[Congressional Record Volume 144, Number 125 (Friday, September 18, 1998)]
[Senate]
[Pages S10567-S10573]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                 CONSUMER BANKRUPTCY REFORM ACT OF 1998

  Mr. NICKLES. I ask unanimous consent that the Senate resume 
consideration of the bankruptcy bill.

[[Page S10568]]

  The PRESIDING OFFICER. Is there objection?
  Without objection, it is so ordered. 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 bankruptcy protection, and for other 
     purposes.

  The Senate resumed consideration of the bill.
  Pending:

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

  Mr. NICKLES addressed the Chair.
  The PRESIDING OFFICER. The Senator from Oklahoma.
  Mr. NICKLES. For the information of all of our colleagues, the Senate 
has resumed consideration of the bankruptcy bill and will hopefully 
make some progress on the remaining amendments to that bill. However, 
no further votes will occur during today's session. The Senate, as 
previously ordered, will have a tabling vote on the minimum wage issue 
on Tuesday. That vote will occur at 2:20 p.m. The vote at 2:20 on 
Tuesday will be the first vote of the week in observance of the Jewish 
holiday, Rosh Hashanah, which occurs on Monday. It is my hope that 
other amendments will be stacked in sequence to occur after the 2:20 
p.m. vote. I appreciate all of my colleagues' consideration.


                Amendment No. 3602 to Amendment No. 3559

(Purpose: To ensure payment of trustees' costs under chapter 7 of title 
    11, United States Code, of abusive motions, without encouraging 
          conflicts of interest between attorneys and clients)

  Mr. FEINGOLD. Mr. President, I rise to offer this amendment for 
myself and Senator Specter, and I send the amendment to the desk.
  The PRESIDING OFFICER. The clerk will report.
  The legislative clerk read as follows:

       The Senator from Wisconsin [Mr. Feingold] for himself, and 
     Mr. Specter, proposes an amendment numbered 3602 to amendment 
     no. 3559.

  Mr. FEINGOLD. Mr. President, I ask unanimous consent reading of the 
amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       On page 5, strike Section 102(3)(A) on lines 18 through 25.
       On page 5 on line 17 after ``bad faith,'' insert:
       ``(3)(A) If a panel trustee appointed under section 
     586(a)(1) of title 28 brings:
       (i) a motion for dismissal under this subsection and the 
     court grants that motion and finds that the action of the 
     debtor in filing under this chapter was not substantially 
     justified, the court shall order the debtor to reimburse the 
     trustee for all reasonable costs in prosecuting the motion, 
     including reasonable attorneys' fees; or
       (ii) a motion for conversion under this subjection and the 
     court grants that motion the court shall award reasonable 
     costs in prosecuting the motion, including reasonable 
     attorneys' fee, which shall be treated as an administrative 
     expense under Section 503(b) in a case under this title that 
     is converted to a case under another chapter of this title.''

  Mr. FEINGOLD. Mr. President, section 102(A)(3) of S. 1301, the 
section of the bill that would make a debtor's attorney responsible for 
the costs and the fees of the trustee if the attorney loses a 707(b) 
motion and the chapter 7 filing if it is found not to be 
``substantially justified'' is a very troubling provision.
  As we know, a 707(b) motion does allow the court to dismiss or 
convert a bankruptcy petition. This is an important safeguard that 
protects the bankruptcy system from having abusive chapter 7 filings. 
There certainly is some abuse by some debtors' attorneys. However, this 
provision does not punish the attorneys. It actually punishes their 
clients.
  This provision, Mr. President, in effect, will deny debtors their 
right to be represented by counsel. What it will do is deny debtors any 
meaningful access to chapter 7 of the bankruptcy code. Therefore, 
ultimately, this provision will have the effect of denying debtors 
equal access to justice.
  This bill makes the debtor's attorney responsible for the costs and 
fees of the trustee--not if the bankruptcy filing was brought in bad 
faith, not if the bankruptcy was frivolous, but only if the motion was 
``not substantially justified.''
  I believe this is unprecedented in American law. Parties--not their 
lawyers--are sometimes assessed fees under fee shifting statutes that 
are designed to level the playing field or encourage certain types of 
suits. However, unlike section 102(A)(3), every other provision in 
which lawyers are assessed fees requires affirmative wrongdoing by the 
lawyer. In every other case the lawyer has to be found to, in effect, 
have been guilty of affirmative wrongdoing.
  As we all know, the standard of ``not substantially justified'' is a 
significantly lesser standard than a ``frivolous'' standard. Indeed, 
the Supreme Court held in Pierce v. Underwood that ``not substantially 
justified'' is a standard ``greater than general reasonableness,'' but 
a standard which ``falls short of that necessary to issue sanctions for 
frivolousness.''
  Given the vaguely defined contours of this standard, it is likely 
that cases would be dismissed in which there was a good-faith argument 
that the chapter 7 filing was proper. Indeed, in other contexts, courts 
have interpreted that the ``not substantially justified'' standard is 
widely varying.
  The impact in this provision will be, in effect, to eliminate the 
filing of chapter 7 cases by debtors' attorneys except in the most 
clear-cut cases, regardless of whether a chapter 7 filing would 
actually be in the best interest of the client. Obviously, very few, if 
any, debtors' attorneys are likely to put their own finances and 
welfare on the line for such a filing. Or if a few debtors' attorneys 
do continue to handle such cases, they will likely raise their fees to 
account for this tremendous risk, thereby pricing themselves out of the 
market except for the most wealthy of debtors. It is an oxymoron to 
talk about the wealthiest of debtors.
  In the end, the result of this attorney's fees provision is that many 
debtors will be denied the benefit of counsel if they wish to file for 
chapter 7. In other words, many chapter 7 debtors will be forced to 
proceed pro se. As we have recently seen in the well-publicized abuses 
by Sears and others, many pro se debtors, due to their lack of 
knowledge about the system, suffer abuse under existing bankruptcy law.
  The bill, as a whole, supplies potentially unprincipled creditors 
with many new tools to take advantage of pro se debtors. The bill would 
allow an unscrupulous creditor to make threats of 707(b) motions, 
threats of discharge ability complaints, and threats of repossessing 
household goods, which may ultimately result in debtors signing ill-
advised reaffirmation agreements.
  In addition, the attorney's fees provision, because it will compel 
many debtors now to file pro se, will likely result in a number of 
debtors having their petitions dismissed for even trivial or procedural 
mistakes.
  As you know, pro se cases are frequently dismissed because debtors 
file papers incorrectly and cannot correct them quickly enough. And, of 
course, this bill, by forcing more and more debtors to go with pro se 
representation, simply exacerbates this problem.
  Mr. President, Section 303 of the bill creates a presumption of bad 
faith when a case is dismissed for failure to file the required papers 
in the proper form. This provision, coupled with the fact that 
significantly more debtors will be forced to file pro se, will mean 
that many people who filed in good faith will have their petitions 
dismissed and, thus, will never receive their rightful bankruptcy 
relief.
  Moreover, in this the bill's current attorney's fees provision is 
maintained; it will have the perverse effect of increasing abuses in 
this area. As previously noted, this provision will cause attorney fees 
to increase; therefore, more people will be unable to pay attorneys. In 
addition to catalyzing the pro se problems that I have already 
discussed, the provision will also cause nonattorney petition preparers 
to proliferate and they--much more so than debtors' attorneys--have, 
unfortunately, historically been the No. 1 source of the abusive 
bankruptcy filings, which this entire bill is so focused upon.
  Indeed the nonattorney petition preparers have always been most 
prevalent where bankruptcy attorney's fees are the highest, notably in 
southern California and, to a lesser extent, in cities like New York. 
Very few pro se debtors actually prepare their own papers. Most have to 
seek help from these petition preparers who sometimes do a terrible job 
for them, give faulty legal advice, and file cases that often prejudice 
the debtor as well as landlords, mortgage companies, and other 
creditors.

[[Page S10569]]

  Mr. President, in the end, on an issue like this, we have to be 
honest with ourselves. These attorney fees provisions are designed to 
intimidate lawyers into counseling against a chapter 7, plain and 
simple; that is the goal. This is inherently troubling, but such a 
provision, Mr. President, creates a blatant conflict of interest 
between the debtor's attorney and his or her client. What if the client 
has a valid chapter 7 case and would be better served by a chapter 7? 
Under this new rule, if we don't change it with this amendment, the 
attorney will have the perverse incentive to counsel his or her client 
to enter into chapter 13 in order to protect the attorney's financial 
interests.
  This issue was actually raised at one of the hearings called by the 
Senator from Iowa, Senator Grassley. A powerful and troubling example 
was offered to illustrate the dilemmas that bankruptcy lawyers will 
potentially face under this bill.
  The scenario presented was that of a client who supports an elderly 
relative. Since a lawyer could not be sure if supporting an elderly 
relative would be considered a ``reasonable living expense,'' the 
lawyer would be taking a risk, a personal risk, by filing for chapter 7 
and zealously arguing--as the attorney is required to do--her or his 
client's case. Indeed, rule 1.7(b) of the Rules of Professional Conduct 
specifically prohibit a lawyer from handling a case ``if representation 
of that client may be materially limited by the lawyer's * * * own 
interests.'' Mr. President, this bill would institute a scenario in 
which a debtor's attorney would arguably violate this rule whenever 
chapter 7 is at issue.
  The amendment I am offering aims to prevent the inevitable conflicts 
of interest, perverse incentives, and harm to vulnerable good-faith 
debtors that this provision would create. My amendment would simply 
make all reasonable costs of prosecuting a 707(b) motion incurred by a 
trustee an administrative expense. Characterization of trustees' fees 
as an administrative expense would then ensure that the trustee receive 
reimbursement if the debtor's case is dismissed or converted; but what 
it would do, also, is prevent the conflict of interest specifically 
prohibited by the Rules of Professional Conduct that I just mentioned.
  Senator Specter and I offered in committee an amendment that would 
have amended the bill to provide that the debtor's attorney would only 
be liable if his or her chapter 7 filing was frivolous. This amendment 
would have simply placed debtors' attorneys in the same position as all 
other attorneys. That is, they would only be held personally liable if 
they engaged in some kind of affirmative wrongdoing.
  This proposed amendment was, however, defeated in committee, but it 
was defeated by a 9-9 vote. Those Senators who voted no on our 
amendment claimed they were doing so because they wanted to maintain 
the financial incentive for panel trustees to challenge allegedly 
abusive chapter 7 filings. We have carefully, and in response to that, 
recrafted our amendment to retain this financial incentive. Under this 
amendment, the panel trustee who successfully challenges a chapter 7 
filing will be rewarded for their efforts.
  In addition, if the debtor's attorney does file a frivolous chapter 
7, that attorney will be punished. Just as every other attorney can be 
sanctioned for frivolous filings, the bankruptcy code already provides 
for sanctions to be assessed against an attorney who has actually acted 
in bad faith.
  So, Mr. President, in sum, my amendment seeks to equitably reimburse 
the panel trustee if he or she is forced to prosecute a party who 
inappropriately filed for chapter 7; but it also tries to strike the 
right balance by striving to protect a debtor's right to counsel. 
Nothing is more fundamental to our legal system than the right of every 
American to be represented by a qualified and zealous attorney. We 
should not risk compromising this right, particularly for vulnerable 
parties who often seek protection under the bankruptcy system.
  I strongly urge my colleagues to make this change, which I think 
would be in the spirit of improving this piece of legislation that both 
the Senator from Iowa and the Senator from Illinois have worked so 
diligently on.
  I yield the floor.
  Mr. GRASSLEY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Iowa.
  Mr. GRASSLEY. Mr. President, I thank the Senator from Wisconsin for 
bringing this issue up. It is one that had a close vote in the 
committee. I presume it has a legitimate place in discussion on the 
floor of the Senate because of the very close vote. However, I opposed 
it in committee, and I intend to oppose it here on the floor of the 
Senate.
  I would say that in this area, Senator Durbin and I have tried to 
respond to some of the concerns that Senator Feingold has had. We did 
include in our legislation, as a result of his proposals in committee, 
that when a lawyer was substantially justified in feeling that this 
person should be placed in chapter 7, the penalties that we have in the 
bill otherwise applicable to lawyers who would put people in 7 that 
should be in 13, would not be applicable if the judge found so.
  But this amendment--and I apologize to the distinguished Senator from 
Wisconsin--just goes too far. I think we need to look at some of the 
basic reasons why we have legislation. Not everybody would agree with 
my long list of reasons that we ought to have legislation; but, 
obviously, I have talked about the lack of personal responsibility.
  Second, we have had Congress for 30 years setting a bad example for 
the individuals of America because we have had 30 years of deficit 
spending. What sort of a signal does that send to the people of this 
country? If the government can do it, surely they can do it. Hopefully, 
we will get over that hurdle this year. For the first time in 30 years, 
we will have a balanced budget. Hopefully, I think we are going to pay 
down something like $63 billion on the national debt, and hopefully 
even more than that.
  We also have the credit card industry that we have talked about here 
in the last several days on this bill. Maybe they are not careful 
enough about who they encourage to use credit cards and go into debt 
with the credit card purchase of goods and services. But we have a very 
aggressive bar. That is my feeling--that the bankruptcy bar is not 
counseling their clients like they used to of whether or not they could 
go into bankruptcy. We even hear that it isn't the lawyer that can get 
people into bankruptcy, it is a legal aid, a legal assistant, who can, 
through the forms that are made and the electronic filing of collecting 
a fee, very quickly get people into chapter 7. We are trying to deal 
with the behavior of the bankruptcy bar in the sense that we want them 
to get to the point where they are counseling people. Should they be in 
bankruptcy at all? And, second, should they be in chapter 7, or chapter 
13?
  So, obviously, if we feel that there has been some abuse of the 
present practices of the bar, we want to make sure that we have 
disincentives for people to go into 7, if they go into 13. And we have 
used disincentive penalties against the legal profession, if they 
should have been in 13 against the lawyers, I should say, who advise.
  We have responded to some of those concerns that Senator Feingold has 
already raised. But we can't respond to all of them.
  I strongly oppose this amendment, because one of the key features of 
our bill is that it holds debtor lawyers accountable for their actions. 
We do this by imposing fines when they steer clients into chapter 7 who 
otherwise can repay their debts.
  We all have heard stories about the bankruptcy mills which recklessly 
send people into bankruptcy and process people in bankruptcy like 
sometimes we process cattle. Any meaningful reform must address the 
issue. The Grassley-Durbin bill does that--S. 1301, the bill before us.
  This amendment by Senator Feingold, in my estimation, would 
effectively nullify the new financial incentives for debtor lawyers to 
act responsibly. This amendment completely takes away the fines that 
bankruptcy lawyers must pay when they recklessly steer people to have 
the ability to repay their debts into chapter 7 and away from chapter 
13. These fines will be an effective and meaningful way to ensure that 
lawyers advise clients responsibly.
  If adopted, this amendment will allow bankruptcy mills to continue

[[Page S10570]]

turning out knew bankruptcy cases. Under this amendment, a debtor's 
lawyer who is deliberately ignorant of a debtor's ability to repay his 
debt gets off scot-free. Perhaps we should call this amendment the 
``Bankruptcy Mills Protection Act.''
  I oppose this amendment and urge my colleagues to do so.
  The amendment will not provide true financial incentives for chapter 
7 trustees to go over all of the filings that are in chapter 7 and find 
out which ones can be removed to chapter 13, because this work of the 
public trustees--chapter 7 trustees--is one of the two major tools that 
we have to make sure that people who have the ability to repay debt do 
it rather than getting off scot-free, as most often happens in chapter 
7.
  The Feingold amendment won't provide a penny when a 707(b) motion is 
acceptable and the case is then dismissed. In that case, there won't be 
a chapter 13 case to allow trustees to collect expenses.
  I ask my friends to help us keep this bill tightly written so that 
there is, in fact, a change of behavior among bankruptcy lawyers to 
advise clients to be responsible for debt--to maybe not go into 
bankruptcy at all, or if bankruptcy would be charted to chapter 13 as 
opposed to chapter 7.
  I yield the floor.
  Mr. FEINGOLD addressed the Chair.
  The PRESIDING OFFICER. The Senator from Wisconsin.
  Mr. FEINGOLD. Mr. President, I enjoy and appreciate working with the 
Senator from Iowa on many issues, and I have enjoyed all of his remarks 
except for the suggestion that somehow this is going to be a bad-faith 
attempt to try to improve the bill, or somehow attempt to benefit 
attorneys.
  I feel like I identified some very specific arguments that are real 
and that are important to the legal system; and, that, although I share 
the concerns of the Senator about the general system, in fact I think 
there are abuses in chapter 7. There is no question about that. But 
what I tried to do is craft an amendment that creates a fair balance. I 
am not trying to prevent punishment of an attorney who does something 
wrong.
  But let me just quickly review the arguments about why this is a 
reasonable amendment and I don't think was responded to.
  First of all, I heard nothing about my argument that this creates a 
conflict of interest. A lawyer has a responsibility under the rules of 
professional conduct to zealously advocate on behalf of their client. 
Therefore, it is very rare that our legal system would function well 
and that attorneys would zealously advocate for their clients if they 
are afraid that their family and their house could possibly be taken 
away because they might be assessed with the entire cost of litigation. 
That is the conflict of interest that this creates.
  The Senator suggested in an attempt to suggest that we are going to 
leave no opportunity to punish a wrongdoing lawyer that there is 
nothing left. That isn't true. Under the Federal Rules of Civil 
Procedure and under the Bankruptcy Code there are rules about filing 
frivolous claims. In fact, I remember when I was a young attorney. The 
first thing I learned when I came into the office as a young associate 
was you had better not file a pleading that is frivolous or you might 
be personally assessed for having done so. That is applicable to these 
situations and would be effective.
  There is no truth to the suggestion by the Senator from Iowa that the 
attorney can go off scot-free, if he brings up a ridiculous claim.
  Furthermore, in fairness to the Senator from Iowa, he did make a 
point about whether a trustee would be protected in getting his fees in 
a situation where the case is dismissed. We sent a modified version of 
this to the desk which addresses that issue. We understood the point of 
the Senator from Iowa. We listened to him and modified our amendment 
from committee, because it was pointed out in that there was a 
conversion from a chapter 7 to a chapter 13; that in that case the 
trustee would be protected, but not if the chapter proceeding was 
actually dismissed. That is a fair point. We changed it. It applies to 
both the dismissal as well as the conversion.
  I hope it is clear from the Record that the Senator's comments about 
that provision relates to the amendment we originally proposed, but not 
the amendment that was sent to the desk.
  Finally, Mr. President, let's talk for just one second about the real 
effect of this.
  The provisions that are in the bill relate only to ``counsel''--an 
attorney, a licensed attorney. If this goes through and attorneys feel 
a fear of being assessed these fees in a case where they can't bring a 
case that they know is airtight, and they don't represent the client, 
who do they go to? They go to these petition preparers. These petition 
preparers are the very people who are most likely to do a sloppy job 
and not care if they bring a frivolous proceeding.
  But guess what, Mr. President? The petition preparer isn't 
responsible. The petition preparer would not be under this standard. So 
what you are doing is pushing these debtors from legitimately licensed 
attorneys, who know what they are doing, hopefully, to people who are 
basically in many cases scamming people, and they would have no 
responsibility at all. That is bad for the debtor. It is bad for the 
creditor. That is bad for the legal system. That is bad for the 
congestion in the courts as a result of the bankruptcy system. For all 
of these reasons, we have a frivolous standard.
  We make sure that the trustee is protected, whether it is a 
dismissal, or a conversion. And we try to address the inherent conflict 
of interest that exists when an attorney has to wonder if their own 
personal finances are going to be affected because they think they have 
addressed the best interests in arguments on behalf of a client but 
they are not certain. This goes too far, and I really hope in good 
faith that the Senator takes a look at these arguments and the 
modifications we have made, and considers that this really is a 
reasonable balance in the context of the larger bill.

  I yield the floor.
  Mr. SESSIONS addressed the Chair.
  The PRESIDING OFFICER (Mr. Kyl). The Senator from Alabama.
  Mr. SESSIONS. I thank the Chair.
  I thank Senator Grassley and Senator Durbin for the great work they 
have done in building bipartisan support for this bankruptcy bill. I 
think this is a historic step forward in bringing integrity and 
fairness and efficiency to the bankruptcy system. It came out of the 
committee with a 16-to-2 positive vote, and I think that reflects the 
strong bipartisan support this bill has.
  With regard to Senator Feingold's concerns about this provision, it 
is not for punishment of a lawyer who files these bankruptcy petitions. 
It simply defines the standard of care they ought to adhere to. We are 
always having the plaintiff lawyers tell us that they cannot do 
anything to reduce the standard of care on the part of private 
businesses. For example, they argue that we must not lower the standard 
of care for doctors because it might result in a patient or user of 
their product being injured or somehow being harmed. Nothing can reduce 
that, but yet at the same time the bar will take as much protection as 
they can get for anything they do in their professional capacity for 
which they were hired.
  Bankruptcy lawyers are not mere clerks, although the truth is, for 
those of us who know what is going on, most of the bankruptcy filings 
in America are done by lawyers who run bankruptcy mills, who advertise 
in phone books and newspapers and on television and radio, which just a 
few years ago lawyers could not do. In fact, there is some indication 
that the dramatic rise in bankruptcy is derived more from attorney 
advertising and the encouraging of people to file bankruptcy than any 
other factor. Particularly this appears to be true in light of the fact 
we have more bankruptcies in a time of strong economic growth and 
prosperity in this country.
  So I say to you, these lawyers have to comfort to some standard of 
care.
  What does Senator Grassley's bill say? It says they ought to be 
substantially justified in filing their bankruptcy under chapter 7. 
That is all. What is bad about that kind of standard? And if they are 
not substantially justified, what happens?
  Take for example, a person with a $100,000 income, and let's assume 
someone sues that person for an automobile accident and wins a $25,000 
judgment

[[Page S10571]]

against them. Although the judgment need not be that high, it could be 
any amount that the person does not want to pay. So they go to their 
lawyer and ask him how they can get out of paying it, and he says 
``file bankruptcy.'' This will wipe out the debt, although he could 
have paid it on the income level he has.
  When the case comes to the bankruptcy court, they file under chapter 
7, which would eliminate all debts. The chapter 7 trustee objects, and 
they hold a hearing. They present evidence, and they say: ``No, you 
should go into chapter 13 because you do not qualify for chapter 7.'' 
And then the judge must go further. Under the Grassley version, the 
judge must find not that the lawyer made a mistake but he was not 
substantially justified in filing the petition under chapter 7. Then he 
can assess the attorney the cost of that hearing--not huge amounts of 
attorney's fees, just the cost of the hearing that had to be held on 
the complaint of the chapter 7 trustee.
  Let me ask you--it comes down to this--who pays? Who pays for the 
expense of having to challenge this chapter 7 petition which was not 
substantially justified? Under Senator Feingold's proposal, it would be 
an administrative expense. That sounds OK, but we know in this country 
that there ``ain't no free lunches.'' You have heard that saying. 
Somebody always pays. Who pays, in this case, the administrative 
expense? The people who pay will be the ones who are owed money, the 
creditors, the ones who have not and probably will not be paid all they 
are owed, and it comes out of the money that goes to them. They pay for 
the lawyer filing a petition that is substantially unjustified.
  When we come down to the choice of who ought to pay, I say the lawyer 
ought to pay. He ought to be sure of what he is doing when he files the 
petition. He should know where it ought to be filed. I do not think 
that presents a conflict of interest. I understand that you could 
conjure that up as some theoretical possibility, but the truth is, 
under ethical rules of practice today, a lawyer cannot file a complaint 
he does not believe to be justified. He is required to do some 
preliminary work before he files it.
  So I do not believe that this would be contrary to the standards that 
are required currently of lawyers in what they do. And, again, it 
requires the action of a judge. And a bankruptcy judge knows these 
lawyers. There is usually a small group of lawyers that file the 
overwhelming number of bankruptcy cases in their courts, and many are 
not going to be unfairly abusing these lawyers. However, when a judge 
sees one who is consistently filing chapter 7 petitions that ought to 
have been filed in chapter 13, and his trustee has to have hearings and 
challenge it, and there are not sufficient facts to justify it, then he 
is going to have the opportunity under this bill to assess some costs 
against that attorney.
  This is not going to bankrupt the attorney. I know of attorneys in 
Alabama who are running advertisements, who are making $1,000 per 
bankruptcy case and filing 1,000 cases a year. They are making big 
bucks off this system. Maybe they are justified in doing that, but they 
ought to on occasion, when they make the point to go to great expense 
to hold a hearing, have the trustee challenge what they have done, and 
then find out they are not substantially justified--they ought to pay.
  I hope we will keep the Grassley amendment. The other alternative is 
to keep the present standard of assessing costs against an attorney, 
and that is the standard of frivolousness. That is a very high 
standard, and the net effect of the frivolousness standard is that 
nobody will ever recover, because it is just very, very difficult to 
meet that standard.
  The bankruptcy judges are not going to abuse these attorneys. It will 
give the bankruptcy judges a little leverage, a little power to say to 
these attorneys who are filing cases recklessly without enough thought, 
causing the creditors to lose money and otherwise abuse the system, 
that they can bring a little integrity to and have some watchfulness 
over the system and maintain discipline on the lawyers who practice 
there.
  I understand the Senator's concern about it, but I do not see this as 
an extreme position at all. I think it is quite consistent with the 
bankruptcy court. I believe it will help, as Senator Grassley said, 
make sure people file their petition right the first time. If it is 
chapter 13, they ought to file in chapter 13, not in chapter 7 on a 
theory that, well, we will just have a hearing and maybe we will win or 
maybe they won't object. We need it filed right the first time so we 
will have fewer proceedings to transfer the action. That is the purpose 
behind this and I think the Feingold amendment would undermine that 
purpose.
  I thank the Chair for this time. I yield the floor.
  Mr. FEINGOLD. Mr. President, it is fairly easy to try to make the 
words ``not substantially justified'' sound like a reasonable standard. 
But what really is going on here is an intrusion into the attorney-
client relationship that is very dangerous.
  I practiced law for several years before running for the Wisconsin 
State Senate, and I remember always when looking at a client's 
argument--first of all, I obviously didn't think I could file any 
argument that was frivolous. That was prohibited both under the Federal 
Rules of Civil Procedure and under the Wisconsin Rules of Civil 
Procedure. But there would be a number of occasions where we would have 
two or three possible arguments to make. One we might think was our 
strongest argument, and then another might be our sort of middle 
argument, and then there might be a third legal argument where it was a 
long shot but we thought the facts were strong. Any good lawyer would 
bring all three of those arguments, in most cases, because if a judge 
found any one of the three to be persuasive, that could be the basis.
  I like to think I would have had the courage as a young attorney to 
go forward with that third argument, even with this provision. But I 
didn't have any money, and if I thought that bringing that third 
argument could cause me to be assessed with attorney's fees that would 
make it impossible for me to pay my mortgage--I am human. I wonder if I 
would have done what is right, which is to counsel that client: This 
one is about a 25-percent possibility, but under the right facts, and I 
think you might have the right facts here, sir, you ought to bring it.
  Lawyers should not be put in a position where they believe, except 
for cases where there is a frivolous claim, that bringing an argument 
will cause them to have personal harm come to them. That destroys the 
whole notion of zealous advocacy. This is a serious problem for the 
relationship between attorney and client, and I really do think to 
suggest that the ``not substantially justified'' standard is simply a 
reasonable restraint does not show an understanding of what really goes 
on in a situation where a lawyer and client sit down and try to come up 
with the best argument possible. So I reject that suggestion and again 
urge the adoption of the amendment.
  The PRESIDING OFFICER. The Senator from New Mexico.
  Mr. DOMENICI. Mr. President, might I inquire of the proponent of the 
amendment, and the floor manager on the Democratic side, how much more 
time will be consumed on the bankruptcy matter this morning? I have a 
speech which I should have gotten up and offered 15 or 20 minutes ago, 
before we started this.
  Mr. FEINGOLD. Mr. President, I am merely responding to arguments made 
in response to my arguments. When that ceases, I will cease. I was 
asked to come down here and offer two amendments this morning. This is 
the first. If it is in the interests of the Senate that I defer the 
second to next week, I will be happy to do that, as long as I am 
assured my opportunity to present it at that time.
  I have nothing further to say on this amendment, unless somebody 
wants to debate it further.
  Mr. DOMENICI. I have no desire to prolong the amendments. I will come 
when you are all finished. I will be here today.
  The PRESIDING OFFICER. Who seeks recognition?
  Mr. DOMENICI. Mr. President, I ask unanimous consent that when the 
amendments are complete I be granted 15 minutes for a floor speech.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. DOMENICI. I thank the Chair and thank the Senator.

[[Page S10572]]

  The PRESIDING OFFICER. The Senator from Wisconsin.
  Mr. FEINGOLD. Mr. President, I rise to offer another amendment for 
myself and Senator Specter.
  The PRESIDING OFFICER. Without objection, the first amendment offered 
by the Senator will be set aside.


                Amendment No. 3565 to Amendment No. 3559

(Purpose: To provide for a waiver of filing fees in certain bankruptcy 
                     cases, and for other purposes)

  Mr. FEINGOLD. Mr. President, I send an amendment to the desk and ask 
for its immediate consideration.
  The PRESIDING OFFICER. The clerk will report.
  The bill clerk read as follows:

       The Senator from Wisconsin [Mr. Feingold], for himself and 
     Mr. Specter, proposes an amendment numbered 3565 to amendment 
     No. 3559.

  Mr. FEINGOLD. Mr. President, I ask unanimous consent that reading of 
the amendment be dispensed with.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  The amendment is as follows:

       At the appropriate place in title IV, insert the following:

     SEC. 4____. BANKRUPTCY FEES.

       Section 1930 of title 28, United States Code, is amended--
       (1) in subsection (a), by striking ``Notwithstanding 
     section 1915 of this title, the parties'' and inserting 
     ``Subject to subsection (f), the parties''; and
       (2) by adding at the end the following:
       ``(f)(1) The Judicial Conference of the United States shall 
     prescribe procedures for waiving fees under this subsection.
       ``(2) Under the procedures described in paragraph (1), the 
     district court or the bankruptcy court may waive a filing fee 
     described in paragraph (3) for a case commenced under chapter 
     7 of title 11 if the court determines that an individual 
     debtor is unable to pay that fee in installments.
       ``(3) A filing fee referred to in paragraph (2) is--
       ``(A) a filing fee under subsection (a)(1); or
       ``(B) any other fee prescribed by the Judicial Conference 
     of the United States under subsection (b) that is payable to 
     the clerk of the district court or the clerk of the 
     bankruptcy court upon the commencement of a case under 
     chapter 7 of title 11.
       ``(4) In addition to waiving a fee described in paragraph 
     (3) under paragraph (2), the district court or the bankruptcy 
     court may waive any other fee prescribed under subsection (b) 
     or (c) if the court determines that the individual is unable 
     to pay that fee in installments.''.

  Mr. FEINGOLD. Mr. President, when I heard that bankruptcy was the 
only Federal Court proceeding in which a poor person is not entitled to 
file an in forma pauperis petition, I thought there must be some 
mistake. I found it somewhat surprising, counterintuitive, that 
bankruptcy, which by definition deals with people who are broke or have 
very limited funds, does not provide even the poorest of debtors a 
waiver of the filing fee.
  The filing fee for consumer bankruptcy is $175. Mr. President, $175 
is more than the take home pay of an employee working 40 hours a week 
at the minimum wage. Tell me, how are the indigent--those who 
desperately need bankruptcy protection--going to afford $175 simply to 
file for such protection?
  Congress acknowledged that the bankruptcy system may need an in forma 
pauperis proceeding when it directed the Judicial Conference to 
implement a pilot program in six judicial districts around the nation. 
This pilot program operated from October 1, 1994, through September 30, 
1997, in the following six districts: the Southern District of 
Illinois, the District of Montana, the Eastern District of New York, 
the Eastern District of Pennsylvania, the Western District of 
Tennessee, and the District of Utah. The pilot program was clearly a 
success. Many of the judges who administered the program, and who were 
initially skeptical, now support it. In particular the pilot program 
revealed the following information:

       An application for waiver of the filing fee was filed in 
     only 3.4% of all Chapter 7 cases, and the large majority of 
     those waivers were granted. Indeed, the U.S. Trustees Office 
     filed objections to less than 1% of the applications. In 
     other words, only those very few individuals who really 
     needed the fee-waiver applied for it.
       The fee-waiver program enhanced access to the bankruptcy 
     system for indigent single women more than any other group. 
     We have heard a great deal about how this bill, S. 1301, will 
     hurt women and children. We cannot strike another blow 
     against single mothers and their children by denying them 
     access to the bankruptcy system because they cannot even 
     afford the filing fee.
       The nature of the debt for those who filed for the fee-
     waiver differed from that of other debtors in that their 
     debts more often related to basic subsistence--education, 
     health, utility services and housing. Moreover, 63 percent of 
     the housing-related debts of those who filed for the fee-
     waiver owed their debts to public housing authorities. Only 
     one of the debtors who owed a debt to a housing authority did 
     not file for a fee waiver. These findings show that indigent 
     debtors were not filing bankruptcy to escape paying for their 
     boats or their fancy entertainment systems. They were filing 
     bankruptcy merely to subsist. Oftentimes these people use the 
     bankruptcy system simply to prevent homelessness.
       There was only a minimal increase in the number of filings, 
     and there was no indication that debtors filed for Chapter 7 
     rather than Chapter 13 just to obtain the benefit of the fee-
     waiver program. Simply stated, the debtors typically did not 
     abuse the system.
       A nation-wide program would cost between $4 and $5 million 
     in lost filing fees. Projections state that there will be 1.5 
     million Chapter 7 filings next year. We can, therefore, off-
     set the cost of a nation-wide program by merely raising the 
     price of Chapter 7 filings by between $2.70 and $3.40. If we 
     increase filing fees for all bankruptcy filings we can reduce 
     that cost to about $2 per filing fee--a negligible amount.
       In short, the pilot program was a resounding success.

  I offered this amendment in committee, where it was defeated by a 9-9 
vote, with all the Democrats supporting it. One concern articulated by 
Senators who voted against the amendment in committee involved the 
possibility that, if we implement a fee waiver program, unscrupulous 
lawyers would advertise ``free filings'' and make a profit. However, 
under the program, debtors cannot obtain fee waivers if they can pay 
their lawyers; therefore, private lawyers would have no incentive to 
encourage in forma pauperis cases.
  Let me repeat that point: debtors who can pay their lawyers cannot 
obtain fee waivers. Only truly indigent people, those who need 
bankruptcy protection the most, can have their fees waived.
  The Specter-Feingold amendment would build upon the strong foundation 
established in the pilot program, and direct the Judicial Conference to 
establish a nation-wide in forma pauperis program for the bankruptcy 
court system. If we examine the findings of the pilot program we find 
that: (1) only those who really needed the assistance of the program 
used it; (2) that there was little to no abuse of the fee-waiver 
program; and (3) that the program in large measure helped those who 
needed it to subsist and, in many cases, avoid homelessness.
  Given these findings, how can we choose not to implement a nation-
wide program? Why did we direct the Judicial Conference to conduct a 
pilot program if we were not going to use the results to shape public 
policy? How, in good faith, can we deny bankruptcy relief to those who 
truly need it--those who cannot even afford the filing fee? I urge my 
colleagues to support this amendment to restore some fairness in the 
bankruptcy filing process for the most financially strapped filers. I 
yield the floor.
  The PRESIDING OFFICER. The Senator from Illinois.
  Mr. DURBIN. Mr. President, I rise in strong support of this amendment 
by the Senator from Wisconsin. He is correct. We tried this across the 
United States in, I think, six different jurisdictions, to see what 
would happen. What is at issue here is a person is about to file for 
bankruptcy and is so penniless that they cannot even afford the filing 
fee of $175, then in these six different court jurisdictions we waived 
it. That is what this is all about. We found as a result of that 
experience they didn't open the floodgates to people coming in filing 
for bankruptcy. In fact, just the opposite was true. A lot of very 
serious cases, and those called out for justice, were served by this 
program.
  One of the judges in my home State of Illinois, the southern 
district, who tried this, Judge Meyers, has written a letter to me and 
said it was quite a success and he encouraged it be done on a national 
basis.
  If there is anything that distinguishes American jurisprudence from 
some other countries, it is the fact that we have basically said the 
court system is open to the rich and poor alike. It is an oddity in our 
law that we don't allow those who are truly poor to have a waiver of 
the filing fee so that they can come into bankruptcy court.

[[Page S10573]]

  Senator Feingold has a good amendment. I was happy to support it in 
committee. I hope now, because of the evidence of its success across 
the country that has been shared on both sides of the aisle, it 
ultimately will be adopted.
  I yield the floor.
  The PRESIDING OFFICER (Mr. Gorton). Who seeks recognition?
  Mr. DURBIN. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER. The clerk will call the roll.
  The bill clerk proceeded to call the roll.
  Mr. McCONNELL. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. McCONNELL. Mr. President, I ask unanimous consent that Senator 
Kerrey of Nebraska and I be allowed to proceed for 10 minutes as in 
morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________