[Congressional Record Volume 146, Number 5 (Monday, January 31, 2000)]
[Senate]
[Pages S135-S137]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
BANKRUPTCY REFORM ACT OF 1999--Resumed
Mr. SESSIONS. I believe the pending order of business is the
bankruptcy bill.
The PRESIDING OFFICER. That is correct.
Mr. SESSIONS. I would like to talk about the pending bankruptcy bill
and give my full and total support to the work of Senator Grassley and
others.
The PRESIDING OFFICER. The clerk will report the bill by title, since
these will be the first comments.
The legislative clerk read as follows:
A bill (S. 625) to amend title 11, United States Code, and
for other purposes.
Pending:
Wellstone amendment No. 2537, to disallow claims of certain
insured depository institutions.
Wellstone amendment No. 2538, with respect to the
disallowance of certain claims and to prohibit certain
coercive debt collection practices.
Schumer/Durbin amendment No. 2762, to modify the means test
relating to safe harbor provisions.
Schumer amendment No. 2763, to ensure that debts incurred
as a result of clinic violence are nondischargeable.
Feingold modified amendment No. 2748, to provide for an
exception to a limitation on an automatic stay under section
362(b) of title 11, United States Code, relating to evictions
and similar proceedings to provide for the payment of rent
that becomes due after the petition of a debtor is filed.
The PRESIDING OFFICER. The Senator is recognized.
Mr. SESSIONS. Madam President, I give my total support to this bill,
which is a needed overhaul reform update and modernization of an act
that is very important to America. It allows people every day--over a
million a year--to totally wipe out debts that they owe, to start
afresh and not pay people they have legally obligated themselves to
pay. It is part of our historical constitutional process. We venerate
that right to start anew.
Over the past years, we also have recognized there are a number of
problems with the way bankruptcy is being handled. We believe we can
make it better. I believe this bill does make it better. As a new
Senator who has been here only 3 years, it has been somewhat
frustrating to see that we cannot quite get a final vote on the bill.
At one time or another, at the most inopportune moments, there has been
a group of people who have come up with objections and delays, and we
have now been on this for 3 years.
It has passed this body with over 90 votes. At one time it came out
of the Judiciary Committee with a 16-2 vote. We have a good, broad,
bipartisan bill that improves bankruptcy law, and it ought to be
passed. The objections to this legislation have only been those of the
most complex and minute nature. The overall aspects of this bill are
sound. It has very little opposition.
Let me point out a few things.
Bankruptcies have increased 350 percent since 1980, during a time of
great economic expansion. In 1980, there were 287,000 bankruptcies
filed. In 1999, as this chart shows, there were 1,300,000 bankruptcies
filed. And 1999, as the President told us the other night, was a great
year for Americans economically.
How is this happening? Is this necessary? Are these all legitimate?
What can we do about it? That is what this bill addresses.
I believe we do need reform because of an extraordinary increase in
filings.
Some are saying we do not need this bill. There was an ad run in a
local Washington newspaper that said: We do not need the bankruptcy
legislation; we had a 7 percent drop last year in filings; so,
therefore, you should just stop all the work that you have been doing.
I thought that was a silly ad. After a 350 percent increase, we have
one of the best economic years ever and had a modest decline of 7
percent, and somehow that suggests we do not have a problem with
filings? We do have a problem with filings. The numbers still are well
over 1 million filings per year.
There is another reason we need bankruptcy reform. I am a lawyer. I
served as a U.S. attorney. I am on the Judiciary Committee. I believe
that the rule of law ought to be consistent and fair, worthy of
respect. I also recognize that lawyers are strong advocates. I respect
that. Sometimes they get unscrupulous and abuse the system, but
generally what lawyers do is
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take the law we pass and use it for everything they are worth to
benefit their client.
That is what has happened with the bankruptcy system. Since 1978,--
the last time we had bankruptcy reform--lawyers have learned how to
manipulate the law. They have learned how to do things that have in
many ways abused the operation of the system. It leads to hard
feelings. It leads to a sense of unfairness and frustration when people
feel their just debts are unfairly, without justification, wiped out
and not paid because of a technicality in the bankruptcy law. People
have to spend extraordinary sums of money to litigate an issue in
bankruptcy court that should be decided easily by a clearly written
statute. So we do have abuse of the system. No matter how many filings
there are, we need a system that is fair for the filings that do occur.
That is what we have worked on in these last several years.
We have a number of basic principles. If a person can pay the debts
he or she justly obligated themselves to pay, that person should pay it
or at least that portion of it they are able to pay. If they are unable
to pay their debts, they ought to be able to wipe them out in
bankruptcy.
What we are seeing today--and I am hearing this from people I talk to
all over Alabama--is people who are making $80,000, $90,000, $100,000
and could easily pay back all or part of their debts are going into
bankruptcy and wiping out every debt they owe. Often they are not
paying the people they previously agreed to pay when they undertook the
debt and got the loan or the benefits from the gas station or the
automobile dealership or the furniture store. When they got those
benefits, they agreed to pay them. The creditors or businesses don't
make as much money as the debtors do, and they are able to go into
court and wipe that out. If you think that is not happening, I can
assure you that it happens every day in America. We allow that under
present bankruptcy law. There is a section called substantial abuse
that a judge can use to reduce the abuses under current law, but what
our hearings have found is that it is totally ineffective and is almost
never utilized in the American bankruptcy system today.
What we are trying to do is legislate precisely what a substantial
abuse of the system is. For those who can pay a part of their debts,
they ought to pay them. What could be more fair?
What we have come up with is a system called needs-based bankruptcy.
That is, to the extent to which you need bankruptcy relief, you get it.
But if you don't need it and can pay your debts, you ought to pay some
of them or part of them. So the way the act is written, if a person can
pay 25 percent of their nonpriority unsecured claims--setting aside as
a priority child support and alimony--if you can, after paying that,
pay 25 percent of your nonpriority unsecured claims, then you ought to
pay those or $15,000, whichever is less, and we give the debtor 5 years
in which to pay that. That is the kind of thing I think is the right
step.
To have a bright line rule and to try to make sure we are not
clogging the court with too much work, and that we are having a fair
system, we have in the act provisions that say, in effect, that if a
person makes above the median American income, they can't be forced to
pay back some or all of their debt. They can still file, as they always
have, in straight bankruptcy.
For example, a family of four who makes $44,000 is making the median
income in America. If they are making $43,000, the presumption that
they ought to and they can pay back some of their debt, does not apply
to them because they will be making below the median income. So the new
rule change only affects those who are making above the median income
in America today. We think that is fair and reasonable. If you are
making above the median income and you can pay back some of your debts,
many times to people who make less than you do, you ought to pay those
debts. I think that is a good step in the right direction.
There are a number of other abuses in the system. I mentioned child
support and alimony. Under current law, half a dozen categories of debt
are given repayment priority over child support and alimony. The
sponsors of this bill, Senators Grassley and Hatch, made clear at the
very beginning we were going to move child support and alimony up to
No. 1--there would not be any debate about that--even higher than
lawyers fees. Of course, the lawyers are not too happy about that, but
that is what we think about it: child support ought to be tops. So how
anybody could go around and suggest, as some have, that this
legislation is unfair to women and children is beyond my comprehension.
It is baffling to me. I wonder how anyone can make that complaint and
not be doing it with the most deliberate intent to smear this
legislation. I think they need to read the bill.
It gives the highest, unprecedented priority to child support. If an
individual files bankruptcy and they owe alimony or child support, the
moneys they have will go first to pay alimony and child support before
it even pays the lawyer and the bankruptcy trustees.
I know that Senator Grassley felt strongly about another reform in
this bill. Many of the people who are owed money, creditors, by people
who have filed bankruptcy get a legal notice that they are to appear in
court. They have to go out and hire a lawyer to send them to the
courthouse and fight over a $2,000, $3,500 claim. Oftentimes the
lawyer's fees cost more than the person actually collects. This
legislation makes clear that if you have a claim, you can go to court
and represent yourself without having to hire a lawyer.
I am quite confident that in most cases for smaller claims the
bankruptcy judges are going to give a fair hearing to those people.
Many times they will not need to hire an attorney to represent them in
bankruptcy court. That is going to save a lot of money, in my view, for
people who need it and don't need to be wasting it on unnecessary court
hearings and fees.
There has been a real problem with repeat filers. People are
repeatedly filing in bankruptcy. That is extraordinarily frustrating to
people who observe the system. We have a Federal bankruptcy commission
made up of Federal judges and top bankruptcy experts that has expressed
its concern about these repeat filings. We have good provisions that
will eliminate some of the abuses in repeat filings, something that is
long overdue.
I felt strongly about, and debated with Senator Kohl and others, the
reform of the unlimited homestead exemption. In several States--Texas,
Florida, for example--no matter how much money you owe, you can keep
your house, no matter how valuable that house is. It is quite clever
that some people realize this and go out and buy multimillion-dollar
mansions, pour all their assets into those homes and call it their
homestead. Then they go bankrupt and don't pay their accountant, their
doctor, their lawyer or anybody else, and they are sitting in a
multimillion-dollar home. That is not right. Why should people who are
living in modest houses not get paid by somebody who is living in a
house worth several million dollars? We have had hearings about that.
We have newspaper articles that actually identify people by name who
have moved to Florida, moved to Texas, buy these mansions, and don't
pay the people they owe. So we have at least capped that exemption at
the level of $100,000. I think that is a bit high. However, the States
can lower it. Some States have $15,000 as all you can keep in a
homestead; others have $50,000. But the maximum now is $100,000,
instead of just allowing quite a number of States to have unlimited
homesteads. In fact, they will do things such as move out of a State
where they owe a lot of debt, pump all their money into a homestead in
another State, declare bankruptcy, and pay nobody back home where they
left. That is an abuse we have eliminated in the legislation as it is
today.
We had a common problem with landlord-tenant. If anybody has managed
an apartment duplex, or maybe has had a garage apartment or a few
housing units, and rented those, you know how difficult the eviction
process is. Each State in this country has a complex system of eviction
procedures so that tenants cannot be unfairly removed from their
premises. Sometimes these laws are pretty complex and it takes a good
bit of effort before somebody can be removed if they don't pay their
rent, or if they are using drugs on the premises, or destroying the
property, or disrupting the neighborhood. It is very
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difficult sometimes. But there is a procedure for it, and you can go to
State court and evict someone.
We are finding that lawyers are running ads in the paper such as
this: ``Seven months free rent. Call me if you have a problem paying
your rent. We guarantee you can live rent free for seven months.'' We
have ads on that: ``Seven months free rent, 100 percent guaranteed in
writing. We guarantee you can stay in your apartment or house 2 to 7
months more without paying a penny of rent.''
How can they do that? They are doing it because they get the person
in and tell them to file bankruptcy, and usually they tell them to wait
until the last step of the eviction process is about to be taken in
State court, when the judge has heard the case and they are about to
rule that you can be evicted, presumably. Then they file for
bankruptcy.
What happens when you file an action in bankruptcy? It stays, or
stops, automatically, all the proceedings in State court. So this stops
the eviction proceeding, no matter how close it is to finality. And
then the poor landlords--who opponents of the bill like to suggest are
usually big wealthy people, but normally most of the landlords in
America have smaller units of housing and don't have legal staffs and
an ability to respond--now they have to go to bankruptcy court. The
case is docketed, the judge sets a hearing, and somebody asks for a
continuance, and they have to hire a lawyer. Now the tenant is fussing
and saying he wasn't using drugs anyway and should not be kicked out.
Now we have another trial going in Federal court over whether or not
this person should be evicted. We found that, in California, 3,886
bankruptcy cases were filed simply to stop eviction proceedings by the
sheriff's office in Los Angeles. That is an astounding number from just
one county in America. It is this kind of ad that generates this kind
of action.
I don't know for sure, but a lot of these people probably didn't need
to file bankruptcy, but we are giving them a priority and advantages
that other people who don't file bankruptcy don't get. It seems to me
that, in effect, we are saying to a landlord: You have to be a private
charity. You have to let this person stay in your premises for 7 months
without paying rent before we can get him out of there, and we in the
law can't do anything about it. That is the way the law is written.
Well, it is our job as Senators and Members of Congress to fix laws
that have those kinds of loopholes. We are going to fix that one. We
are not going to have that kind of abuse continuing to occur in
America. It is not right. It is our responsibility to end this abuse.
You can blame the lawyers all you want, but if the law allows them to
do it, they can do it. It is our job to make the law, not the lawyers
who are using it.
We have another idea that I thought about and believe in strongly. I
have visited, in my hometown of Mobile, AL, a credit counseling agency.
I spent nearly a full day there. These agencies are in existence
virtually in every town in this country. They are very popular. People,
more than you know, have financial troubles. It is the leading cause of
family breakup in America--financial disputes among spouses. What we
need more than we need bankruptcy relief in America is a system to
encourage people to be good money managers, to recognize what their
income is, to set a budget, and have the whole family agree to it and
stand by it. When that occurs, we can avoid many of the problems we now
see.
I will note that I don't dispute at all that quite a number--perhaps
well over half of bankruptcies that are filed--are filed because of
things beyond people's ability to control. Maybe it is because of an
automobile accident, or a serious medical bill, or a business failure,
or maybe a mental illness or something else in the family. So there are
reasons. But for a large number of Americans, they don't need to be
this bad off in this time of economic growth. A lot of it is just a
simple inability to understand how to manage their money.
A credit counseling agency will bring the entire family in, and they
will sit around the table and prepare a budget for the family and help
them agree to it and have them sign that agreement. They will help them
decide what debts to pay first. The credit counseling agency will call
creditors demanding payment and say: We are here working with this
couple. If you will give us 3 months to take care of some other bills,
we will start paying you. We will start paying you so much a month, and
we will pay this debt down. Give us that chance.
Creditors are able to do that on a regular basis. They work out
things for these families and help them to not only avoid bankruptcy,
they help them to pay off their debts and help them to generate a
lifestyle of good money management, which will continue in the future
and perhaps cause them to avoid filing bankruptcy again in the future.
We like that idea.
Our legislation says that before you file bankruptcy, you must at
least visit and talk with a credit counseling agency to see if they may
be able to help you with an alternative to bankruptcy. Frankly, lawyers
are not doing that. Basically, what is happening with lawyers today is,
they are running ads in the paper, and people are coming in and meeting
with paralegals who fill out the form, and they file the bankruptcy;
they tell them how much the fee is going to be, and then they tell them
how to get the money for the fee, to use credit cards and everything
else, and don't pay any debts, take the money you make and give it to
me as a lawyer fee, and I will file for you as soon as the money is
there. That is basically what is happening. It is not good. We need to
be concerned about families and try to get them on the right track of
thinking about financial obligations and the need to repay them.
So there are some other matters in this bill--many more matters of
great import. I am excited about it. I think it is overdue. I want to
express my appreciation again for the leadership of Senator Grassley.
He has steadfastly, fairly, and in a bipartisan way, worked to move
this bill to final passage.
I am convinced we are on the verge of that now. I thought we were
previously. It slipped away from us. But we passed it twice in this
body I think with overwhelming votes--one time, I believe with only one
``no'' vote.
We are going to pass this bill. It is a good bill. It will make our
bankruptcy system a form of Federal court in which people who are
unable to pay their debt can choose to go in and have those wiped out.
We are going to create a system that is better than the current
system. The vast majority of filers will be able to wipe out all of the
debt like they always have. But for those who can pay, they ought to be
made to pay some of it and to allow the other abuses and costs that go
with it to be eliminated.
Attorney fees and litigation can be eliminated. Some people are going
to find maybe there is an alternative through a credit counseling
agency rather than going through the process of filing bankruptcy. I
think that will be a good step.
I am proud to have worked on this. I am proud to have worked with
Senator Grassley, whom I admire so greatly. I look forward to final
passage and signing by the President of this important legislation.
Thank you, Madam 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. LOTT. Madam President, I ask unanimous consent that the order for
the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. LOTT. Madam President, in a few moments, I will ask unanimous
consent to proceed to the nuclear waste bill. However, I will withhold
that request until Senator Reid is able to reach the Chamber. I thought
while we were waiting on his arrival I would go ahead and make some
remarks about this very important legislation.
We will, for the information of all Senators, continue to work
tomorrow on the bankruptcy reform package and the amendments that have
been agreed to. We hope to make good progress tomorrow. We will have
recorded votes on Tuesday, but as to exactly when we will be able to
finish it will require some communication with both sides of the aisle.
It could be that we will not be able to finish until sometime
Wednesday. After that, of course, we hope to be on the nuclear waste
issue.
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