[Congressional Record Volume 145, Number 128 (Tuesday, September 28, 1999)]
[Senate]
[Pages S11541-S11543]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                       THE BANKRUPTCY REFORM BILL

  Mr. TORRICELLI. Mr. President, I rise with some considerable regret 
to discuss the bankruptcy reform bill that was pulled from the floor of 
the Senate last week. Senator Grassley and I have worked for over 8 
months to craft what I believe is a broadly bipartisan bankruptcy bill. 
Indeed, Senator Grassley has worked tirelessly for years to craft this 
legislation. He deserves the considerable gratitude of every Member of 
this institution.
  I regret that after all these months of work, last week we were 
forced to vote on a cloture motion. I do not believe that the cloture 
vote was in any way indicative of support for the bill. It is important 
that that be understood.
  Bipartisan support for this bankruptcy legislation is broad and it is 
deep. The legislation has seven cosponsors; five of them are Democrats. 
The legislation was voted successfully out of the Judiciary Committee 
with support from both parties. The inability to move forward on a 
bankruptcy reform bill is entirely due to unrelated events. The 
legislation on its merits still stands.
  I believe it is important that Senator Grassley and I make clear to 
people, both within the institution and outside the institution, that 
we are absolutely committed in this Congress, in this year, to 
continuing to have bankruptcy legislation considered and passed. 
Indeed, I believe if the majority leader brings bankruptcy reform to 
the floor of the Senate, in a matter of only a few days we can resolve 
the outstanding issues.
  I also think it is important that our colleagues understand why we 
are so motivated to have this bankruptcy reform legislation passed. 
There are considerable reasons.
  We are, to be sure, living in the most prosperous economic period in 
our Nation's history. The facts are renowned: Unemployment is low, 
inflation is low, the Nation has created 18 million new jobs, and now 
the Federal Government is having a burgeoning budget surplus.
  But amidst all this prosperity, there are some troubling signs, 
things that deserve our attention. One is a rapidly declining personal 
savings rate. Indeed, that is what motivated me to vote for tax cut 
legislation: To stimulate private savings in America so Americans will 
prepare for their own futures.
  But second is an issue that relates to this legislation: A rapid, 
inexplicable rise in consumer bankruptcies. In 1998 alone, 1.4 million 
Americans sought bankruptcy protection--this is a 20-percent increase 
since 1996 and a staggering 350-percent increase in bankruptcy filings 
since 1980.
  It is estimated that 70 percent of the petitions filed were in 
chapter 7, which provides relief from most unsecured debt. Only 30 
percent of the petitions were filed under chapter 13, which requires a 
repayment plan.
  No matter what the cause of so many bankruptcies, what every American 
needs to understand is that somebody is paying the price. If people are 
availing themselves of chapter 7, rather than chapter 13, which 
ultimately requires the repayment of many of these debts, the balance 
is going to be paid by somebody, and that somebody is the American 
consumer.
  Indeed, I believe this is the equivalent of an invisible tax on the 
American family, estimated to cost each and every American family $400 
a year, as retailers and financial institutions adjust the prices of 
their products and their costs to reflect this growing tide of 
bankruptcy.
  The reality is that the majority of people who file for bankruptcy--
low- to middle-income, hard-working people--do so to manage 
overwhelming financial problems. That is as it should be. That is why 
the United States has always had a bankruptcy code--to protect people 
and allow them to reorganize their lives, to give people a second 
chance in American society.
  But just the same, with these staggering numbers of increase--
20 percent in only 3 years--there must be something else going on in 
our society. That something is revealed in a recent study by the 
Department of Justice indicating that as many as 13 percent of debtors 
filing under chapter 7--182,000 people each year--can, indeed, afford 
to repay a significant amount of their outstanding debt. That amounts 
to $4 billion that would have been paid to creditors but is being 
avoided, inappropriately, by what amounts, in my judgment, to a misuse 
of the bankruptcy code.

  I believe the Congress must act. This invisible tax impacts the 
health of our financial institutions, forces small business people to 
absorb these costs, forces some family businesses out of business, and 
it is a cost we can avoid.
  The bankruptcy legislation that Senator Grassley and I have crafted 
strikes an important balance, making it more difficult for the 
unscrupulous to abuse the system but ensuring that families who really 
need bankruptcy protection to reorganize their lives still have access 
to it.
  At its core, the Grassley-Torricelli bill is designed to assure that 
those with the ability to repay a portion of their debts will be 
required to do so but that judicial discretion will ensure that no one 
who is genuinely in need of debt cancellation is prevented from having 
a fresh start in American life.
  When this legislation passed the Judiciary Committee, there were 
those who had legitimate concerns about some of its other provisions. I 
was among them and stated so at the time. These ranged from the 
liability of a debtor's lawyer to ensuring that low-income debtors with 
no hope of repaying their debts were not swept into the means test.
  Colleagues should understand that Senator Grassley and I are 
prepared, with a managers' amendment, both to ensure that the debtor's 
lawyers are protected from liability and that low-income people are not 
inappropriately subjected to this means test. That managers' amendment, 
I believe, will pass and will make this far better legislation than the 
Senate considered previously or the legislation that passed the 
Judiciary Committee.
  I am very pleased that we have come so far with this bill. It is 
critical for our financial institutions and, indeed, it is critical for 
American families.
  There remains one other central issue, however, that must be in this 
legislation, and that is dealing with the other half of this balance. 
It is the question of the abuse, I believe, of credit in the Nation 
itself.
  The credit card industry last year sent out 3.5 billion 
solicitations--41 mailings for every American household; 14 for every 
man, woman, and child. No one wants to interfere with poor or working 
people getting access to credit. They should have the availability to 
do so, but there is something wrong when 14 solicitations per person 
are being received; when college students, juveniles, poor people are 
solicited again and again and again, often for high-interest credit. 
Indeed, these solicitations for high school and college students are at 
record levels.
  The result of this solicitation is not surprising: Americans with 
incomes below the poverty line have doubled their credit usage; 27 
percent of families earning less than $10,000 have consumer debt that 
is more than 40 percent of their income. Indeed, it is not our 
intention to restrict access to credit for low-income people or even 
young people. Senator Grassley and I have crafted legislation that will 
at least ensure that consumers are protected by giving them knowledge, 
by having full disclosure so people can make informed judgments, when 
receiving these solicitations, about how much debt they want and what 
it will take to repay it and on what kind of a schedule.
  Taken as a whole--all of the provisions in the managers' amendment, 
the legislation from the Judiciary Committee--Senator Grassley's work 
in consumer protection is a well-crafted and a very balanced bill.
  My hope is it can receive early consideration but that, under any 
circumstances, this Senate does not adjourn for the year without 
providing

[[Page S11542]]

for American families this credit protection by full disclosure, by 
providing for American business protection against bankruptcy abuse, 
and by redesigning this code so that it is fair to our businesses and 
our consumers alike.
  I yield the floor.
  Mr. GRASSLEY addressed the Chair.
  The PRESIDING OFFICER. The Senator from Iowa.
  Mr. GRASSLEY. I know the Senator from New Jersey has to leave. But 
before he does, in front of all of my colleagues, I want to thank him 
very much for an outstanding statement that focuses on the complexity 
of the bankruptcy problem. Most importantly, he focused attention on 
the bipartisanship of this legislation and on our commitment to getting 
it passed not only this Congress, but this year. It can be done.
  I encourage the Democratic and Republican leaders to have the 
necessary meetings and conversations it takes to bring this bill to the 
floor under a reasonable agreement so we can start work on it. In just 
a few hours, we can work our way through the disagreements that other 
Members might have and do it in a bipartisan way and get this bill on 
its way to the President of the United States.
  So in public, I am happy to thank the Senator from New Jersey for his 
cooperation. He has worked with me in a truly bipartisan way. For 
constituents who might be listening anyplace in the United States who 
are concerned about this body or Congress as a whole or Washington, DC, 
being too partisan, this bankruptcy bill is an example of where bi-
partisanship has worked. If I had tried to do this in a partisan 
manner, this bill would not even be as far as it is.
  Mr. GRASSLEY. Before getting to the big bankruptcy bill, I want to 
touch on a related matter--the problem of the sunsetting of the 
agricultural provisions of the bankruptcy code, chapter 12. I believe 
it is the only section of the bankruptcy code that is sunset from time 
to time. It is not a permanent part of the bankruptcy code. It was 
passed about 13 years ago to meet the needs of agriculture in 
depression in the 1980s, and it has been renewed by Congress 
continually since then.
  It has been a very successful part of the bankruptcy code because, of 
the farmers who have sought the protection of chapter 12, an Iowa State 
University study indicates that 84 percent are still in business 
farming, family farmers still farming.
  We are at a situation where 1 year ago, about this period of time, 
chapter 12 actually sunset. It was extended for 6 months in the omnibus 
spending bill because the feeling was that we wanted to take it up at 
the very same time a revision of the entire bankruptcy code was taken 
up. The comprehensive bill is the bill that Senator Torricelli has 
spoken about and which I will discuss shortly. Within that bill, there 
is a permanency brought to chapter 12 in the bankruptcy code so it will 
no longer sunset.
  The March 31 deadline came, and this bill was not up. It was extended 
yet again for 6 months. I urged the majority leader to extend it for a 
year because I anticipated some of the problems we have recently faced 
regarding the bankruptcy code. It was thought by a lot of interests in 
this city that it was necessary to have chapter 12 not made permanent, 
separate from the entire bankruptcy law, because it was needed to help 
get the general bankruptcy revisions through. So it was extended for 
another 6 months.
  This week it is going to expire again. It is ludicrous that the House 
of Representatives, just yesterday, passed only a 3-month extension of 
chapter 12 so that somehow if we don't get this permanent bankruptcy 
bill passed, we are going to have chapter 12 expiring again on New 
Year's Eve. That is a Y2K problem for agriculture we better be alerted 
to because Congress is not going to be in session on New Year's Eve to 
renew chapter 12. I hope that when the Senate considers the House 
version, we ignore it, and we move with a permanent extension of 
chapter 12 bankruptcy which I introduced last week and which is 
currently on the calendar.
  As the Senators from West Virginia, New Jersey, and also the Senator 
from Montana were just speaking about the agricultural crisis, it is 
that way in agriculture any place in the United States. This is no time 
to play footsie with chapter 12 being extended for just a 3-month 
period of time. Those are games that don't need to be played. They 
don't do justice to agriculture in America, and they do not put the 
family farmer in the forefront of our policymaking or thinking in 
Washington.
  I want to go to this issue about which Senator Torricelli spoke--the 
Senate not invoking cloture on the bankruptcy bill last week.
  While this is unfortunate, I think it is important to say a few words 
in support of the bill outside of the adversarial context and the very 
political context of the cloture vote. I think it would really be a 
tragedy if both parties can't come together and deal with this bill, 
which has such broad support from Senators on both sides of the aisle. 
It was voted out of committee by a 14 to 4 vote, very bipartisan.
  Bankruptcy reform is really all about a return to personal 
responsibility in a bankruptcy system which actively discourages 
personal responsibility by wiping away debts on a no-questions-asked 
basis.
  Basic common sense tells you every time a debt is wiped away through 
bankruptcy, someone loses money. Of course, when somebody who extends 
credit has that obligation wiped away in bankruptcy, that creditor is 
forced to make a decision: Should this loss simply be swallowed as a 
cost of doing business? Or, do you raise prices for other customers to 
offset those losses?
  When bankruptcy losses are rare and infrequent, lenders may be able 
to swallow a loss. But when bankruptcies are very frequent and common, 
as they are today, lenders have to raise their prices to offset losses. 
For this reason, when Treasury Secretary Larry Summers testified at his 
confirmation hearing before the Senate Finance Committee, he said that 
bankruptcies tend to drive up interest rates.
  If you believe Secretary Summers, bankruptcies are everyone's 
problem. Regular, hard-working Americans have to pay higher prices for 
goods and services as a result of bankruptcies. That is a real problem 
for the American people, and one which the Senate has an obligation to 
tackle.
  Under our current bankruptcy laws, someone can get full debt 
cancellation in chapter 7 with no questions asked. If we pass our 
reform bill, if someone seeking bankruptcy can repay his or her debts, 
they will be channeled into chapter 13 of the bankruptcy code, which 
requires people to pay some portion of their debts as a precondition 
for limited debt cancellation.
  The bankruptcy bill, which the Senate will hopefully consider soon, 
will discourage bankruptcies and, therefore, lessen upward pressure on 
interest rates and prices. Right now, under present bankruptcy laws, 
one of the richest captains of industry could walk into bankruptcy 
court and walk away with his debts erased. Of course, the rest of 
America will pay higher prices for goods and services as a result. If 
we pass this bill, higher-income people will be unable to use 
bankruptcy as a financial planning tool. All Americans will be better 
off. The message of Senate bill 625 is simple: If you have the ability 
to pay debt, you will not get off scot-free.
  These are good times in our Nation, thanks to the fiscal discipline 
initiated by Congress, and the hard work of the American people--and 
more due to the hard work of the American people than what we have done 
in Congress. We have the first balanced budget in a generation, 
unemployment is low, we have a burgeoning stock market. Most Americans, 
except for the American farmers who are in a depression, are optimistic 
about the future. But in the midst of such prosperity, about one and a 
half million Americans declared bankruptcy in 1998. Based on filings 
for the first two quarters of 1999, it looks like there will be just 
under 1.4 million bankruptcy filings for this year. To put this in some 
historical context, since 1990, the rate of personal bankruptcy filings 
has increased almost 100 percent.
  Now, I don't think anyone knows all of the reasons--I don't pretend 
to know either--underlying the bankruptcy crisis. But I think I can 
talk about what is not at the root of the bankruptcy crisis. I have a 
chart here that has four smaller charts on it that I think demonstrates 
it is not the economy that is

[[Page S11543]]

driving the crisis. Here we have the high rise in bankruptcies over the 
last 6 years, a very rapid near 100-percent increase in bankruptcy 
filings. We have, during that same period of time, a very dramatic drop 
in unemployment in the country. We have a very sharp rise in the Dow 
Jones Industrial Average. We have a rise in the average wage of 
American workers. This shows that it is not the economy that is causing 
so many bankruptcies.
  The economic numbers tell us that the bankruptcy crisis isn't a 
result of people who can't get jobs; and the jobs that people do have 
are paying more than ever. So the bankruptcy crisis isn't about 
desperate people confronting layoffs and underemployment. With the 
economy doing well and with so many Americans with high-quality, good-
paying jobs, we have to look deep into the eroding moral values of some 
people to find out what is driving the bankruptcy crisis. Some people 
flat out don't want to honor their obligations and are looking for an 
easy way out. In the opinion of this Senator, a significant part of the 
bankruptcy crisis is basically a moral crisis. Some people just don't 
have a sense of personal responsibility.

  It seems clear to me that our lax bankruptcy system must bear some of 
the blame for the bankruptcy crisis. Just as the old welfare system 
encouraged people not to get jobs and encouraged people not to even 
think about pulling their own weight, our lax bankruptcy system doesn't 
even ask people to consider paying what they owe, particularly when 
they have the ability to pay. Such a system, obviously, contributes to 
the fray of the moral fiber of our Nation. Why pay your bills when you 
can walk away with no questions asked? Why honor your obligations when 
you can take the easy way out through bankruptcy? If we don't tighten 
the bankruptcy system, the moral erosion will certainly continue.
  The polls are very clear that the American people want the bankruptcy 
system tightened up. In my home State of Iowa, 78 percent of Iowans 
surveyed favor bankruptcy reform, and the picture is the same 
nationally. According to the Public Broadcasting System program Techno-
Politics, almost 70 percent of Americans support bankruptcy reform.
  The American people seem to sense that the bankruptcy crisis is 
fundamentally a moral crisis. I have a chart that also deals with that. 
This chart is done by the Democratic polling firm of Penn & Schoen. It 
talks about the perceptions people have about bankruptcy. You can see 
here that 84 percent of the people think that bankruptcy is more 
socially acceptable than it was a few years ago. This is the same 
polling firm President Clinton uses; so I think this number is very 
telling, given that it was produced by a liberal polling firm. In my 
State of Iowa, the editorial page of the Des Moines Register has summed 
up the problem that we have with the bankruptcy system by stating that 
bankruptcy ``was never intended as the one-stop, no-questions-asked 
solution to irresponsibility.'' I totally agree.
  I hope we can soon get to the bankruptcy bill, which has so much 
support in the Senate. As my colleague who worked so closely with me on 
this legislation, the Senator from New Jersey, has said, we are 
committed to bringing this bill to a vote this year and getting it done 
in a fashion that will show the bipartisanship that has operated 
throughout this year to bring us a 14-4 vote out of the Senate 
Judiciary Committee, to duplicate that wide margin on the floor of the 
Senate, to send a clear signal to people who use bankruptcy as 
financial planning that if you have the ability to pay, you are never 
going to get out of paying what you have the capability of paying. That 
is good for our country, it is good for the economy and, most 
important, it is good for the pocketbooks of honest Americans. 
Bankruptcies cost the average American family to the tune of $400 a 
year. That's not fair to the American men and women working to pay 
taxes and make a better life to have to pay $400 more per year because 
somebody else isn't paying their debts.
  I yield the floor.

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