and maximizing the trust's 
assets to pay claims.
  Without a clear statement in the code of a court's authority to issue 
such injunctions, the financial markets tend to discount the securities 
of the reorganized debtor. This in turn diminishes the trust's assets 
and its resources to pay victims. The amendment is intended to 
eliminate that speculation so that the marketplace values the trust's 
assets fairly.
  This amendment is about growing the pie available to victims. The 
result could be significant. In the case of one such trust, for 
instance, every dollar increase in the value of the reorganized 
company's stock translates to $96 million more for compensating 
asbestos victims.
  Some suggest that claimants should be able to sue the reorganized 
debtor again. Such suits would fly in the face of the fundamental 
rationale of chapter 11, that a reorganized debtor emerges from 
bankruptcy free and clear other than the liability set by the plan. 
Unfortunately, the very speculation that a claimant may be allowed to 
sue the company hurts its ability to maximize the trust's assets to pay 
victim's claims.
  Essentially, this amendment means more money for the victims of 
asbestos exposure. It also means added stability and job security for 
the thousands of workers employed by reorganized companies. This 
amendment is a good public policy in that it not only serves the 
interest of reorganizing the debtor but in that it maximizes amount 
existing and future asbestos claimants can recover.
  Mr. GRAHAM. Mr. President, this legislation provides companies who 
are seeking to fairly address the burden of thousands of current 
asbestos injury claims and unknown future claims, and who are willing 
to submit to the jurisdiction of the U.S. Bankruptcy Courts, a method 
to pay their current asbestos claims and provide for equitable 
treatment of future asbestos claims. It will preserve the going concern 
value of those companies, thus providing a source of payment for those 
future claims. The legislation recognizes the inherent equitable power 
of the bankruptcy courts to provide for equitable treatment of all of a 
debtor's creditors, including those having claims arising out of 
asbestos products. This legislation also recognizes the bankruptcy 
courts' injunctive powers to implement fair distribution of payments to 
claimants. The amendment recognizes the need to provide an on-going 
source of payment for future asbestos-products claims against a debtor 
within the fabric of a centralized claims mechanism.
  It is the uncertainty of the number and amount of these future 
claims, and the need to implement a procedure that recognizes these 
future claimants as creditors under the U.S. Bankruptcy Code, that 
necessitates this amendment, as well as the need to provide some 
assurance that funds will be available to pay future claims. To those 
companies willing to submit to the stringent requirements in this 
section designed to ensure that the interests of asbestos claimants are 
protected, the bankruptcy courts' injunctive power will protect those 
debtors and certain third parties, such as their insurers, from future 
asbestos product litigation of the type which forced them into 
bankruptcy in the first place.
  Mr. President, upon the establishment of a trust to pay asbestos 
claims, the bankruptcy court may enjoin claims against the debtor and 
certain third parties alleged to be liable for the asbestos claims 
against the debtor, channeling such claims to the trust for payment. 
The section provides such trust and injunction be implemented only in a 
case where the numerous safeguards are met. There must have been a 
representative appointed to protect the interests of future claimants. 
An affirmative vote of approval by a 75-percent supermajority of the 
affected asbestos claimants must occur. There are still additional 
procedural safeguards to ensure that a reorganized debtor, and the 
trust created, in fact provide a meaningful and viable method of 
payment of asbestos claims, including future claims. The trust's assets 
and income are to be used to pay present and future claims. It is to be 
funded in whole or in part by the securities of one or more debtors 
involved in the plan of reorganization and by the obligation of such 
debtor or debtors to make future payments. It is to own, or by the 
exercise of rights granted under the plan could own, a majority of the 
voting shares of the debtor or its parent or a subsidiary debtor.
  A bankruptcy court that implements such a trust and the injunction 
directing asbestos claims to the trust for payment must determine that 
in fact the debtor will be subject to substantial future claims which 
cannot then be determined as to amount, numbers and timing; that the 
terms of the injunction are fully disclosed to those voting for the 
plan and trust, and that the claimants affected by the trust vote by a 
75-percent affirmative supermajority.

  The bankruptcy court must also determine that the trust will operate 
through mechanisms that provide reasonable assurance that it will value 
and be in a financial position to pay present and future claims of a 
similar nature in substantially the same way.
  If all of the foregoing criteria more specifically set forth in the 
amendment are met, the bankruptcy court may approve the plan and the 
trust and may enjoin claims against the debtor and against certain 
third parties identifiable from the injunction's terms, such as the 
debtor's insurers. By providing a trust to pay claims and an injunction 
channeling the present and future asbestos claims to that trust, the 
debtor and third parties who are alleged to be liable for the asbestos 
claims against the debtor will be encouraged to participate in a system 
that will maximize the assets available to pay asbestos claims, present 
and future, and provide for an equitable distribution and method of 
payment.
  Mr. HEFLIN. Mr. President companies faced with extensive asbestos or 
other mass tort liability have a limited range of alternatives. Some 
defendant companies choose to litigate claims individually. Other 
parties have sought resolution of their present and future liability 
through claim aggregation and mass settlements. Faced with liabilities 
in excess of assets, others are forced to file for bankruptcy.
  For companies forced to file bankruptcy any plan of reorganization 
must contain a mechanism to address equitably the debtor's liability to 
all creditors, including mass tort claims--both those whose injuries 
are manifest and those who, although already exposed, will not manifest 
any inquiry until sometime in the future. Without that mechanism, 
liquidation may be inevitable and little or nothing would be left to 
compensate future claimants.

  To ensure that all latent disease claimants are compensated 
equitably, bankruptcy courts have approved reorganization plans 
providing for the establishment of a trust charged with the resolution 
of both present and future claims and funded by the securities and 
future earnings of the reorganized debtor. To that end, courts have 
closed the door on any additional liability (over and above that 
prescribed by the plan) for the reorganized debtor for the claims 
covered by the trust.
  The injunction legislation would codify a court's existing authority 
to close that door by issuing a permanent injunction that channels 
claims to an independent trust funded by the securities and future 
earnings of the debtor. The reorganized company becomes the goose that 
lays the golden egg by remaining a viable operation and maximizing the 
trust's assets to pay claims.
  The injunction provision is simply about growing the pie available to 
pay victims. Without a clear statement in the code of a court's 
authority to issue such injunctions, the financial markets tend to 
discount the securities of the reorganized debtor. This in turn 
diminishes the trust's resources to pay victims. The provision is 
intended to eliminate that speculation so that the marketplace values 
the trust's assets fairly.
  The higher the value of the stock, the more value for the victim's 
trust. In the case of one such trust, every dollar increase in the 
value of the reorganized company's stock translates to $96 million more 
for compensating asbestos victims.
  Some parties have suggested that claimants should be able to sue the 
reorganized debtor again. Such suits would fly in the face of the 
fundamental rationale of chapter 11, that a reorganized debtor emerges 
from bankruptcy free and clear other than the liability set by the 
plan. Unfortunately, the very speculation that a claimant may be 
allowed to sue the company hurts its ability to maximize the trust's 
assets to pay claims.
  Essentially, the provision means more money for the victims of 
asbestos exposure or other mass torts. It also means added stability 
and job security for the thousands of workers employed by the 
reorganized companies.
  Last Congress, the Senate approved this provision as part of a larger 
bankruptcy bill passed 97 to 0. The injunction is supported by several 
former asbestos manufacturers, the independent victims' trusts created 
to pay claims, and the key members of the asbestos trial bar. Enactment 
of this provision is critical to ensuring that a trust's assets and its 
ability to pay victims are maximized.
  Mr. President, this amendment has been agreed to on both sides, and 
there is no objection to it, and I urge its adoption.
  Mr. CAMPBELL. Mr. President, at the outset, I emphasize my support 
for the Brown-Graham injunction amendment. A lot of work over many 
months--years--has gone into the effort to fashion this compromise 
between the bankrupt producers, plaintiffs, unions, and third party 
nondebtors.
  Upon reflection though, I ask if the procedure crafted here might 
serve as a model for other producers confronted with the same claims 
and issues and who have not sought protection under bankruptcy. As you 
know, over 15 companies previously engaged in the production and 
manufacture of asbestos and asbestos containing materials have filed 
for bankruptcy. Few have emerged from that process, and a number have 
completely gone out-of-business.
  In those instances where other producers of such materials meet all 
of the criteria contained in the amendment but have not filed under 
chapter 11, perhaps a mechanism to reach a just, responsible, and 
expeditious disposition of their pending liability while preserving the 
viability of the former manufacturers could be established. Obviously 
such a concept would also cover third tier companies which specified in 
engineering designs, supervised the installation or actually conducted 
the installation of such materials.
  Would my colleague from Colorado be willing to support the 
exploration of such a concept as this legislation moves through the 
process and support the result in conference?
  Mr. BROWN. I want to thank the Senator for his support of this effort 
and for the amendment. Yes, I think the thought and effort that has 
gone into fashioning this provision may well hold the essence of a 
procedure that has relevance to other parties faced with the same 
situations. If this procedure can serve as a model for other parties 
without exigencies, pain, and dislocations of bankruptcy, I would join 
with my colleague in encouraging and supporting such an effort and look 
forward to the results.
  The PRESIDING OFFICER. The question is on agreeing to the amendment.
  The amendment (No. 1633) was agreed to.
  Mr. HEFLIN. Mr. President, I move to reconsider the vote.
  Mr. FORD. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.


                       vote on amendment no. 1632

  The PRESIDING OFFICER. Under the previous order, the Senate is taking 
a recorded vote at 1:15 on the McCain amendment No. 1632.
  The Clerk will call the roll.
  The assistant legislative clerk called the roll.
  Mr. FORD. I announce that the Senator from Ohio [Mr. Glenn] is 
necessarily absent.
  I further announce that the Senator from Alabama [Mr. Shelby] is 
absent due to illness.
  I also announce that the Senator from Michigan [Mr. Riegle] is absent 
because of death in the family.
  The PRESIDING OFFICER. Are there any other Senators in the Chamber 
desiring to vote?
  The result was announced--yeas 44, nays 53, as follows:

                      [Rollcall Vote No. 94 Leg.]

                                YEAS--44

     Bingaman
     Boren
     Boxer
     Bradley
     Brown
     Bryan
     Burns
     Byrd
     Chafee
     Cohen
     Conrad
     Coverdell
     Craig
     D'Amato
     Feingold
     Feinstein
     Gorton
     Graham
     Gramm
     Grassley
     Hatch
     Hutchison
     Kempthorne
     Kennedy
     Kerrey
     Kerry
     Kohl
     Lautenberg
     Lieberman
     Mack
     McCain
     McConnell
     Moynihan
     Nickles
     Pressler
     Robb
     Roth
     Sarbanes
     Sasser
     Smith
     Stevens
     Warner
     Wellstone
     Wofford

                                NAYS--53

     Akaka
     Baucus
     Bennett
     Biden
     Bond
     Breaux
     Bumpers
     Campbell
     Coats
     Cochran
     Danforth
     Daschle
     DeConcini
     Dodd
     Dole
     Domenici
     Dorgan
     Durenberger
     Exon
     Faircloth
     Ford
     Gregg
     Harkin
     Hatfield
     Heflin
     Helms
     Hollings
     Inouye
     Jeffords
     Johnston
     Kassebaum
     Leahy
     Levin
     Lott
     Lugar
     Mathews
     Metzenbaum
     Mikulski
     Mitchell
     Moseley-Braun
     Murkowski
     Murray
     Nunn
     Packwood
     Pell
     Pryor
     Reid
     Rockefeller
     Simon
     Simpson
     Specter
     Thurmond
     Wallop

                             NOT VOTING--3

     Glenn
     Riegle
     Shelby
  So the amendment (No. 1632) was rejected.
  Mr. REID. Mr. President, I move to reconsider the vote by which the 
amendment was rejected.
  Mr. FORD. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. DeCONCINI addressed the Chair.
  The PRESIDING OFFICER. The Chair recognizes the Senator from Arizona 
[Mr. DeConcini].
  Mr. DeCONCINI. May I make an inquiry of what the pending amendment 
is?
  The PRESIDING OFFICER. The committee reported substitute for the bill 
is currently pending before the Senate.
  Mr. DeCONCINI. Is it open for amendment?
  The PRESIDING OFFICER. The Senator is correct.
  Mr. DeCONCINI. Mr. President, I want to offer an amendment, but if 
there is some agreement here, I would be glad to get in line.
  The PRESIDING OFFICER. The Senator from Arizona has the floor.
  Mr. DeCONCINI. Mr. President, I first want to compliment the Senator 
from Alabama and the Senator from Iowa for getting this bill put 
together. This is not an easy task by any means. I had a little bit to 
do with this, having chaired that Judiciary Subcommittee prior to 
Senator Heflin taking it over. I did a bankruptcy reform bill. It is a 
hard, hard bill to get together and I appreciate the job he has done.


                           Amendment No. 1634

         (Purpose: To provide additional trustee compensation)

  Mr. DeCONCINI. Mr. President, I send an amendment to the desk and ask 
for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from Arizona [Mr. DeConcini], proposes an 
     amendment numbered 1634.

  Mr. DeCONCINI. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       On page 160, insert between lines 6 and 7 the following new 
     section:

     SEC. 116. ADDITIONAL TRUSTEE COMPENSATION.

       Section 330(b) of title 11, United States Code, is 
     amended--
       (1) by inserting ``(1)'' after ``(b)''; and
       (2) by adding at the end thereof the following new 
     paragraph:
       ``(2) The Judicial Conference of the United States shall 
     prescribe additional fees of the same kind as prescribed 
     under section 1914(b) of title 28, to pay $15 to the trustee 
     serving in such case after such trustee's services are 
     rendered. Such $15 shall be paid in addition to the amount 
     paid under paragraph (1).''.

  Mr. DeCONCINI. Mr. President, this amendment would increase the 
compensation for chapter 7 private trustees by $15, but only in those 
chapter 7 cases where there are no assets. The 1978 amendment to the 
Bankruptcy Code placed the administrative role in bankruptcy cases in 
the hands of private panel trustees. The U.S. Trustees Program is 
responsible for supervising the private trustees.
  There are over 1,700 chapter 7 panel trustees in this country. The 
duties and responsibilities of panel trustees have grown considerably. 
But the trustees' compensation has not kept pace. Trustee compensation 
is fixed by statute. In cases where assets are recovered approximately 
5 percent of the chapter 7 cases trustees receive a small percentage of 
the assets distributed to the creditors.
  S. 540 actually improves chapter 7 trustees' compensation in asset 
cases by providing a sliding scale for payment based upon the amount 
dispensed to creditors. S. 540, however, does not provide for an 
increase in no-asset cases, which now accounts for 95 percent of the 
chapter 7 cases.
  What my amendment would do is increase the level of compensation for 
the panel trustees $15, from $45 bringing it up to $60. I believe this 
is a modest increase.
  I understand the concern of the managers of the bill as to the cost 
and where do we get the money to pay for the increase. Panel trustees 
have not had an increase in 10 years, believe it or not, since 1984. 
The panel trustees perform a wide variety of tasks in connection with 
the bankrupt estate. They are responsible for establishing a case file, 
attending statutory meetings of creditors, examining the debtors under 
oath, answering creditors' inquiries, and filing reports with the 
courts or U.S. trustee.
  Trustees are responsible for filing tax returns for the estate, and 
for paying taxes incurred by the estate. Private trustees also uncover 
hidden or concealed assets.
  Mr. President, $45 is not fair or adequate compensation to administer 
a bankruptcy case. The National Association of Bankruptcy Trustees has 
conducted a detailed survey of bankruptcy trustees covering various 
issues, including trustee compensation, and of the approximate 110 
responses, 79 percent stated they could not administer a no-asset case 
for $45.
  This amendment is needed to ensure that private trustees are 
adequately and fairly compensated. It will also provide some incentives 
for qualified individuals to serve as trustees. This in turn will help 
improve the function of the bankruptcy process, which is the intent, 
after all, of the underlying bill.
  Concern has been raised about how to fund the $15 increase in 
compensation. It will cost somewhere between $9.5 million and $10 
million, and I have suggested a number of ways to the judicial 
conference.
  I first recommended increasing chapter 7 filing fees $15 to pay for 
this raise. Currently the filing fee is $130; this would increase it to 
$145. However the filing fee was raised $10 last year, so there is some 
objection about raising it again so soon.
  There are other ways to raise the necessary funds. An attorney 
admission fee, or practice fee for attorneys practicing in the 
bankruptcy court, could be imposed. I do not see any problem with user 
fees for those who use the courts, in this case bankruptcy lawyers.
  Chapter 11 maintenance fees could be slightly increased. Xeroxing 
charges could be increased, or modest increases in other existing fees 
may raise the necessary amount. The judicial conference is authorized 
by statute to raise fees to pay for the operation of the bankruptcy 
court. So this amendment would direct the judicial conference to use 
its discretion in determining how the $15 increase is paid for.
  The fact of the matter is, no one has expressed, really, an objection 
to increasing the compensation for the panel trustees in no-asset 
cases. They just do not know where to get the money. It is my opinion 
this increase is so modest, it is necessary, and so long overdue, the 
judicial conference should be able to find a way.
  I have expressed to the managers of the bill that I will continue to 
press, if this amendment is included in the bill, to get the judicial 
conference to give us some figures on how we could raise this prior to 
the bill coming out of conference. I am advised the chairman, at least, 
has agreed they can accept this. I am hopeful my friend from Iowa can 
also accept it. Then I will continue to work to try to find the funds 
by the time we come out of conference.
  I thank the Chair and thank the distinguished Senator from Alabama.
  The PRESIDING OFFICER. The Chair recognizes the Senator from Alabama.
  Mr. HEFLIN. Mr. President, I originally felt that this was an 
amendment that would add to the cost and could possibly be an increase 
in filing fees. Congress increased filing fees considerably within 
recent time, and I believe we should proceed cautiously in this 
situation.
  The distinguished Senator from Arizona [Mr. DeConcini] suggested he 
will find ways, and has suggested, for example, that this cost could be 
paid for by increasing the charges on Xerox copy pages.
  There are increased duties that are imposed on trustees under the 
provisions in this bill. These increased duties and responsibilities 
include attempting to assist the debtor to understand his alternatives 
to chapter 7 bankruptcy whereby he would outright bankrupt his debt and 
to help the debtor understand that he could seek chapter 13 and pay his 
lawful debts.
  Senator DeConcini's amendment deals with the nonasset cases, and it 
takes a good deal of time for trustees to review and handle these 
cases. Trustees handle them on a volume basis, and I think there is 
some merit to the amendment, and I have no objection to it.
  The PRESIDING OFFICER. The Chair recognizes the Senator from Iowa.
  Mr. GRASSLEY. Mr. President, we are going to accept this on this side 
of the aisle as well. We probably ought to take some time to compliment 
the Senator from Arizona for raising a very valid point, but to say at 
the same time that this issue should not come out of conference without 
our finding a way to pay for it. Particularly, it seems to me, that 
responsibility will be upon the Senator from Arizona, to take that 
leadership, to find out how it could be paid for.
  That is the only reservation I have about it. Since there has been a 
good-faith effort, so stated here on the floor of the Senate, to work 
toward that end between now and the product coming out of conference 
committee, we will let it go at this point.
  The PRESIDING OFFICER. If there be no further debate, the question is 
on agreeing to the amendment.
  The amendment (No. 1634) was agreed to.
  Mr. DeCONCINI. Mr. President, I move to reconsider the vote.
  Mr. HEFLIN. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  The PRESIDING OFFICER. Who seeks recognition? The Chair recognizes 
the Senator from South Carolina [Mr. Thurmond].


                           Amendment No. 1635

 (Purpose: To amend title 11, United States Code, to clarify that post-
bankrupcy fees payable to a membership association with respect to the 
     debtor's interest in a dwelling unit that has condominium or 
cooperative ownership are nondischargeable debts for the period during 
 which the debtor occupied the unit or received rental payments for it)

  Mr. THURMOND. Mr. President, I send an amendment to the desk for 
myself and Senator Helms and ask for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       The Senator from South Carolina [Mr. Thurmond], for himself 
     and Mr. Helms, proposes an amendment numbered 1635.

  Mr. THURMOND. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       On page 235, between lines 13 and 14 insert the following:

     SEC. 311. FAIRNESS TO CONDOMINIUM AND COOPERATIVE OWNERS.

       Section 523(a) of title 11, United States Code, as amended 
     by section 210, is amended--
       (1) by striking ``or'' at the end of paragraph (13);
       (2) by adding ``or'' at the end of paragraph (14); and
       (3) by adding at the end the following new paragraph:
       ``(15) for a fee that becomes due and payable after the 
     order for relief to a membership association with respect to 
     the debtor's interest in a dwelling unit that has condominium 
     ownership or in a share of a cooperative housing corporation, 
     if such fee is payable for a period during a substantial 
     portion of which--
       ``(A) the debtor physically occupied a dwelling unit in the 
     condominium or cooperative project; or
       ``(B) the debtor rented the dwelling unit to a tenant and 
     received payments from the tenant for such period,

     but nothing in this paragraph shall except from discharge the 
     debt of a debtor for a membership association fee for a 
     period arising before entry of the order for relief in a 
     pending or subsequent bankruptcy proceeding.''.

  Mr. THURMOND. Mr. President, I rise today to offer an amendment to S. 
540 to clarify an ambiguity in the Bankruptcy Code which has led to 
confusion, conflicting judicial decisions, and unfair outcomes in many 
cases. This amendment relates to bankrupt debtors who own condominium 
or cooperative units in a community association. It is necessary to 
correct a line of cases in which courts have held that future payments 
by the debtor to a community association are discharged in bankruptcy. 
This amendment simply makes clear that assessments by community 
associations which become due after the bankruptcy order for relief are 
not discharged, as long as the debtor receives the benefits.
  Mr. President, today there are some 5 million condominium units in 
our Nation, in addition to cooperative units and other forms of 
community associations. Together, these community associations 
represent a significant percentage of this country's housing. These 
associations are found throughout the country, with the highest 
concentration in Hawaii, where condominiums alone make up over 20 
percent of the available housing. In addition, Florida, Connecticut, 
California, and Colorado have significant percentages of community 
associations, along with many other States.
  The owners of units in community associations typically pay monthly 
fees to cover a broad range of services provided by the association. 
These fees generally pay for maintenance and repair of the condominium 
building and common areas. This ensures that the structure itself and 
all common areas, including elevators, heating and cooling systems, and 
similar elements, remain in satisfactory condition. In addition, the 
fees often pay for insurance, for maintenance of driveways and parking 
areas, for landscaping and for snow and trash removal. Significantly, 
in many cases the associations' assessment also covers the utilities 
used by individual units so that separate metering and billing is not 
necessary.
  With the current ambiguity in the Bankruptcy Code, owners of units in 
community associations may be unfairly burdened by increases in their 
association fees if their neighbors declare bankruptcy and receive a 
discharge of the association fees which are due in the future. Some 
courts hold that these future fees are discharged in bankruptcy, so 
that the debtors need not pay their share of the expenses of the 
association even in the future after their bankruptcy is over and even 
though they continue to receive benefits from the association.
  Courts which reach this conclusion have sometimes recognized that the 
result makes no sense, but feel that it is compelled by the Bankruptcy 
Code, which can only be changed by the Congress. The Seventh Circuit 
Court of Appeals held in the matter of Rostek that future association 
fees were discharged so that the debtor was free from payments to the 
condominium association. The seventh circuit stated that the result was 
``troubling,'' but believed it was compelled by the language the 
Congress used in the Bankruptcy Code. That appellate court went on to 
explain correctly that it did not have the ``power to change'' that 
language to reach a more ``palatable'' result. However, in the Congress 
we do have that power and should exercise it to remedy this problem.
  Some judicial decisions suggest that this problem is limited, for in 
many cases the condominium unit will be sold and the debtor will 
receive a free ride only for the time that it takes to dispose of the 
unit. However, in many cases there is no equity in the unit, so the 
trustee and the mortgage holder will allow the debtor to retain the 
unit indefinitely. While the association may have the right in theory 
to foreclose, in practice the mortgage holder will receive all of the 
recovery, so that the association will not even cover the attorneys' 
fees for its trouble. It is in these cases that the present system is 
most unfair and the need for my amendment is greatest.
  This amendment would further the goal of the bankruptcy laws, which 
is to give debtors a fresh start by discharging their past debts while 
holding them responsible for any new obligations or benefits they 
obtain. My amendment allows all past debts owed to the community 
association to be discharged and simply requires payment of the 
assessments which become due after the bankruptcy order for relief, and 
only if the debtor actually receives the benefits by occupying the unit 
or receiving rental income from it. To further ensure that the purposes 
of the bankruptcy law are achieved, express language has been added to 
the amendment to clarify that debts to the association are not 
discharged if the debtor later files a subsequent bankruptcy 
proceeding.
  Mr. President, my amendment would make the Bankruptcy Code fairer and 
more equitable. The debtor's neighbors who belong to the community 
association will be treated much more fairly by avoiding the higher 
assessments which result from giving the debtor a free ride. The debtor 
will be treated fairly because the amendment does not affect the 
dischargeability of fees due prior to the final order of relief in the 
bankruptcy. Also, as I stated earlier, the amendment applies only to 
situations where the debtor benefits from the dwelling unit by 
occupying it or receiving rents from it, and in those instances the 
debtor should be required to pay the postbankruptcy assessments to the 
association.
  For all of these reasons, I urge my colleagues to support this 
amendment.
  Mr. President, both managers of the bill have agreed to the 
amendment. I urge adoption of the amendment, if it meets their 
approval.
  The PRESIDING OFFICER. The Chair recognizes the Senator from Alabama.
  Mr. HEFLIN. Mr. President, before we urge adoption, let me make a 
statement on this. I think this is an excellent amendment.
  This amendment is designed to make clear that it is not the intention 
of Congress that a debtor be absolved of his obligations to continued 
payment of his share of common expenses due to his condominium or 
cooperative association which come due after he has filed bankruptcy.
  It seems that some courts have interpreted section 523 of the code 
not only to discharge the debtor from liability for common area 
maintenance assessments which have come due prior to his filing 
bankruptcy, but for those debts coming due after the date of filing. 
This has severely impacted thousands of association members across the 
country by increasing their fees to carry the burden of those members 
whose obligations have been discharged in bankruptcy proceedings.
  The current state of the law on this issue is quite confused. Some 
courts treat the obligation to pay future assessments based on a 
prepetition obligation as discharged in its entirety upon filing of a 
petition. Other courts hold that the postpetition assessments are not 
discharged because they have not become due at the time of filing. 
Still other courts reason that the post petition obligations cannot be 
discharged because they constitute a covenant which runs with the land, 
which can be terminated only by terminating ownership interest.
  This amendment will clarify the ambiguity that now occurs within the 
courts regarding association fees for condominium and cooperatives. It 
will make nondischargeable the membership association fees that become 
payable after the order for relief if such fee is payable for the 
period in which the debtor occupies the dwelling after the order for 
relief.
  I am aware that presently seven States, and the District of Columbia 
have passed lien statutes which are directed at this problem.
  For these reasons, I support this amendment.
  I congratulate the distinguished Senator from South Carolina for 
bringing this to our attention because this is an example of why 
bankruptcy reform is an ongoing situation, why we need a National 
Bankruptcy Review Commission, and why we ought to be able to address 
these issues as they arise, rather than having a great number of 
condominium association and cooperative memberships suffer as a result 
of it.
  So I thank the Senator for bringing it to our attention.
  Mr. THURMOND. I wish to thank the majority manager and the minority 
manager, too, on this bill.
  Mr. GRASSLEY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Iowa.
  Mr. GRASSLEY. Mr. President, we accept the amendment on this side of 
the aisle. This falls into the category of which I spoke in my opening 
remarks on this particular bill and on the work of the National 
Bankruptcy Commission, that this is an example of fine tuning that from 
time to time a code must go under to recognize the economic realities 
of how we do business in this country and the changes from day to day.
  The PRESIDING OFFICER (Mr. Lieberman). Is there further debate? If 
not, the question is on agreeing to the amendment.
  The amendment (No. 1635) was agreed to.
  Mr. HEFLIN. Mr. President, I move to reconsider the vote by which the 
amendment was agreed to.
  Mr. THURMOND. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.
  Mr. THURMOND. I thank the Senator.
  Mr. REID addressed the Chair.
  The PRESIDING OFFICER. The Chair recognizes the Senator from Nevada 
[Mr. Reid].
  Mr. REID. Mr. President, I received a fax yesterday in the form of a 
letter from an attorney in Reno, NV, by the name of Jeffrey Giles. I 
think, Mr. President, this sums up why we are here today.

       Dear Senator Reid. I received a fax from the National 
     Association of Bankruptcy Attorneys asking that I along with 
     others communicate with you regarding the reform bill. I am 
     not opposed to a prohibition on repeat filings. It would 
     probably be a good thing.

  I think here is the paragraph of importance.

       However, the legislation in some form should be passed 
     immediately. This reform measure has been in the works for 
     nearly 2 years and the essence of it needs immediate 
     enactment.
       Good luck. I remain, sincerely yours, Jeffrey Giles.

  The reason I mention this to the President and through you to the 
manager of the bill, the senior Senator from Alabama, is to 
congratulate him on his great work on this legislation.
  I have spent time with the Senator's staff. They are well versed in 
the law. They are very easy to work with, and as a result of the work 
that I have been able to do with Senator Heflin and his staff, I think 
the bill is better than it would have been. Perhaps some of the matters 
that I suggested be placed in the bill would have eventually gotten in 
there anyway.
  This bill that is now before the Senate is a good bill. I have a 
couple of amendments that I am going to offer, Mr. President, one of 
which is entirely relevant; one is not entirely relevant. But the mere 
fact that I am offering these amendments does not take away from the 
work of the manager of this bill. I think the majority and minority on 
this matter have done very good work for the American people.


                           Amendment No. 1636

   (Purpose: Limitation on State taxation of certain pension income)

  Mr. REID. Mr. President, I send an amendment to the desk.
  The PRESIDING OFFICER. The clerk will report the amendment.
  The legislative clerk read as follows:

       The Senator from Nevada [Mr. Reid], for himself and Mr. 
     Bryan, proposes an amendment numbered 1636.

  Mr. REID. Mr. President, I ask unanimous consent that reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       At the appropriate place, insert:

     SEC.   . LIMITATION ON STATE TAXATION OF CERTAIN PENSION 
                   INCOME.

       (a) In General.--Chapter 4 of title 4 of the United States 
     Code is amended by adding at the end thereof the following 
     new section:

   ``Sec. 114. Limitation on State income taxation of pension income

       ``(a) No State may impose an income tax (as defined in 
     section 110(c)) on the qualified pension income of any 
     individual who is not a resident or domiciliary of such 
     State.
       ``(b)(1) For purposes of subsection (a), the term 
     `qualified pension income' means any payment from a qualified 
     plan--
       ``(A) which is part of a series of substantially equal 
     periodic payments (not less frequently than annually) made 
     for--
       ``(i) the life or life expectancy of the recipient or for 
     the joint lives or joint life expectancies of the recipient 
     and the recipient's designated beneficiary, or
       ``(ii) a period of not less than 10 years, or
       ``(B) which is not described in subparagraph (A) and 
     which--
       ``(i) is received in a taxable year for which an election 
     under this subsection is in effect, and
       ``(ii) is received on or after the date on which the 
     recipient has attained the age of 59\1/2\, except that the 
     aggregate amount of payments to which this subparagraph 
     may apply for any taxable year shall not exceed $25,000.
       ``(2) For purposes of paragraph (1), the term `qualified 
     plan' means--
       ``(A) an employees' trust described in section 401(a) of 
     the Internal Revenue Code of 1986 which is exempt from tax 
     under section 501(a) of such Code,
       ``(B) a simplified employee pension described in section 
     408(k) of such Code,
       ``(C) an annuity plan described in section 403(a) of such 
     Code,
       ``(D) an annuity contract described in section 403(b) of 
     such Code,
       ``(E) an individual retirement plan described in section 
     7701(a)(37) of such Code,
       ``(F) an eligible deferred compensation plan under section 
     457 of such Code, or
       ``(G) a governmental plan described in section 414(d) of 
     such Code, other than a plan established and maintained by a 
     State or political subdivision of a State, or an agency or 
     instrumentality of either.
       ``(3) For purposes of paragraph (1), any retired or 
     retainer pay of a member or former member of a uniform 
     service computed under chapter 71 of title 10, United States 
     Code, shall be treated as a payment from a qualified plan.
       ``(4)(A) An election under paragraph (1)(B), once made for 
     a taxable year, may not be made for any other taxable year.
       ``(B) In calendar years beginning after 1994, the $25,000 
     amount referred to in paragraph (1)(B) shall be increased by 
     an amount equal to such dollar amount, multiplied by the 
     cost-of-living adjustment determined under section 1(f)(3) of 
     such Code for such calendar year by substituting `calendar 
     year 1993' for `calendar year 1992' in subparagraph (B) 
     thereof.
       ``(c) For purposes of subsection (a), the term `State' 
     includes any political subdivision of a State, the District 
     of Columbia, and the possessions of the United States.''
       (b) Clerical Amendment.--The table of sections for such 
     chapter 4 is amended by adding at the end thereof the 
     following new item:

``114. Limitation on State income taxation of pension income.''

       (c) Effective Date.--The amendments made by this section 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.

  Mr. REID. Mr. President, the amendment that I offer has a direct 
relationship to bankruptcy. My amendment will save thousands of this 
country's senior citizens who live on fixed incomes from filing for 
bankruptcy as a result of the very unfair practice of taxation of 
pension income of nonresidents by some States.
  It works, Mr. President, like this. If someone chooses to retire to a 
different State than the one they worked in, some States follow you 
with their taxing authorities to tax the pension income you earned 
previously. Even though you no longer reside in the State, you no 
longer use their highways, their health services, their park services, 
any of their recreation facilities, you use nothing in the State from 
which you came, they still are collecting taxes.
  You cannot even vote in the State, but they are demanding that taxes 
be paid. This is clearly, Mr. President, a form of taxation without 
representation.
  This same amendment on two previous occasions has passed this body 
only to die in the House of Representatives. I have been in touch with 
the chairman of the Judiciary Committee in the other body. We have 
received assurances from him that he would hold a hearing, and he in 
fact did hold a hearing. I also received assurances that they will move 
this legislation in one form or another. I would certainly hope so.
  As I indicated, because of this matter having passed the Senate on 
two previous occasions, my colleagues are familiar with this 
legislation. An amendment to H.R. 4210 passed by a margin of almost 2 
to 1. In addition, this legislation was included in the committee 
reported version of H.R. 11 later that same year, which was ultimately 
passed by this body.
  For a variety of reasons, many people in the country plan to retire 
in places other than where they have worked. They want to go to a 
colder climate or they may choose, as they do most of the time, to go 
to a warmer climate. They would leave one of the Northeastern States or 
go to Florida or move to California. There are many reasons people seek 
to retire in places other than where they worked originally.
  They might want to move back to where they were raised. They might 
have a family there, and they want to be near their family. Whatever 
the reason for relocating, people spend their working years planning 
and saving so that they can retire to a place of their dreams, their 
retirement dream homes in their golden years. Imagine the retirees' 
shock and then dismay when after moving they receive a notification 
they owe back taxes along with interest and penalties not to the State 
in which they reside, where they use the highways, the recreation 
facilities, where they vote, but, rather, they are asked to pay taxes 
from where they came, their old State of residence. The shock is from 
owing a tax from which they receive absolutely no benefit or services 
or voting rights. The dismay from the inability to pay this sometimes 
enormous tax when one lives on a fixed income is very difficult to 
comprehend.
  I would like to relate one example of the outrageous consequences 
that can result from the aggressive collection of the source tax. I 
have given this example on another occasion but it is realistic, true, 
and a good example of the injustice that can occur.
  A retired woman living alone in Fallon, NV, lives on a fixed income 
of about $12,000 a year. Now, it goes without saying she is not a rich 
woman. But she is surviving. One day this woman from Fallon, NV, 
receives a notice in the mail that she owes taxes on her pension income 
from another State--not only the initial assessment but also penalties 
and interest on those taxes.
  Mr. President, this amendment is offered on behalf of Senator Reid 
and Senator Bryan. I am offering another amendment to which the Senator 
from Colorado, who is now in the Chamber, will be a joint sponsor.
  The PRESIDING OFFICER. The record will so note.
  Mr. REID. I thank the Chair.
  Mr. President, this woman, being honest, wants to find out why she 
owes this money. She has claimed she had not had to pay these taxes in 
the past. Why now? To make a long story very short, the other State 
went back several years and calculated her tax debt to be about $6,000. 
Mr. President, this is half of her income for 1 year.
  This issue has been addressed in both bodies of Congress as I have 
talked about. The Senate bill I have introduced in this session of 
Congress has 28 cosponsors. In the House, they have almost 200 
cosponsors. The issue is supported by a broad range of interests from 
the National Association of Retired Federal Employees [NARFE]; to the 
Fund for Assuring an Independent Retirement, which is called FAIR; 
Retired Officers Association; the National Association of Police 
Organizations; the Retirees to Eliminate State Income Source Tax, which 
is called RESIST, chaired by a Nevadan by the name of Bill Hoffman, 
from Carson City.
  During the House hearing last summer, a member of the board of 
directors of the American Association of Retired Persons had this to 
say about the issue:

       While States no doubt have the authority to exercise taxing 
     power, a number of legitimate questions arise as to the 
     wisdom of such action. Should Congress determine that Federal 
     intervention is necessary action before an even greater 
     number of States engage in this practice, it would be both 
     timely and appropriate.

  The time has arrived for this Federal intervention. We have received 
this from the joint task committee. This has no bearing on revenues. It 
is revenue neutral. More and more States are exercising the authority 
to tax nonresident pension incomes. This is unfair. This is taxation 
without representation. States obviously perceive the source tax as an 
easy way to raise revenues; tax someone who cannot vote you out of 
office.
  I urge my colleagues to save seniors from the embarrassing 
frustration of having to file bankruptcy as a result of paying taxes to 
the States in which they no longer reside by supporting this amendment.
  It is my understanding that the managers of this bill may accept this 
amendment without a vote.
  Mr. HEFLIN. Mr. President, I agree with the Senator. This amendment 
has passed the Senate twice. It is really unrelated to bankruptcy. But 
the fact is that it has passed the Senate twice, and has not passed the 
House. I say to the distinguished Senator from Nevada that House 
Members from Nevada would have a responsibility of getting the House to 
agree to this, otherwise we would be in the same situation. But the 
fact that the Senator has diligently and doggedly pursued this matter 
on behalf of the citizens of Nevada especially is commendable, that 
while it is not germane to the bill, we can accept it. We have a 
different rule in the Senate than we do in the House in that we can put 
nongermane amendments on Senate bills.
  But I do say that I hope the Members of the House of Representatives 
from Nevada, and other States that are similarly situated, will take on 
the responsibility of getting the House to agree to this in conference.
  Mr. REID. Mr. President, I say to my friend from Alabama that I 
appreciate very much his hope that the other side will accept this 
amendment, and indicate that this is not only a Nevada problem. We have 
almost 200 cosponsors in the House. I hope they will get more help than 
just my two colleagues from Nevada.
  Mr. BRYAN. Mr. President, this has been a concern of Senator Reid's 
and mine for some years, since coming to the Senate. We are constantly 
reminded, as we return each week to Nevada, about the enormous 
injustice visited upon our citizens, and that is taxation imposed 
primarily from our neighboring State of California to the West, in 
which just this past month, I might share with my colleague and Members 
of the Senate, 6,300 driver's licenses from out of State were 
surrendered in the Las Vegas area alone, indicating the enormous influx 
of citizens into our own State.
  Many of those citizens come from California, which has been 
particularly aggressive in seeking to impose State income tax from 
California upon Nevadans. In some instances, it occurs shortly after 
they move to Nevada. In other instances, it occurs some years later. 
This situation is not confined to Nevada alone, because California 
State income tax collectors have been particularly aggressive in moving 
other places as well.
  It is--as our constituents constantly remind us in Nevada, and in the 
refrain heard so frequently during our own revolution--taxation without 
representation. Our citizens in Nevada receive none of the benefits, 
have no ability to impact policy decisions by reason of their residence 
in the State of Nevada, and they are no longer eligible to vote in 
California. This is egregious and unfair.
  I commend my senior colleague, who has been on point on this for the 
last several conferences. I commend the managers of this bill for 
accepting the amendment, as has been the case in the past. With him I 
pledge a renewed effort to enlighten our colleagues in the other body 
as to this manifest injustice. This would be a marvelous year for us to 
have this piece of legislation enacted and relief accorded to literally 
tens of thousands of my own citizens in Nevada, as well as many across 
the country who labor under this manifest unfairness.
  I thank my friend from Nevada for allowing me to speak on this. I 
commend him for his pursuit and successful efforts in getting this 
amendment added.
  Mr. REID. Mr. President, I ask unanimous consent that on the source 
tax amendment, Senators Akaka and Murkowski be added as original 
cosponsors of the amendment.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BRYAN. Mr. President, I rise in strong support of the amendment 
offered by my colleague, Senator Reid.
  As Senator Reid has already described, this amendment would eliminate 
an unfair and discriminatory tax faced by many retirees in Nevada, and 
throughout the Nation--the State source income tax.
  This pernicious tax places a completely unfair burden on retirees who 
move away from the State where they spent their working years. In 
Nevada, many of these retirees come from California; in Florida, many 
of the retirees come from other States on the Atlantic seaboard; in 
every case, however, retirees are finding that their former State of 
residence is demanding tax payments from them based solely on their 
former residence in the State.
  In many instances, the retiree has not lived in the taxing State for 
years, if not decades, and in every instance, the retiree is being 
forced to pay for government services they derive no benefit from, and 
over which they have no control, due to their inability to vote in the 
taxing State.
  Once a retiree appears on the radar screen of a State's tax 
collectors, efforts to collect the tax can be relentless. I think it is 
safe to say that very few town hall meetings I hold in my State occur 
without some mention of the difficulty caused by the source tax.
  The State of Nevada has attempted to resolve this problem on its own. 
Under Nevada State law, other States and their collection agencies are 
prohibited from seizing property within the State of Nevada for the 
nonpayment of source taxes on pension or retirement income. Other 
States have passed, or are considering, similar legislation.
  The State of Nevada's unilateral solution will not solve the problem, 
however. First of all, the Nevada statute is difficult to enforce--I 
have heard many accounts of retirees being harassed and threatened by 
collection agents working on behalf of out of State tax boards.
  Sometimes, these intimidation tactics work--even retirees with 
knowledge of the statute may be reluctant to take the chance of placing 
their property, or their future pension income, at risk when confronted 
by an aggressive tax collector.
  This attitude is demonstrated in a letter I received from my 
constituents, Mr. and Mrs. David Sperl of Las Vegas. The Sperl's write:

       Thank you for your support of the Source Tax Bill . . . 
     Source taxes are an unfair tax which is very similar to the 
     British tea tax that caused the Boston Tea Party.
       We are personally impacted by the California Source Tax. I 
     worked for Aero Jet General Corporation in California for 
     many years. I received a small annuity check from their east 
     coast office. This annuity and my Social Security check are 
     our principal source of retirement income. We have lived in 
     Nevada for several years. We vote in Nevada and not in 
     California. We have no assets in California. We receive no 
     service or benefit from California. The California Source Tax 
     is clearly taxation without representation.
       We recently learned that Nevada has a law that protects our 
     income and assets from attachment by another state. We have 
     been paying the California tax every year. We do not have any 
     disposable income and clearly can not afford this cost.
       We have established a life long habit of paying our taxes 
     and obligations. We have a good credit rating and we 
     certainly do not want it tarnished by the State of California 
     over this unjust tax.
       I hope the Source Tax bill will pass this year. This is an 
     urgent matter with us.

  As you can tell from both the tone and content of this letter, the 
Sperl's are not tax evaders, or deadbeats trying to beat the tax 
system. Most of the thousands of retirees burdened by the source tax on 
heir pensions have put in a lifetime of hard work; their only interest 
is to enjoy their well earned retirement years with a certain minimum 
level of comfort. The victims of the source tax are not asking for any 
special treatment--in fact, what they are asking for is not to be 
singled out for unfair taxation by revenue hungry tax boards simply 
because of their former affiliation with a State.

  I worked for many years in State government. As Governor of Nevada, I 
agonized over the State budget, and I understand the need for State 
governments to raise revenue. In some peoples' minds, I suppose that 
out-of-State retirees are an easy target for revenue raising. After 
all, they do not vote. Without a political voice, who will defend them? 
This, of course, is the most fundamental unfairness of the source tax. 
This, of course, is the reason those of us who are aware of the 
injustice of the source tax compare it to the type of taxes that led to 
the Boston Tea Party, and, ultimately, the Declaration of Independence.
  The many retirees who are the unfortunate victims of this source tax 
are not the only ones impacted.
  For example, the reach of the source tax into other States infringes 
upon each States legitimate right to tax its residents. Often, source 
taxes paid to other States can reduce the taxes retirees pay to their 
actual States of residence. The State that provides all of the 
essential government services to retirees, the State where the retiree 
votes to control the way tax revenues are to be spent, must sit back 
and watch as their much needed tax revenues are diverted to another 
State.
  The proliferation and expanding scope of source taxes on retirees 
will also place significant burdens on employers. As we all know, a 
lifetime of employment with a single firm is becoming an increasingly 
rare occurrence. Multiple employers over an individuals career is 
becoming the norm, not the exception. The bookkeeping and reporting 
required to provide the information needed to collect source taxes on 
pensions will result in a huge paperwork burden on employers.
  The potential cost to businesses of source taxation is the reason why 
the American Payroll Association has endorsed this legislation. In 
addition, this legislation is supported by scores of employee, 
retirement, and tax fairness groups including such organizations as the 
National Association of Retired Federal Employees [NARFE], the National 
Association of Letter Carriers, the Retired Officers Association, the 
Retired Enlisted Association, the American Association of Foreign 
Service Women, the Air Force Sergeants Association, the Marine Corps 
League, the National Association of Postal Supervisors, the Naval 
Reserve Association, Common Cause, the National Taxpayers Union, the 
Federal Managers Association, the Airline Pilots Association, and the 
Air Force Association.
  This outrageous tax grab by former States of residence is an 
unexpected surprise for most retirees. Even those retirees who are 
aware of the potential for source taxation of their pensions are 
shocked by manner in which States assess the tax. In many instances, 
the mechanism of the source tax allows States to collect taxes from 
nonresidents on income earned outside of the State's borders. A letter 
from one of my constituents, Mr. Joseph Stauffer of Boulder City, NV, 
describes in some detail how this works. Quoting from Mr. Stauffer's 
letter:

       If I calculate the California tax based on the portion of 
     my pension that was earned while a resident of California, 
     the tax comes to $119--minus the joint exemption of $128 
     leaves zero California tax. When I follow California tax 
     instructions, and use my total Federal tax Form 1040 based 
     income, I end up paying $459.

  Mr. President, there are many reasons why the source tax on pensions 
is unfair, and many examples of the type of hardship such aggressive 
tax collections are causing among thousands of retirees.
  On March 12, 1992, the Senate went on record with a strong showing of 
support for this legislation. By a vote of 36-62, the Senate declined 
to table an amendment very similar to the amendment before us today. I 
urge my colleagues to once again indicate its opposition to the unfair 
source tax, and vote in favor of the amendment offered by the senior 
Senator from Nevada.
  The PRESIDING OFFICER. Is there further debate on the amendment? If 
not, the question is on agreeing to the amendment of the Senator from 
Nevada.
  The amendment (No. 1636) was agreed to.
  Mr. REID. Mr. President, I move to reconsider the vote by which the 
amendment was agreed to.
  Mr. HEFLIN. I move to lay that motion on the table.
  The motion to lay on the table was agreed to.


                           Amendment No. 1637

  (Purpose: To amend section 109 of title II, United States Code, to 
preclude a person from being a debtor under chapter 13 of that title if 
      the person has previously been such a debtor within 3 years)

  Mr. REID. Mr. President, I send an amendment to the desk and ask for 
its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Nevada [Mr. Reid], for himself and Mr. 
     Brown, proposes an amendment numbered 1637.

  Mr. REID. Mr. President, I ask unanimous consent that reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       On page 160, between lines 6 and 7 insert the following:

     SEC. 116. LIMITATION ON FILING OF CHAPTER 13 BANKRUPTCY 
                   PETITIONS.

       Section 109, of title 11, United States Code, is amended by 
     adding at the end the following new subsection:
       ``(h) Notwithstanding any other provision of the section, 
     no individual may be a debtor under chapter 13 who has been a 
     debtor in a case that was filed under that chapter at any 
     time in the preceding 3 years.''.

  Mr. REID. Mr. President, Congress is currently considering one of the 
most comprehensive cases of anticrime legislation, and that is 
consistent with what all of us are hearing from our constituents on a 
daily basis: Enact tough but fair legislation so that those who commit 
acts without regard to their consequences will realize there is a price 
to pay for injuring society.
  That is why we in this body included tough bankruptcy antifraud 
legislation as part of the crime bill. While the other body has chosen 
not to include this bankruptcy fraud prevention provision in its crime 
bill, it is my hope that we will somehow see to it that these measures 
ultimately are passed.
  The comprehensive bankruptcy legislation we are today considering is 
a solid bill that will result in beneficial reform of a system that all 
agree is in need of repair. That is why I am a cosponsor of this bill. 
That is why I will vote for its passage, and, as I indicated in my 
initial statement, Mr. President, why I congratulate and applaud the 
managers of this bill and the Judiciary Committee for moving this 
legislation.
  The amendment that I am offering today compliments the bankruptcy 
bill, and comports with the tough antifraud sentiments expressed by so 
many of our constituents. My amendment eliminates the fraud and abuse 
caused by serial filings in chapter 13 proceedings by limiting the 
number of petitions a debtor may file to once every 3 years.
  For those people that are watching this debate, it may seem somewhat 
unusual that the present law allows people to file a bankruptcy 
petition under chapter 13 every 6 months. And in fact, as my argument 
will show the Chair and Members of the Senate, even the 6 months has no 
bearing in some areas of jurisdiction. So even though it is difficult 
to believe that someone can be in perpetual bankruptcy, that in fact is 
the case.
  I am attempting by this amendment to limit the number of filings 
under chapter 13 to once every 3 years. That does not seem too 
burdensome to me, that a person can file only once every 3 years. My 
amendment is what we refer to in the law as a ``bright line rule.'' It 
provides the courts with crystal clear certainty and is consistent with 
this administration's attempt to combat fraud in the bankruptcy 
process. Indeed, Mr. President, that is why the administration supports 
the passage of my amendment. I state again, the administration supports 
this amendment.
  Why should an individual be able to file for bankruptcy every 6 
months? Why do the courts allow this to take place? Why are the courts 
incapable of ensuring that this 6-month prohibition between filing and 
refiling is followed?
  Since we enacted the code, we have bent over backward to protect the 
interests of the debtor, and we should do that. I have no problem with 
that, Mr. President. Bankruptcy protection is in the Constitution of 
the United States. We passed the law to make sure that the proceedings 
are fair and just.
  So I say, fine. We have done what we can to protect the interests of 
the debtor. Everybody deserves a break when they err. But we now have 
reached the point where our laws almost invite people to act in a 
fiscally irresponsible manner. You run your credit card up. Do not 
worry about it. No problem. Just declare bankruptcy. And tell your 
debtors that you are only going to pay them 60 cents on the dollar, or 
50 cents on the dollar, or nothing on the dollar.
  If that is asking too much, or if you simply decide not to follow 
through in your repayment plan, no problem. Just have your case 
dismissed and file a new proceeding. This is not sound policy. This is 
not sound policy fiscally, Mr. President; and certainly it is not 
morally.
  The argument that this current system works is that it gives the 
debtor a fresh start. The argument that it does not work is that it 
gives the debtor a perpetual fresh start. One of the greatest 
attributes about this great Nation is that we tend to give the people 
the benefit of a second and sometimes even a third chance. However, the 
negatives arising out of laws that uniformly give someone another 
chance is that they create a disincentive to act in a responsible 
manner, whether it be a fiscally responsible manner or a civilly 
responsible manner.
  One only has to look at the inclusion of the three strikes and you 
are out provision in the crime bill to get a better appreciation of how 
adamantly people feel about the inequities of our criminal justice 
system. The American people are demanding that we enact straightforward 
laws so people know the consequences following their actions. It is no 
longer acceptable to enact laws benefiting the alleged bad guy at the 
expense of the innocent victim.
  Let us remember, it is due process, not process ad infinitum. I 
believe my amendment recognizes this by doing the exact thing as the 
three-strikes provision. It provides a bright-line rule and gives all 
parties adequate notice that irresponsible abusive behavior simply will 
not be tolerated.
  In part, because the Bankruptcy Code provides an enormous amount of 
protection to a debtor, it frequently invites abuse by the 
unscrupulous. When a debtor files a petition under the act, he 
immediately invokes the automatic stay. The stay stops virtually all 
action of creditors to protect their interest and their collateral.
  And the stay remains in effect until the case is closed, dismissed, 
or discharged. If a creditor wishes to proceed against the debtor, he 
must seek relief from the stay. If the debtor dismisses his case, the 
stay is lifted and creditors are free to commence efforts outside of 
bankruptcy to collect from the debtor.
  At this point, however, the debtor can file another bankruptcy 
petition. This action by the debtor reinvokes the automatic stay, once 
again prohibiting the creditors from taking action to ensure payment of 
the money they loaned to the debtor. Herein lies the potential for 
abuse. A debtor, through a pattern of filings and dismissals can delay 
the disposition of his case and prevent creditors from collecting any 
money.
  My amendment will eliminate the pernicious problem of serial filings 
in chapter 13. Under this amendment offered by the Senator from Nevada 
and the Senator from Colorado, a debtor who goes into chapter 13 will 
know from the outset that he will not be given unlimited swings at the 
plate.
  Mr. President, if there was ever a time when this body is given an 
example of how to help business, especially small business, this is it. 
If we want to talk about doing things on the Senate floor and in the 
Congress to help businesses, this is it. Who gets jerked around by 
these unscrupulous people who know the ways and the vagaries of the 
bankruptcy law? The businessmen and businesswomen trying to make an 
honest living. These bankruptcies cause delay, delay, delay. There are 
examples where they delayed these bankruptcy proceedings ad infinitum. 
They file one, they ask for a discharge, and they can file again.
  This amendment will eliminate this from happening. Bad faith debtors 
should not have unlimited swings at the plate. How many swings do you 
get before you are out? This rule will not prevent the honest, good 
faith debtor from obtaining a fresh start or a number of fresh starts. 
What it will do, however, is to say to all debtors: You are now in the 
court of last resort, and because we are granting you the absolute, 
unquestioned protection of the automatic stay, you will be given one 
opportunity to reorganize your finances for at least every 3 years.
  Why is such a rule necessary? There are a number of reasons, Mr. 
President.
  At this time, in recognizing my friend from Colorado, I will have 
some more I would like to say, but I would be happy to yield to the 
cosponsor if he wishes to speak now.
  Mr. BROWN. I thank the Senator from Nevada. I would like to praise 
the Senator's hard work in this area. This is a very basic amendment. 
Right now, the Bankruptcy Code allows a debtor to make a chapter 13 
filing every 6 months. This amendment would change that 6-month 
limitation to limit debtors to one filing every 3 years. We must keep 
in mind that there is a safety provision. The Bankruptcy Code, in 
conjunction with the rules of civil procedure, allows additional 
filings in the interest of justice. In other words, some discretion is 
left with the judges.
  This modest step of moving from a 6-month limitation of filing to 3 
years will be helpful. It will help deter the people who abuse the 
code; it will help deter the debtors who use chapter 13 not as a 
mechanism to get back on their feet, but as a way to defraud their 
creditors. It is a responsible and modest step, it is a thoughtful 
amendment aimed at deterring serial filings.
  I am delighted to join the distinguished Senator from Nevada in 
offering this for the consideration of the body.
  I yield to the distinguished Senator from Nevada, [Mr. Reid].
  Mr. REID. Why is this rule necessary? Many reasons. For example, the 
debtor subsequently filing a chapter 13 plan will not attempt to make a 
single payment to his creditors. Without the bankruptcy court's 
confirmation of a plan, the creditor is unable to exercise any of his 
rights against the collateral.
  A case in the eighth circuit accurately highlights this problem. In 
that case, the debtors were frustrating the bank's efforts to foreclose 
on real property. As each foreclosure sale became imminent, the debtors 
would file a chapter 13 petition, which they would later have 
dismissed. They did this on three separate occasions. Each of the prior 
petitions was filed within 2 or 3 days of a scheduled foreclosure sale.
  In each case the creditors filed a motion for relief from automatic 
stay and each filing was within 6 months of the previous dismissal.
  Finally, after the court dismissed the third petition, the bank 
rescheduled the foreclosure proceedings as necessary for repayment. 
Incredibly, within 2 hours of the foreclosure sale the debtors filed a 
fourth petition under chapter 13.
  What happens, Mr. President, in situations like this: Let us assume 
that that property is badly needed to keep a business afloat or to keep 
someone's life afloat. Normally what they will do is cave in to the 
unscrupulous bankruptcy filer and take a ridiculously small offer to 
settle the case. That is unfair and simply should not happen.
  Most creditors file motions with the bankruptcy court seeking lifting 
of automatic stay. The debtor, realizing time is running out and the 
bankruptcy court will not likely confirm the plan, can always move to 
dismiss the case. Consent to dismissing the first petition for 
bankruptcy, the debtor can turn around and file a new petition for 
chapter 13, everything else the same except the date of filing, thus 
again triggering the immediate imposition of the automatic stay.
  It is an endless and vicious cycle circumventing the congressional 
intent of preventing serial filings. The court recognized this abuse 
and asked Congress to clarify the rules. We should clarify the rules. 
That is what this amendment is about.
  I am sure that a number of people in offices, or watching this on C-
SPAN, are wondering what all this bankruptcy terminology means.
  I would be willing to bet that there are many interested in knowing 
what the so-called automatic stay is all about. In theory, the 
automatic stay is supposed to act as a shield that provides the debtor 
with temporary protection from the creditors until he can work out a 
reorganization plan. In practice, however, the automatic stay has 
become a weapon used as a very blunt instrument to thwart the 
legitimate interests of a creditor.
  It automatically stops almost any legal proceedings against the 
debtor to collect the debt. The automatic stay is triggered 
automatically. No questions asked, no proof necessary, simply pay the 
court the $90 application fee, and abracadabra, walk out of the court 
with the ability to ignore legitimate requests for payment.
  The real tragedy, however, is that the debtor does not have to offer 
a shred of evidence that proves he needs protection. Credit card bills, 
car payments, mortgage payments, phone bills, cable bill statements, 
any other financial obligations are all stayed merely by filing this 
petition in bankruptcy--not a bad deal.
  And remember, the point of this amendment is to prevent them from 
doing it within the 3-year time period over and over again, as they are 
now doing it.
  I believe that the bankruptcy court in the northern district of 
Illinois best described the application of automatic stay when it held:

       The automatic stay is one of the most powerful weapons 
     known in law. It arises not from an order of the court after 
     a hearing on the merits, but upon the mere filing of a case.

  Mr. President, the arguments necessitating my amendment I believe are 
compelling. One only has to look at the number of chapter 13 plans that 
are dismissed. Listen to this, Mr. President:
  Status of chapter 13 cases. In 1982, 12,628 were filed; half of them 
were dismissed.
  In 1983, almost 100,000 were filed; over half of them dismissed.
  In 1984, 92,000; over half of them dismissed.
  In 1985, almost 108,000 cases filed; half of them dismissed.
  In 1986, 130,000; 47 percent of them dismissed.
  Now, starting with 1987 some of the cases are still pending, so it is 
difficult to get a totally accurate account. But in 1987 we had 142,000 
cases filed, and there are still 6.2 percent of them pending. And even 
with that, there is almost 50 percent of them that have been dismissed.
  In 1988, 156,000 cases filed; while 15 percent of them remain open, 
48 percent of them have been dismissed.
  I am making the point, Mr. President, if you look at the number of 
chapter 13 plans dismissed, you get the idea that serial filing is part 
of the game.
  According to the Administrative Office of the United States Courts, 
of hundreds of thousands of chapter 13 cases filed, about half of them 
ended in dismissal. Keep in mind, Mr. President, that the most the law 
can do with respect to preventing dismissals is to require the debtor 
to wait 180 days before filing a new petition, and even the application 
of the 180-day wait rule is subject to legal dispute. No wonder the 
courts are inviting us to legislatively intervene.
  We in Congress have taken steps in the past to address the problems 
of serial filings. Unfortunately, Mr. President, these measures have 
proven to be largely ineffective. In fact, the one section, Bankruptcy 
Code section 109, added in 1984--the intent was real good--was to deal 
with the problem of serial filings. It simply is not strong enough. It 
caused confusion.

  Opponents of my amendment will probably argue section 109 of the 
Bankruptcy Code is a sufficient deterrent to abusive bad faith serial 
filings. All I can say, Mr. President, if you look at the status of 
chapter 13 cases you will find they are filing for and dismissing more 
after the 1984 amendment.
  It simply is not strong enough. The section attempts to restrict 
serial filings by providing as follows:

       * * * that notwithstanding any other provision of this 
     section, no person may be a debtor if within 180 days before 
     filing petition for bankruptcy the case was dismissed for 
     willful failure of debtor to abide by court order, or the 
     debtor has dismissed the petition after creditor filed the 
     motion to lift the automatic stay.

  This is the only section of the Bankruptcy Code I am aware of that 
restricts serial filings. I suggest it does not protect against abusive 
repetitive filings, and the history agrees with me. Look at the numbers 
and you will find that section 109 may help, but it does not work.
  Some courts have held that the application of this provision may be 
discretionary. Many courts have struggled with what constitutes willful 
failure on the part of the debtor. We get into a lawyer's dream with 
section 109.
  My amendment is straightforward. There is no confusion. It deals with 
from the date of filing so you could do it within a 3-year period. It 
is very simple. It is to the point and leaves the court very little 
discretion. That is the way it should be.
  The bankruptcy court for the middle district of Florida ruled in one 
case that the debtor's dismissal of a third chapter 13 does not 
constitute willful failure of the debtor to abide by the court order. 
Thus, the debtor's fourth bankruptcy petition filed again within 6 
months of debtor's dismissal of third case is not barred by section 
109(g)(1).
  The second part of the section, section 109, also does little in way 
of preventing abusive serial filings. It simply prohibits a bankruptcy 
refiling in those cases, where following the creditors request for the 
relief from the automatic stay, the debtor dismisses his case. And keep 
in mind, Mr. President, the debtor may always dismiss his case at any 
time for whatever reason. He may wake up in the morning and say, ``I do 
not feel well today,'' and dismiss the case. He or she may stand and 
say, ``I just think I want to do something different today; I am going 
to dismiss my case.'' The point is there does not have to be any 
reason.
  My amendment eliminates the need for courts to waste all their time 
deciding what does or does not constitute willful failure.
  Mr. President, if you read this section, section 109(g)(2), you will 
wonder why laws like that are even on the books. The kind of bad faith 
filing it attempts to prohibit ought to be considered so presumptively 
wrong and prohibitive, the courts should not waste time allowing it to 
be litigated.
  My amendment eliminates the need for the court to waste all their 
time deciding what constitutes willful failure where the debtor 
dismisses the case following filing of the motion for relief for 
automatic stay.
  The rule embodied in this amendment is in the best interest of 
judicial economy and will unquestionably eliminate the inconsistencies 
caused by judicial interpretation of section 109. In so doing, it will 
prohibit the deleterious action of serial filings and thus allow the 
bankruptcy courts to devote their already limited resources to 
disposition of genuinely legitimate cases.
  There may be some who oppose this amendment, Mr. President, who would 
argue that its application in some rare circumstance could be harsh and 
may result in injuring some honest good faith debtor. I do not believe 
that to be the case because there is a safety valve.
  Mr. President, I practiced law for many years in the Federal system 
and in the State court system in Nevada and other State courts. There 
is a safety valve provision incorporated in all Federal rulings of 
procedure and that is rule 60(b) of the Federal Rules of Civil 
Procedure.
  Rule 60(b) of the Federal Rules of Civil Procedure, I have used on 
many occasions as most attorneys who have a trial practice do. In 
effect, what it does is allow for an attorney to file on behalf of his 
or her client a motion for relief from a judgment or an order. In fact, 
rule 60(b) allows courts to exercize discretion in relieving a party 
from his legal obligation, or from a final order in cases of mistakes, 
inadvertence, excusable neglect, newly discovered evidence, fraud, et 
cetera.
  Rule 60(b)6 states, amongst other things, on a motion upon such terms 
that are just, a court may relieve a party or its legal representative 
from a final judgment order of proceedings for the following reasons, 
and number six is, any other reason justifying relief from the 
operation of the judgment.
  Mr. President, this is certainly fair. It would cover those rare 
instances when somebody may need to file within a 6-month period. I 
insist that should be rare. This safety valve provision incorporated in 
the Federal Rules of Procedure grants courts discretionary relief of 
parties of the legal obligation in the interest of justice. It will 
clearly mitigate any harsh effects caused by this amendment.
  I ask those who oppose this amendment to consider the parties who 
stand to gain the most by the defeat of my amendment--attorneys 
involved in bankruptcy practices; people who, in many instances, do not 
want to pay their legal obligations; unscrupulous debtors generally 
intent on ripping off a rip-offable system--I am sorry to call it 
that--and those who stand to lose the most from its defeat.
  Well, aside from the courts and the taxpayers, the real losers are 
business people. I have mentioned that earlier. Everyone within the 
sound of my voice should understand that this is a real opportunity not 
to talk about helping small business, but to do something to help small 
business.
  Mr. President, I vividly recall the days when I first used to go to 
bankruptcy court and we had the first meeting of the creditors. The 
creditors would come and there was a proceeding where you would follow 
the statute and you would go in a room and sometimes the room was full 
of creditors. Not anymore. Rarely do you find anyone who shows up at 
the first meeting of creditors because they have given up on the system 
because they do not collect money in bankruptcy.
  Bankruptcy has become a way to avoid debt. I am sorry, but that is 
true. People used to come to me and apologize for having to file 
bankruptcy. It is not that way anymore.
  They have the little quickie. In Nevada, we were the divorce capital 
of America, and there were people who used to advertise for a quickie 
divorce. Now they advertise for quickie bankruptcy proceedings.
  Well, the people that would benefit from the adoption of this 
amendment more than anyone else would be business people of America, 
particularly small businesses. I believe a vote against this amendment 
is a vote against small business and a vote against those who play by 
the rules.
  I think we should send a message to the American people that we are 
willing to enact tough, meaningful legislation that will put an end to 
fraud and abuse in the bankruptcy process, at least in this instance.
  I ask my colleagues to join me and the Senator from Colorado [Mr. 
Brown] and this administration in supporting the adoption of my 
amendment.
  The PRESIDING OFFICER. Is there further debate?
  Mr. GRASSLEY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Iowa [Mr. Grassley].
  Mr. GRASSLEY. Mr. President, I rise in opposition to this amendment 
by the distinguished Senator from Nevada. Perhaps there is some problem 
here and perhaps that needs to be dealt with, but we feel it can be 
dealt with in a little different manner.
  I think that his approach could be characterized as using a cannon to 
go after a fly. I think there are some ways, if there is a problem 
here, to deal with it, but not this way. And I will suggest some 
alternatives.
  But let me say, if you remember what I said in my opening comments, 
that part of the purpose of this legislation was to encourage the use 
of chapter 13 and promote reorganization as opposed to the alternative 
that is often used now, the liquidation that comes out of chapter 7 for 
individual consumer debtors.
  Let me say, as a matter of fact, that most chapter 13 plans now only 
last 3 years. A 3-year bar would very harshly single out chapter 13 for 
treatment not found anywhere else in the code, I think, contrary to the 
intent of our legislation, which is to encourage chapter 13.
  And it would be discouraged, even though this chapter is widely 
regarded to be favored by creditors, who receive, as a result thereof, 
a greater percentage of repayment, and by the debtors who sincerely 
wish to repay their obligations.
  So considering the motivation of this portion of the bill before us, 
it seems to me that this amendment by the Senator from Nevada just 
detracts to too great of an extent from what we are trying to 
accomplish.
  The proposed amendment is not proportional to the perceived need.
  The bankruptcy courts already have broad authority to act to dismiss 
repetitive, bad-faith filings by consumer debtors. Courts are using 
this authority already.
  There are already remedies in the current section 109, because one 
subsection bars refiling within 180 days where the case was dismissed 
by the court for the debtor's willful failure to abide by orders of the 
court, or to appear before the court in proper prosecution of the case. 
And then another subsection bars refiling for 180 days where the debtor 
requested a dismissal following a creditor's filing of a motion to lift 
the automatic stay. It seems to us that these provisions are adequate 
to deal with abuses.
  To the extent that section 109(g) is believed to be too narrow, or 
otherwise inadequate, there are alternatives barring refiling any time 
a case was dismissed ``for cause'' rather than for ``willful failure of 
the debtor.'' That would better focus on abusive cases, we feel.
  And yet another alternative, focusing on situations where the debtor 
is abusing the system, would be to add a new subsection (3) to section 
109. I will not go into exactly how I would phrase that, but we think 
that these are better alternatives.
  The proposed amendment would impose a hardship on honest debtors.
  The amendment, in my view, is inflexible. In my view, it fails to 
take into account the personal situation of consumer debtors.
  As an example, a debtor who lost a job after filing and confirming a 
chapter 13 plan typically has the case dismissed for failing to make 
payments. Under this proposed amendment, that debtor would not be able 
to refile and make renewed payments under a plan if he later gained new 
employment.
  Similarly, a debtor who, post confirmation, suffered an unanticipated 
family expense--let us say, for instance, a child or a family member 
became seriously ill without adequate insurance--may not be able to 
service the plan payments and have the case dismissed. Now, the case 
can be retried and payment resumed when the financial picture improves. 
Under the proposed amendment, this is not an option.
  The proposed amendment would not help creditors obtain repayment.
  In these very situations that I just described, creditors would not 
be able to receive repayment pursuant to the plan, even when the debtor 
is willing and able to repay.
  But, the bottom line, Mr. President, it seems to me, is that for a 
lot of reasons chapter 13 is used less now than it was originally 
intended when it was established. A lot of those cases are finding 
their way into chapter 7. We ought to encourage them, both for the 
benefit of the debtor as well as the benefit of the creditor to use 
chapter 13, and that is one of the underlying, basic principles of this 
legislation before us.

  I feel the amendment proposed before us now will detract from that 
original goal.
  The PRESIDING OFFICER. Is there further debate?
  The Senator from Nevada [Mr. Reid].
  Mr. REID. Mr. President, I know the manager of the bill, the Senator 
from Alabama, wishes to speak. But so there will be some degree of 
ability to follow the debate, I would like to respond to my friend from 
Iowa.
  If, in fact, one of the reasons for this bill is to encourage more 
chapter 13 filings, I think that is really not a reason to do it. We 
are getting plenty of that.
  As I indicated, the chapter 13 filings are going sky high. I 
mentioned that the number of filing--the first year I gave was 1983, 
there were 92,000 filings.
  In 1992, we had 266,000 chapter 13 filings.
  Mr. GRASSLEY. Mr. President, will the Senator yield?
  Mr. REID. Yes.
  Mr. GRASSLEY. I probably did not make the point as forcefully as I 
should have. So consequently I think the Senator, maybe, misunderstood.
  I am not saying there should be more, we should encourage any sort of 
bankruptcy filings. But we are finding so many of these cases that 
should be in chapter 13 are in chapter 7.
  The point of the legislation is to encourage the use of chapter 13, 
if it is necessary to file for bankruptcy, instead of chapter 7.
  Mr. REID. I appreciate the clarification.
  Mr. President, when my friend from Iowa stated he was not aware--I am 
paraphrasing--of other areas in the Bankruptcy Code where they have 
such a harsh time limit, that is really not factual either, I 
respectfully submit, because chapter 7 filings have a time limit double 
that suggested by my amendment.
  So my point is that I think the section 109, for the reasons I have 
mentioned and I will repeat them very briefly, does not adequately 
prevent serial filings.
  We have had courts that have told us, ``Please, Congress, do 
something.'' I gave an example in my opening statement where one judge 
said they could even file within the 6-month period, if they want, more 
than one petition for bankruptcy under chapter 13. I think that is 
wrong.
  My friend from Iowa also said under section 109 there is broad 
authority to act. The remedies in section 109 simply do not work. My 
friend from Iowa gave the example of willful failure. I respectfully 
submit again, Mr. President, if you go before a court and/or a jury and 
you have a burden of proof to show ``willful,'' under the term 
``willful failure,'' that is an extremely high burden that very few 
factual cases can establish.
  So the fact that the section 109 says ``willful failure,'' that does 
not mean that many people will be able to meet that extremely high 
burden. The examples mentioned by my friend from Iowa, if someone has 
inadequate insurance because they lose their job--I know the bankruptcy 
judges in Nevada. They are very kind people. If there was a tearjerker, 
somebody's heartstrings were pulled, something happened such as 
indicated by the Senator from Iowa, rule 60(b) is incorporated into 
bankruptcy rule 9024. Thus, it is clear it applies, and Congress deemed 
it to be used to prevent undue hardship.

  In section 109, the issue is whether it is sufficient to deter serial 
filings. The answer is no. The section was enacted in order to prevent 
serial filings. The case law evidences it does not effectively achieve, 
in any manner, the stoppage of the consistent filings of bankruptcy 
petitions under this chapter. And it has led, as indicated by a few of 
the court cases I have mentioned, to some very, very serious inequities 
to small business people in particular.
  This issue is--this is my wording; I think my friend from Iowa said 
it was too harsh--too draconian is my word. I say that is not true. 
Debtors will still be allowed to file bankruptcy. There will still be 
available the enormous protection of the automatic stay. My amendment 
provides they can only receive the benefits of chapter 13 once every 3 
years. That seems fair. And that is what we are trying to do, is 
present something to the courts that will work fairly, be fair to the 
persons seeking protection of the bankruptcy laws and also fair to the 
business people of America.
  Chapter 13 works. We ought to be encouraging debtors to use it, is 
what my friend from Iowa said.
  If it works so well, how come over 50 percent of the chapter 13 cases 
filed between 1982 and 1986 ended in dismissal? I do not know what they 
will be in 1993. In 1992 they are up to 266,000 cases, and I am sure we 
will have well over half of them dismissed.
  If Congress passed section 109 to prevent abusive serial filings and 
these filings are still occurring, how can we argue that the chapter 
works? We ought not to be encouraging anyone to declare bankruptcy. 
This is fundamentally bad policy.
  The PRESIDING OFFICER. Is there further debate?
  The Senator from Alabama [Mr. Heflin] is recognized.
  Mr. HEFLIN. Mr. President, I think this is a well-intended amendment, 
but as the distinguished Senator from Iowa said, it is a cannon to kill 
a gnat. As I recall, in physics--I believe it was Newton--that for 
every action there is an equal and opposite reaction. I really believe 
in the overall situation, that this amendment is really self-defeating 
for the intent toward which it is directed. The intent is that a debtor 
ought to rarely use bankruptcy, and that if there is a way for him to 
pay debts, that he ought to pay his debts.
  I believe that people ought to pay their debts, and the concept of 
creating chapter 13 was to provide a way to pay your debts.
  In order to understand this situation, you have to understand the 
difference between chapter 7 and chapter 13.
  Chapter 7 is just outright bankrupting your debts. You say, ``Here 
are my assets.'' In most instances there are none. And ``Here are my 
liabilities,'' and the blackboard is erased completely. A debtor comes 
out, and his creditors cannot go to court. They cannot execute on you. 
They cannot garnish.
  So chapter 7 is a procedure by which a debtor gets rid of his debts.
  The intent of this bill is to say that a debtor ought to pay his 
debts and, therefore, there are procedures in the Bankruptcy Code under 
chapter 13 that will allow time to pay one's debts.
  What we are talking about here with the pending amendment is, really, 
to put an impediment into the process by which debts can be paid in 
bankruptcy proceedings. The amendment is an impediment, because 
normally a person who goes into bankruptcy goes to an attorney, not 
knowing the difference between chapter 13 and chapter 7.
  A debtor has never heard of chapter 13, and he has never heard of 
chapter 7. He goes to a lawyer and, in most instances, the lawyer says, 
``All right, there is chapter 7. We will put you in straight 
bankruptcy, and you will not have to worry paying for your debts.''
  We had testimony in the hearings from judges who said they had 
inquired of people going into bankruptcy, and they had said that at 
least 90 percent of those who went into bankruptcy, if they had known 
they had an opportunity and a procedure by which they would have paid 
their debts, they would have exercised that right, gone under that 
procedure, and paid their debts. It is a matter of course sometimes in 
order to arrange for them to pay it. That is the purpose, of giving 
some protection to them during that time, but the ultimate goal is that 
they pay their debts.
  How does what I have said thus far apply to this amendment? What this 
means is that those individuals who have gone under chapter 13 and 
circumstances arise where they have to dismiss, if there is a 3-year 
statutory bar where they cannot go back into chapter 13, what are they 
going to do? Instead of dismissing, they are going to transfer to 
chapter 7 by which they do not pay their debts.
  This bill provides for a national bankruptcy review commission. The 
problems that are present in this issue pertaining to the 6 months 
under sections 109 (g)(1) and (g)(2) ought to be looked at by the 
bankruptcy commission.
  We dealt with trying to find some substitutes for some of the 
problems, but we could not come up with what we thought was a studied, 
carefully reviewed approach as to how to handle this without causing 
the reactions that could occur.
  To give some examples, and I think Senator Grassley gave some 
examples in regard to this: A person goes in to a lawyer. He says they 
are after me on my debts. They are fixing to take my automobile; they 
are garnishing my salary; therefore, what do I do? The lawyer tells a 
debtor there is bankruptcy. He tells him about chapter 7 and he tells 
him about chapter 13. The debtor, if he goes with 13, in 90 percent of 
the cases will select a procedure by which he pays his debts. He is 
given some period of time to work out an arrangement by which he can 
live.
  For example, what he would normally do is take his salary and the 
court will approve a plan by which 40 percent of his salary each payday 
goes into a fund to pay his debts, and they allow him 60 percent to 
live on; that is if he is a fairly low wager. If it is higher, it would 
be on a different percentage basis.
  If he goes into it and then he loses his job, he has no way of making 
those payments. So what does he do? He may have to dismiss his case, or 
the court may dismiss his case for the failure to pay according to the 
plan. If he gets his job back, he is then hounded by his creditors. 
Garnishment attempts start again; he has no protection, which he had 
under chapter 13, since he was either voluntarily or involuntarily 
dismissed from chapter 13. He, therefore, has the attachment that is 
fixed and takes place.
  What happens then? Under this, he cannot go back into chapter 13 and 
pay his debts. So what does he do? He files chapter 7 and he outright 
bankrupts his debts.
  So the end result of what we are trying to achieve is a situation 
where debts are paid and not avoided. What this amendment would achieve 
is a situation in which chapter 7 filings will be increased.
  Senator Grassley used, also, I believe, the illustration about a 
situation where a catastrophic event occurs to a family where, for 
example, a child or a family member becomes seriously ill without 
adequate insurance and, therefore, the family has to give priority to 
the treatment of their child. There are many instances such as this. 
But the end result on all of this is that the opposite reaction that 
takes place from this action, which is well-intended, is that it is 
going to increase outright bankruptcies and not the procedures by which 
a debtor pays his debts.
  There is a statute prohibiting refilings under chapter 7 for a 6-year 
period which addresses the question of abusive filings. But there may 
be legitimate circumstances in a chapter 13 case such as loss of a job, 
loss of salary, or a catastrophic event that occurs, which may warrant 
a refiling to allow a debtor to pay his debts.
  With that in mind, I feel like we must object to this amendment. But 
I realize that what the Senator from Nevada is doing is a legitimate 
concern. But how this is addressed where it does not create increased 
filings of outright bankruptcy under chapter 7 has to be carefully 
considered and carefully crafted in language. To me, this is something 
that the national bankruptcy review commission ought to consider.
  This has just come to our attention in the last 2 or 3 days, and we 
have not held any hearings nor investigated it.
  Therefore, under those circumstances, I say we must oppose this 
amendment. I think the intent of the Senator from Nevada is good, but 
the complexities of this matter are such that it may have an adverse 
reaction rather than a positive action of what we want to obtain.
  Mr. REID addressed the Chair.
  The PRESIDING OFFICER (Mrs. Feinstein). The Senator from Nevada.
  Mr. REID. Madam President, I appreciate the kind words of the Senator 
from Alabama, but I respectfully submit that we should look at a judge 
and his statement from the northern district of Illinois in a 1989 
case.
  Section 109 was in effect at that time. The judge said, among other 
things, when pointing out the vastness of the problems with section 
109: ``This is just the tip of the `abuseberg.''' A-b-u-s-e-b-e-r-g, 
abuseberg. That is the word of a judge, not mine.

  The fact is, Madam President, that we do not have the luxury of 
waiting, with all due respect, for a review commission. Whenever 
something is difficult here, we tend to turn it over to a committee and 
have them study or hold hearings on it. There are times when that is 
necessary. But here we have over a quarter of a million filings in 
chapter 13, half of which have been dismissed--a quarter of a million 
in 1 year, millions over a period of years.
  I say the time is now to stop the serial filings, to stop the abuses. 
We need to get rid of this ``abuseberg,'' as referred to by the judge 
from the State of Illinois.
  Madam President, everyone should understand, everyone from the State 
of California, the State of Illinois, Alabama, Iowa, Nevada, and all 
the other States, that when we go home and talk to our small business 
people in townhall meetings, Chamber of Commerce, the Rotary clubs, 
wherever we will run into them, we will have had the opportunity to 
help business people in America because we are stopping abuses that 
take place on a daily basis if we pass this amendment.
  Remember what we are doing. We, with this amendment, are saying you 
can only file bankruptcy petitions under chapter 13 within a 3-year 
period. That is not very draconian. And I say to my friend from 
Alabama, we will probably stop some chapter 13 filings, but that is 
good because half of them are dismissed anyway.
  Remember, when somebody files a chapter 13, there is an automatic 
stay. They pay nothing. And they do not have to pay anything. There can 
be an order entered that they pay 50 cents on a dollar. That person who 
files a bankruptcy can thumb his or her nose at the judge and everybody 
else and not pay a penny. There are no recriminations. Nothing can be 
done. They can ignore the plan that is submitted, the plan that is 
agreed to, and voluntarily dismiss the petition, turn right around 
again and file and get another automatic stay. That is not fair.
  Not only will we perhaps stop some chapter 13 filings, people will 
find they cannot abuse the system as much, but we will stop bankruptcy 
filings in general because people will find they cannot game the 
system. We will stop, if this amendment passes, many more filings.
  Now, let us talk about chapter 7. Chapter 7 proceedings are not all 
that bad if you are somebody that is owed money and you have 
collateral. It is better than a 13 because under chapter 13, if this 
amendment does not pass, it can just keep going and going, and they, as 
I indicated in my statement earlier, Madam President, keep filing these 
petitions and you cannot get your collateral back. Whether it is a 
piece of real estate, a washing machine, a house, whatever it is, you 
cannot get it back. They can just continually file these petitions. At 
least with a chapter 7 there is a discharge, and if you have collateral 
you get to keep that. You are going to get your collateral back.
  So there is nothing really bad about chapter 7 if you are 
collateralized. So let us not make this amendment a battle of lawyers' 
terminology. What does this amendment do? Under the present bankruptcy 
law, a person can file a chapter 13 proceeding any time they want. We 
have had one court here that said the 6-month provision which is 
written in law, that is not even any good. So you can file a proceeding 
tomorrow, 2 months from now, 2 months from then.
  What I am saying and what this amendment is saying is that you should 
only be able to file every 3 years. That is not draconian. As I have 
indicated, there is provision within the law, if there is some personal 
tragedy in the life of the person who is under chapter 13--death of a 
spouse, house burning down--there is provision in the law now under 
60(b) as incorporated under the Federal Bankruptcy Act that you can ask 
for special relief. That is fair. That is reasonable.
  If there were ever a probusiness amendment in the 200-plus years this 
Senate has been part of this great Government, if there were ever an 
opportunity to protect business, this is it. I repeat, anyone going 
home and meeting with small business people, I respectfully suggest, 
who does not vote for this amendment is voting against small business 
people's ability to have their bills collected.
  Now, I also believe that we have lost sight of one thing, and that is 
when you incur a debt you should pay it. I wish to give all the relief 
I can to people who find themselves--and I mentioned that in my opening 
statement--with a problem, and that is why we have bankruptcy laws. But 
how much do we have to bend over backwards to protect those people who 
are willing to abuse the system?
  Can we not look out for people who are willing to put their sweat and 
their blood into a business and they extend credit to someone, they 
sell them something, and that is collateralized and they cannot get it 
back. Should we not be concerned about them a little bit? I am saying 
my amendment will help. It will stop serial filings. It will stop 
people who want to abuse the system, and those who find themselves in a 
real emergency--and it will be extremely rare; last year, 1992, the 
last year for which we have records, 265,601 people filed under chapter 
13. There will be a few people under that who might need to comply with 
rule 9024 of the bankruptcy code and they can have relief if in fact 
something goes wrong--as I indicated, a home burns down or something 
happens.
  This is a probusiness amendment. This amendment is bipartisan. 
Republicans support it, and Democrats. The administration supports the 
amendment. So I think we should just buy down on this and protect the 
business community of America for a change.
  I ask for the yeas and nays on this amendment.
  It is my understanding, I say to my friend from Alabama, that 
leadership does not want to vote right away, and so I ask for the yeas 
and nays and it can be set at whatever time the managers or the 
leadership would decide. But I would ask for the yeas and nays on this 
amendment.
  The PRESIDING OFFICER. Is there a sufficient second?
  There appears to be.
  The yeas and nays were ordered.
  Mr. HEFLIN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Alabama.
  Mr. HEFLIN. Madam President, I want to spend a moment to comment on 
Senator Reid's amendment to section 109 to bar refiling of any chapter 
13 within 3 years.
  Most chapter 13 plans now only last 3 years. A 3-year bar would 
harshly single out chapter 13 for treatment not found anywhere else in 
the code. The result of this amendment is that chapter 13's will be 
discouraged, even though this is widely regarded to be favored by 
creditors, who receive a greater percentage of repayment, and by 
debtors who sincerely wish to repay obligations. This proposal is 
inconsistent with Congress' stated policy to promote chapter 13 as an 
alternative to chapter 7 for individual consumer debtors.
  The proposed amendment is not proportional to the perceived need, in 
that the bankruptcy courts already have broad authority to act to 
dismiss repetitive, bad faith filings by consumer debtors; courts are 
using this authority already. In addition, there are already remedies 
in current section 109--109(g)(1) bars refiling within 180 days where 
the case was dismissed by the court for the debtor's willful failure to 
abide by orders of the court, or to appear before the court in proper 
prosecution of the case. Section 109(g)(2) bars refiling for 180 days 
where the debtor requested a dismissal following a creditor's filing of 
motion to lift the automatic stay. These provisions appear to be 
adequate to deal with abuses.
  This amendment would also propose a hardship on honest debtors 
because it is inflexible, and fails to take into account the personal 
situations of consumer debtors. For example, a debtor who lost a job 
after filing and confirming a chapter 13 plan typically has the case 
dismissed for failure to make payments. Under this proposed amendment, 
the debtor would not be able to refile and make renewed payments under 
a plan if he later gained new employment.
  Similarly, a debtor who, post confirmation, suffered unanticipated 
family expenses, for example, a child or family member becomes 
seriously ill without adequate insurance, may not be able to service 
the plan payments and have the case dismissed. Now, the case can be 
refiled and payments resumed when the financial picture improves. Under 
the proposed amendment, this is not an option.
  Finally, the proposed amendment would not help creditors obtain 
repayment because in the situations described above, creditors would 
not be able to receive payment pursuant to the plan, even when the 
debtor is willing and able to repay.
  For these reasons, I am opposed to this amendment.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                          Chapter 13 Refiling

       We are advised that Senator Harry Reid of Nevada may offer 
     an amendment to the Omnibus Bankruptcy Bill which would amend 
     section 109 of the Bankruptcy Code to add the following new 
     subsection:
       (h) Notwithstanding any other provision of the section, no 
     individual may be a debtor under chapter 13 who has been a 
     debtor in a case pending under that chapter at any time in 
     the preceding three years.
       The following points should be considered in weighing the 
     amendment:
       Although creditors receive an estimated $1.5 billion a year 
     in payments through chapter 13 plans, the proposed amendment 
     would discourage chapter 13 filings. Former chapter 13 
     debtors could still file chapter 7 liquidation cases within 
     the three-year period. Unsecured creditors generally receive 
     little or nothing in consumer chapter 7 cases.
       The proposed amendment does not distinguish between former 
     chapter 13 debtors who completed their plan payments, those 
     who made some payments, and those who did not make any 
     payments.
       The period during which former chapter 13 debtors would be 
     barred from refiling under that chapter is six times longer 
     than the 180-day prohibition on refiling set out in existing 
     subsection 109(g). Furthermore, the proposed amendment covers 
     all former chapter 13 debtors, not just the potentially 
     abusive former debtors targeted by the existing statute. 
     Section 109(g) is limited to dismissals by the court for 
     willful failure to abide by court orders or to appear for 
     hearings, and to voluntary dismissals after a creditor has 
     filed a motion for relief from the automatic stay.
  Let me just briefly say, and I will bring this to a close since 
Senator Moseley-Braun has been a good while waiting here to do some 
other things, the matter of repetitive filings is an issue, and I think 
in order to handle it a national Bankruptcy Review Commission is the 
proper forum to give that consideration.
  This amendment has come up recently, and we have not had time to 
consider all of the ramifications that might take place, and it is a 
complex issue.
  I quoted awhile ago about the law of physics, and now I have had 
given to me by very able staff people the exact quote, that Isaac's 
third law of motion is that ``force always comes in pairs. For every 
force there corresponds an equal force in the opposite direction. This 
is sometimes called the law of action and reaction.'' And the source 
for that is the Encyclopedia Americana, so I wanted to be able to 
correct what I said before. It is really Newton's third law of motion.
  Madam President, I ask unanimous consent that the Reid amendment 1637 
be laid aside until 5:30 p.m. today, and that at 5:30 p.m., without 
intervening action, the Senate proceed to vote on or in relation to the 
amendment, with no second degree amendments in order to the Reid 
amendment 1637.
  The PRESIDING OFFICER. Is there objection? The Chair hears none, and 
it is so ordered.
  Mr. REID addressed the Chair.
  The PRESIDING OFFICER. The Senator from Nevada.
  Mr. REID. Madam President, I have just a minute or two, and then and 
I will go back to my office until 5:30.
  I would say again, in reply to my friend from Alabama, for whom we 
all have the greatest respect--there is no one in this Chamber to whom 
we look more for leadership on matters relating to judicial affairs 
than we do Judge Heflin.
  So I have the greatest respect for him. However, I would say let us 
switch the burden. If in fact there is something wrong with this 
amendment--which I do not think there is; I think it has been clearly 
illustrated why it would help the business community of America and not 
help any one person that wants to file bankruptcy--let the Bankruptcy 
Review Commission look at this amendment after it passes rather than 
reversing it, and saying let us see if there is a better way can we do 
it. This is the best way to stop serial filings. Right now there is no 
way to stop serial filings. This would stop it.
  Mr. GRAHAM. Section 214 of this bill addresses cases that turn upon 
issues involving guarantees and who may be considered an ``insider'' 
under the Bankruptcy Code. It is my understanding that the Deprizio 
decision, which changed the understanding of bankruptcy law by 
expanding the definition of ``insider'', has been applied to lenders 
retroactively, even though the challenged transactions were made before 
Deprizio was decided. In fact, it is my understanding that the 
interpretation of the Bankruptcy Code by those courts which follow 
Deprizio permits a Trustee in Bankruptcy to recover from a lender who 
is innocent of wrongdoing and deserving of protection, merely because 
he sought a guarantee for the debt.
  Mr. HEFLIN. The Senator is correct in his understanding. Section 214 
of the bill is intended to legislatively overturn Deprizio. We do not 
believe that the Deprizio decision correctly interprets what the 
congressional intent was when the Bankruptcy Code was enacted in 1978. 
Section 214 of this bill is intended to return the status and 
understanding of law to that which predated the Deprizio decision.
  Mr. GRAHAM. Section 602 of this bill states that the change in the 
Bankruptcy Code shall only apply to cases which are filed after the 
date of enactment, thereby eliminating the Deprizio issue from future 
cases. Could this bill also eliminate the Deprizio issue from pending 
cases, if courts considering Deprizio questions chose to follow the 
lead of Congress when interpreting the application of Section 550 of 
the Bankruptcy Code?
  Mr. HEFLIN. Merely because this bill is otherwise to be applied 
prospectively does not reflect continued viability of the Deprizio 
decision. Again, it must be emphasized that the Deprizio decision was 
and is not an accurate reflection of congressional intent.
  Mr. MURKOWSKI: Madam President, I intended to offer an amendment that 
would have addressed a problem that many financial institutions 
currently face in dealing with bankrupt customers.
  Under last year's budget reconciliation bill, Congress required all 
financial institutions to report to IRS discharges of indebtness in 
excess of $600. This information reporting requirement applies even if 
the debtor is not subject to tax on the discharged debt. This 
information reporting requirement places a very high on cost on 
financial institutions and will most likely result in a flood of 
useless information being reported to the IRS.
  IRS has interpreted the law to require financial institutions to file 
such information returns when debts are discharged in bankruptcy even 
though it is the bankruptcy court, not the financial institution, that 
actually discharges the debt. Unlike other forgiven debts that must be 
included in the debtor's income, debts discharged in bankruptcy in 
almost all cases are not deemed income to the debtor under the tax 
code.
  Madam President, I believe that the appropriate filer on the 
information should be the bankruptcy court system. The courts have all 
the required information concerning the discharge of such debts and 
they have the capacity to consolidate such information into a single 
filing.
  My amendment would have shifted the reporting requirement in 
bankruptcy cases from the financial institutions to the bankruptcy 
courts. However, I have been informed that the House of Representatives 
deems my amendment to be a revenue measure and, as such, cannot 
constitutionally be included in this Senate bill. I will therefore not 
offer my amendment on this time. But I hope that when the House adopts 
a bankruptcy reform bill it will include a provision addressing this 
problem.
  Mr. HEFLIN. Madam President, I am sympathetic to the issue that the 
distinguished Senator from Alaska has raised. Many financial 
institutions in my State have expressed concern about these reporting 
requirements. And the Senator is correct that in nearly all consumer 
bankruptcies the discharged debt will not be deemed income for tax 
purposes.
  I believe the Senator's proposal to require the bankruptcy trustee to 
report this information would be an appropriate solution to this 
problem. And I appreciate the Senator's decision to withdraw his 
amendment. If the House includes such a measure in its bankruptcy bill, 
I would certainly support the measure.
  Mr. MURKOWSKI. I thank the distinguished chairman of the Judiciary 
Committee for his assistance on this important issue.
  Mr. SASSER. Madam President, I would like to engage my distinguished 
colleague, the chairman of the Subcommittee on Courts and 
Administrative Practice in a brief colloquy concerning State laws on 
the timing and perfection of purchase money security interests and how 
they relate to the enabling loan preferential transfer exception found 
in section 547 of the Federal Bankruptcy Code.
  Mr. HEFLIN. Yes, Madam President, I would be happy to do so. First, 
let me point out that under current Federal law a trustee may not avoid 
a transfer that creates a purchase money security interest in property 
acquired by a debtor that is perfected on or before 10 days of the 
debtor receiving possession of the property. The Judiciary Committee 
approved language to extend the Federal time period from 10 to 20 days.
  Mr. SASSER. Yes, Madam President. The changes made by the committee 
will be a significant improvement to Federal bankruptcy law, and will 
provide creditors with sufficient time to perfect their security 
interest. Since the Senate is addressing the purchase money security 
issue, I thought it would be advisable to clarify a related issue that 
has caused unnecessary litigation throughout the country and in my home 
State of Tennessee.
  The issue is whether State laws that allow a longer period of time to 
perfect a lien by allowing the creation of the lien to ``relate back'' 
to an earlier date contravene the Federal Bankruptcy Act. While Federal 
bankruptcy courts have long recognized that State law defines and 
governs the manner and timing of motor vehicle lien perfection, there 
has still been some dispute in the lower courts regarding State 
``relation back'' statutes.
  Under most state motor vehicle title perfection laws, if the 
requisite steps necessary for perfection are completed on a timely 
basis, the date of perfection ``relates back'' to the date the security 
interest was created or attached. These are commonly known as 
``relation back'' laws. For example, Tennessee has a ``relation back'' 
State titling law that allows creditors of motor vehicles 20 days to 
perfect the lien to protect their security interest.
  Although the new change in Federal law to 20 days would protect 
States like Tennessee, there are States that allow longer than 20 days 
to perfect the lien and have ``relation back'' laws that take into 
account each State's consideration of what is commercially reasonable 
and necessary to perfect a motor vehicle lien. For example, the 
documents necessary to perfect used car titles subject to payoff held 
by out-of-state institutions are not readily available. This causes a 
delay in the perfection process.
  These ``relation back'' statutes protect the lien holder since the 
lien holder usually is not responsible for the delay. In addition, a 30 
day ``relation back'' law is the model set out by the Uniform Vehicle 
Code and Model Traffic Ordinance.
  Mr. HEFLIN. The Committee's decision to increase the time period to 
20 days was proposed to conform bankruptcy law practices to most 
State's practices.
  I would like to clarify just one point with the Senator from 
Tennessee, however. That is that while the date of perfection 
is determined by State law, including these ``relation back'' statutes, 
they do not affect the time of transfer pursuant to section 547. Would 
the Senator from Tennessee agree on that point.

  Mr. SASSER. Yes indeed, Madam President. That would be my view also. 
The ``relation back'' provision merely relates to determining when a 
security interest in a motor vehicle is perfected in accordance with 
State law. Clarifying that ``relation back'' statutes are consistent 
with the Federal law does not change the uniformity of the Federal law. 
As the Chairman knows, Federal uniformity is keyed to the date on which 
the debtor receives possession of such property which then activates 
the running of the 20 day-period under section 547.
  Mr. HEFLIN. On this point, I wonder whether the Senator from 
Tennessee could cite any Federal court decisions as persuasive 
authority on this matter.
  Mr. SASSER. It is my understanding, that every appellate circuit that 
has examined this issue has held that State laws that allow the timing 
of perfection to ``relate back'' to an earlier date are consistent with 
and not in conflict with Federal bankruptcy law in general, and section 
547 in particular. I would note for the chairman In Re Basenlehner, 918 
F.2nd 928 (11th Cir. 1990); In Re Hesser, 984 F.2nd 345 (10th Cir. 
1993). The eleventh circuit came to a similar conclusion in the case of 
In Re Howard, 920 F.2nd 887 (11th Cir. 1991).
  I would say to the chairman that my purpose in this discussion is to 
establish that, although there is no statutory language to codify these 
court cases, they are consistent with Federal bankruptcy law.
  Mr. HEFLIN. I would say to my colleague that it is appropriate at 
this time for the Senate to state its intent to confirm the 
interpretations of these circuits.
  Mr. SASSER. I thank the chairman for his courtesy in engaging in this 
discussion and for clarifying this point.
  Mr. GORTON. Madam President, I am pleased to be a cosponsor of the 
bankruptcy reform bill which is before the Senate today. I wanted to 
acknowledge and compliment the chairman of the committee in particular 
for including one provision which is especially important to the 
largest employer in my State, the Boeing Co. This provision is a 
clarification of section 1110 of the Bankruptcy Code.
  Section 1110 of the Bankruptcy Code provides special protections to 
those who finance or lease aircraft. Under these provisions, in the 
event of a bankruptcy, a debtor must within 60 days either agree to 
perform its obligations under the terms of the lease or must allow the 
lendor or lessor to retrieve the aircraft. In other words, if an 
airline goes into bankruptcy, the company that has financed the sale of 
the airlines' leased planes will be able to get the plane back after 60 
days. This is extremely important to both the manufacturers of aircraft 
and the airlines.
  As a member of the National Commission to Ensure a Strong Competitive 
Airline Industry, I strongly supported the clarification of section 
1110. The language included in this bill today will encourage 
traditional aircraft lenders to get back into the marketplace. It will 
result in lower charges to the airlines for financing aircraft as the 
additional risk of the present uncertain situation will be removed. 
Aircraft are great collateral; their value is high and their 
depreciation low. But, in the present situation, airlines are being 
charged a premium only because the financier must cover the unlikely 
situation of a bankruptcy situation where assets, including aircraft, 
are frozen. This provision removes that risk. The result will be lower 
costs to the airlines. Instead of using their cash to pay extra premium 
costs, their funds will be freed up to get on with the purchase of new 
aircraft. This provision is good for the airlines, good for Boeing, and 
most especially good for many thousands of workers and their families 
in Puget Sound.


                    sbic bankruptcy reform provision

  Mr. BUMPERS. Madam President, I rise in support of S. 540, the 
Bankruptcy Reform bill, and ask that the following remarks pertaining 
to section 208 of the bill be included in the Record.
  A few years ago, some failing SBIC's discovered they could thwart the 
Small Business Administration's [SBA] efforts at recovery by using the 
bankruptcy code and filing under chapter 11 as a debtor in possession. 
This allowed the failed or failing SBIC management to continue to run 
the company and receive salaries, often at levels well above the amount 
the SBA would have approved, and to pay significant amounts for 
attorneys, accountants and other services.
  In an infamous case in 1989 called River Capital Corp., the 
Bankruptcy Court for the Eastern District of Virginia discharged the 
SBIC debtor from paying $35 million in principal and interest to the 
Government. Several other large bankruptcy filings soon followed. Under 
an SBA receivership, which was the traditional method of liquidating 
failed SBIC's, millions of dollars lost in bankruptcy could have been 
used instead to repay SBA and taxpayers. River Capital and other 
outrageous cases were among the issues examined in a series of hearings 
held by the Senate Small Business Committee beginning May 9, 1990.
  Fifteen SBIC's have obtained protection under chapter 11 of the 
Bankruptcy Code over the last 4 years. SBA had provided over $125 
million in leverage to these SBIC's. If SBA had been appointed receiver 
or obtained an alternative liquidation in such cases, it would have had 
an infinitely better chance to recover at least part of these funds.
  An SBIC's ability to avail itself of the use of the Bankruptcy Code 
has proven extremely detrimental to the liquidation and collection 
efforts of the Small Business Administration.
  As a subordinated and unsecured creditor, SBA's ability to recover on 
a failed SBIC's indebtedness is compromised when an SBIC avails itself 
of the bankruptcy provisions of the Bankruptcy Code; the indebtedness 
to SBA is paid only if funds are left over after other, secured 
creditors are paid and fees are paid to management.
  Prohibiting SBIC's from seeking bankruptcy protection, as this bill 
does, would result in greater savings for the SBA and the taxpayer 
because administrative costs associated with bankruptcy proceedings are 
higher than the costs associated with SBA receivership proceedings.
  As receiver, the SBA is able to investigate thoroughly the SBIC 
operation and remove management if they are incompetent, self-
interested or dishonest. Bankruptcy proceedings allow failed SBIC's to 
continue to pay their managers handsomely and to speculate with 
Government money.
  There is precedent for this proposal: Congress has seen fit to deny 
the use of the bankruptcy code to other entities which have Government 
backing or for which there exists a sufficient public policy reason, 
including railroads, banks, savings and loan associations, credit 
unions, and insurance companies. SBIC's are closely regulated entities 
which would not exist without the support provided by SBA.
  Companies like SBIC's and those listed above--railroads, savings and 
loan associations, credit unions, and insurance companies--which 
receive Federal financial assistance, should forgo the ability to seek 
bankruptcy in return for receiving Federal financial assistance.
  This provision is strongly supported by SBA Administrator Erskine 
Bowles and by the Clinton administration, just as it was by the Bush 
administration when this bill was last considered by the Senate. I 
strongly commend Senator Heflin and the Judiciary Committee for 
including this provision in this Bankruptcy Reform bill and I urge my 
colleagues to support it.
  I ask unanimous consent that the attached articles from the Wall 
Street Journal February 22, 1994, be printed in the Record.
       There being no objection, the material was ordered to be 
     printed in the Record, as follows:

             [From the Wall Street Journal, Feb. 22, 1994]

  Agency Demands Restrictions on SBIC Bankruptices--Quick Chapter 11 
           Filings Now Force Government To Swallow Big Debts

                          (By Jeanne Saddler)

       Washington--The Small Business Administration is moving to 
     curb abuses in its venture-capital program. But it wants more 
     help from Congress.
       SBA officials say they will press lawmakers to pass 
     legislation to bar failing small business investment 
     companies, or SBICs, from escaping debts owed to the 
     government by declaring bankruptcy. ``We want Congress to act 
     because we've found ourselves waiting at the gate too many 
     times when licensees rushed to bankruptcy court,'' Robert 
     Stillman, the SBA's new associate administrator for 
     investment, said in an interview.
       The Senate plans to consider legislation this year to close 
     the bankruptcy loophole, but so far there isn't any matching 
     bill in the House. Meanwhile, SBA officials say, the agency 
     plans to begin a revamped SBIC program, including closer 
     scrutiny of applicants, under reforms passed by Congress in 
     1992. The reforms had been delayed because of the impasse 
     over the bankruptcy legislation.
       Under the SBIC program, privately owned firms use a 
     combination of federally guaranteed debt and private capital 
     to help finance small businesses. Problems arose in the 
     program in the late 1980s when scores of SBICs failed because 
     of the recession and poor management. Although the SBA sold 
     companies' remaining assets, taxpayers were left holding the 
     bag for hundreds of millions of dollars of failed SBIC 
     investment, leading Congress to pass a program reform law in 
     1992.
       But in 14 of the cases, fast-moving entrepreneurs filed for 
     bankruptcy before the SBA could claim any assets. Because the 
     government is a subordinate debtor according to the law that 
     established the program, more than $70 million of federal 
     debt owed by the investment firms is likely to be wiped out. 
     In one of the most serious cases, River Capital Corp. of 
     Springfield, Va., spent $28 million in government funds on 
     bad investments and filed for reorganization under Chapter 11 
     of the Bankruptcy Code. The court eliminated its debt.
       The Senate passed legislation last year to bar SBICs from 
     seeking bankruptcy protection from government debts, but a 
     companion measure died in the House. Sen. Dale Bumpers, the 
     Arkansas Democrat who heads the Small Business Committee, 
     says he plans to try again to pass the bill. But the outlook 
     is uncertain in the House, where legislation last year failed 
     to win the backing of Rep. Jack Brooks, the House Judiciary 
     Committee chairman.
       Congressional aides won't speculate on why the provision 
     didn't pass muster with Mr. Brooks or whether he will back a 
     measure this year. But other industry and government 
     officials believe the Texas Democrat may propose and back the 
     bankruptcy ban this year because the ban would technically 
     add a bit of revenue to the federal budget.
       Regardless of how the legislative differences are worked 
     out, the SBA is now preparing to upgrade standards for 
     licensing SBIC applicants. ``We're going to license very 
     hard,'' SBA Administrator Erskine Bowles said in an 
     interview. ``We'll only license highly experienced venture 
     capitalists, and we'll make sure those people bring enough 
     private capital into the companies.''
       A new licensing unit in the SBA's investment division will 
     be responsible for the more intense scrutiny of applicants. 
     The agency already has received preliminary applications for 
     the reformed SBIC program, but Mr. Stillman said he is 
     returning them until the final regulations are published so 
     applicants can carefully scrutinize the new rules.
       In a speech to a group of SBIC executives earlier this 
     month, Mr. Stillman, who spent more than 30 years as a 
     principal with Wall Street investment firms, said that 
     quality of management will be a key to an SBIC's future 
     success. ``I like to say I've only made one mistake in my 
     entire career, and that was the serious one of sometimes 
     investing in the wrong people,'' he added in the interview.
       Under the reforms passed by Congress in 1992, the SBIC 
     program is now attracting increased interest because of a 
     change in how the federal support is structured. In the 
     original program, created in 1958 to encourage financial 
     backing for high-risk ventures, investment companies got 
     government funds through debentures which, like loans, 
     require regular interest payments. Thus, the licensees often 
     borrowed additional money to make interest payments while 
     waiting for their basic investments to mature. Venture-
     capital investments typically take years to produce dividends 
     or profits for their financial backers.
       The new program will allow investors to use a new debt 
     instrument called a participating security that some believe 
     is better suited to long-term investments. The government, 
     through the SBA, will hold a participating-security interest 
     in the SBICs. That means the government won't be repaid until 
     the investment company has retained earnings from its 
     investments and is paying dividends to all its investors. 
     Uncle Sam will also get a small share of profits from the 
     SBIC's investments.
       Fixing the SBIC program's remaining problems has taken on 
     new importance. As reported, the Clinton administration's 
     proposed budget for fiscal year 1995, which begins next Oct. 
     1, would more than double the loan funds available to the 
     investment firms.
       The SBA expects to license about 200 new SBICs, raising the 
     total to 480 from 280 currently, with a combined total of 
     private investment capital of $2.3 billion. Because those 
     companies can gain double their private capital in government 
     investment funds, Mr. Stillman said the companies will have 
     access to about $4.5 billion in government investment 
     dollars.
       That nearly $7 billion in new venture-capital money 
     available in fiscal 1995 would be in addition to the $3 
     billion now in the program, meaning the total capital 
     available through the program would jump to $10 billion from 
     $3 billion.
                                  ____


             [From the Wall Street Journal, Feb. 15, 1994]

              How To Lose Federal Millions and Owe Nothing

                        (By John R. Emshwiller)

       A loophole in a federal small-business lending program 
     helped an entrepreneur named Peter Van Oosterhout to charge 
     American taxpayers $28 million for his own bad investments, 
     regulators say.
       Mr. Van Oosterhout, 62 years old, was also able to use some 
     of this money to invest in a tiny Salt Lake City company 
     whose stock price has soared, even as it has been losing 
     money.
       Mr. Van Oosterhout got the major part of his investment 
     funds from the Small Business Investment Company program, in 
     which privately owned firms, known as SBICs, use a 
     combination of federally guaranteed debt and private capital 
     to help finance small businesses. Currently, some 280 SBICs 
     have about $850 million in government-backed debt--as well as 
     $2.3 billion in private funds.
       The SBIC program was created by Congress in 1958 as a way 
     to help promote the growth of small businesses. To get SBIC 
     status, investment firms have to apply to the Small Business 
     Administration, which oversees the program. SBICs have helped 
     hundreds of small businesses grow and prosper, including 
     Apple Computer Inc. and Federal Express Corp.
       The problem is that during the 1980s, when making risky 
     investments was commonplace, hundreds of investments went 
     sour, dozens of SBICs sank and taxpayers were left footing a 
     bill that has been estimated at several hundred million 
     dollars. The SBA has had to go to court in recent years to 
     seize control of some six dozen failing SBICs in order to 
     sell assets and try to recover at least some of the 
     taxpayers' money.
       Probably no single case better exemplifies the abuses in 
     the program, say SBA officials, than that of Mr. Van 
     Oosterhout and his SBIC, River Capital Corp., of which he is 
     president and has been a major owner, regulators say.
       Mr. Van Oosterhout had been a leading figure in the SBIC 
     industry even before he became president and part owner of 
     River Capital. In 1983, he was chairman of the National 
     Association of Small Business Investment Companies. He helped 
     establish River Capital, based in Springfield, Va., a few 
     years later, and with about $7 million in private funds and 
     $28 million from the government, he developed it into one of 
     the country's biggest SBICs, financing dozens of companies.
       The SBA wasn't able to recover any taxpayer dollars in the 
     case of River Capital. Before it could seize control of the 
     foundering firm, River Capital filed for protection under 
     Chapter 11 of the federal Bankruptcy Code in 1989.
       And there, regulators say, is the loophole. Congress 
     designed the SBIC program to make the government a 
     subordinate debtor. So in bankruptcy reorganization 
     proceedings, the debts owed to the government can be canceled 
     if the court finds there isn't enough money to pay off all 
     the creditors.
       The availability of bankruptcy offers a ``sweet situation 
     for the SBIC owner'' in which the ``government becomes the 
     convenient fall guy,'' says Martin Teckler, deputy general 
     counsel for the SBA. ``It is a big problem.''
       Bankruptcy court eliminated River Capital's $28 million 
     federal debt. Fourteen other SBICs have also filed for 
     bankruptcy in the past several years, SBA officials say. 
     Including River Capital, more than $70 million of federal 
     obligations have been or are expected to be wiped out, says 
     Mr. Teckler.
       Federal officials say they believe fraud kept them from 
     seeing the SBIC's problems sooner. Mr. Van Oosterhout is 
     facing criminal charges in a Cleveland federal court on 
     fraud, conspiracy and extortion charges stemming from his 
     operation of River Capital. His trial is expected to begin 
     sometime this year.
       Mr. Van Oosterhout has pleaded not guilty to the charges. 
     Neither he nor his attorney returned phone calls seeking 
     comment.
       The indictment charges him with being part of a ``scheme to 
     misrepresent'' the financial health of River Capital and its 
     investment portfolio in order to keep federal money flowing. 
     For instance, two of the portfolio companies allegedly 
     claimed equipment that they didn't actually own.
       Along with three others, Mr. Van Oosterhout also allegedly 
     tried to extort money from a businessman who supposedly was 
     in debt to one of them. The four are charged with setting 
     fire to the businessman's car and threatening his wife, 
     according to the indictment.
       River Capital is still in business, though it is no longer 
     in the SBIC program. The company emerged from bankruptcy in 
     1991, still in possession of some of its federally backed 
     investments.
       One of those investments has turned into a winner. For a $1 
     million investment, starting in the early 1980s, River 
     Capital's predecessor, which Mr. Van Oosterhout helped 
     operate, picked up about 1.7 million shares of Alanco 
     Environmental Resources Corp., a Salt Lake City company that 
     owns some dormant mines and manufactures pollution-control 
     equipment. Mr. Van Oosterhout has been an Alanco director 
     since 1983.
       Over the past 20 months, River Capital has sold more than 
     one million Alanco shares, according to Alanco filings with 
     the Securities and Exchange Commission. The filings didn't 
     reveal what prices River Capital received for its stock, but 
     it paid about 63 cents a share. In that period, Alanco traded 
     in a range of about 63 cents a share to about $6. Recently, 
     the stock has hovered around $5.
       A woman who answered the phone at River Capital's office 
     said all questions would have to be directed to Mr. Van 
     Oosterhout.
       Alanco's stock-market performance contracts sharply with 
     its financial performance. With 19.4 million shares 
     outstanding, its market value has surged to about $90 
     million, more than a threefold increase in the past year. 
     Yet, in the past four years, the company has reported 
     accumulated losses of $8 million, including a $4.1 million 
     loss for fiscal 1993, ended June 30. Revenues for that year 
     were just $10,987.
       Alanco, however, has produced a steady stream of upbeat 
     press releases--particularly concerning various pollution-
     control deals in China, including one ``potential 
     multibillion dollar'' contract.
       Alanco has also announced a series of financing 
     arrangements over recent years, many of which never came to 
     pass. And one that did-- a $72 million credit line--was 
     arranged by one Mario Renda through a New York City firm 
     called Financial Security Corp.
       In the early 1980s, Mr. Renda was a deposit broker who 
     placed billions of dollars of deposits in thrifts and banks 
     around the U.S. He was convicted or pleaded guilty in 1987 in 
     three different courts to crimes ranging from bank fraud to 
     racketeering to tax evasion. Prosecutors and investigators 
     contended that Mr. Renda's crimes contributed to the demise 
     of several dozen thrifts and banks, partly by arranging for 
     fraudulent loans.
       Brent Dyer, Financial Security's president, didn't return 
     repeated phone calls. A woman answering the phone at 
     Financial Security identified Mr. Renda as a vice president 
     of the company. Mr. Renda denies the title but admits he was, 
     for a time in 1992, Alanco's marketing director. An Alanco 
     spokesman says the SEC has been investigating the company's 
     announcements but that the company has done nothing wrong. 
     SEC officials decline to comment.
       The SBA has been urging Congress to bar SBICs from seeking 
     bankruptcy protection. A bankruptcy reform bill containing 
     such a measure, passed the Senate last year but died in the 
     House of Representatives.
       Though the SBA has charged its SBIC regulations to give it 
     more protection against bankruptcy losses, the agency still 
     believes congressional action is necessary, says Mr. Teckler, 
     the SBA's deputy general counsel. Otherwise, SBICs could 
     continue to ``stick it to the government,'' Mr. Teckler says.

    Bankruptcy filings--selected small business investment company 
                    filings--SBA leverage at filing

                                                               Millions
River Capital....................................................$28.50
First Connecting SBIC.............................................27.95
Capital Marketing.................................................24.35
Questech Capital..................................................12.00
Unicorn Ventures II................................................6.70
Unicorn Ventures...................................................6.00
Continental Investors..............................................5,00
Diamond Capital....................................................4.00
Washington Ventures................................................3.25
Avdon Capital......................................................3.00

Source: Small Business Administration.

  Mr. GORTON. Madam President, I am pleased to rise today to express my 
support for the Bankruptcy Amendments Act of 1993. I am a cosponsor of 
this legislation, which serves as a long awaited reform of the Nation's 
outdated bankruptcy law. It is an attempt to streamline the prevailing 
system and to enhance the effectiveness of the Bankruptcy Code adopted 
in 1978.
  The compelling need for bankruptcy reform was highlighted last year 
in hearings held by the Judiciary Committee. These hearings brought to 
light the fact that in 1992 alone, over 1 million bankruptcy cases were 
filed, a new record. Even as the economy improves, there are likely to 
be increasing numbers of bankruptcies for the foreseeable future, 
because individual debt loads continue to remain at high levels.
  With this significant rise in the number of bankruptcies being filed, 
cases are backing up in our Nations courts, increasing the time 
necessary for individuals and firms to get back on their feet and again 
contribute to the Nation's economy. It is precisely this slowing effect 
on our economy that S. 540 is designed to correct.
  I commend the chairman of the committee and the Senators who worked 
on this legislation for drafting this bill and its encompassing 
provisions which, I believe, will improve the current laws governing 
bankruptcy and help get the economy moving again. A streamlining of the 
Nation's bankruptcy system is long overdue and, if enacted, will be of 
benefit to every American.
  The major provisions of this bill, together serve to improve the 
bankruptcy system which has been in place for 16 years. One of the most 
important sections of S. 540 would establish a new National Bankruptcy 
Review Commission to study the effectiveness of the current bankruptcy 
procedure and report on policy improvements. The bill also contains a 
number of specific measures directed at problems in the existing code 
and new ideas which will serve to expedite the bankruptcy process.
  I urge my colleagues to join me today in support of the Bankruptcy 
Amendments Act of 1993. All Americans have an important stake in 
ensuring that our Nation's bankruptcy procedures operate efficiently 
and fairly so that individuals and corporations seeking bankruptcy 
protection may complete the process sooner and continue to contribute 
to our Nation's economic vitality. I believe that S. 540 is an 
important step in that direction.
  Ms. MOSELEY-BRAUN addressed the Chair.
  The PRESIDING OFFICER. The Senator from Illinois.


                           ORDER OF PROCEDURE

  Ms. MOSELEY-BRAUN. Madam President, I ask unanimous consent to 
proceed as if in morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Ms. MOSELEY-BRAUN. Thank you, Madam President.

                          ____________________