[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

[[Page S136]]

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

[[Page S137]]

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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