[Congressional Record Volume 144, Number 41 (Thursday, April 2, 1998)]
[Senate]
[Page S3129]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. GRASSLEY:
  S. 1914. A bill to amend title 11, United States Code, provide for 
business bankruptcy reform, and for other purposes; to the Committee on 
the Judiciary.


               the business bankruptcy reform act of 1998

  Mr. GRASSLEY. Mr. President, today I am introducing ``The Business 
Bankruptcy Reform Act of 1998.'' As Members of this body may remember, 
the National Bankruptcy Review Commission submitted a list of 
recommendations to Congress in October of last year. So far, the public 
has tended to focus on the consumer bankruptcy recommendations, which 
unfortunately would have made it easier to get into bankruptcy and 
would have given consumers even more of an upper hand. I think that 
these recommendations were fatally flawed, and that's why I introduced 
the Consumer Bankruptcy Reform Act with Senator Durbin last year to 
tighten up the bankruptcy system and provide new consumer protections 
when creditors use abusive tactics.
  The legislation I am introducing today will make many badly-needed 
reforms to the business provisions of the bankruptcy code. This 
legislation will provide--for the first time ever--new protections for 
patients of hospitals and HMOs and nursing homes that declare 
bankruptcy. Under current law, the bankruptcy process is oriented 
toward protecting the interests of creditors and helping the debtor 
corporation reorganize. And that is all we need most of the time.
  But hospitals and HMOs and nursing homes are different. Patients are 
uniquely vulnerable and Congress needs to take special care to ensure 
that patients are protected during the bankruptcy process. For that 
reason, this bill allows a bankruptcy judge to appoint a patient 
ombudsman to make sure that the bankruptcy process is fair to patients. 
If the ombudsman determines that the quality of patient care is 
declining, he must notify the bankruptcy court so that corrective 
action can be taken.
  This legislation also requires that the bankruptcy trustee ensure 
patients are transferred to other hospitals when a health care provider 
is winding down. Under current bankruptcy law, there's no such 
requirement. Under current law, patients could just be thrown out and 
have nowhere to go. Congress can't let that happen.
  Importantly, to the extent that there are some State laws which 
already require a State agency to place patients when health care 
providers go under, this legislation will allow those agencies to 
recoup their expenses from the estate of the bankrupt health care 
provider. Otherwise, the bankruptcy code forces State taxpayers to pay 
for something which should be paid for by the defunct health care 
provider.
  Following a recommendation of the National Bankruptcy Review 
Commission, this legislation provides an important new protection for 
employee health care and pensions. Under current law, if money is 
withheld from wages to pay for health care insurance or pension 
contributions, but a company declares bankruptcy before the withheld 
money is actually transferred, then the bankruptcy code prohibits the 
company from transferring this money. In practical terms, this means 
that workers lose their health insurance and forfeit pension 
contributions. I think this is wrong. So, my legislation will create a 
special carve out so that withheld money can go for its intended 
purpose.
  The Business Bankruptcy Reform Act also makes several changes to the 
way securities transactions are treated under the bankruptcy code. Many 
of these changes are supported by the administration. I would call my 
colleagues' attention to one provision in particular. As we all know, 
home mortgage rates are at an all time low, allowing many Americans to 
purchase homes for the first time or to move into a larger home to 
accommodate a growing family. One factor in keeping mortgage interest 
rates very low is the existence of a robust secondary market where 
mortgage lenders can spread the risk by issuing securities backed up by 
home mortgages. With the risk spread by a securities market, mortgage 
bankers can make loans at lower interest rates.
  Unfortunately, a provision of the bankruptcy code threatens to 
undermine the viability of this important secondary market. And if the 
secondary market dries up, then lenders will have to raise interest 
rates. Under current law, it isn't clear that the income stream going 
to the purchaser of the mortgage-backed securities will continue if the 
lender declares bankruptcy. In my bill, we expressly say that the 
income stream belongs to the securities purchaser and not the bankrupt 
lender. This change will help ensure that the secondary market stays 
strong by providing much-needed certainty to purchasers of mortgage-
backed and other asset-backed securities.
  On another topic, this legislation enacts the model law on 
international bankruptcies. When I held a hearing on international 
bankruptcies before my subcommittee last year, I learned that many 
times bankruptcy proceedings in this county are hampered because 
foreign countries won't cooperate with our bankruptcy courts. This 
model law would provide for standard procedures for recognizing and 
cooperating with foreign bankruptcy proceedings. If other countries--
especially our trading partners--follow our lead in enacting this model 
law, then our bankruptcy proceedings will be treated fairly and 
American creditors will be able to get a fair shake for the first time 
when trying to collect from a foreign corporation which has declared 
bankruptcy.
  The development of bankruptcy systems is a critically important 
factor in ensuring that international trade will continue to expand and 
benefit the United States economy. Many international insolvency 
specialists tell me that the lack of a good bankruptcy system in the 
Asian countries is making the Asian financial crisis even worse. When 
we finally get to consider the IMF funding bill, I intend to offer an 
amendment which would require the IMF to push for meaningful bankruptcy 
reforms when they provide loans to countries in economic trouble. I 
hope that my colleagues will support me in this effort.
  Finally, the legislation I'm introducing today will provide for 
special fast-track procedures for businesses that declare bankruptcy 
which have less than $5 million in debt. Right now, these cases often 
languish for years in bankruptcy without a real hope of reorganizing. I 
believe that the bankruptcy code should identify cases which have no 
realistic chance of reorganizing and get them into chapter 7 as quickly 
as possible. In this way, creditors will get more of what they are 
owed. Most of these special fast-track proceedings were recommended by 
the Bankruptcy Review Commission, although I've added some changes to 
reduce the chances that clever bankruptcy lawyers will find a way to 
keep a company in chapter 11 which should be liquidated. The Business 
Bankruptcy Reform Act also contains special tax provisions so that 
taxing authorities will receive effective notice of a bankruptcy.
  Mr. President, I believe that this bill will do much good for 
patients, for creditors and for all Americans whose lives are 
increasingly affected by business bankruptcies. I hope that we can pass 
this bill in this Congress.
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