[Congressional Record Volume 143, Number 123 (Tuesday, September 16, 1997)]
[Senate]
[Pages S9406-S9407]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           THEMES FOR BANKRUPTCY REFORM IN THE 105TH CONGRESS

  Mr. GRASSLEY. Mr. President, I rise today to address an important 
topic which will be coming before the Senate in the near future. In 
1994, Congress created the Bankruptcy Review Commission and charged 
this Commission with developing suggestions for changing the bankruptcy 
code. As the ranking member of the subcommittee with jurisdiction over 
bankruptcy at that time, I assisted in creating the Commission, When I 
became the chairman of the subcommittee after the 1994 elections, I 
fought to ensure that the Commission was funded. The Commission's 
report is due on October 20, 1997. I will have much to say at that time 
about the Bankruptcy Review Commission and the way in which it was 
conducted. As some of my colleagues may know, there have been some 
troubling instances that have come to my attention regarding the way 
the Commission has operated.
  For now, however, I simply want to outline my views on the substance 
of bankruptcy reform.
  I believe that the current bankruptcy system needs to be fixed in 
several ways. Under current law, it is just too easy to declare 
bankruptcy. And it is too easy for people who declare bankruptcy to 
avoid repaying their debts when they have the ability to do so. Of 
course, decades of irresponsible and runaway spending by Washington has 
set a bad example for the American people, so Congress bears some of 
the responsibility for this new attitude of deficit living that seems 
to push many Americans into bankruptcy.
  With record numbers of personal bankruptcies in this country, 
American businesses are losing millions of dollars a year to 
bankruptcy. And this results in higher prices for homes, cars and other 
consumer goods for those Americans who pay their bills on time, and as 
agreed. In other words, those of us who play by the rules are picking 
up the tab for those who don't.
  I think that Congress needs to tighten the bankruptcy system so that 
bankruptcy is reserved for only those Americans who really need the 
extraordinary protections of the bankruptcy code. At the same time, I'm 
very aware that creditors can sometimes use abusive tactics. In fact, 
Sears was recently forced to pay a multi-million dollar settlement for 
engaging In abusive activity. So, in my opinion, bankruptcy reform 
which will help creditors get more of what they are owed should also 
include reforms to enhance protections for debtors from harsh or 
abusive conduct.

  Section 707(b) is one example of a situation where the bankruptcy 
code sends the wrong signal to the American people and may encourage 
irresponsible conduct. Section 707(b) allows a bankruptcy judge to 
dismiss a chapter 7 case only to prevent substantial abuse. In other 
words, Section 707(b) says that it's OK to abuse the bankruptcy system 
somewhat, so long as you don't abuse it so much that the abuse becomes 
substantial. I think we in Congress ought to change this to say that 
debtors can't abuse the bankruptcy system at all. The consideration of 
Section 707(b) will be very important when Congress considers reforms 
in the context of consumer bankruptcy.
  I also believe that chapter 11 of the bankruptcy code needs 
fundamental reform. In hearings before my subcommittee on how 
bankruptcy disrupts funding for education, I learned that many 
businesses which attempt to re-organize flounder for too long, thereby 
deleting the assets of the company. That's less money for creditors and 
employees of the company. I think that this should change. The 
Bankruptcy Review Commission has adopted a proposal to speed things up 
for small businesses in chapter 11 cases. I look forward to supporting 
that proposal in the next session of Congress.
  I believe that Congress needs to look long and hard at the way 
attorneys are compensated in bankruptcy. It seems to me, from the 
reports I receive from around the country, that attorneys are using up 
the assets of the bankruptcy estate without really contributing very 
much. And attorney's fees are paid ahead of--and at the expense of--
schools, workers and children entitled to child support. I think that's 
something we need to change. I'm a little disappointed that the Review 
Commission did not really get into this issue, but it is something that 
I will be pursuing in the bankruptcy reform bill.
  Another area which needs attention is the effect of the new global 
economy on bankruptcy. With the increase in international trade, many 
complex questions arise when a multinational company declares 
bankruptcy. Right now, international insolvency is an issue where there 
isn't very much international cooperation. The United Nations recently 
approved a model law on international insolvency and bankruptcy and I 
look forward to considering that model law in the coming year. In the 
United States, we put a great deal of emphasis on reorganizing 
companies under chapter 11. Chapter 11 protects jobs and creditors. But 
other nations don't put such an emphasis on reorganization. So these 
foreign nations sometimes aren't as respectful of our bankruptcy laws 
as they should be. Of course, the United States has exercised a 
leadership role in the area of international bankruptcies for many 
years through section 304 of the Bankruptcy Code which recognizes the 
validity of foreign bankruptcies. It is time to take the next step and 
make sure that all companies--wherever they are located--are treated 
fairly when they confront the bankruptcy laws of a foreign nation. If 
companies fear that they won't be treated fairly under a foreign 
nation's bankruptcy system, they may be less willing to invest. And 
that would hamper international trade, which America needs if it is to 
remain a strong and vibrant economy.

  Mr. President, unfortunately there is a very parochial perspective 
among many bankruptcy professionals. The idea has somehow flourished 
that bankruptcy should be as broad and all-encompassing as possible. I 
don't share this point of view. I think we have to remember that 
bankruptcy should be a last resort. And that means the bankruptcy laws 
should be narrow and provide only as much relief as is necessary. The 
so-called automatic stay provides a clear example of the parochial 
attitude of many in the bankruptcy community. The automatic

[[Page S9407]]

stay is a court injunction which automatically arises whenever anyone 
declares bankruptcy. Earlier in this Congress, as part of the 
authorizing legislation for the Chemical Weapons Convention, I authored 
an amendment which gives the Government an exception to the automatic 
stay so that public health and safety regulations can be enforced. So, 
the philosophical question posed by my amendment is this: Which policy 
should win out, bankruptcy policy or public health and safety policy? 
For me, that choice is simple. I want to protect the American people 
from unsafe food and unsafe airlines. But many in the bankruptcy 
community believe that Congress should make the opposite choice.
  When we begin the process of bankruptcy reform, I will be looking to 
find other instances in which the Bankruptcy Code harms the public so 
that Congress can make changes to protect the public.
  The broad themes that I believe will dominate bankruptcy reform in 
the 105th Congress, include the following: Promoting personal 
responsibility; protecting consumers, debtors, and the public; 
promoting international commerce; and protecting States' rights where 
possible.
  I look forward to coming before the Senate next year with a good 
bankruptcy reform bill which promotes these themes. I hope to do that 
in a bipartisan manner. I yield the floor.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. KEMPTHORNE. I ask unanimous consent that the order for the quorum 
call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. KEMPTHORNE. Mr. President, I thank the Chair.
  (The remarks of Mr. Kempthorne and Mr. Chafee pertaining to the 
introduction of S. 1180 and S. 1181 are located in today's Record under 
``Statements on Introduced Bills and Joint Resolutions.'')
  Mr. KEMPTHORNE. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. KEMPTHORNE. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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