[Congressional Record Volume 143, Number 125 (Thursday, September 18, 1997)]
[Extensions of Remarks]
[Pages E1800-E1802]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           THE RESPONSIBLE BORROWER PROTECTION BANKRUPTCY ACT

                                 ______
                                 

                           HON. BILL McCOLLUM

                               of florida

                    in the house of representatives

                      Thursday, September 18, 1997

  Mr. McCOLLUM. Mr. Speaker, today I am introducing the Responsible 
Borrower Protection Bankruptcy Act. I am pleased to be joined by my 
colleague, Mr. Boucher. Attached to my statement is a detailed section 
by section explanation of the legislation.
  It has become clear that reform of the existing bankruptcy system is 
sorely needed as our Nation witnesses an unsustainable epidemic of 
personal bankruptcies. Bankruptcies have increased over 400 percent 
since 1980. It is estimated that consumer bankruptcies will rise by 
over 20 percent in 1997. Last year, for the first time ever, there were 
more than 1 million filings. This year, that figure is expected to rise 
to 1.4 million filings, more than one bankruptcy in every 100 American 
households. This rate of increase is occurring not in the midst of a 
recession, but during what are by all accounts good economic times. 
From 1986 to 1996, real per capita annual disposable income grew by 
over 13 percent but personal bankruptcies more than doubled.
  Bankruptcy will cost our Nation $40 billion in 1997 alone. That 
translates into over $400 per household in higher costs for goods, 
services, and credit. That $400 could buy every American family of 
four: 5 weeks of groceries, 20 tanks of unleaded gasoline, 10 pairs of 
shoes for the average grade-school child or more than 1 year's worth of 
disposable diapers.
  Our Nation's bankruptcy laws play an important and necessary role in 
our society but we must ensure that our bankruptcy system does not 
unintentionally encourage those who can take responsibility for their 
financial obligations not to do so. Such an abuse of our bankruptcy 
laws is fundamentally unfair to those who play by the rules and take 
responsibility for their personal obligations. It has been estimated 
that 15 responsible borrowers are needed to cover the cost of a single 
bankruptcy.
  The Responsible Borrower Protection Bankruptcy Act fundamentally 
reforms the existing bankruptcy system into a needs-based system. Only 
those who truly cannot repay their debts will be able to use the 
complete bankruptcy in chapter 7 of the Bankruptcy Code. Those who can 
repay their debts will have to use chapter 13 and work out a payment 
plan. Those who make less than 75 percent of the national median family 
income for a family of equal size will be presumed unable to repay 
their debts and may file complete bankruptcy. But those who make more 
than 75 percent of the national median family income for a family of 
equal size and, under a formula, are determined to be able to pay $50 
per month toward debt reduction of at least 20 percent of their 
unsecured, non-priority debt over 5 years may only file in chapter 13 
and repay their debt over time.
  This needs-based reform is intended to address a flaw in the 
bankruptcy system that encourages people to file for bankruptcy and 
walk away from debts, regardless of whether they are able to repay any 
portion of what they owe. Bankruptcy was never meant to be used as a 
financial planning tool or for mere convenience but it no longer 
carries with it the social stigma it did 20 years ago and these 
bankruptcies of convenience are driving the enormous increase in 
bankruptcies. Bankruptcy is becoming a first stop rather than a last 
resort.
  The Responsible Borrower Protection Bankruptcy Act also makes reforms 
to reduce repeat filings and to prevent the gaming of the bankruptcy 
system, such as running up credit bills right before filing for 
bankruptcy or filing and dismissing a bankruptcy case as a stalling 
tactic. In addition, there are provisions to improve the efficient 
administration of bankruptcy cases, to increase oversight and to 
provide debtors with information about alternatives to bankruptcy, such 
as credit counseling services.
  By ensuring that our bankruptcy laws are not abused, we also ensure 
that bankruptcy remains a viable last resort for those who have tried 
to pay their debts but were driven by circumstances to ask for judicial 
intervention into their personal finances. If we do not reform the 
system and stem the explosion in bankruptcy filings caused by 
bankruptcies of convenience, the cost of credit will inevitably 
increase while its availability will begin to decrease. Such a 
tightening of credit will especially impact the working poor. In 
addition, these reforms will protect those responsible borrowers who 
meet their financial obligations

[[Page E1801]]

but end up paying for those who abuse our bankruptcy laws.
  Congress has a special responsibility to address this issue and to 
ensure that our bankruptcy laws operate fairly, efficiently and free of 
abuse. The Responsible Borrower Protection Bankruptcy Act makes an 
important first step in fulfilling that responsibility and I urge all 
my colleagues to support these reforms.

           The Responsible Borrower Protection Bankruptcy Act


                      Section by Section Analysis

                  Title I--Consumer Bankruptcy Issues

                    Sec. 101. Needs Based Bankruptcy

       This section of the Bill requires those who have a current 
     monthly total income of 75 percent of the national median 
     family income for a family of equal size or, in the case of a 
     household of one person, 75 percent of the national median 
     household income for one earner plus a monthly net income 
     greater than $50 and the ability to pay at least 20% of their 
     unsecured, non-priority debts over five years to enter into a 
     repayment plan under Chapter 13.

   Sec. 102. Adequate Income Shall be Committed to a Plan That Pays 
                          Unsecured Creditors

       This section amends the Code to substitute for ``disposable 
     income'' a new concept, ``monthly net income'', which is 
     determined based on expenditure levels now set by the 
     Internal Revenue Service and used extensively throughout the 
     country to make similar determinations. Provision is also 
     made in a new section 111 for the adjustment of monthly net 
     income in extraordinary cases, for example when the debtor 
     experiences loss of income or when the debtor has unusual 
     expenses.

                    Sec. 103. Notice of Alternatives

       Require each consumer debtor to receive a notice containing 
     a brief description of Chapters 7, 11, 12, and 13 of the 
     Bankruptcy Code and a brief description of available 
     independent non-profit debt counseling services. The notice 
     would also contain the name, address and telephone number of 
     each such service that registers with the clerk in that 
     district. This provision assures that debtors receive 
     information about debt counseling services.

  Sec. 104. Fraudulent Debts Are Nondischargeable in Chapter 13 Cases

       The Bill amends Code section 1328(a)(2) so as not to 
     discharge debts fraudulently incurred.

    Sec. 105. Giving Secured Creditors Fair Treatment in Chapter 13

       The Bill amends section 1325(a)(5)(B)(I) to provide that 
     the holder of an allowed secured claim shall retain the lien 
     securing the claim until the debtor receives a discharge.

         Sec. 106. Debts Incurred to Pay Nondischargeable Debts

       The Bill amends current section 523(a)(14) to make 
     nondischargeable any new debt that is incurred to pay a prior 
     debt that otherwise would be nondischargeable.

     Sec. 107. Credit Extensions on the Eve of Bankruptcy Presumed 
                            Nondischargeable

       The Bill would amend Code section 523(a)(2)(C) to create a 
     presumption that consumer debts incurred within 90 days of 
     bankruptcy are non-dischargeable.

         Sec. 108. Stopping Abusive Conversions from Chapter 13

       This section provides that when a debtor converts from 
     Chapter 13 to Chapter 7, the cram down is not retained except 
     for the limited purpose of redemption under section 722.

            Sec. 109. Discouraging Bad Faith Repeat Filings

       The section provides that the automatic stay will terminate 
     in a consumer bankruptcy case on the 30th day after the 
     filing if, in the previous year, the same debtor filed a 
     bankruptcy case that was dismissed. The Bill provides an 
     exception to this provision in the event the subsequent 
     filing is made in good faith. It gives four situations in 
     which there is a presumption that the subsequent filing was 
     not made in good faith: (1) if there was more than one 
     previous case in the past year; (2) if the previous case was 
     dismissed for the debtor's failure to comply with 
     requirements under the Bankruptcy Code or with orders of the 
     court; (3) if there has been no substantial change in the 
     debtor's financial affairs; or (4) as to the application of 
     the stay to a specific creditor, if that creditor obtained 
     relief from the stay in the previous case or applied for such 
     relief (and that application is still pending).

       Sec. 110. Restraining Abusive Purchases on Secured Credit

       The Bill would amend Code section 506 by adding a new 
     subsection 506(e). The provision requires that the value of 
     personal property collateral be at least equal to the 
     outstanding balance of the purchase price, including interest 
     and charges, where the property was purchased within 180 days 
     of the petition.

                 Sec. 111. Fair Valuation of Collateral

       The Bill would add a new sentence to the end of Code 
     section 506(a). This amendment would set the value of 
     personal property securing an individual debtor's personal 
     property as the replacement value of the property on the 
     petition date (without deductions for marketing or sales 
     costs).

        Sec. 112. Debtor Retention of Personal Property Security

       The Bill would add a new subsection to Code section 521 to 
     provide that a Chapter 7 individual debtor may not retain 
     possession of personal property securing an allowed claim for 
     the purchase price unless the debtor either (a) reaffirms the 
     debt or (b) redeems the property within sixty (60) days of 
     the order for relief. If the debtor takes neither action 
     within the sixty (60) day period, then the property no longer 
     would be considered property of the estate for purposes of 
     the automatic stay.

            Sec. 113. Bankruptcy Exemption Study Commission

       The Bill creates an eight member Bankruptcy Exemption Study 
     Commission with members appointed by the President, the 
     Majority Leader of the Senate and the Speaker of the House to 
     study whether the Code's use of exemptions should be revised. 
     The Commission is directed to study and report on exemption 
     issues under the code and on any proposals to revise the Code 
     it may recommend. The Commission may hold hearings, and is 
     required to report to Congress, the Chief Justice and the 
     President within one year of enactment of the Bill.

    Sec. 114. Timely Filing and Confirmation of Plans in Chapter 13

       The Bill amends section 1321 to require that the debtor 
     file a plan within 90 days of the petition date. The Bill 
     would also amend Code section 1324 to require that the 
     confirmation hearing be held within 45 days of the filing of 
     the plan. Either of these time periods could be extended by 
     court order.

               Sec. 115. Definition of Substantial Abuse

       The Bill would clarify Code section 707(b) to permit any 
     party in interest to move to dismiss the bankruptcy case, and 
     it further defines ``substantial abuse'' to include a 
     situation in which it becomes apparent during the case that 
     the debtor is not eligible for Chapter 7 under the needs 
     based bankruptcy provisions or where the totality of 
     circumstances demonstrate substantial abuse.

Sec. 116. Giving Debtors the Ability To Keep Lease Personal Property by 
                               Assumption

       The Bill would add new Code section 365(p) to give debtors 
     the ability to keep leased personal property by assuming the 
     lease. This clarifies that if a Chapter 7 trustee reject a 
     lease of personal property, the lessor may notify the debtor 
     that he or she has the option of assuming the lease. If the 
     debtor then notifies the lessor that the debtor wants to 
     assume, the debtor's lease remains enforceable according to 
     its terms. It also clarifies that in a Chapter 11 or 13 case, 
     if the lease is not assumed in the plan, the lease is 
     rejected as of the date of the confirmation of the plan. The 
     section also makes clear that once a lease is rejected, it 
     and the leased property are no longer property of the estate, 
     and no longer subject to stay.

        Sec. 117. Chapter 13 Plans To Have a Five Year Duration

       The Bill would amend Code sections 1322(d) and 1329(c) to 
     allow confirmation of plans with a life span of five years if 
     the debtor's current monthly income is 75 percent of the 
     national median family income for a family of equal size or 
     75 percent of the national median household income for one 
     earner or more on the date of confirmation. In such cases, it 
     would also permit the court to approve a plan longer than 
     five years up to a maximum of seven years. Otherwise, the 
     debtor would be restricted to the three year and five year 
     periods of present law.

  Sec. 118. Apply the Co-Debtor Stay Only When It Protects the Debtor

       The Bill would amend section 1301 so that the co-debtor 
     stay would continue to be available when the debtor who 
     borrowed the money sought Chapter 13 relief, but if a 
     guarantor or other co-debtor who did not receive the 
     consideration for the creditor's claim filed for relief, the 
     debtor who borrowed the money would not be protected by a 
     stay unless he or she also filed a bankruptcy protection. 
     Also the stay would terminate as to the debtor's interest in 
     personal property if the debtor surrendered or abandoned that 
     property.

                Sec. 119. Definition of Household Goods

       The Bill would add a new subparagraph to Code section 
     522(f)(1) to define the phrase ``household goods'' as it now 
     appears in section 522(f) of the Code. The Bill defines 
     ``household goods'' by using the definition already used in 
     similar context by the Federal Trade Commission in the Trade 
     Regulations Rule on Credit Practices, 16 CFR Sec. 444.1(I).

Sec. 120. Protection of Holders of Claims Secured by Debtor's Principal 
                               Residence

       This section clarifies that the inclusion of incidental 
     property in a mortgage on the debtor's principal residence 
     will not disqualify that mortgage from protection under 
     section 1322(b)(2). It also makes clear that if the debtor 
     resided in the house during the six months previous to filing 
     and still owns it, or if the residence is a mobile home, 
     condominium or cooperative apartment, technically treated as 
     personalty in a number of states, the protection of section 
     1322(2)(b) applies.
       The section also provides that the stay under section 362 
     will not be violated if a prepetition foreclosure proceeding 
     is postponed during the pendency of a Chapter 13 proceeding 
     so long as any prepetition default remains uncured by actual 
     payment in full according to the plan.

         Sec. 121. Extend Period Between Bankruptcy Discharges

       The Bill would expand the amount of time that must pass 
     before a debtor may receive another discharge. The time 
     period would expand to ten for Chapter 7 individual cases and 
     five years for Chapter 13 cases.

[[Page E1802]]

              Title II--Improved Bankruptcy Administration

                Sec. 201. Improved Bankruptcy Statistics

       The Bill would create a new 28 U.S.C. Sec. 159 that would 
     require the clerks of the various bankruptcy courts to 
     compile statistics on bankruptcy cases involving individual 
     debtors, and report these statistics annually to Congress.

                       Sec. 202. Audit Procedures

       This section amends title 28 to delegate to the Attorney 
     General the responsibility for establishing random audits of 
     individual bankruptcy cases under title 11.

        Sec. 203. Docket of Individuals Who File Under Title 11

       This section amends title 28 to delegate to the 
     Administrative Office of the Courts the responsibility for 
     creating and maintaining a central docket of those who have 
     filed for bankruptcy relief.

  Sec. 204. Adequate Preparation Time for Creditors Before the First 
                Meeting of Creditors in Individual Cases

       This section amends the Bankruptcy Code to specify that in 
     an individual voluntary case, the first meeting of creditors 
     be convened between sixty (60) and ninety (90) days following 
     the order for relief.

     Sec. 205. Creditor Representation at First Meeting of Credits.

       This section amends Code section 341(c) to provide that 
     non-attorney representatives can attend and participate in 
     the first meeting of creditors.

  Sec. 206. Giving Creditors Fair Notice in Chapter 7 and Chapter 13 
                                 Cases.

       This section provides that the debtor include in any notice 
     to the creditor, the creditor's account number if it is 
     reasonably available, and to send any notices to an address 
     which the creditor has previously specified.

         Sec. 207. Prompt Relief From Stay in Individual Cases.

       This section amends Code section 362(e) to provide that 
     unless the court finally decides the relief from stay 
     request, the parties agree to take a longer time, or the 
     court orders additional time, the stay shall automatically 
     terminate sixty days after a request for relief from it is 
     made.

 Sec. 208. Relief From Stay When the Debtor Does Not Complete Intended 
                 Surrender of Consumer Debt Collateral.

       This section amends section 362 to provide that if 
     individual debtors do not file a timely statement of 
     intention with respect to property securing the creditor's 
     claim or to act in accordance with that statement of 
     intention, a secured creditor may seek relief from the stay.

                  Sec. 209. Filing of Proofs of Claim.

       In Chapter 11 cases, if a creditor is listed in the 
     schedules, no proof of claim need to be filed unless it is 
     listed as disputed, contingent or unliquidated. This 
     provision extends this Chapter 11 provision to cases under 
     Chapters 7 and 13.

     Sec. 210. Debtor to Provide Tax Returns and Other Information.

       This section amends Code section 521 to require that the 
     debtor provide financial information about income and 
     expenses, such as copies of its tax returns for the three 
     most recent tax years, its current pay stubs, and other proof 
     of income. Also, a conformed copy of the petition, schedules 
     and statement of financial affairs and any corresponding 
     amendments as well as of any Chapter 13 plan must be provided 
     upon request.

  Sec. 211. Dismissal for Failure to File Schedules Timely or Provide 
                         Required Information.

       The Bill would amend Code section 707 to require the 
     dismissal of the bankruptcy case for failure to file 
     schedules within 45 days after filing the petition.

  Sec. 212. Adequate Protection of Lessors and Purchase Money Secured 
                               Creditors.

       This section adds a new section 1307 to the Code to provide 
     that adequate protection payments be made during the ``gap'' 
     that occurs between the time the debtor files a Chapter 13 
     case and the stay goes into effect and the time the debtor 
     resumes making payments under the plan.

 Sec. 213. Adequate Time to Prepare for Hearing on Confirmation of the 
                                 Plan.

       The Bill amends Code section 1324 to require that a Chapter 
     13 confirmation hearing cannot be held less than twenty days 
     after the first meeting of creditors if there is an 
     objection.

     

                          ____________________