[Congressional Record Volume 144, Number 141 (Friday, October 9, 1998)]
[Senate]
[Pages S12145-S12148]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




            BANKRUPTCY REFORM ACT OF 1998--CONFERENCE REPORT

  The Senate continued with the consideration of the conference report.
  Mr. HATCH. Mr. President, what this legislation will accomplish is 
straightforward. If a person is able to repay their debts, they will be 
required to do so. We must restore personal responsibility to the 
bankruptcy system. If we do not, every family in America, many of whom 
struggle to make ends meet, will continue to shoulder the financial 
burden of those who abuse the system.

  It always has been my view that individuals should take personal 
responsibility for their debts, and repay them to the extent possible. 
Under the present system, it is too easy for debtors who have the 
ability to repay some of what they owe to file for chapter 7 
bankruptcy. Under chapter 7, debtors can liquidate their assets and 
discharge all debt, while protecting certain assets from liquidation, 
irrespective of their income. Mr. President, I believe that the 
complete extinguishing of debt should be reserved for debtors who truly 
cannot repay them.
  Mr. President, let's think about this problem in fundamental terms. 
Let's say that somebody owes you money, and is perfectly able to pay 
you back However, this person finds a clever way under Federal law to 
avoid paying you. That would be wrong--it would be unfair. Yet, we are 
allowing this to happen every day in our bankruptcy courts. We have a 
system woefully in need of reform. The bankruptcy system was never 
intended to be a means for people who are perfectly able to repay their 
debts to get out of paying them. It was designed to be a last resort 
for people who truly need it. What our bill does is allow those who 
truly need bankruptcy relief to have it, but requires those who can 
repay their debts to do so. This is not a novel concept. It is basic 
fairness.
  Americans agree that bankruptcy should be based on need. As this 
chart demonstrates, 87 percent believe that an individual who files for 
bankruptcy should be required to repay as much of their debt as they 
are able to and then be allowed to extinguish the rest. Yet, as stated 
in the Wall Street Journal (Nov. 8, 1996) bankruptcy protection laws 
give an alarming number of ``obscure, but perfectly legal places for 
anyone to hide assets.'' For instance, one Virginian multimillionaire 
incurred massive debt, but under State law was entitled to keep certain 
household goods, farm equipment, and ``one horse.'' This particular 
individual opted to keep a $640,000 race horse.
  This bill does a number of things to make ti harder for people who 
can repay their debts to avoid doing so by using loopholes in the 
present bankruptcy system.
  It provides a needs-based means test approach to bankruptcy, under 
which debtors who can repay some of their debts are required to do so. 
It contains new measures to protect against fraud in bankruptcy, such 
as a requirement that debtors supply income tax returns and pay stubs, 
audits of bankruptcy

[[Page S12146]]

cases, and limits on repeat bankruptcy filings.
  Mr. President, I am amazed to hear critics of this legislation make 
the argument that his report does not protect consumers. As recently as 
yesterday, I read that an opponent of this legislation said, ``The 
Republican conferees stripped out every significant consumer protection 
in the Senate bill, and to add insult to injury, repealed existing 
consumer protections in the law.'' How, Mr. President, does this bill 
``repeal existing consumer protections?'' Further, I challenge anyone 
who would make such an unfounded claim to compare the House bill, which 
passed with an overwhelming bipartisan vote of 306 to 118, with this 
balanced conference legislation, and tell me there are no new 
significant consumer protections.

  Let's get beyond the politics. Let's stop with the unfounded 
criticisms of this legislation, and look at what it really gives to 
consumers:
  A debtor's bill of rights with disclosure requirements for debtor 
lawyers who advertise. This provision is designed to protect consumers 
from ``bankruptcy mills'' that are out to make money without regard to 
consumers. This provision will protect unwary consumers from being 
lured into bankruptcy without knowing what they are getting into and 
without knowing their alternatives.
  Credit counseling for debtors before they file for bankruptcy, so 
that they may be able to avoid bankruptcy altogether.
  New consumers protections with regard to reaffirmations. Every debtor 
who reaffirms unsecured debt will have the opportunity to appear before 
a judge. And, a new heightened standard is required in the review of 
each of these agreements to make sure debtors are not coerced into 
making them.
  New reaffirmation disclosure requirements. Even it a debtor is 
represented by counsel, the creditor must give new disclosures to the 
debtor with regard to the debtor's rights.
  New penalties for pressuring debtors after discharge. A $1,000 
penalty plus actual damages and attorneys fees if a creditor violates 
the post-discharge injunction.
  New penalties for abusive reaffirmation practices: Another $1,000 
penalty on top of actual damages and attorneys fees if a debtor is 
injured by a creditor's failure to follow the procedures for a 
reaffirmation agreement.
  New penalties for refusal to credit the payment plan properly--again, 
$1,000 plus actual damages and attorneys fees when the creditor refuses 
to credit payments under a plan.
  New protection for debtors from unjustified motions for dismissal in 
the form of liability for the debtor's attorneys fees and costs.
  New penalties for creditors who fail to negotiate. If a creditor 
unreasonably refuses a good faith offer to settle before bankruptcy for 
60 cents on the dollar, the court can decrease the creditor's claim by 
up to 20 percent.
  New penalties for violating the automatic stay--including actual 
damages and attorneys fees.
  New protections from credit card cancellation. A credit card company 
is prohibited from terminating a customer's account solely because the 
debtor has not incurred finance charges on the account.
  New credit card warnings and disclosures, including new initial 
disclosures, new periodic statement disclosures and new annual 
disclosures about the reality of paying off a balance by making only 
the minimum payment.
  A new study on disclosures for closed and open end credit secured by 
the debtor's house, to be conducted by the Federal Reserve Board, with 
authority to issue new disclosure regulations.

  A new Fed study on the sufficiency of current consumer protections on 
debit card liability and the authority to issue new disclosure 
regulations.
  A report from the comptroller general within 1 year on whether there 
are excessive extensions of credit to college students.
  And, the bill makes extensive reform to the bankruptcy laws in order 
to protect our children. The bill ensures that bankruptcy cannot be 
used by deadbeat dads to avoid paying child support and alimony 
obligations. The obligation to pay child support and alimony is moved 
to a first priority status under this legislation, as opposed to its 
current place at seventh in line, behind bankruptcy lawyers and other 
special interest. With this new law, debtors who owe child support will 
have to keep paying it when they file for bankruptcy, and they cannot 
obtain a discharge until they bring their child support and alimony 
obligations current. Also, if a debtor pays child support right before 
filing for bankruptcy, the child support payment can't be taken away 
from the kids.
  The National Association of Attorneys General has told me that they 
``applaud the provisions * * * that improve the tr4atment of domestic 
support obligations by ensuring that the spouse and children will 
continue to be able to collect support payments they are owed during 
the bankruptcy case and that debtors will not obtain a discharge until 
they have met their obligations to their spouse and children.'' The 
attorneys general go on to say that ``these are much needed additions 
to current law, and we strongly support these changes.'' the National 
Child Support Enforcement Association has also written to me in support 
of these improvements to bankruptcy law because of the need ``to 
strengthen and clarify the rights of separated families during and 
following bankruptcy proceedings.''
  In addition, this bill protects our children's educations. With this 
legislation, postsecondary education accounts will be protected in 
bankruptcy up to $50,000 per child or $100,000 in the aggregate.
  This bill also provides new and important protections for retirement 
savings. The AARP has stated, ``The accumulation and preservation of 
retirement funds * * * represents an important national goal.'' The 
AARP believes--and I agree with them--that retirement savings should be 
more uniformly protected, and that ``Shielding retirement funds would 
reduce the likelihood that legitimate petitioners will be impoverished 
later in life.'' Under this bill, retirement plan assets are 
categorically untouchable by creditors, even if State exemptions are 
otherwise claimed.
  Furthermore, this legislation keeps drunk drivers from using 
bankruptcy to get out of paying their victims the judgments they owe 
them.
  I simply can't believe that opponents of this legislation can say 
with a straight face that this legislation doesn't help the American 
people.
  About $40 billion in consumer debt will be erased this year in 
personal bankruptcies.
  Let me put this figure in perspective. $40 billion is enough to fund 
the entire U.S. Department of Transportation for a year, or to provide 
Pell grants to 13 million needy college students.
  It has been estimated that bankruptcies cost every American family 
about $400 per year. Apparently, critics of this legislation are 
content to throw this money away. But where I come from, $400 a family 
means something. It buys 5 weeks worth of groceries, 20 tanks of gas, 
10 pairs of shoes for a grade school child, or more than a year's 
supply of diapers.
  Are opponents of this bill really comfortable with the status quo? 
Are they willing to throw away all of the important new consumer 
protections we have worked for in this bill? Are they willing to have 
retirement savings and educational savings exposed to the claims of 
creditors in bankruptcy? Are they willing to continue to let deadbeat 
dads use the U.S. bankruptcy system to get off the hook for child 
support? Are they willing to let drunk drivers use bankruptcy to get 
out of paying their victims?
  The only conclusion we can reach is that opponents of this 
legislation simply never wanted to see bankruptcy reform at all. 
Apparently, they are content to do nothing to curb the record increases 
in bankruptcy filings. They are willing to allow people to continue to 
``game'' the bankruptcy system at the expense of honest, hardworking 
Americans. And, they are happy to sit idly by and do nothing when they 
see a $400 hidden bankruptcy tax imposed on every American family year 
after year.
  It is my sincere hope my colleagues will not derail this bill just to 
make a political statement, and instead vote their conscience on the 
substance, and support this bill. I am also hopeful that the President 
and his advisors will recognize the importance of this bill to the 
economy and to all consumers.

[[Page S12147]]

  In conclusion, Mr. President, I have heard these arguments from my 
colleagues on the other side that this process has not been a good 
process and all of their consumer protection items have been taken out 
of this bill.
  Look, I negotiated with the House on this, and we had to do it in a 
very intensive, tight framework. It was a very difficult thing to do. 
Let me go down through some of the new consumer protections that are in 
this bill, because nothing could be farther from the truth than for 
them to come out here and indicate there are no consumer protections.
  No. 1, we have a Debtor Bill of Rights in this bill, credit 
counseling; we have judicial review of reaffirmation; we have 
reaffirmation of disclosure requirements; we have penalties for 
pressuring debtors after discharge; we have penalties for abusive 
reaffirmation; we have penalties for refusal to credit payments; we 
have protections from unjustified motions; and penalties for failure to 
negotiate.
  This is all for the protection of consumers. Penalties for violating 
automatic stays, protection from credit card cancellations, credit card 
warnings and disclosures that we require, rules and study on 
disclosures, over 100 percent mortgage credit study; we have a study on 
debit card liability; we have a college student and credit card study. 
All of this is important, meaning we are going to continue to revisit 
this and do all of the things we can to do what is right here.
  We have child support protected, education savings protected, 
retirement savings protected; we have drunk-driving judgments are going 
to get paid.
  Now, there are a lot of consumer protections here. Look at this: 
``Americans agree bankruptcy should be based on need.''

       An individual who files for bankruptcy should be able to 
     wipe out all their debt regardless of their ability to repay 
     that debt.

  That is 10 percent of the people.
  The ``DK refused,'' 4 percent.

       An individual who files for bankruptcy should be required 
     to pay as much of their debt as they are able to and then be 
     able to wipe out the rest.

  Eighty-seven percent fit in that category. What does that mean to the 
American taxpayers and the real consumers in this country and everybody 
else who is paying for this ungodly process? About $40 billion in 
consumer debt will be erased this year in personal bankruptcy. First, 
$40 billion would fund the entire U.S. Department of Transportation for 
1 year; second, provide Pell grants to 13 million needy college-bound 
students; third, ``The Flawed System Costs Every American Household 
$400.'' Just think about that. Last but not least, ``Bankruptcies Cost 
American Families $400 a Year.''
  That $400 could buy a family of four 5 weeks of groceries, 20 tanks 
of unleaded gasoline 10 pairs of shoes for the average grade-school 
child, and more than 1 year's worth of disposable diapers.
  There is a lot we have done here. Is it perfect? No, because we have 
two bodies here that have to get together.
  I would also like to express any disappointment that despite hours 
and hours and numerous meetings between Democrats and Republicans, some 
say that the process was not fair or somehow excluded Democrat 
participation.
  I lived through years and years of Democrat control of this body, and 
the other body, and I have to tell you, they were not nearly as fair in 
most conferences as we have been here in trying to accommodate 
Democrats--when many did not want to. So we have tried to do it. I 
think it is just really very phony to go otherwise.
  I yield the floor.
  Mr. BROWNBACK. Mr. President, I rise in support of the Senate-House 
Conference Report on the Consumer Bankruptcy Reform Act. I applaud the 
hard work of both the Senate and House conferencees, especially the 
leadership that Senator Grassley has shown on reforming our bankruptcy 
laws.
  I believe that this conference report is a balance between preventing 
the fraud and abuse of our bankruptcy system and protecting those who 
are in considerable economic pain. The increase in bankruptcies has put 
a strain on our economy and families. These losses associated with 
bankruptcies have been passed onto consumers, costing every household 
that pays its bills $400 in hidden taxes. That is not fair to the 
millions of families who pay their bills every month. This report will 
prohibit fraud, abuse, and the casual use of our bankruptcy laws while 
ensuring the payment of child support and alimony.
  I am disheartened by some of my Democratic colleagues and the 
Administration's opposition to this conference report. This bill not 
only reforms our current bankruptcy laws, but places Chapter 12 into 
our bankruptcy code permanently in order to protect family farms and 
farmers.
  Farmers in Kansas and across the country are experiencing cash flow 
problems associated with low commodity prices. U.S. Dept. of 
Agriculture estimated that net farm income would be down by 15.8 
percent this year. Some economists have indicated that America's 
farmers could soon see a recession similar to the one which occurred in 
the mid-1980's.
  Chapter 12 of the bankruptcy code was created by Congress in 1986 in 
response to the farm crisis of the mid-1980's, which caused many family 
farmers to lose their farms and homes. This chapter was specifically 
designed to protect family farmers by enabling them to reorganize their 
debts and keep their land. However, this chapter has not yet been 
reauthorized and expired on October 1.
  While I realize both sides of the aisle have differences on how to 
provide relief to our family farmers during this difficult time, we are 
all unanimous in protecting their farms and homes. Just last year, the 
Senate passed the Family Farmer Protection Act by unanimous consent 
that would permanently place Chapter 12 in our bankruptcy code. If we 
want to protect our family farms and farmers during this crisis, we 
must pass the bankruptcy conference report and place Chapter 12 
permanently into our bankruptcy code.
  Mr. KERREY. Mr. President, I want to express my disappointment with 
H.R. 3150, the Bankruptcy Reform Conference Report, and the decision of 
the Conference members to drop important provisions that would have 
helped our farmers.
  I voted for the Senate version of the bankruptcy bill because I 
believe it properly toughened provisions to keep bad seeds from filing 
for bankruptcy, while maintaining protections for consumers. I voted 
for the Senate bill because I worked hard to get important protections 
for farmers added to the bill.
  The Senate passed a bipartisan piece of legislation that not only was 
crafted in the best spirit of bipartisanship, but included valuable 
provisions to help our farmers, who are facing the worst economic 
crisis in a decade.
  I, along with my friend from Wisconsin, Mr. Feingold, worked hard to 
add provisions to the Senate bill to specifically help family farmers 
by increasing debt limits so that inflation levels are factored into 
their debt calculations; ease regulations related to income acquired 
off of the farm by families trying to make ends meet; and help farmers 
better structure their debt in order to continue to prepare for next 
season's crops and livestock.
  All of these provisions were removed in the Conference Report.
  I come to the floor today to make something clear. I will not let the 
Conference Committee's decision to exclude these important protections 
for farmers be the final word. I plan on doing everything I can during 
these remaining days to get these much needed farming provisions 
included in the Omnibus Appropriations bill.
  Mr. KOHL. Mr. President, I rise to express my strong concern about 
the conference report on bankruptcy reform. We do need to stop abuse of 
the bankruptcy system, and there is some good in this measure. But 
regrettably this is not an adequate solution. I do want to ``proceed,'' 
but to a better bankruptcy bill.
  Two weeks ago, the Senate overwhelmingly passed a reform bill which I 
was proud to support. It targeted the worst abuses by debtors and 
creditors, without overburdening the vast majority of debtors who truly 
need--and deserve--relief. Senator Grassley and Senator Durbin deserve 
much of the credit for putting together such a balanced and effective 
measure.
  But this bill is not that bill. Let me tell you why.
  Mr. President, we can't truly ``reform'' the bankruptcy system unless

[[Page S12148]]

we eliminate the most egregious abuse. That is, debtors who shield 
their assets in luxury homes in states like Florida and Texas, while 
their legitimate creditors--children, ex-spouses owed alimony, 
governments, retailers and banks--get left out in the cold. If we 
really want to restore the stigma to bankruptcy, all of us know this is 
the best place to start. By capping the homestead exemption at 
$100,000, the Senate bill would have stopped this abuse.
  But the Conference Report won't put an end to this practice. Indeed, 
it only addresses part of the problem--by making it harder to move to 
Florida or Texas solely to take advantage of their liberal homestead 
laws. Now that is a step forward. But it is just a small step; it does 
nothing to stop debtors who already own lavish homes--or second homes--
in those states from continuing to live like kings. That's an injustice 
to legitimate creditors and an outrage to anyone who believes--like I 
do--that deadbeats who go into bankruptcy shouldn't be able to shield 
their assets in luxurious homes.
  Just take a look at what Burt Reynolds did earlier this week. The 
measure wouldn't apply to him, because he lives in Florida and that 
state has no homestead cap. As part of his bankruptcy settlement, he 
managed to hold onto his $2.5 million estate called ``Valhalla.'' Now, 
I like Burt Reynolds' movies. I liked ``Deliverance,'' ``Daisy 
Miller,'' and ``The Longest Yard''--though I didn't see ``Boogie 
Nights.'' Burt Reynolds is a fine actor. But it seems like he's making 
out much like his title role in ``Smokey and the Bandit.'' While he 
lives in luxury, his legitimate creditors lose millions. The Conference 
Report allows this to happen; the Senate bill would have put an end to 
this travesty.
  Of course, the dramatic rise in bankruptcies is very troubling, 
regardless of whether the blame lies with credit card companies, a 
culture that disparages personal responsibility, the bankruptcy code 
or, most probably, with all of the above. While none of us wants to 
return to the era of ``debtors' prison,'' we need to do something to 
reverse this trend, reduce the number of bankruptcy filings and make 
sure bankruptcy remains a tool of last resort. This bill does some of 
that. For example, it discourages repeat filings and it encourages 
debtors who can repay some of their debts to do so. But Mr. President, 
ultimately this Conference Report falls short. Instead of proceeding to 
this measure, we should proceed to a better bill. And hopefully next 
Congress we will. Thank you.
  The PRESIDING OFFICER. The hour of 6 o'clock having arrived, the 
question is on the motion to proceed to the conference report on H.R. 
3150.
  The yeas and nays have been ordered.
  The clerk will call the roll.
  The legislative clerk called the roll.
  Mr. NICKLES. I announce that the Senator from Missouri (Mr. Bond) is 
necessarily absent.
  Mr. FORD. I announce that the Senator from Ohio (Mr. Glenn), the 
Senator from South Carolina (Mr. Hollings), and the Senator from 
Minnesota (Mr. Wellstone) are necessarily absent.
  I further announce that, if present and voting, the Senator from 
Minnesota (Mr. Wellstone) would vote ``aye.''
  The result was announced--yeas 94, nays 2, as follows:

                      [Rollcall Vote No. 313 Leg.]

                                YEAS--94

     Abraham
     Akaka
     Allard
     Ashcroft
     Baucus
     Bennett
     Biden
     Bingaman
     Boxer
     Breaux
     Brownback
     Bryan
     Bumpers
     Burns
     Byrd
     Campbell
     Chafee
     Cleland
     Coats
     Cochran
     Collins
     Conrad
     Coverdell
     Craig
     D'Amato
     Daschle
     DeWine
     Dodd
     Domenici
     Dorgan
     Durbin
     Enzi
     Faircloth
     Feingold
     Feinstein
     Ford
     Frist
     Gorton
     Graham
     Gramm
     Grams
     Grassley
     Gregg
     Hagel
     Hatch
     Helms
     Hutchinson
     Hutchison
     Inhofe
     Inouye
     Jeffords
     Johnson
     Kempthorne
     Kennedy
     Kerrey
     Kerry
     Kyl
     Landrieu
     Lautenberg
     Leahy
     Levin
     Lieberman
     Lott
     Lugar
     Mack
     McCain
     McConnell
     Mikulski
     Moseley-Braun
     Moynihan
     Murkowski
     Murray
     Nickles
     Reed
     Reid
     Robb
     Roberts
     Rockefeller
     Roth
     Santorum
     Sarbanes
     Sessions
     Shelby
     Smith (NH)
     Smith (OR)
     Snowe
     Specter
     Stevens
     Thomas
     Thompson
     Thurmond
     Torricelli
     Warner
     Wyden

                                NAYS--2

     Harkin
     Kohl
       

                             NOT VOTING--4

     Bond
     Glenn
     Hollings
     Wellstone
  The motion was agreed to.

                          ____________________