[Congressional Record Volume 144, Number 119 (Thursday, September 10, 1998)]
[Senate]
[Pages S10183-S10190]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 CONSUMER BANKRUPTCY REFORM ACT OF 1998

  Mr. LOTT. Mr. President, I call for the regular order with respect to 
the bankruptcy bill.
  The PRESIDING OFFICER. The clerk will report.
  The assistant legislative clerk read as follows:

       A bill (S. 1301) to amend title 11, United States Code, to 
     provide for consumer protection, and for other purposes.

  Pending:

       Lott (for Grassley/Hatch) amendment No. 3559, in the nature 
     of a substitute.

  The Senate resumed consideration of the bill.
  Mr. LOTT. Mr. President, I wish to speak on the subject of the 
bankruptcy bill. The managers of the legislation will be here 
momentarily.
  I should note that we did call this issue up last Thursday, I believe 
it was, but we had difficulty in getting to the substance because the 
Senator from Massachusetts did not want us to get to the substance. He 
had an amendment he wanted to talk about.
  But Senator Grassley and Senator Durbin did make some small 
statements at the end of the day on Thursday. I thought it was 
appropriate that we go back to the bankruptcy bill and that they be 
able to come to the floor and lay out the outline of this legislation 
and begin to get Members' attention focused on the bankruptcy bill 
itself.
  Before I go to my own discussion about the importance of this bill, I 
want to report to the Senate that we did just have a bicameral majority 
leadership meeting, House and Senate leaders sitting down, talking 
about the people's business. We met for an hour. And while there are 
many in this city who are talking about the Starr report and how it is 
to be dealt with and how can it be done in a fair and bipartisan way, 
we met for an hour and we talked only about those issues that we need 
to address in the Congress this year.
  We talked about the appropriations bills, and it is important that we 
get them through the process. We have now had 11 appropriations bills 
pass the House, 10 pass the Senate. We are trying desperately to get 
the 11th appropriations bill to begin to move here in the Senate; that 
is the Interior appropriations bill. So we will only have left in the 
Senate after Interior, the D.C. appropriations bill, and the Labor, 
HHS, Education, and other agencies and departments' appropriations 
bills--only two. I have urged the appropriators on both sides of the 
aisle, both sides of the Capitol, to work expeditiously. If we have 
issues that we just cannot agree on between the two bodies or between 
the Congress and the White House, set them aside. The important thing 
is to get the job done.
  We also then talked about the importance of preserving Social 
Security, but allowing the people to get some of their hard-earned 
taxes back. Absolutely, before we leave this year, we should pass 
legislation to eliminate the marriage penalty tax. We should allow for 
the self-employed deduction. The American people don't really realize 
it, although I am sure they feel the pinch, the American people are 
being taxed now at the highest levels in years and years and years. 
They need some relief. Some of the money that is coming up here now, 
going into the surplus, certainly should go back to the people.
  The administration cannot come up here and say: We want all this 
extra spending for what we consider emergencies, and that will not 
count against Social Security, but, by the way, if you allow for some 
tax cuts for the people who earned it in the first place, oh, by the 
way, you are taking that out of Social Security. That kind of argument, 
I don't believe, in this atmosphere, is going to sell this year.
  But we talked about the fair way to do tax cuts. We talked about what 
we might want to do next year in terms of more tax cuts, across-the-
board rate cuts next year, and how we can begin to make progress in 
preserving Social Security.
  We also talked about the importance of keeping our commitment on the 
balanced budget last year, sticking to the caps. Yes, there may be some 
real emergencies we will have to address, but other than that, we need 
to stick to the caps we agreed to. We gave our word 1 year ago, and we 
ought to stick to it.
  Then we talked about other issues. Higher education--we have a 
conference committee meeting this week. Hopefully, they will complete 
agreement on the conference report on higher education this week--
certainly within the next few days--so that our children will have 
access to the colleges--community colleges and universities all across 
this country. We will get that done.
  Mr. President, we talked about the importance of this bankruptcy 
reform. That brings me to this particular issue. This legislation is 
long overdue. We have a system now in America which encourages people 
to take bankruptcy and get out of their debts. We have a system that 
does not take into consideration that small businessman or woman, that 
furniture store that is run by the husband and the wife. They are 
trying to make ends meet. They are selling furniture on credit, and 
people who are supposedly buying that furniture are declaring 
bankruptcy or just walking away from what they owe and getting out of 
their debts. We need reform. This is bipartisan. It came out of the 
committee of jurisdiction by a wide margin.
  I know Senator Durbin, Senator Daschle, Senator Grassley on this 
side, Senator Hatch--a number of Senators have worked on this 
legislation. We need to get it done. We are this close to having it go 
down because Senator Kennedy wants to offer the minimum wage increase 
to bankruptcy reform. It is not related to bankruptcy reform, but he 
insists on it being added to this bill.
  It is curious to me, why this bill? It could be to any other bill. 
Oh, no; he wants this one. I suspect it is because he knows that this 
is a bill that the leadership on both sides would really like to have. 
But he is willing to take down this very important legislation to be 
able to offer his minimum wage increase, even though we have had 
minimum wage increases the last 2 years in a row and I have had store 
owners, restaurant owners, self-employed individuals who have little 
small businesses who have come to me and said:

       OK, we made it the last time, but we are at the limit. We 
     have had to let people go so we can make a living. We are 
     working more hours. But if we have to go through two more, or 
     three more, minimum wage increases, we are going to go out of 
     business. At a minimum, we are going to have to lay people 
     off.

  But here is my attitude. If Senator Kennedy will be reasonable and 
will agree to a time limit, he can offer his amendment and we will have 
a vote. But then I think we ought to be able to go on to the bankruptcy 
bill itself and complete the work with a reasonable time limit and 
amendments on that.
  Some folks say you always want to limit amendments. If you limit a 
bill to 15 amendments, that is not what I would call a big limit. And I 
am not saying 15, but something reasonable so we can get bankruptcy 
done, so we can come back to Interior appropriations, let the Senator 
from Wisconsin come back again, you know, have something to say, have 
another vote on Interior appropriations involving campaign finance 
reform. But at what point are we going to say, ``OK, we played our 
games''? You have had your votes. We have had our votes on campaign 
finance reform. We have had votes on bankruptcy reform. We have had 
votes on national missile defense. We have had all these other votes. 
But at some point we have to say, ``OK, we have dealt with it, we made 
our point, and we are going to move on the people's business,'' whether 
it is the Interior appropriations bill or the next appropriations bill. 
I understand the plan on the D.C. appropriations bill is to offer a 
whole series of nonrelevant amendments on that bill.

[[Page S10184]]

  When does it end? If we can come to some reasonable agreement on 
time--Senator Daschle and I talked last night; Senator Durbin and I 
talked this morning, Senator Grassley. I said, let's work out something 
on bankruptcy so that everybody gets a fair shot but we can get this 
bill done.
  I will yield to the Senator if he has a question or comment.
  Mr. FEINGOLD. I appreciate the comment. Let me indicate, as I 
indicated before, if the process of debating campaign finance reform 
would ever be permitted to involve the normal amending process, without 
even insisting on giving up the right to filibuster, that that is the 
critical element, because without that, we are not in a position here 
to do what was done in the House where there was a lot of debate over 
many months, but they were able to offer amendments. Here, as soon as 
we won on the Snowe-Jeffords amendment, it was over, there were no more 
amendments. This has happened three times now.
  Mr. LOTT. I had an amendment on paycheck equity. If we add paycheck 
equity to the bill----
  Mr. FEINGOLD. Which we debated.
  Mr. LOTT. I would be much more inclined to favorably consider this 
legislation. For labor union members to have their dues taken from them 
and used for political purposes without their permission, I think that 
is a very, very critical point. That is part of what I am talking 
about. This bill is not balanced. It tilts the scale very definitely to 
your side of the aisle. Where is the fairness?
  Mr. FEINGOLD. I say to the leader, that is what the amendment process 
is for. Your amendment came up and, quite frankly, didn't prevail. Our 
amendment came up and did prevail, and there were many other amendments 
and we just stopped. I recognize there may be another version of the 
Paycheck Protection Act that may prevail. My problem is that it stopped 
at that point, and that is not the normal procedure. That is what I am 
asking for, that everybody do their amendments, and at the end of the 
day, I know, unless you change your mind--and I recognize you don't 
need to--that we still need 60 votes, but to have the amendments, to 
have everybody's ideas presented and voted on, is what we are asking 
for here.
  Mr. LOTT. Mr. President, I might say, the Senator from Wisconsin 
said, ``Well, we realize in the end we may not have 60 votes.'' In 
fact, some of the amendments that I would offer you would likely wind 
up being filibustered. You would. I have a long list of really 
interesting amendments that I don't think you would particularly like, 
but I like them a whole lot. So here is my point.
  Mr. FEINGOLD. Mr. President, I say to the leader, I would be happy to 
try that process. We tried the poison pill, and it didn't work.
  Mr. LOTT. Poison pill. These are not poison pills. They are very 
legitimate amendments. But here is the point: You acknowledge that at 
some point you have to have 60 votes. We went through this last year. 
It derailed the highway bill. We didn't get 60 votes. It came back this 
year, in an effort to be fair, to see if something had changed. We had 
votes. It got 52 votes. Then the argument was made, ``Well, gee, the 
House voted on a different bill, by the way, and things maybe have 
changed.'' We voted again. Things haven't changed.
  How many times do we have to go through that exercise? The day will 
come when maybe really we can work in a bipartisan way on a bill that 
is fair to all concerned and we will maybe be able to bring it to a 
conclusion. I won't say that day won't come. I think it will, actually. 
The question is, When will that be and what will it be? And I am going 
to work on that.
  Mr. FEINGOLD. I say to the leader, you have been enormously 
courteous. I want to make one more remark.
  Mr. LOTT. I yield for one more comment.
  Mr. FEINGOLD. I think it is essential for the country that this 
process--and I realize it is a difficult one--be completed this year 
because of the danger of what will happen in the year 2000 election. We 
cannot let another 2-year cycle begin with the corruption that already 
existed in the 1996 elections and the problems with this year's 
elections to not finish the job in whatever form it is, however we can 
reach a consensus. You and I know we reached a consensus on the gift 
ban. We sat down in a room, and we worked it out.
  Mr. LOTT. If the Senator will recall, you were in the room, Senator 
Levin and I were in the room, and we made it work.
  Mr. FEINGOLD. That is what I just indicated. When we sat down, we 
made it work. I suggest and make my plea to you: Let's sit down and try 
to work out something so that we can accomplish something in this 
regard to make the year 2000 elections look something better and 
different than the mess in 1996. That is my plea.
  Mr. LOTT. Mr. President, I say to the Senator from Wisconsin, I 
appreciate your courtesy. You have always been courteous. You have 
always been very reasonable in the way you have approached everything 
around here. Maybe the day will come when we will be able to sit down 
and agree on something. I don't see it at this point. I think the 
timing is wrong. After all, 2000 is still 2 years off. You have 1999. 
We will see where we can wind up.
  For now, I want to focus our attention on the bankruptcy bill itself. 
I see that Senator Daschle is here. I noted in his absence that we have 
Senators on both sides now trying to work out an agreement. I hope we 
can make some progress on that this afternoon or tonight and that we 
will go forward with the substance. I understand Senator Grassley and 
Senator Durbin will be coming over to, in effect, do their opening 
statements which they didn't really get to do last Thursday night. We 
will let them begin the bankruptcy bill while we see if we can work 
something out.
  For Senators who may not be aware of it, I said last night while we 
filed cloture, it is my hope that we can work out an agreement, and we 
can vitiate that cloture vote tomorrow. But we do need to get something 
worked out so we won't have to go to cloture, because I think if we do 
have another cloture vote and it doesn't prevail, we really have to go 
on. I can't stand up here and say we need to go to Interior 
appropriations and then stay on bankruptcy beyond a reasonable period 
of time. But I think it is possible, because I know there is a lot of 
support on both sides of the aisle.
  With that, Mr. President, I just want to say I will be working with 
Senator Daschle to see if we can work this out, and I suggest the 
absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  Mr. LEVIN. Will the Senator withhold that for one moment so I can add 
one comment?
  Mr. LOTT. I ask the quorum call be withheld, and I yield to the 
Senator from Michigan for a question.
  Mr. LEVIN. Well, just for one brief comment, if I might, to the 
majority leader. I thank him for his comments. When the proponents of 
civil rights legislation were faced with a filibuster, they didn't 
succeed the first time to get the necessary votes, which I think then 
was two-thirds. They didn't withdraw the civil rights bill. Because 
they felt it was so important to the Nation that we pass that 
legislation, they decided that the filibuster, which is their right 
under the rules--it is not required that people who offer a bill or an 
amendment withdraw their amendment or their bill just because they are 
being filibustered.
  The situation here is that there is a bipartisan group, a majority, 
who feel very, very strongly that this is a transcendent issue, that 
this is an issue which cuts across so many other issues, that the soft 
money loophole has undermined public confidence in a significant way in 
our elections.
  I think it is important that everybody be straight with each other, 
and I think you have been straight with us and we have been straight 
with you. Senator McCain and Senator Feingold have worked on a 
bipartisan basis in a way which is really important for the Nation.
  It is important that everybody understand that this amendment will be 
reoffered on the next appropriations bill because of the seriousness 
with which it is held on a bipartisan basis, and then folks who want to 
filibuster have that right, but folks who don't want to help that 
filibuster succeed also have rights to reoffer it. Those are the rights 
which will clash. That is why we are here to do this in a civil way. 
The majority leader has always

[[Page S10185]]

been civil in his dealings on this issue, as on all other issues.
  I want to add both the statement that I have made and also to be very 
clear and be very straight with the leadership as to what the intent 
is, which is to reoffer this amendment on the next appropriations bill.
  Mr. LOTT. Mr. President, if I might just respond briefly, obviously, 
Senators are entitled to offer amendments, and then other Senators are 
entitled to offer second-degree amendments. The Senator knows very well 
that cloture votes and filibusters are an important part of this 
institution. You may not like it, depending on which end you are on on 
that subject, whether you are on the receiving end, but it is there and 
it is an honored and a time-preserved process we use around here.
  Also, the Senate sometimes works on an issue for years--years--before 
you get a consensus. I worked on telecommunications for 10 years. This 
year, and we got very little credit for it, but this year we passed the 
Workplace Development Act, a consolidation of job training programs. We 
worked on it for 3 years. We failed at the end of the last Congress to 
pull it out. We finally got it done, sent it over to the President, and 
because everything else was going on, it didn't even receive any 
notice. Sometimes consensus takes time.
  Also, I have watched the Senate over a period of years on a number of 
issues, sometimes when Republicans were pushing them; sometimes when 
Democrats were pushing them. You reach a point where you say, ``I made 
my point for now; I'll be back, but now we are going to go on and do 
our business.''
  We have 19 days left, assuming we are going to try to go out October 
9, 19 days left in this session.
  We still have important work to do, including a lot of bills on the 
issues that we agree on in a bipartisan way, and with only 19 days to 
accomplish them.
  The Senator has his rights, but as majority leader and in the 
leadership we have to try to find a way to have those votes, but then 
to move on. So I am sure you understand. I understand where you might 
have to come from, and I hope you will understand what I would have to 
do under those conditions to try to keep the focus.
  But the next 19 days are not going to be easy under the best of 
conditions. The Senate is expected to show decorum and restraint and 
dignity, and I know we are going to do that. We also have to reach out 
across the aisle and say, ``Can we find a way to work through these 
bills?''
  I think the people will be watching us. We have to do a little 
preening. You have to make your positions clear, we have to make our 
positions clear, and then at some point we have to come together. We 
will not necessarily agree at the beginning on what the solution is to 
agriculture in America. But it is very important in South Dakota and in 
Ohio and Mississippi and all over this country. But at some point we 
are going to come together because this is a problem, a real problem, 
and we can find a solution.
  So I hope that is the way that we will proceed. Make your points, on 
both sides of the issue--on both sides of the aisle--and then let us 
sit down and see if we can find a way to come to an agreement to do the 
best we can. It may not be all we want to do, or it may be too much in 
some cases, but I am prepared to work in that vein. And I am hoping, 
again, in spite of all the other distractions, that we can keep our 
attention focused. And I will try to help to do that.
  I suggest the absence of a quorum.
  The PRESIDING OFFICER (Ms. Snowe). The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. GRASSLEY. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRASSLEY. Madam President, I ask unanimous consent that the 
Senate proceed with debate only on the bill before us, the bankruptcy 
bill, until 5 o'clock.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. GRASSLEY. Madam President, I think that we need to consider once 
again the very important issue of bankruptcy. Senator Durbin has 
cooperated very well in the subcommittee's work and the committee's 
work to bring the bill this far.
  Why are we introducing a bankruptcy bill? Why do we need major 
bankruptcy reform? I think it is pretty simple that under the current 
system an individual can avoid paying the debts that he has incurred 
with few, if any, questions asked even if that individual has some 
ability to repay all or a portion of those debts.
  This much too easy bankruptcy system encourages irresponsible 
behavior and costs businesses and ultimately consumers they serve 
millions of dollars a year, adding up to $40 billion a year in added 
cost to product and service.
  They have to raise their prices to cover this. You, as a consumer, 
pay this. That is $400 for the average family--a hidden tax. You can 
see this being possible because individuals can declare bankruptcy 
under chapter 7 where debts are rarely repaid. Or there is the choice 
of chapter 13 which requires debtors to repay a discounted portion of 
their debts. And obviously--and this bill does that--Congress should 
encourage the use of chapter 13 where creditors will at least receive 
something, whereas under chapter 7 rarely anything.
  Our bill imposes a means test for people who declare bankruptcy. If a 
person can repay all or some of their debts now, or even over an 
extended period of time, they will either have to file under chapter 13 
or stay out of the bankruptcy system entirely. This will mean that the 
businesses which extended credit in good faith will not be left with 
absolutely nothing.
  Our bankruptcy reform bill imposes a means test by letting creditors 
file motions under section 707(b) of the Bankruptcy Code. These motions 
would raise evidence concerning a debtor's ability to repay debt.
  Under current law, creditors--the people with the most to gain or 
lose--are expressly forbidden from doing this. By opening the doors to 
creditor involvement, businesses can become masters of their own 
destiny.
  Of course, in order to prevent abusive court filings--we don't deny 
that there can be some abuse of this privilege, but we have included 
penalties if a court dismisses a creditor's motion and determines that 
the motion was not substantially justified.
  Our bankruptcy reform bill contains a unique feature which will 
provide important assistance to small businesses which may not be able 
to afford to press their case in bankruptcy court. The chapter 7 public 
trustees--these are the private individuals who administer bankruptcy 
cases and who are in the best position to know whether debtors can 
repay their debts--are allowed to bring evidence and motions to the 
bankruptcy judge. If the judge grants a motion to dismiss a bankruptcy 
petition or to transfer the case to chapter 13, the attorney for the 
debtor will be fined and the fine will be paid to the chapter 7 trustee 
as a reward, as an incentive for detecting an abuse of the bankruptcy 
system by a debtor and by the counsel for that person that owes money.
  Thus, a well-informed cadre of bankruptcy trustees with a meaningful 
financial incentive will be empowered under this legislation to find 
debtors who could repay and get them into chapter 13 or out of the 
bankruptcy system entirely.
  A recent survey of chapter 7 trustees indicated that over 80 percent 
of the trustees would use this power if it were given to them. 
Empowering chapter 7 trustees will help small businesses since the 
effect of transferring or dismissing a case will be that creditors will 
collect more and bills will be paid. There will be less of an incentive 
to go into chapter 7 willy-nilly if there is somebody looking over the 
shoulder to see that it has been done right. We then avoid those people 
who might be shady, those people who might be using bankruptcy as part 
of personal financial planning. Under this procedure, small businesses 
would need only to sit back and let the trustee seek his reward and 
would not have to spend a dime to litigate the case.
  This is important legislation. It will help all consumers because it 
will help businesses collect debts that will otherwise remain unpaid 
and be passed on to the people who pay their debts and never declare 
bankruptcy. This bill is

[[Page S10186]]

about basic fairness. It is about time that Congress provides fairness 
for all consumers.
  Madam President, I think it is very important that we consider on 
this latter point that I made about the trustees being able to review 
these bankruptcy cases, that we make very clear that this ought to 
encourage the bankruptcy bar, to some extent, to be very careful, 
whereas we feel some are not so careful now in its present environment 
of the last 20 years of counseling people into bankruptcy in the first 
place or into chapter 7 as opposed to chapter 13. I don't think a 
lawyer is going to want to take a chance on being penalized for putting 
somebody in chapter 7 that should have been in chapter 13; or even 
putting somebody in bankruptcy that shouldn't have been there in the 
first place. We feel that we need to get the bankruptcy bar back to the 
point where they are advising people; that in every instance a person 
might feel that they want to go into bankruptcy, that it might not be 
justified.
  I yield the floor. I want to give my good friend, the Senator from 
Illinois, an opportunity to speak on this subject.
  The PRESIDING OFFICER. The Senator from Illinois.
  Mr. DURBIN. Thank you, Madam President.
  During the course of this debate on the bankruptcy bill, we will be 
talking about a number of aspects of this procedure. When you consider 
a nation of 260 million Americans, and I guess about 1.3 or 1.4 million 
each year file bankruptcy, the vast majority of people who may be 
watching this debate have no personal knowledge of the subject. Of 
course, some lawyers and people who are involved in credit counseling 
do, but, unfortunately for a lot of unsuspecting people, bankruptcy 
becomes a critical part of their lives. Senator Grassley and I are 
attempting to change the bankruptcy code in a way that is fair, that 
will reduce abusive bankruptcies, but still allow the procedure to be 
available to those who truly need it.
  Let me give an example of one of the amendments which I have offered, 
or will offer if given the opportunity, which I think tells an 
important story about bankruptcy; that is, the whole question about 
retirement funds. Creditors want those who file for bankruptcy to pay 
their creditors every penny they have, often including retirement 
savings. If you are 54 years old and you have some IRAs, some 401(k) 
plans that you are putting aside for your own retirement and then lose 
your job after 30 years due to a merger or downsizing, or if someone in 
your family--a spouse or a child--incurs major medical bills and you 
find yourself facing literally tens of thousands, maybe hundreds of 
thousands of dollars in debt and find you can't pay your bills, you may 
be forced into bankruptcy. What may be at stake is not only the money 
you have on hand, but the money you have saved for your retirement.
  Under current law, if you filed for bankruptcy, they go after 
everything except the 401(k) plan. So if you put aside these individual 
retirement accounts or Roth IRAs thinking, ``Someday I will need this 
to supplement Social Security,'' you will be shocked to learn that the 
creditors--the hospitals and doctors or whoever it might be--are going 
to say, ``I'm sorry, but that IRA is now something that I can take away 
from you to pay off your bills.''
  That is why I think this amendment which I am going to introduce is 
so necessary. Current law puts Americans with financial problems in a 
Catch 22 situation: Either declare bankruptcy and go into poverty in 
old age, or don't declare bankruptcy and live in poverty now with 
creditors harassing you because your current bills and health care 
costs sap your entire income.
  This amendment that I want to offer to the bill, one of several, 
ensures that retirement savings survive a bankruptcy proceeding intact. 
The funds will be preserved to provide for your care and expenses in 
old age, rather than being paid to creditors who are unwilling to 
compromise when meeting this financial setback. It also provides that 
if you took a loan from your retirement savings, for example, to fund a 
downpayment on your house, you will have to pay yourself back by 
payroll deduction, uninterrupted by the bankruptcy.
  I think there are reasons to support this amendment. It is a good 
indication of why some amendments are needed on this bill. Think about 
the gravity of this situation and challenge. The retirement savings of 
hundreds of thousands of elderly Americans are at risk in bankruptcy 
proceedings. In 1997, an estimated 280,000 older Americans--that is, 
age 50 and older; and I am included in that group--filed bankruptcy; 
though I didn't file bankruptcy. Almost one in five bankruptcy cases, 
18.5 percent, involve one or both petitioners coming to court who are 
50 years of age or older.
  What are the top three reasons Americans give for filing for 
bankruptcy? Job loss, overwhelming medical expenses, and a creditor's 
refusal to work out repayment plans. Nearly 50 percent of older 
Americans declare bankruptcy because they lost their job at or about 
the age of 50. At this age, it is a tough situation to find another job 
that pays as well. It can be catastrophic to an entire family.
  Parents may have kids in college, elderly parents to care for, a 
house that may need a new roof, and a family that may have overwhelming 
medical expenses. About 30 percent of older Americans filing bankruptcy 
due to family medical bills that are completely beyond their capacity 
to pay. You should not have to choose between your family's health and 
your financial security in your old age. One in ten older Americans 
files bankruptcy because their creditors have refused to work with them 
to pay their bills. One in fifteen older Americans files bankruptcy to 
save a home they are about to lose.
  Young people really are protected by this amendment, as well, when 
retirement funds are set aside over a person's working career to 
provide them with privately funded care in their old age. My mother 
lived to the age of 87, and she always said time and time again, for 
years and years, ``I just don't want to be a burden on you and your 
brothers.'' She never was, but she was always worried about it. She 
saved carefully, so that there was money set aside, so that if 
something happened, she would be able to take care of herself and would 
not have to turn to us.
  I think that is the feeling of many senior citizens who put aside 
savings in IRAs and 401(k) plans, so they can be independent and live a 
life that doesn't take away from their children.
  But think about it. If something comes along, like a catastrophic 
illness, you have reached the limit on your health insurance policy, 
and all of a sudden debts are cascading around you and bankruptcy is 
the only option, you lose everything you saved--and independence is 
important to all of us, and particularly to those in their senior 
years.
  Security in retirement can only be achieved through the accumulation 
of assets over a working lifetime. Retirement funds should not be at 
risk simply because of an unexpected layoff or medical problems, 
sending a debt-strapped family over the financial edge. I don't think 
this amendment is subject to abuse, because debtors can't really sock 
away money in a retirement account just before filing for bankruptcy. 
Retirement plan contributions are heavily regulated and limited by law 
and not subject to bankruptcy planning abuse. Debtors have been 
criticized for poor management skills, but they should be rewarded, not 
penalized, for making rational economic decisions, like preparing for 
retirement.
  Who supports this amendment? The AARP, American Association for 
Retired Persons, National Council of Senior Citizens, the Profit 
Sharing 401(k) Council of America, the National Council on Teacher 
Retirement, and the New York State Teachers Retirement System, just to 
name a few.
  My reason for explaining this amendment is that there is debate 
underway here as to whether we will allow amendments to the bankruptcy 
bill. This is an illustration of the type of amendment that I think is 
important, so that we make certain that this reform of the bankruptcy 
code recognizes the reality of life in America. We want to protect the 
retirement funds of those who have been careful enough to save, who 
could never even have anticipated an economic calamity such as I have 
described. We want to make certain that they are given a chance to come 
through bankruptcy not only

[[Page S10187]]

with dignity but with a chance to lead a good life.
  There are other elements to be considered as well. I would like to 
address one or two of them before giving the floor back to Senator 
Grassley of Iowa.
  We have talked a lot about those who file for bankruptcy. I think it 
is important that this be a balanced discussion, so that we talk about 
those who, frankly, are using the credit system in this country to make 
a great deal of money. Credit cards are one of the most profitable 
areas of financial endeavor in America. Those who have taken a close 
look at the interest rates they pay on credit cards understand why. If 
you happen to be late in making a monthly payment and the balance is 
held over another month, sometimes the interest rates can be dramatic 
in comparison to what we pay for mortgages and other loans, like 
automobile loans. The interest rates, many times, on unsecured debt, 
like credit card debt, can be substantial.
  Unfortunately, I don't believe many credit card companies or other 
financial institutions are as honest as they should be with American 
consumers. I will bet most of the people who are listening to this 
debate will open their mailboxes up today and find a preapproved 
application for a credit card. We know we are going to find them 
whenever we go home. If you look at it, you will understand that nobody 
has analyzed your credit situation. They have basically said: Here is 
another $100,000 in debt that you can run up if you like, at an 
interest rate that you may be able to pick out in the fine print on the 
back of the solicitation.
  I visited a football game in Illinois last year where they were 
passing out free T-shirts to any student at the University of Illinois, 
Champaign-Urbana, who would take an official University of Illinois 
credit card. They ran out of T-shirts because the students could not 
wait to get them. Most of these students ended up with credits cards, 
most without much income. We don't want to limit opportunities, but we 
do want honest disclosure. At that particular football game, the credit 
card company offering this credit card had posted on a banner behind 
the little booth, ``Permanent introductory rate, 5.9 percent.'' Think 
about that for a minute. ``Permanent introductory rate''? How does that 
work? Clearly, at some point in time you are through the introductory 
period and into a new rate.

  I think it is important that there be an honest disclosure of the 
interest rate people will be charged on credit cards, so that on the 
myriad--perhaps dozens--of credit card solicitations you receive, you 
can make the right choice, not just the come-on rate, the attractive 6 
percent or something on the envelope. What are you really going to be 
charged as an interest rate?
  I think the credit card companies owe it to us as well to send us, 
along with the credit card application, a worksheet so that people can 
say: Let me see, exactly where am I? How many debts do I owe? How much 
income do I have? Does this worksheet give me an indication as to 
whether I should go further in debt? I don't think that is 
unreasonable.
  I also think the monthly billings we receive from many of the credit 
card companies are a mystery to try to figure out, what they mean and 
what it means if we make certain payments. For example, there will be 
an amendment offered here, I believe, by the Senator from Rhode Island, 
Senator Reed, which will say that you cannot have your credit card 
canceled if you pay off the entire balance each month. Many people are 
surprised to learn that. They make the payment and say, ``I am a good 
customer.'' Obviously, they got their bill and paid it. But then the 
company says: ``We are not interested in your business anymore. If you 
are not going to carry a debt and pay us interest from time to time, or 
regularly, then we don't want you as a customer.'' They don't disclose 
that when you get the card. But you may find that out later on.
  Also, if you look at the monthly statement, it says ``minimum monthly 
payment.'' Well, I think there are some obvious questions that should 
be answered when they say ``minimum monthly payment.'' If I make that 
minimum monthly payment, how many months will it take me to pay off the 
balance if I don't add another penny of debt? How much will I be paying 
in interest? Those are not unreasonable questions. I think the average 
consumer should have the answer right there on the monthly statement.
  I looked at my own credit card recently just to see what the minimum 
monthly payment might result in. It resulted in my paying off the 
balance in a mere 60 months--5 years. That is paying off the current 
balance with a minimum monthly payment.
  The time may come when an individual can't pay off the credit card on 
a regular basis. They may have a problem and fall behind. That is 
understandable where the minimum monthly payment may be the only thing 
they can come up with. I think we have to educate consumers so they 
don't fall into this trap.
  There is another element here that I have learned during the course 
of this debate. Some people are surprised to know that once they have 
the credit card in hand and make a purchase, if you have a debt that 
they are trying to pursue in bankruptcy, the credit card company not 
only has recourse against you personally but has recourse against 
whatever items you purchased with the credit card. Surprise, surprise. 
You turned around and bought a television or a stereo with the credit 
card, thinking that that was the way you were going to own it, and you 
get into bankruptcy court and they say that the fine print in the 
contract says, ``We now own the television.'' I think that should be 
disclosed. People ought to know that going in. That is another example, 
in my mind, of the kind of activity that would lead to a more level 
playing field.
  Those critical of the increases in filings for bankruptcy, I think, 
have some good cause for alarm. There are too many. If we can reduce 
abusive filings, we should. The average person filing for bankruptcy in 
America has an income of less than $18,000 a year and average debts of 
$28,000. So the people we find in bankruptcy court are not the wheelers 
and dealers and high rollers; they are folks in lower- to middle-income 
situations who have run into a mountain of debt that they can't cope 
with. I don't want to see this bill penalize those people. I want to 
make certain that we are careful that whatever we do does not stop them 
from coming to court and trying to finally discharge their debts and 
start again.
  There is another element in this bill which I think deserves some 
consideration and discussion. It is called the homestead exemption.
  Under a curiosity in the law, each State can determine how much we 
can have in a homestead exemption, which means if I go into bankruptcy 
court in my home State of Illinois and file for bankruptcy, they have 
decided by statute in that State that the maximum amount which I can 
claim as the value of my home--I can't recall the exact figure in 
Illinois, but it is relatively modest. Some States have gone off the 
charts. That is why we had a couple of instances where noteworthy 
figures--one a former commissioner of baseball, another a former 
Governor of one of our States--before filing for bankruptcy, moved to, 
in this case Florida, and in the other case Texas, and bought million-
dollar homes which were exempt under State law. They took everything 
that they had and plowed it into the home and filed for bankruptcy. The 
creditors ended up with little or nothing. Thank goodness this bill, 
because of the amendment offered by Senator Feingold of Wisconsin, is 
going to eliminate what I consider to be a clever loophole and an abuse 
in the law.
  Should this bill that Senator Grassley and I are working on pass the 
Senate, we will face a battle in conference because the House of 
Representatives eliminated that provision and allows each State to set 
whatever standard they want. I don't think that is fair. I think we 
ought to have a national standard. We shouldn't have people racing off 
to establish residency in some State to take advantage of a very 
generous homestead exemption. That is not fair to creditors. I hope 
that as a part of this debate we will preserve that important element 
in the law.
  At this time, I reserve the remainder of my time. I yield the floor.
  Mr. KYL. Madam President, about a month ago, the Administrative 
Office of the U.S. Courts released figures on nationwide bankruptcy 
filings for the

[[Page S10188]]

12-month period ending June 30. The figures clearly illustrate what has 
so many of us concerned--that is, that bankruptcy filings are becoming 
epidemic.
  Filings for the 12-month period ending on June 30 totaled 1,429,451--
an all-time high. Personal bankruptcy filings increased 9.2 percent 
from the same period in 1997.
  Unlike other kinds of epidemics, this is one that can be avoided in 
many instances if credit is used wisely and people do not overextend 
themselves in the first place.
  Certainly, extraordinary circumstances can strike any family, which 
is why it is important to preserve access to bankruptcy relief. No one 
disputes that there should be an opportunity to seek relief and a fresh 
start when truly extraordinary circumstances strike--for example, when 
families are torn apart by divorce or ill health. I suspect that 
creditors are more than willing to work with someone when such tragedy 
strikes to help them through tough times.
  But there is growing evidence, Madam President, that more and more 
people who file for relief under Chapter 7 actually have the ability to 
pay back some, or even all, of what they owe. It is cases like that, 
where bankruptcy is becoming the option of first resort, rather than 
last resort, that led to the drafting of the bill before us today.
  The Consumer Bankruptcy Reform Act, S. 1301, is the product of a 
number of hearings and months of deliberations. I would note that it 
enjoys broad bipartisan support, having been approved overwhelmingly by 
the Senate Judiciary Committee on a vote of 15 to 2. Similar bipartisan 
legislation in the House passed on June 10 by the lopsided vote of 306 
to 118.
  So what does this legislation do? Those with low incomes would 
continue to choose between Chapter 13 payment plans and Chapter 7 
discharges, just as they do today. But to ensure that some people are 
not abusing the system, the bill requires bankruptcy courts to consider 
whether people who have higher incomes and the ability to pay a portion 
of their debt should be required to repay what they can under Chapter 
13.
  As it stands today, people with more modest incomes who live within 
their means are forced to subsidize wealthier individuals who abuse the 
bankruptcy laws. That is just not fair.
  When people run up debts they have no intention of paying, they shift 
a greater financial burden onto honest, hard-working families in 
America. Estimates are that bankruptcy costs every American family an 
extra $400 a year.
  Madam President, I want to stop at this point and single out three 
provisions of the bill for comment--provisions that were added in 
committee as a result of the adoption of amendments I offered. They 
represent what, in my view, are very modest, common-sense reforms of 
the bankruptcy system.
  The first appears in Section 314 of the bill and provides that debts 
that are fraudulently incurred could no longer be discharged in Chapter 
13, the same as in Chapter 7. Currently, at the conclusion of a Chapter 
13 plan, the debtor is eligible for a broader discharge than is 
available in Chapter 7, and this superdischarge can result in several 
types of debts, including those for fraud and intentional torts, being 
discharged whereas they could not be discharged in Chapter 7. My 
amendment would simply add fraudulent debts to the list of debts that 
are nondischargeable under Chapter 13. It is as simple as that.
  Let me take a few moments to share some of the comments that others 
have made on the subject. Here is what the Deputy Associate Attorney 
General, Francis M. Allegra, said about the dischargeability of 
fraudulent debts in a letter dated June 19, 1997: ``We are unconvinced 
that providing a (fresh start) under Chapter 13 superdischarge to those 
who commit fraud or whose debts result from other forms of misconduct 
is desirable as a policy matter.''
  Here is what Judge Edith Jones of Fifth Circuit Court of Appeals said 
in a dissenting opinion to the report of the Bankruptcy Review 
Commission: ``The superdischarge satisfies no justifiable social policy 
and only encourages the use of Chapter 13 by embezzlers, felons, and 
tax dodgers.''
  Judith Starr, the Assistant Chief of the Litigation Counsel Division 
of Enforcement of the Securities and Exchange Commission, testified 
before the House Judiciary Committee on March 18, 1998. Speaking about 
the fraud issue, she said: ``We believe that, in enacting the 
Bankruptcy Code, Congress never intended to extend the privilege of the 
`fresh start' to those who lie, cheat, and steal from the public.'' She 
goes on to say:

       A fair consumer bankruptcy system should help honest but 
     unfortunate debtors get their financial affairs back in order 
     by providing benefits and protections that will help the 
     honest to the exclusion of the dishonest, and not vice versa. 
     It is an anomaly of the current system that bankruptcy is 
     often more attractive to persons who commit fraud than to 
     their innocent victims. Bankruptcy should not be a refuge for 
     those who have committed intentional wrongs, nor should it 
     encourage gamesmanship by failing to provide real 
     consequences for abuse of its protections.

  And she concludes:

       We support [the provision of the House bill] which makes 
     fraud debts nondischargeable in Chapter 13 cases. Inducements 
     to file under Chapter 13 rather than Chapter 7 should be 
     aimed at honest debtors, not at those who have committed 
     fraud.

  A final quotation: The Honorable Heidi Heitkamp, the Attorney General 
of North Dakota, testified to the following before the House Committee 
on March 10:

       When a true ``bad actor'' is in the picture--a scam artist, 
     a fraudulent telemarketer, a polluter who stubbornly refuses 
     to clean up the mess he has created there is a real potential 
     for bankruptcy to become a serious impediment to protecting 
     our citizenry.

  Furthermore, she says:

       We must all be concerned because bankruptcy is, in many 
     ways, a challenge to the normal structure of a civilized 
     society. The economy functions based on the assumption that 
     debts will be paid, that laws will be obeyed, that order to 
     incur costs to comply with statutory obligations will be 
     complied with, and that monetary penalties for failure to 
     comply will apply and will ``sting.'' If those norms can be 
     ignored with impunity, and with little or no future 
     consequences for the debtor, this bodes poorly for the 
     ability of society to continue to enforce those requirements.

  Madam President, I hope there will be no dissent to these anti-fraud 
provisions. Certainly, there should not be. Bankruptcy relief should be 
available to people who work hard and play by rules, yet fall 
unexpectedly upon hard times. Perpetrators of fraud should not be 
allowed to find safe haven in the bankruptcy law.
  The second amendment I offered, and which has been incorporated into 
this bill, is found in Section 315. It, too, is simple and straight-
forward. It says that debts that are incurred to pay non-dischargeable 
debts are themselves non-dischargeable. In other words, if someone 
borrows money to pay a debt that cannot be erased in bankruptcy, that 
new debt could not be erased either. The idea is to prevent 
unscrupulous individuals from gaming the system and obtaining a 
discharge of debt that would otherwise be non-dischargeable.
  I want to emphasize that we have taken special care to ensure that 
debts incurred to pay non-dischargeable debts will not compete with 
non-dischargeable child- or family-support in a post-bankruptcy 
environment.
  The third amendment of mine adopted in committee is reflected in 
Section 316 of the bill, and it is intended to discourage people from 
running up large debts on the eve of bankruptcy, particularly when they 
have no ability or intention of making good on their obligations.
  Current law effectively gives unscrupulous individuals a green light 
to run their credit cards just before filing for bankruptcy, knowing 
they will never be liable for the charges they are incurring. That is 
wrong, and it has got to stop.
  The provision would establish a presumption that consumer debt run up 
on the eve of bankruptcy would be non-dischargeable. The provision is 
not self-executing. In other words, it would still require that a 
lawsuit be brought by the creditor against the debtor. Many valid 
claims for nondischargeability are never filed, because the creditors 
do not have enough money at stake to justify the litigation costs. But 
if this provision achieves the intended purpose, debtors will not only 
minimize the run-up of additional debt, they will have more money 
available after bankruptcy to pay priority obligations, including 
alimony and child support.

[[Page S10189]]

  Again, special care has been taken to ensure that we are only talking 
about debts incurred within 90 days of bankruptcy for goods or services 
that are not necessary for the maintenance or support of the debtor or 
dependent child. We want to be sure that family obligations are met.
  Madam President, I want to discuss one other aspect of the bill 
before closing, and that relates to the many provisions that Senators 
Hatch, Grassley, and I crafted to protect the interests of women and 
children.
  Nothing in the original version of the bill changed the priority of, 
or any of the other protections that are accorded to, child-support and 
alimony under current law. If members of the Senate have not seen the 
relevant analysis done by Judge Edith Jones of the Fifth Circuit Court 
of Appeals, I will submit it for the Record now. I ask unanimous 
consent that it be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                                            U.S. Court of Appeals,


                                                Fifth Circuit,

                                      Houston, TX, April 30, 1998.
     Senator Orrin G. Hatch,
     Senator Charles E. Grassley,
     Congressman Henry J. Hyde,
     Congressman George W. Gekas.
       Dear Sirs: To say that I am disappointed by recent public 
     statements criticizing the Gekas and Grassley bankruptcy 
     reform bills is not strong enough. The quotations attributed 
     to Professors Elizabeth Warren and Ken Klee in U.S.A. Today, 
     April 30, 1998, p. 1, are a blatant misrepresentation of the 
     bills and current bankruptcy law. I think we all have a right 
     to expect more expertise and candor from tenured professors 
     at two of our nation's outstanding law schools than are 
     displayed in these statements.
       Let me explain the obvious errors and inconsistencies in 
     their remarks.
       First, neither of the pending reform bills would weaken 
     current bankruptcy law's attempts to protect the interests of 
     ex-wives and children of divorce. Current law protects them 
     in the following ways. Section 507(a)(7) of the Bankruptcy 
     Code, U.S.C. Title 11, denominates alimony and child support 
     payments as priority debts, payable before ordinary debts of 
     the debtor. Sections 553(c)(1) and 522(f)(1)(A) prohibit the 
     use of exemptions or lien-stripping otherwise permitted by 
     section 522(f) to 523(a)(5), (15), and (18) make alimony, 
     child support, some property settlement payments, and some 
     debts owed to public entities for those payments non-
     dischargeable in Chapter 7. Section 1328(a)(2) renders 
     alimony and child support payment non-dischargeable in 
     Chapter 13. Thus, current bankruptcy law affords special 
     protection for marriage-dissolution claims.
       Second, the Gekas/Moran Bill, H.R. 3150, would actually 
     enhance these protections. One would think that Professors 
     Warren and Klee would endorse these proposals if they are 
     seriously concerned about ex-spouses and children. H.R. 3150 
     amends section 523(a)(5) to more broadly exempt from 
     discharge divorce-related property settlements and attorney's 
     fees. The bill also eliminates section 523(c), a provision 
     which costs ex-wives a great deal of money by requiring 
     them to litigate in bankruptcy court as well as family 
     court over support and alimony payments. Finally, the 
     needs-based requirement of H.R. 3150 does not kick in 
     until priority debts, which as previously stated include 
     those for alimony and child support payments, have been 
     excluded from the debtor's income.\1\
---------------------------------------------------------------------------
     \1\ These descriptions of H.R. 3150 are based on the most 
     recent version I have.
---------------------------------------------------------------------------
       Third, under current bankruptcy law, debts owed for 
     purchases of ``luxury goods'' or certain cash advances 
     obtained within 60 days of bankruptcy are presumed non-
     dischargeable if a creditor contends the debts were 
     fraudulently incurred. Section 523(a)(2)(c). The House and 
     Senate bankruptcy reform bills modestly extend the non-
     dischargeability presumption--and it is no more than that--to 
     consumer purchases within 90 days of bankruptcy. The bills 
     hope to discourage debtors from running up large debts while 
     knowing that they are on the verge of bankruptcy. If the 
     debtors take the hint from these bills, they will not run up 
     their debts and will have more money available after 
     bankruptcy to pay alimony and support obligations. Indeed, 
     any ethical attorney rendering bankruptcy advice after the 
     passage of this section would counsel his clients not to run 
     up extraordinary consumer debts within 90 days of bankruptcy. 
     Professors Warren and Klee must either think that this 
     provision would not influence the conduct of ethical 
     attorneys and debtors or that many or most debtors routinely 
     run up debt just before they file bankruptcy.
       Fourth, after this provision is enacted, consumer debts 
     incurred within ninety days of bankruptcy will become non-
     dischargeable only if (a) debtors don't take the hint from 
     the statute, (b) debtors run up consumer debts within 90 days 
     pre-bankruptcy under circumstances that are fraudulent, (c) 
     the amount thus run up on a particular creditor is large 
     enough to make it worthwhile for that creditor to sue in 
     bankruptcy court under Sec. 523(c)(1), and (d) a final 
     judgment of non-dischargeability is actually entered. 
     Professors Warren and Klee know very well that this non-
     dischargeability provision is not self-executing and requires 
     a lawsuit by the creditor against the debtor. They are also 
     aware that many valid claims for non-dischargeability are 
     never filed, because the creditors do not have enough money 
     at stake to justify the litigation costs.
       Fifth, Professor Warren's criticism of the family-
     friendliness of these reform bills puzzles me. As a member of 
     the National Bankruptcy Review Commission. I proposed to 
     strengthen section 523(a)(5) to enhance the protections of 
     former spouses and children in relation to property 
     settlements, and Professor Warren offered no assistance or 
     encouragement whatsoever. As Reporter to the Commission, 
     moreover, Professor Warren set the agenda for the five 
     Commission members who rejected my proposal.
       Sixth, Professors Warren and Klee are apparently harping on 
     one provision of comprehensive bankruptcy bills in hopes of 
     defeating the entire reform effort. Surely, while that 
     approach might be effective politics, it is not 
     intellectually defensible for bankruptcy specialists who are 
     members of the academic community. This complex, multi-
     faceted and much-needed bankruptcy legislation clarifies the 
     bankruptcy law, makes it more uniform nationally, and will 
     streamline the process. But Professors Klee and Warren are 
     not attempting to be precise, only to be obstructionist.
       I hope that the important debate over bankruptcy reform 
     will proceed on an intellectual, not an emotional level.
           Very truly yours,
                                                   Edith H. Jones.

  Mr. KYL. Even though current law is clear--and even though the 
original version of the bill made no change in the protections that it 
provides--concerns were expressed that provisions of the legislation 
might indirectly or even inadvertently affect ex-spouses and children 
of divorce. Assuming that critics were operating in good faith--and 
because our intent was always to ensure that family obligations were 
met first--Senators Hatch, Grassley, and I crafted an amendment to 
remove any doubt whatsoever about whether women and children come 
first.
  The Hatch-Grassley-Kyl amendment elevates the priority of child-
support from its current number seven on the priority list for purposes 
of payment to number one--ahead of six other items, including lawyer's 
fees that are now afforded higher priority. Our amendment mandates--
mandates--that all child support and alimony be paid before all other 
obligations in a Chapter 13 plan. It conditions both confirmation and 
discharge of a Chapter 13 plan upon complete payment of all child 
support and alimony that is due before and after the bankruptcy 
petition is filed. It helps women and children reach exempt property 
and collect support payments notwithstanding contrary federal or state 
law. It exempts state child-support collection authority from the 
automatic stay under bankruptcy law to ensure prompt collection of 
child-support payments. And it extends the protection accorded an ex-
spouse by making almost all obligations one ex-spouse owes to the other 
non-dischargeable.
  Despite the various protections we have laid out, I know that some 
will still contend that child-support and alimony could be placed in 
competition with other debts that are made non-dischargeable by other 
provisions of the bill. But if placing more debt into the non-
dischargeable category were really harmful to the interests of women 
and children, critics would also object to an amendment that Senator 
Torricelli offered in the Judiciary Committee--an amendment that added 
tort judgments for intentional torts causing personal injury or death 
to the list of non-dischargeable debts. But the Torricelli amendment 
passed without objection in committee. As a society, we have decided 
that people who do harm to others should be held accountable for their 
actions. Senator Torricelli's amendment will do that, and I support it.
  Let us keep several points in mind about the debts that are made non-
dischargeable by the bill. First, even though they are made non-
dischargeable, they are given a lower priority for payment than child 
support and alimony. The Hatch-Grassley-Kyl amendment makes that 
crystal clear.
  Second, the debts made newly non-dischargeable by the bill include 
debts incurred by fraud, debts run up on the eve of bankruptcy by those 
with no intention or no ability of paying, and debts that are incurred 
to pay otherwise non-dischargeable debts. We are

[[Page S10190]]

talking about abusive use of credit. Are those who still contend we 
have not gone far enough really suggesting that individuals who engage 
in fraud and other abusive credit practices should be allowed to have 
those debts erased or otherwise sanctioned by the bankruptcy code? I 
hope not.
  When people run up debts they have no intention of paying--when 
people are allowed to walk away from fraud and other harm caused to 
others--they shift a greater financial burden onto honest, hard-working 
families in America, including those that depend on child support to 
make ends meet. As I indicated at the beginning of my remarks, 
estimates are that bankruptcy costs every American family an extra $400 
a year. Bankruptcy reform can reduce that burden.
  Former Senator Lloyd Bentsen, who served as President Clinton's 
original Treasury Secretary, wrote an excellent column about abuse of 
the bankruptcy code, and ask it be printed in the Record at the 
conclusion of my remarks.
  Madam President, failure to pass bankruptcy reform this year would be 
unfair to the millions of Americans who play by the rules, work hard 
every day, and struggle to pay their bills.
  This bill does not go as far as I would like, but in the interest of 
moving it to final passage in the relatively short amount of time 
before adjournment, I will support the bill in its current form. I hope 
my colleagues will join me in voting in favor of the legislation.
  I ask unanimous consent that the article by former Senator Bentsen be 
printed in the Record.
  There being no objection, the article was ordered to be printed in 
the Record, as follows:

                      Get Tough on Bankruptcy Laws

                           (By Lloyd Bentsen)

       One of the most troubling financial contradictions of this 
     decade of solid economic expansion is that while inflation 
     has been low, unemployment down and personal income up, 
     personal bankruptcies have been skyrocketing. Real per capita 
     disposable income grew by 13 percent from 1986 to 1996, while 
     personal bankruptcies more than doubled, hitting a record 
     high of 1.2 million last year. This divergence between a 
     healthy economy and rapidly rising bankruptcy filings is due 
     to a relatively new phenomenon--the ``bankruptcy of 
     convenience.''
       This dramatic increase in personal bankruptcies has come 
     with no corresponding growth in the traditional factors that 
     correlate with bankruptcy--divorce, catastrophic health 
     crises and job loss: The increase is driven largely by a 
     federal bankruptcy system that discourages personal 
     responsibility by encouraging people who can afford to pay 
     down their debts to simply walk away from them through 
     bankruptcy.
       With growing frequency, bankruptcy is being treated as a 
     first choice rather than a last resort, a matter of 
     convenience rather than necessity. According to a Purdue 
     University study, nearly half of the people who file for 
     bankruptcy could repay a significant amount of their 
     outstanding obligations, but instead choose to renege. 
     Bankruptcies of convenience now constitute a significant and 
     rising percentage of personal bankruptcy filings, and the 
     cost to consumers from this trend is enormous.
       When irresponsible spenders who can afford to pay all or 
     part of their debt declare bankruptcy, consumers and other 
     borrowers get stuck with the tab. It has been conservatively 
     estimated that personal bankruptcies amount to a hidden tax 
     of $408 per household personally, and it takes 15 responsible 
     borrowers to cover the cost of one bankruptcy of convenience.
       The ease with which a bankruptcy can currently be obtained 
     irrespective of need is captured in a recent advertisement: 
     ``Financial problems? Get instant relief. You may be able to 
     keep everything--Payback nothing!'' The brazenness of this 
     advertisement is indicative of how far bankruptcy laws 
     have traveled from their original intent.
       My former colleague Sen. Daniel Patrick Moynihan, Democrat 
     of New York, coined an apt phrase for describing this and 
     other similar lapses in societal responsibility. He called it 
     ``defining deviancy down.'' To a growing number of middle 
     class and fairly wealthy Americans, it is perfectly 
     acceptable to treat bankruptcy as a financial planning tool, 
     and to expect others to pay the price for debts that they 
     choose not to honor--even if these obligations can reasonably 
     be repaid over time. While, there is nothing wrong in 
     legitimately admitting financial defeat by filing bankruptcy 
     when one cannot repay debts, many people seem to be losing 
     the justifiable sense of embarrassment Americans once felt in 
     asking others to shoulder their burden.
       Congress and the administration should act to stem the 
     expensive and corrosive spread of bankruptcy abuse, while 
     taking care to protect the ability of people with legitimate 
     financial problems to enter into bankruptcy. The first step 
     toward reversing this trend is a bill that Reps. Bill 
     McCollum, Florida Republican, and Rick Boucher, Virginia 
     Democrat, introduced Wednesday that would shield consumers 
     and responsible borrowers from the costs forced on them by 
     bankruptcy abusers in the form of higher costs or tighter 
     credit.
       The aim of the McCollum-Boucher bill is simple. It would 
     reestablish the link between bankruptcy and the ability to 
     pay one's debts. This is simply a matter of equity and 
     responsibility, and this bipartisan bill should enjoy broad 
     support. Over the course of the past two decades, the 
     connection between financial means and bankruptcy has been 
     severed by federal legislation, and by a change in social 
     mores removing the stigma from filing bankruptcy. In 1978, 
     Congress loosened bankruptcy standards to such an extent that 
     one's financial condition is hardly a consideration anymore. 
     At the same time, our society ``defined down'' the personal 
     responsibility of borrowers to make good on their debts.
       Now, it is the responsibility of the Congress to act to 
     rectify this problem, it inadvertently helped to create two 
     decades ago. In the Senate and as secretary of the Treasury, 
     I worked with legislators from both parties to pass 
     legislation that promotes habits that lead to financial self-
     sufficiency. Failure to legislatively stem the rising tide 
     of bankruptcies of convenience, however, could endanger 
     the progress made through these incentives for saving and 
     investment. In addition to raising questions of fairness, 
     imprudent use of bankruptcy laws could also produce an 
     undesirable market response.
       Both Democratic and Republican members of Congress, and the 
     administration, have a duty to safeguard our growing economy. 
     As an article in the August 4 issue of Fortune magazine 
     noted: ``Eventually, a rising bankruptcy rate leads to 
     tighter credit. Today's default rate is beginning to eat into 
     some national lenders' profits, and some of them are already 
     starting to pull back....Some restraint may be beneficial, 
     but too much could mean a major credit squeeze.'' Our current 
     level of economic growth cannot continue without sufficient 
     investment and available credit. A rising tide of 
     bankruptcies will sink all ships--and most hurt those who 
     need credit most.
       I am optimistic that Congress will address this burgeoning 
     problem and firmly believe that the public supports change. 
     Public opinion is running strongly in favor of tighter 
     bankruptcy laws. Seventy-six percent of respondents to a poll 
     conducted for the National Consumers League said that 
     individuals should not be allowed to erase all their debts in 
     bankruptcy if they are able to repay a portion of what they 
     owe, and 71 percent said it is too easy to declare personal 
     bankruptcy.
       In the United States, we believe that through hard work 
     anyone can become a success. America's bankruptcy laws 
     reflect a fundamental element of our nation's entrepreneurial 
     spirit. Their intent is to ensure a fresh start for those who 
     try and fail, and they form an important thread in our social 
     safety net. But when some people systematically abuse a 
     system at great expense to the rest of the population, 
     twisting the fresh start into a free ride, Congress must step 
     in and tighten up the law to protect those who unfairly bear 
     the cost. When it comes to bankruptcies of convenience, that 
     time has come.

  Mr. GRASSLEY. Madam President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. BIDEN. Madam President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. BIDEN. Madam President, I ask unanimous consent--I have the 
impression that this is all right with the majority and minority--that 
I be able to proceed as in morning business to speak on the situation 
in Russia for up to 30 minutes, or shorter if anyone comes to the floor 
and wishes to resume the business of the Senate?
  The PRESIDING OFFICER. Hearing no objection, it is so ordered.

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