[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
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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.
____________________