[Congressional Record Volume 144, Number 126 (Monday, September 21, 1998)]
[Senate]
[Pages S10649-S10651]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]


[[Page S10649]]
                 CONSUMER BANKRUPTCY REFORM ACT OF 1998

  The PRESIDING OFFICER. Under the previous order, the Senate will now 
resume consideration of S. 1301, which the clerk will report.
  The 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.
       Feingold/Specter amendment No. 3602 (to amendment No. 
     3559), to ensure payment of trustees' costs under chapter 7 
     of title 11, United States Code, of abuse motions, without 
     encouraging conflicts of interest between attorneys and 
     clients.
       Feingold/Specter amendment No. 3565 (to Amendment No. 
     3559), to provide for a waiver of filing fees in certain 
     bankruptcy cases.

  Mr. GRASSLEY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Iowa.
  Mr. GRASSLEY. Mr. President, we are now, as I understand it, on the 
bankruptcy bill. As the Republican manager for this legislation, I want 
to speak to an amendment which was offered Friday by the Senator from 
Wisconsin, Mr. Feingold, but also to speak generally about the behavior 
of the bankruptcy bar as it relates to the amount of bankruptcies that 
are being filed, which were at a historical high of 1.4 million last 
year. That was a 30-percent increase. There was probably a 25-percent 
increase in 1996 over 1995. As we all know, there is an explosion of 
filings for consumer bankruptcy.
  I have blamed some of that on the law of 1978. That is why we have 
this bill before us, to change the law so it is not so easy to go into 
bankruptcy.
  In 20 years, I have had hundreds of people talk to me about it being 
too easy to go into bankruptcy. It ought to be harder, in their 
judgment. I have not had one person say to me that it ought to be 
easier to go into bankruptcy, and I have had people who have gone 
through bankruptcy tell me how easy it is to get into bankruptcy.
  I think the law of 1978 is at fault to some extent. I think the 
situation we have with Congress with 30 years of deficit spending, that 
Government doesn't have to live within its income, sends a signal to 
people in this country that it is all right for individuals to live 
beyond their income and avoid paying for it.
  We have had a general lack of shame or personal responsibility that 
used to be associated with paying bills or not paying bills and the 
filing of bankruptcy. That is no longer the situation, although that 
can be somewhat to blame for Government not setting a good example in 
this area.
  I also think there is more than just the downfall of personal 
responsibility. We have heard lots of speeches about how the credit 
industry, particularly the credit card industry, has not been very 
careful in the number of requests they have granted for bankruptcy, or 
the willy-nilly approach--I know they will say it is not willy-nilly. 
There is a very careful study they have of who ought to be mailed a 
credit card or not mailed a credit card. But as a practical matter, 
they have been pretty darn fluid with the number of credit cards that 
have been going through the mail.
  All of these are reasons why we have this legislation before us. All 
of these are reasons why this bill was voted out of committee on a vote 
of 16 to 2. All of these are reasons why a very strong bill passed the 
House of Representatives by a veto-proof margin. And all of these, I 
think, are reasons that, hopefully, on Tuesday or Wednesday of this 
week we will pass this bill by a very substantial margin.
  As I indicated, we have as one of the amendments that we will be 
voting on tomorrow an amendment offered by the Senator from Wisconsin.
  In my earlier statements on the Senate floor, I have alluded to the 
role of the overly aggressive bankruptcy lawyers plague in fomenting 
the current crisis in our bankruptcy system. Last Friday, Senator 
Feingold offered an amendment which will insulate bankruptcy lawyers 
from fines when they encourage bankruptcy abuse.
  As reported by the Judiciary Committee, the Consumer Bankruptcy 
Reform Act fines--in other words, penalizes--bankruptcy lawyers who 
steer high-income people who can repay their debt into chapter 7. Under 
the bill, in the narrow circumstance where a chapter 7 trustee is 
successful in getting a chapter 7 case dismissed or converted to 
chapter 13, the lawyer for high-income bankruptcy will be fined if his 
or her case is not substantially justified. That is our bill.
  This fine will reimburse the chapter 7 trustee for expenses incurred 
while detecting abuses of the bankruptcy system. I think any reasonable 
person will say that lawyers who file bankruptcy cases which are not 
substantially justified ought to be required and will be required to 
help defray the costs of these frivolous cases. That is all this bill 
does. Senator Feingold wants to cut this reasonable effort to control a 
bankruptcy bar which is seriously out of control.
  Mr. President, in order for my colleagues to understand the 
importance of imposing some reasonable controls on the conduct of 
bankruptcy lawyers, I want to give a little background on the conduct 
of bankruptcy lawyers.
  Today, many lawyers who specialize in bankruptcy view bankruptcy as 
an opportunity to make big money for themselves. This profit motive 
causes bankruptcy lawyers to promote bankruptcy as the only option even 
when a financially troubled client has an obvious ability to repay his 
or her debts. In other words, this profit motive creates a real 
conflict of interest where bankruptcy lawyers push people into 
bankruptcy who don't belong there simply because they want to make a 
quick buck.
  As one of the members of the National Bankruptcy Commission noted in 
the Commission's 1997 report, many who make their living off the 
bankruptcy process have forgotten that declaring bankruptcy should have 
a moral dimension.
  As I have already said, the Consumer Bankruptcy Reform Act contains 
reasonable penalties for lawyer misconduct. These penalties will cause 
lawyers to think twice before they willy-nilly cart their client off to 
bankruptcy court and pocket a nice profit. Bankruptcy lawyers get paid 
ahead of anybody else if there are assets or, obviously, they charge 
before they are going to help you.
  Some lawyers, in their rush to turn a profit, operate what are known 
as bankruptcy mills. These bankruptcy mills are nothing more than 
processing centers for bankruptcy. There is little or no investigation 
done as to whether an individual actually needs bankruptcy protection 
or whether or not a person is able to at least partially repay some of 
his debt.
  Recently, one of these bankruptcy attorneys from Texas was sanctioned 
in bankruptcy court. According to the court, this attorney had very 
little knowledge of bankruptcy law, but advertised extensively in the 
Yellow Pages and on television. Apparently, his advertising worked, 
because he filed about 100 new bankruptcy cases a month. Most of the 
work was done by legal assistants with very limited training. The court 
concluded that the attorney's services ``amount to little more than a 
large scale petition preparer service for which he receives an 
unreasonably high fee.''
  The practices of these bankruptcy mills are so deceptive and sleazy 
that last year the Federal Trade Commission went so far--our Federal 
Trade Commission--as to issue a consumer alert warning consumers of 
misleading ads promising debt consolidation.
  Mr. President, I think there is a widespread recognition that 
bankruptcy lawyers are preying on unsophisticated consumers who need 
counseling and help in setting up a budget and who do not need to 
declare bankruptcy. Bankruptcy lawyers are the fuel which makes the 
engines of the bankruptcy mills run. It is not surprising that 
bankruptcy lawyers are leading the charge against this bankruptcy 
reform legislation.
  I want to point to some other evidence of lawyers playing a prime 
role in this effort to get people into bankruptcy and to avoid the 
payment of debt.
  We have previously heard complaints from some on the Senate floor 
about whether our bill does enough to protect child support and also to 
protect alimony during bankruptcy proceedings. I

[[Page S10650]]

have already spoken to that topic on a previous occasion, but for now, 
I want to point out that some bankruptcy lawyers actually advertise 
that they can help deadbeat dads get out of their child support and 
other marital obligations. One bankruptcy lawyer has even written a 
book entitled, as you can see, ``Discharging Marital Obligations in 
Bankruptcy,'' by James P. Caher, Esquire.
  I think it is outrageous, Mr. President, that bankruptcy lawyers are 
helping deadbeats to cheat to force spouses out of alimony and to cheat 
children out of child support. That is a recipe for promoting poverty 
and human misery. Those who want to help the collection of child 
support during bankruptcy proceedings should join me in rejecting the 
Feingold amendment to protect bankruptcy lawyers. Those who are 
concerned about protecting child support should join me to ensure 
lawyers who engage in predatory conduct are subject to stiff fines.
  Those who are concerned about protecting child support should join me 
in moving child support from No. 7 in the bankruptcy priority list to 
No. 1. This is the only way to get people's attention. This is the only 
way to restore professionalism to the bankruptcy bar.
  Let me tell you, Mr. President, how far these practices have gone. 
First, I ask unanimous consent to have printed in the Record an article 
from the Consumer Bankruptcy News dated June 18 of this year.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

           [From the Consumer Bankruptcy News, June 18, 1998]

 Bankruptcy Reform Presents Marketing Opportunity for Debtors' Counsel

       By now, you are well aware of the proposed bankruptcy 
     amendments and how they could affect the relief available to 
     consumers. But how aware of these changes is the general 
     public, especially those people who consulted with you and 
     decided to not file for bankruptcy at that time?
       James P. Caher, who represents debtors in Eugene, Ore., 
     suggests that you go through your files to check for cases in 
     which you might have recommended that a client wait before 
     filing for bankruptcy, such as if there was recent credit 
     card use or preferential payments to be preserved. Those 
     debtors might be able to discharge their credit card debts in 
     Chapter 7 today, but will they even be eligible for Chapter 7 
     relief a month from now?
       Caher recommends that you send them a letter like this one 
     that he recently sent to about 150 people who had consulted 
     with him.


                   Possible Changes in Bankruptcy Law

       My records show that you discussed your financial problems 
     and bankruptcy options with me on ________.
       During the last few months, lobbyists for the credit card 
     companies have been incredibly successful in pushing their 
     idea of bankruptcy ``reform'' through Congress. Bills have 
     been recommended by the judiciary committees of both Houses 
     of Congress and a vote is possible as soon as next month.
       I fear that some versions of these ``reforms'' will pass, 
     and, if it does, bankruptcy will be much more difficult, more 
     expensive and probably embarrassing.
       If you've been able to solve your financial problems 
     without the need for bankruptcy, congratulations. However, if 
     you are still considering that option, you should keep an eye 
     on what's going on in Congress, and consider filing before 
     this new restrictive legislation passes.
       Many of the people who received Caher's letter are trying 
     to do the right thing by paying their bills and avoiding 
     bankruptcy. It would be ironic if legislation that is 
     intended to dissuade debtors from filing for bankruptcy 
     actually encouraged it.
       Caher acknowledged that there would be some satisfaction in 
     seeing the bills backfire on the credit card industry that 
     has spent so much time and effort in pushing them, but he 
     added that he--like his clients--would much rather see the 
     bills go away.

  Mr. GRASSLEY. In this article, bankruptcy lawyers are advised to send 
out letters to anyone who has visited them recently asking about 
bankruptcy. This form letter encourages people to declare bankruptcy 
because if Congress passes bankruptcy reform, ``Bankruptcy will be much 
more difficult, more expensive and probably [even] embarrassing.''
  I hope this bill does make bankruptcy more embarrassing--and more 
difficult. In fact, I plead guilty that that is a motive behind our 
legislation. The American people want people who voluntarily incur 
debts to pay those debts as agreed. Bankruptcy should be difficult, and 
the moral stigma that used to be associated with bankruptcy ought to be 
resurrected.
  Do we say that never is anybody entitled to a fresh start? No, you 
never say ``never.'' We have not in 100 years. The bankruptcy code, the 
national bankruptcy code, is 100 years old--when it was first passed. 
There has always been a concept that, maybe because of natural 
disaster, maybe because of a lot of illness, maybe even in some cases 
because of divorce, but things beyond your control, that you ought to 
have a fresh start. And we do not detract in this legislation from that 
100-year tradition.
  But we do say no to bankruptcy lawyers who advise this way or 
bankruptcy lawyers who send out notices that say, ``You had better file 
for bankruptcy right now because Congress might pass a bill and make it 
more difficult to do it.'' Or we respond positively to the FTC sending 
out a warning to people: ``Beware of people in the bankruptcy bar who 
are not acting in a responsible manner.''
  I will give you another example of what is wrong with our bankruptcy 
system. A few weeks ago, the Washington Times quoted a local bankruptcy 
attorney advising his clients, ``. . . anybody who's going to file 
better do it now. Get in while the getting's good.''
  What has happened to the notion of bankruptcy then as a last resort? 
What has happened to any sense of personal responsibility? How can 
anyone describe filing bankruptcies as ``getting in while the getting's 
good''? Mr. President, the getting may be good for the lawyers when 
someone else files for bankruptcy, but the rest of us have to pay the 
price--a $40-billion-a-year cost, $400 per family of four. That means 
any family of four is paying $400 more every year for increased costs 
of goods and services, because there is no free lunch when it comes to 
bankruptcy; somebody pays. The consumers of America are paying. It is a 
hidden tax.
  Our bill will never do away completely with that hidden tax, but this 
legislation will reduce that hidden tax and hopefully be a small step 
towards the reestablishment of the principle of personal 
responsibility.
  So the rest of us have to pay the price. This kind of attitude about 
bankruptcy represents some of what is wrong with our bankruptcy laws 
and why the current laws need to be changed. Not only do the current 
practices of bankruptcy lawyers do a disservice to their clients, they 
also cheat society as a whole. The integrity of the bankruptcy system 
depends in part upon the honesty and the competence of bankruptcy 
lawyers.
  The Consumer Bankruptcy Reform Act makes necessary changes to correct 
abuses of the system by bankruptcy lawyers. It requires that attorneys 
investigate the financial resources of their clients. The bill holds 
attorneys responsible if they do not honestly determine that their 
clients really need bankruptcy protection.
  In other words, we are just asking that lawyers do what they are 
trained to do, and that is to counsel people, counsel people in a 
responsible way. And just willy-nilly putting people into bankruptcy 
through some bankruptcy mill is not that sort of responsible 
jurisprudence.
  If we want to keep bankruptcy available to those who really need it--
in other words, the fresh start that for 100 years people have been 
entitled to--we have to address these misuses of the system by 
bankruptcy lawyers. This bill does exactly that. And in order for this 
bill to work, we need to reject the Feingold amendment and keep the 
incentives for responsible lawyer conduct currently in the bill.
  I yield the floor.
  Mr. SESSIONS addressed the Chair.
  The PRESIDING OFFICER. The Senator from Alabama.
  Mr. SESSIONS. Mr. President, we have seen a lot of home runs hit 
lately--McGwire, Sosa, Griffey and company--but I think the Senator 
from Iowa has hit a home run. He is bringing to this Senate body his 
deeply held values arising out of his Midwest background about 
responsibility and integrity, making a system work like it ought to 
work, and standing up with courage and challenging those who would 
abuse the system.
  I think sometimes Congress passes laws that make it easy for people 
to abuse the system. Senator Grassley is taking the lead as the prime 
sponsor for this bill, with Senator Durbin, to

[[Page S10651]]

correct some imbalances. I have been honored to have served on the 
subcommittee with him and the other members of that subcommittee and to 
see a bankruptcy bill come forward that actually improves the 
bankruptcy process while at the same time not denying those who need 
bankruptcy the right and opportunity to file bankruptcy as is provided 
for in our Constitution.
  With regard to these attorneys' fees and to one of the provisions 
that would be eliminated by Senator Feingold's amendment, I would like 
to make a couple comments.
  First of all, the Feingold amendment would say that if somebody filed 
under chapter 7--that is, straight bankruptcy that wipes out all of 
your debts--and they were not substantially justified in that 
circumstance, then the trustee would have to file a motion to object 
and have a hearing and be paid for out of his funds. And if he 
prevailed, it would go into chapter 13, where the person filing 
bankruptcy would at least have to pay back a substantial part of his 
debts on a monthly basis in a payout plan, which we need more of in 
this country.
  But the point is this. If the lawyer was not substantially justified 
in filing his client under chapter 7, and we had to conduct a court 
hearing to get the case transferred to chapter 13 because of his error, 
then who ought to pay? Under the Feingold amendment, the people who 
loaned money to the debtor would pay for the cost of getting the case 
transferred, instead of the lawyer who filed it. It doesn't just say 
the lawyer was in error. It said he was not ``substantially justified'' 
in filing.

  The judges know who these lawyers are. They see them come before the 
courts all the time. The judges are going to give the lawyers a fair 
shake on these matters. They are not going to hit them every time a 
case is certified from chapter 7 to 13. But, if the attorney was not 
substantially justified in filing the case under Chapter 7, the debtor 
ought to pay. There is no free lunch. Somebody will pay.
  I think the Senator from Iowa is correct. The Feingold amendment does 
undermine the integrity of the system. It takes the burden off of the 
lawyer, allows him to freely file wherever he wants. There is no burden 
on him to file it under the right act.
  Once again, this is a historic bill and a good bill. I wish we could 
do some additional things which I believe are important. However, it 
does many, many things that are important and will improve a bankruptcy 
system that is out of control. It is to Senator Grassley's credit that 
at a meeting with Members of the other party he agreed to a long list 
of amendments to be debated; I think 16. We need to move this bill. I 
thought we were down here this afternoon for people to offer 
amendments; they would offer them and debate them so we could vote on 
them and get on with this bill.
  I have been in this body less than 2 years now, but it seems to me 
there are people who just don't want anything to pass. They want to go 
into November and say, ``The Republicans don't want to pass any 
legislation. They have a majority. We can't get legislation passed.''
  If people have a right to present amendments and won't come to the 
floor, how will we get the bill up for a vote? It is almost a 
filibuster in secret--an underground filibuster.
  I have been on Senator Grassley's subcommittee and I care about this 
bill. We are interested in approving the bill if the amendments are 
good, and we need to oppose the amendments if they are not good. I 
think it is time for people who say they want good legislation to 
improve justice in America to present amendments. Let's get on with 
this legislation. The House has acted. It is time for the Senate to do 
our job. The result will be something good for America.
  It was not a partisan bill in committee. It had overwhelming support 
in the subcommittee and came out of the full Senate Judiciary Committee 
16-2, Democrats and Republicans alike joining in this amendment. I 
don't know why we aren't able to proceed and bring it to a vote and 
pass it. We have the kind of bill that will help this country. We ought 
not wait any longer. It is time to pass it.
  I just note for the record that the Presiding Officer is a member of 
the Judiciary Committee and has been very supportive of this 
legislation and helped work hard to improve it. I thank the Chair for 
his leadership and skill as an attorney to contribute to this debate.
  I yield the floor, and 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. GRASSLEY. 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. GRASSLEY. Mr. President, I ask to speak for 15 minutes as in 
morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

                          ____________________