[Congressional Record Volume 143, Number 41 (Wednesday, April 9, 1997)]
[Senate]
[Pages S2903-S2904]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KOHL:
  S. 530. A bill to amend title 11, United States Code, to limit the 
value of certain real and personal property that a debtor may elect to 
exempt under State or local law, and for other purposes; to the 
Committee on the Judiciary.


                the BANKRUPTCY ABUSE REFORM ACT OF 1997

  Mr. KOHL. Mr. President, I rise today to introduce the Bankruptcy 
Abuse Reform Act of 1997, legislation which addresses a serious problem 
that threatens Americans' confidence in our bankruptcy laws. The 
measure would cap at $100,000 the State homestead exemption that an 
individual filing for personal bankruptcy can claim. It passed the 
Senate last term when it was included into the Bankruptcy Technical 
Corrections Act (S. 1559), and I hope that we can all support this 
measure again this year. The goal of our measure is simple but vitally 
important: to make sure that our Bankruptcy Code is more than just a 
beachball for crooked millionaires who want to hide their assets.
  Let me tell you why this legislation is critically needed. In chapter 
7 Federal personal bankruptcy proceedings, the debtor is allowed to 
exempt certain possessions and interests from being used to satisfy his 
outstanding debts. One of the chief things that a debtor seeks to 
protect is his home, and I agree with that in principle. Few question 
that debtors should be able to keep the roofs over their heads. But, in 
practice, this homestead exemption has become a source of abuse.
  Under section 522 of the Code, a debtor may opt to exempt his home 
according to local, State, or Federal bankruptcy provisions. The 
Federal exemption allows the debtor to shield up to $15,000 of value in 
his house. The State exemptions vary tremendously: some States do not 
allow the debtor to exempt any of his home's value, while eight States 
set no ceiling and allow an unlimited exemption. The vast majority of 
States have exemptions under $40,000.
  My amendment under section 522 would cap State exemptions so that no 
debtor could ever exempt more than $100,000 of the value of his home.
  Mr. President, in the last few years, the ability of debtors to use 
State homestead exemptions has led to flagrant abuses of the Bankruptcy 
Code. Multimillionaire debtors have moved to one of the eight States 
that have unlimited exemptions--most often Florida or Texas--bought 
multi-million-dollar houses, and continued to live like kings even 
after declaring bankruptcy. This shameless manipulation of the 
Bankruptcy Code cheats creditors out of compensation and rewards only 
those who can game the system. Oftentimes, the creditor who is robbed 
is the American taxpayer. In recent years, S&L swindlers, insider 
trading convicts, and other shady characters have managed to protect 
their ill-gotten gains through this loophole.
  One infamous S&L banker with more than $4 billion in claims against 
him bought a multi-million-dollar horse ranch in Florida. Another man 
who pled guilty to insider trading abuses lives in a 7,000-square-foot 
beachfront home worth $3.25 million--all tucked away from the $2.75 
billion in suits against him. We read even now about the possibility 
that O.J. Simpson may seek to avoid the civil suit judgment against him 
buying a lavish home in Florida, a State with an unlimited exemption, 
and declaring bankruptcy to avoid paying his multimillion-dollar 
obligations. These deadbeats get wealthier while legitimate creditors--
including the U.S. Government--get the short end of the stick.

  Simply put, the current practice is grossly unfair and contravenes 
the intent of our laws: People are supposed to get a fresh start, not a 
head start, under the Bankruptcy Code.
  In addition, these unlimited homestead exemptions have made it 
increasingly difficult for the Federal Deposit Insurance Corporation 
and the Resolution Trust Corporation to go after S&L crooks. With the 
S&L crisis costing us billions of dollars and with a deficit that still 
remains unacceptably high, we owe it to the taxpayers to make it as 
hard as possible for those responsible for fraud to profit from their 
wrongs.
  Mr. President, the legislation that I have introduced today is 
simple, effective, and straightforward. It caps the homestead exemption 
at $100,000, which is close to the average price of an

[[Page S2904]]

American house. And it will protect middle class Americans while 
preventing the abuses that are making the American middle class 
question the integrity of our laws--the abuses the average American 
taxpayer is paying for out of pocket.
  Indeed, it is even generous to debtors. Other than the eight States 
that have no limit to the homestead exemption, no State has a homestead 
exemption exceeding $100,000. In fact, 38 States have exemptions of 
$40,000 or less. My own home State of Wisconsin has a $40,000 exemption 
and that, in my opinion, is more than sufficient.
  Mr. President, this proposal is an effort to make our bankruptcy laws 
more equitable. I urge my colleagues to support this important measure.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                 S. 530

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Bankruptcy Abuse Reform Act 
     of 1997''.

     SEC. 2. LIMITATION.

       Section 522 of title 11, United States Code, is amended--
       (1) in subsection (b)(2)(A), by inserting ``subject to 
     subsection (n),'' before ``any property''; and
       (2) by adding at the end the following new subsection:
       ``(n) As a result of electing under subsection (b)(2)(A) to 
     exempt property under State or local law, a debtor may not 
     exempt an aggregate interest that exceeds $100,000 in value 
     in--
       ``(1) real or personal property that the debtor or a 
     dependent of the debtor uses as a residence;
       ``(2) a cooperative that owns property that the debtor or a 
     dependent of the debtor uses as a residence; or
       ``(3) a burial plot for the debtor or a dependent of the 
     debtor.''.
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