[Congressional Record Volume 146, Number 78 (Tuesday, June 20, 2000)]
[Senate]
[Pages S5383-S5389]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                           BANKRUPTCY REFORM

  Mr. GRASSLEY. Mr. President, I rise this morning to speak on the 
topic of bankruptcy reform. As many of my colleagues may know, Congress 
is on the verge of enacting fundamental bankruptcy reform. Earlier this 
year, the Senate passed bankruptcy reform by an overwhelming vote of 
83-14. Almost all Republicans voted for the bill and about one-half of 
the Democrats voted for it as well. Despite this, a tiny minority of 
Senators are using undemocratic tactics to prevent us from going to 
conference with the House of Representatives.
  As I'm speaking now, the House and Senate have informally agreed on 
99 percent of all the issues and have drafted an agreement which has 
bicameral and bipartisan support. The remaining three issues are sort 
of side shows, and I'm confident we'll be able to move from the one 
yard line to the end zone. My remarks this morning relate the agreement 
we've reached on the core bankruptcy issues and the continuing need for 
bankruptcy reform.
  As I've stated before on the Senate floor, every bankruptcy filed in 
America creates upward pressure on interest rates and prices for goods 
and services. The more bankruptcies filed, the greater the upward 
pressure. I know that some of our more liberal colleagues are trying to 
stir up opposition to bankruptcy reform by denying this point and 
saying that tightening bankruptcy laws only helps lenders be more 
profitable. This just isn't true. Even the Clinton administration's own 
Treasury

[[Page S5384]]

Secretary Larry Summers indicated that bankruptcies tend to drive up 
interest rates. Mr. President, if you believe Secretary Summers, 
bankruptcies are everyone's problem. Regular hardworking Americans have 
to pay higher prices for goods and services as a result of 
bankruptcies. That's a compelling reason for us to enact bankruptcy 
reform during this Congress.
  Of course, any bankruptcy reform bill must preserve a fresh start for 
people who have been overwhelmed by medical debts or sudden, unforeseen 
emergencies. That's why the bill that passed the Senate--as well as the 
final bicameral agreement--allows for the full, 100 percent 
deductibility of medical expenses. This is according to the 
nonpartisan, unbiased General Accounting Office. Bankruptcy reform must 
be fair, and the bicameral agreement on bankruptcy preserves fair 
access to bankruptcy for people truly in need.
  These are good times in our Nation. Thanks to the fiscal discipline 
initiated by Congress, and the hard work of the American people, we 
have a balanced budget and budget surplus. Unemployment is low, we have 
a burgeoning stock market and most Americans are optimistic about the 
future.
  But in the midst of this incredible prosperity, about 1\1/2\ million 
Americans declared bankruptcy in 1998 alone. And in 1999, there were 
just under 1.4 million bankruptcy filings. To put this in some 
historical context, since 1990, the rate of personal bankruptcy filings 
has increased almost 100 percent.

  With large numbers of bankruptcies occurring at a time when Americans 
are earning more than ever, the only logical conclusion is that some 
people are using bankruptcy as an easy out. The basic policy question 
we have to answer is this: Should people with means who declare 
bankruptcy be required to pay at least some of their debts or non? 
Right now, the current bankruptcy system is oblivious to the financial 
condition of someone asking to be excused from paying his debts. The 
richest captain of industry could walk into a bankruptcy court tomorrow 
and walk out with his debts erased. And, as I described earlier, the 
rest of America will pay higher prices for goods and services as a 
result.
  I would ask my liberal friends to think about that for a second. If 
we had no bankruptcy system at all, and we were starting from scratch, 
would we design a system that lets the rich walk away from their debts 
and shift the costs to society at large, including the poor and the 
middle class? That wouldn't be fair. But that's exactly the system we 
have now. Fundamental bankruptcy reform is clearly in order.
  Mr. President, I want my colleagues to know that the bicameral 
agreement preserves the Torricelli-Grassley amendment to require credit 
card companies to give consumers meaningful information about minimum 
payments on credit cards. Consumers will be warned against making only 
minimum payments, and there will be an example to drive this point 
home. As with the Senate-passed bill, the bicameral agreement will give 
consumers a toll-free phone number to call where they can get 
information about how long it will take to pay off their own credit 
card balances if they make only the minimum payments. This new 
information will truly educate consumers and improve the financial 
literacy of millions of American consumers.
  The bicameral agreement also makes chapter 12 of the Bankruptcy Code 
permanent. This means that America's family farms are guaranteed the 
ability to reorganize as our farm economy continues to be weak. As we 
all know from our recent debate on emergency farm aid, while prices 
have rebounded somewhat, farmers in my home State of Iowa and across 
the Nation are getting some of the lowest prices every for pork, corn, 
and soybeans. And fuel prices have shot up through the roof. The 
bicameral agreement broadens the definition of ``family farmer'' and 
permits farmers in chapter 12 to avoid crushing capital gains taxes 
when selling farm assets to generate cash flow. It would be highly 
irresponsible of my liberal friends to continue blocking bankruptcy 
protections for our family farmers in this time of need.
  The bicameral agreement is solidly bi-partisan and will pass by a 
huge margin when it comes up for a vote. The bill is fair and contains 
some of the broadest consumer protections of any legislation passed in 
the last decade. So, how can any person possibly argue against a bill 
which strengthens consumer protections while cracking down on abuses by 
the well-to-do?

  The tiny handful of fringe radicals who oppose bankruptcy reform have 
waged a disinformation campaign worthy of a Soviet Commissar. A recent 
article in Time Magazine is a case in point. This article purports to 
prove that bankruptcy reform will harm low-income people or people with 
huge medical bills. This article is simply false.
  What's most interesting about this Time article is what it fails to 
report. Time, for instance, fails to mention that the means test, which 
sorts people who can repay into repayment plans, doesn't apply to 
families below the median income for the State in which they live. The 
Time article then proceeds to give several examples of families who 
would allegedly be denied the right to liquidate if bankruptcy reform 
were to pass. Each of these families, however, would not even be 
subjected to the means test since they earn less than the median 
income. While this sounds technical, it's important--not even one of 
the examples in the Time article would be affected by the means test. 
For the convenience of my colleagues, I have collected the actual 
bankruptcy petitions of the families referred to in the Time article, 
and I will provide them to any Senator.
  Time fails to mention the massive new consumer protections in our 
bankruptcy reform bill. Time fails to mention the new disclosure 
requirements on credit cards regarding interest rates and minimum 
payments. In short, the Time article fails to tell the whole truth. I 
think that the American people deserve the whole truth.
  The truth is that these bankruptcies represent a clear and present 
danger to America's small businesses. Growth among small businesses is 
one of the primary engines of our economic success.
  The truth is bankruptcies hurt real people. Sometimes that will be 
inevitable. But it's not fair to permit people who can repay to skip 
out on their debts. I think most people, including most of us in 
Congress, have a basic sense of fairness that tells us bankruptcy 
reform is needed to restore balance. Let me share what my constituents 
are telling me.
  I ask unanimous consent to have some of their comments printed in the 
Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

          What Real People Are Saying About Bankruptcy Reform

       ``The present [bankruptcy laws] are a joke . . . One local 
     man has declared bankruptcy at least four times at the 
     expense of suppliers to him. He just laughs at it . . .''--
     Washington, Iowa.
       ``It is way too easy to avoid responsibility.''--Cedar 
     Falls, Iowa.
       ``If one assumes debt they need to pay it off . . . We've 
     got to take responsibility for our purchases!''--
     Independence, Iowa.
       ``Too many people use bankruptcy as an out, we need to make 
     sure people are held accountable for all their debts.''--
     Harlan, Iowa.
       ``Personal responsibility is a must in our country . . . 
     Sickness or loss of a job is one thing, but the majority of 
     people just don't pay, but spend their money elsewhere 
     knowing they can unload the debt with the help of the 
     courts.''--Fort Madison, Iowa.
       ``I think people taking bankruptcy should have to pay the 
     money back . . . They should have learned to work for and pay 
     for what they get.''--Cedar Rapids, Iowa.
       ``It is insane that such a practice has been allowed to 
     continue, only causing higher prices to the consumer . . . 
     Debtors should be required to repay their debt.''--Des 
     Moines.
       ``Bankruptcies are out of hand. It's time to make people 
     responsible for their actions--do we need to say 
     this!!!??''--Keokuk, Iowa.
       ``We need to make people more responsible for their 
     decisions, while at the same time protecting those who fall 
     on hard times. I realize that this is a delicate balance, but 
     the way it is now, there is very little shame in going this 
     route.''--Floyd, Iowa.
       ``People need to be more responsible for their debts. As a 
     small business owner, I have had to withstand several large 
     bills people have left with me due to poor management and 
     bankruptcy.''--Fontanelle, Iowa.
       ``Bankruptcy reform will force the American people to 
     become more responsible for their actions, bankruptcy does 
     not seem to carry any degree of shame; it is almost regarded 
     as a right or entitlement.''--Cedar Rapids, Iowa.
       ``Many don't think the business is who loses. We make it 
     too easy now.''--Waverly, Iowa.

[[Page S5385]]

  Mr. GRASSLEY. Mr. President, bankruptcy reform will happen. Our cause 
is right and just, and average Americans are strongly supportive of 
restoring fairness to the bankruptcy system.
  I am going to yield the floor now. Before I do, I thank Senator 
Biden, who is next to speak on this subject. If it had not been for 
Senator Biden working with us in a bipartisan way to get bankruptcy 
reform, it would never have passed by the wide margin of 84-13. He is a 
sincere person working on this. He has contributed immensely to it.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Delaware is recognized for 10 
minutes.
  Mr. BIDEN. Mr. President, let me begin by thanking my colleague from 
Iowa. He and I have worked together on a lot of issues. We tend to 
approach issues from a slightly different perspective but often end up 
in the same place, and that is the case here.
  My concern in the reform of the bankruptcy code was not as much 
driven by those who were avoiding debt as his was but about making sure 
the overall consumer is protected. When people avoid debts they can 
pay, it is a simple proposition: My mother living on Social Security 
pays more at the department store to purchase something, my sons, who 
are beginning their careers, and my daughter pay more on their credit 
card bill because someone else does not pay.
  In recent days, a number of my colleagues have brought the Time 
magazine article to my attention and to the attention of the Senator 
from Iowa and others. If you took a look at the Time magazine article 
and read it thoroughly, you would think we were about to tread on the 
downtrodden, deserving Americans who are about to be, and I quote from 
the article, ``soaked by the Congress.'' My colleagues have pointed 
this out to me. They find it a very disturbing article. It tells a tale 
of corruption and greed and heartlessness, claims that hard-working, 
honest, American families are about to be cut off from the fresh start 
promised by the bankruptcy code, and that lenders, who have driven 
these families into economic distress, are about to kick them when they 
are down.
  Most shocking in the article, perhaps, from my perspective, is the 
claim that the U.S. Congress, by passing the bankruptcy reform 
legislation which passed out of here overwhelmingly, will make all this 
happen. As I said, it is a very disturbing article. It is hard to see 
how anyone, in my view, could vote for bankruptcy reform if, in fact, 
the essence of the article were true. But I remind my colleagues that 
bankruptcy reform legislation, not this imaginary legislation described 
in the article, passed the House by a vote of 313-108, and the Senate 
by 84-13. So this article claims a vast majority of both our parties in 
both Houses of Congress are conspirators in an alleged plot to hit 
those who are down on their luck.
  The problem with this portrayal is the bankruptcy reform bill now in 
conference is the antithesis of what they have said. Their article is 
simply dead wrong. I do not ever recall coming to the floor of the 
Senate in my 28 years and saying unequivocally: One of the most 
respected periodicals and magazines in the country, with a major 
article, is simply dead, flat, absolutely wrong. I don't recall ever 
being compelled to do that or being inclined to do that.
  I will make one admission at the outset. It is the intent of the 
bankruptcy reform to tighten the bankruptcy system; that is true, to 
assure that those who have the ability to pay do not walk away from 
their legal debts. The explosion of bankruptcy in the early and mid-
1990s revealed a problem with our system and the reform legislation is 
a response to that by the strong bipartisan vote of both Houses.
  I am more on that liberal side, as my friend from Iowa talks about. I 
admire his pride that everybody should pay their debts, and I think 
they should.
  I am more inclined to let someone go than to hold them tightly. I 
admit that part. But I came here with this reform legislation because 
all these bankruptcies are causing debts to be driven up by other 
people. Interest rates go up on credit cards, not that credit card 
companies do not like high interest rates anyway. Interest rates go up 
on automobile loans. Interest rates go up all over the board. The cost 
of borrowing money goes up when people who can pay do not pay. It means 
innocent middle-class people and poor folks end up paying more.
  Yes, bankruptcy reform is intended to require more repayment by those 
who can afford it, more complete and verified documentation, and to 
generally discourage unnecessary and unwarranted filings. When the 
bankruptcy system is manipulated by those who can afford to pay, we all 
pay.
  This article claims that bankruptcy reform legislation is driven 
solely by the greed of lenders, that abuse of the bankruptcy code is a 
myth created by those who want to wring more money out of those who do 
not have more money. That is not the position of the Justice 
Department.
  I ask unanimous consent that a document entitled ``U.S. Trustee 
Program'' be printed in the Record at the end of my statement.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  (See Exhibit 1.)
  Mr. BIDEN. Mr. President, back to the Time article. One would think 
there was no reason to tighten up the current system, that those of us 
who support bankruptcy reform--a large bipartisan majority--had lost 
our hearts, our souls, and possibly our minds. Some folks might find 
that easy to believe, but if they simply compare the language of the 
legislation to the case studies in the article, they will find that in 
virtually every significant claim and detail, the charges leveled 
against this reform legislation are not true. They are simply false; 
they are flat wrong; and they are easily and conclusively refuted by a 
quick look at the facts.
  First, a little primer on the bankruptcy code reform. Chapter 7 of 
the bankruptcy code requires a liquidation of any assets and a payout 
to as many creditors as possible from the proceeds. Chapter 13 allows 
the filer to keep a home, a car, and so on, but requires them to enter 
into a repayment plan. The irony is, chapter 13 was put in to help 
people from the rigors of chapter 7. I do not have time to go into 
that, but it is a basic premise that is missed by the article.
  The bankruptcy reform legislation that is the cause for such alarm in 
this article asks a question that I think most Americans would be 
surprised to learn is never even asked under the present system. The 
question is: Do you have the ability to pay some of those debts that 
you want forgiven?
  If the answer is yes, then you will have to file for bankruptcy under 
chapter 13 and have what they call a workout, a repayment plan. No 
one--I repeat, no one--who needs it would ever, as this article puts 
it, be denied bankruptcy assistance. That cannot happen now, and it 
will not happen under this legislation. So it is not the idea you are 
denied bankruptcy, it is how you file for bankruptcy--under chapter 7 
or chapter 13.
  Only a few filers of bankruptcy, no more than 10 percent of those now 
filing under chapter 7--maybe even less--would see any change at all in 
their status. Those who have demonstrated an ability to pay would be 
told to file under chapter 13 and would follow the kind of repayment 
plan their resources would allow.

  A key point must be stressed: Chapter 13 is not some kind of debtor's 
prison. It is a practical solution to the problem of too many creditors 
chasing a debtor with too few resources. The article suggests that any 
change in the availability of chapter 7 will be the equivalent of the 
whip and the lash and the restoration of debtor's prison. The truth is 
different.
  Chapter 13 was added to the bankruptcy code in the 1930s as the more 
desirable alternative to the draconian liquidation required under 
chapter 7. It was conceived as the ``wage earner's'' form of 
bankruptcy, for those who had an income and the ability to pay some of 
their creditors but who needed protection of the system to keep their 
creditors from hounding them.
  Although this may seem like a quaint notion these days, it was 
intended to preserve some of the debtor's dignity at a time when 
bankruptcy carried more of a stigma for some people than it does today.
  A profoundly mistaken view of the difference between chapter 7 and 
chapter 13 is not the most serious flaw in

[[Page S5386]]

this article. The real impact of this article comes from its stories of 
hard-working, honest, everyday American families who have fallen on 
hard times. These are the people who will, according to the article, 
find the door to a fresh start shut to them.
  As disturbing as these stories are, they are all based on a 
demonstrably false premise. As the Senator from Iowa said, virtually 
none of the low- to moderate-income working families whose stories were 
so compellingly told in that article would be touched by the reforms 
affecting the availability of chapter 7.
  That is right. In each and every case, given their income and their 
circumstances as presented, those families and individuals who were 
talked about in the article would still be eligible for chapter 7 
protection. The central claims about the impact of bankruptcy reform on 
the families described in this article are flat wrong.
  I know a lot of my colleagues have been concerned about these 
charges, and I urge them to take a simple test. Compare the financial 
circumstances of the individuals in the article and the stories that 
are told with the terms of our bankruptcy legislation. My colleagues 
will see the claims that these families will be cut off are not true.
  They are wrong chiefly because the reform legislation contains what 
we call a safe harbor which preserves chapter 7, with no questions 
asked, for anyone earning the median income or less for the region in 
which they live. This is a protection I sought along with other 
supporters of bankruptcy reform. It was a key element of the Senate 
bill, and it has been accepted in conference.
  There is even more protection: Those with up to 150 percent of the 
median income will be subject to only a cursory look at their income 
and obligations, not a more detailed examination.
  These provisions provide that the door to chapter 7 remains open for 
just the kind of family the article claims will be most hurt.
  I will not chronicle all of them, but I ask you to listen to this one 
story. Of all the cases chronicled in the article, I read most 
carefully the story of Allen Smith of Wilmington, DE, my hometown. A 
World War II veteran, he had worked in our Newark, DE, Chrysler plant 
until the downsizing of the 1980s cost him his job.

  Struck by cancer, my constituent from Wilmington, DE, was also hit 
with the tragedy and expense of his wife's diabetes and then her death. 
Health care costs drove him deeper and deeper into debt, and he filed 
for bankruptcy under chapter 13. Further financial troubles led to the 
failure of his chapter 13 plan, and he was then switched to chapter 7 
under which he will lose his home to pay some of his obligations.
  I searched in vain to find any relevance of this profound human 
tragedy to the bankruptcy reform legislation. To the extent it has 
anything at all to do with the supposed point of the story, Mr. Smith's 
story is presented to show us someone who is going to lose his home in 
bankruptcy, because he is now in chapter 7, exactly what the authors 
previously argued should be the preferred chapter for individuals in 
his circumstances. His sad story is an argument for catastrophic health 
insurance, not against bankruptcy reform.
  They contrast his case with that of a wealthy individual who uses the 
protection of the present bankruptcy code by purchasing an expensive 
home under Florida's unlimited homestead exemption to protect assets 
from creditors. One would never know it from reading the article, but 
in the Senate we voted to get rid of that unlimited exemption that now 
is in the law.
  More recently, the conferees have agreed to eliminate precisely the 
kind of abuse criticized in this article. The article discusses at 
length a case that has nothing to do with reform but criticizes an 
abuse that is actually fixed by this reform bill.
  There are other profound inconsistencies and factual errors in the 
article, including the assertion that medical expenses would not be 
considered in calculating a filer's ability to pay or would not be 
dischargeable after bankruptcy or that family support payments, such as 
child support or alimony, would be a lower priority than a credit card 
debt. None of these assertions is true.
  However, without these errors, there would be no article.
  In many cases, in terms of the new, additional protections for family 
support payments and improved procedures for reaffirmations, filers in 
the kind of circumstances chronicled in the other stories in this 
article would be better off, not worse off, when this legislation 
passes.
  I know my colleagues have expressed their worries about this article. 
I truly ask them, look at the language of the legislation, look at the 
articles that are written, and you will find that, although this is not 
a perfect bill, that none of the families chronicled in that article 
would be affected at all except their circumstances improved, if in 
fact anything was to happen.
  I know that my colleagues who have expressed their worries about this 
article are sincere in their concern about the fairness of bankruptcy 
reform legislation. I urge them to apply the simple test of fairness to 
this article, to compare the situations of those families in the 
article to the actual provisions in the bankruptcy reform legislation. 
They will find those families's access to the full protection of 
Chapter 7 unchanged by this bill.
  I ask them to do it for themselves: they don't have to take my word 
for it.
  This is not a perfect bill. It is not the even bill that I would have 
written by myself. But it is a bill that can pass that test.
  I thank the Chair and I thank my colleagues assembled on the floor 
for the additional 4 minutes. I realize it is a tight day and time is 
of the essence. I appreciate their courtesy.
  I yield the floor.

                               Exhibit 1

                    [Bankruptcy Criminal Cases 1999]

                          U.S. Trustee Program

  (Criminal Cases: The United States Trustee Program's duties include 
    policing the bankruptcy system for criminal activity, referring 
 suspected criminal cases to the appropriate law enforcement agencies, 
   and assisting in investigating and prosecuting those cases. Some 
   significant bankruptcy-related criminal cases are described here)

                                  1999


                                alabama

       Attorney John C. Coggin III of Birmingham, Ala., was 
     sentenced July 26 to 36 months in prison for conspiracy 
     consisting of bankruptcy fraud, money laundering, and false 
     statements to a federal officer. Coggin hid more than 
     $200,000 that was due to creditors in his bankruptcy case, 
     using a corporation set up for that purpose.


                                arizona

       Bankruptcy petition preparer Richard S. Berry of Tempe, 
     Ariz., was sentenced April 20 in the District of Arizona to 
     six months in prison for criminal contempt of court, after 
     being fined $1 million in 1998 for willfully violating 
     Bankruptcy Court orders. Since January 1997, several court 
     orders addressed Berry's violations of the Bankruptcy Code's 
     provisions regulating bankruptcy petition preparers. The 
     Bankruptcy Fraud Task Force for the District of Arizona 
     sought criminal contempt charges against Berry based on his 
     violation of a January 1997 Bankruptcy Court order limiting 
     his fees.
       Lawrence R. Costilow of Tucson pleaded guilty February 19 
     to two counts of bankruptcy fraud arising from his actions as 
     a creditor in a Chapter 7 bankruptcy case. Costilow loaned 
     $50,820 to a married couple, obtaining an unsecured 
     promissory note in return. After the spouses filed for 
     bankruptcy, Costilow altered the note so it purposed to take 
     a security interest in their property. Costilow recorded the 
     note and later testified in bankruptcy court as to it 
     validity.


                               california

       Sherwin Seyrafi of Encino, Calif., pleaded guilty December 
     28 in the District of Arizona to bankruptcy fraud, misuse of 
     a Social Security number, and failure to file a corporate tax 
     return. The counts for bankruptcy fraud and misuse of an SSN 
     arose from Seyrafi's filing of a bankruptcy petition with the 
     knowledge that it contained a false spelling of his name and 
     a false Social Security number.
       Judy Scharnhorst Brown, a Spring Valley, Calif., real 
     estate broker, was sentenced Nov. 9 in the Southern District 
     of California to 15 months in custody followed by three years 
     of supervised release and ordered to pay $75,000 in 
     restitution and fines for a bankruptcy fraud and mail fraud 
     scheme. On March 30, a jury convicted Brown on one count of 
     conspiracy, three counts of bankruptcy fraud, and eight 
     counts of mail fraud after a two-week jury trial.
       On April 21 a federal jury in Los Angeles convicted 
     Faramarz Taghilou of Castaic, Calif., on two counts of 
     concealing his private airplane in his Chapter 7 bankruptcy 
     case. Taghilou failed to disclose in his bankruptcy documents 
     that he owned a Cessna 310Q insured for $120,000 and was 
     paying monthly leasing fees to have the airplane kept at Van 
     Nuys airport. Additionally, Taghilou's bankruptcy schedule 
     omitted a

[[Page S5387]]

     creditor who had placed a mechanic's lien on the airplane; 
     the debtor paid that creditor two weeks after filing for 
     bankruptcy.
       Theresa Marie Thompson-Snow pleaded guilty March 17 in the 
     Central District of California to false representation of a 
     Social Security number and bankruptcy fraud. Through an 
     error, Thompson-Snow obtained loan documents belonging to a 
     college classmate--now an English professor--with a similar 
     name. She subsequently assumed the professor's identity to 
     obtain thousands of dollars in credit, and ultimately filed 
     for bankruptcy in her victim's name.
       Tricia Mendoza of Norwalk, Calif., was sentenced Jan. 11 to 
     one year in prison and ordered to pay almost $250,000 in 
     restitution for embezzling from a Chapter 13 trustee 
     operation. Mendoza, who was the trustee office's 
     receptionist, changed names and addresses in the computer 
     system to the name and address of an accomplice, thereby 
     diverting payments intended for creditors to an address she 
     controlled.
       Stephen Martin Zuwala was sentenced June 9 to 57 months in 
     federal prison and 36 months supervised release, and ordered 
     to pay more than $50,500 in restitution, based on his 
     conviction on five counts of mail fraud, three counts of 
     criminal contempt, and four counts of misuse of a Social 
     Security number. Non-lawyer Zuwala contacted individuals 
     facing home foreclosure and offered assistance through 
     ``little-known federal relief programs'' that turned out to 
     be filing for bankruptcy. Zuwala typically charged $500 to 
     $1,000 per case, but disclosed only part of his fees in 
     documents filed with the Bankruptcy Court. All criminal 
     contempt counts arose from Zuwala's violation of a prior 
     judgment obtained by the United States Trustee to permanently 
     enjoin him from preparing bankruptcy documents for filing in 
     the Northern and Eastern Districts of California.
       Bankruptcy petition preparers Regina Green and Raymond Zak 
     were sentenced April 15 based on their earlier convictions 
     for criminal contempt and bankruptcy fraud. Because of 
     misconduct, Green and Zak had been ordered by the Bankruptcy 
     Court for the Northern District of California to stop 
     preparing bankruptcy petitions, and they were prosecuted for 
     violating that order. Green was sentenced to seven months in 
     prison for contempt of court and forgery, and Zak was 
     sentenced to six months in a halfway house for bankruptcy 
     fraud. Both defendants were ordered to pay restitution and 
     were barred from acting as bankruptcy petition preparers.


                                colorado

       James Francis Cavanaugh pleaded guilty Oct. 8 to bankruptcy 
     fraud in the District of Colorado. When Cavanaugh filed for 
     bankruptcy, he falsely stated that he had sold certain horses 
     from his Colorado horse breeding operation for $10,000, 
     although he had earlier valued the horses at $124,000. He 
     also failed to disclose to the bankruptcy court that he had 
     interests in two bank accounts in Missouri.


                                florida

       After a jury trial in the Middle District of Florida, 
     certified public accountant Kenneth A. Stoecklin was 
     convicted July 8 for embezzlement from the bankruptcy estate 
     of Chapter 11 debtor Commonweal Inc. and obstruction of the 
     administration of the internal revenue laws. Stoecklin, the 
     controlling corporate officer of Commonweal Inc., transferred 
     substantially all of his assets to the real estate 
     development company in an apparent attempt to avoid an 
     individual income tax liability exceeding $137,000. He 
     subsequently withdrew funds from an account established to 
     provide the government with ``adequate protection'' pending 
     the outcome of tax-related litigation.
       Warren D. Johnson Jr. was sentenced June 23 to 97 months 
     imprisonment and ordered to pay more than $5 million 
     restitution after being convicted of bankruptcy fraud, bank 
     fraud, and money laundering. During a June 1998 bond hearing, 
     Johnson testified that he had no interest in stocks or other 
     assets in the Turks and Caicos Island, when he actually held 
     around $25 million worth of stock in a publicly traded 
     company. In addition, Johnson claimed he was indigent and 
     could not pay restitution despite the fact that the 
     controlled more than $10 million in assets placed in the 
     names of family members and off-shore shell corporations. 
     Johnson's bankruptcy convictions resulted from a 1992 
     bankruptcy case in which he claimed over $7.2 million in debt 
     and no assets, when he actually expected to receive at least 
     $1.2 million in real estate sale profits. Johnson laundered 
     approximately $250,000 of these profits by transferring the 
     funds to his wife and then using them for living expenses. 
     The bank fraud conviction resulted from Johnson's filing 
     false financial statements to obtain a $600,000 loan that he 
     did not repay.


                                Georgia

       The District Court for the Northern District of Georgia 
     entered judgment on December 13 against David Alvin Crossman 
     of Atlanta following his guilty plea to one count of filing a 
     false income tax return and one count of bankruptcy fraud. 
     Crossman set up a car leasing scheme under which he created 
     false financial statements and tax returns to lease cars as 
     if he were fleet leasing for a business, and then re-leased 
     the vehicles to individuals with poor credit. In his 
     individual and corporate Chapter 7 bankruptcy cases, he 
     failed to turn over lease payments to the bankruptcy 
     trustees.
       Craig D. Butler pleaded guilty Sept. 17 to bankruptcy fraud 
     and income tax evasion. In October 1995, Butler filed a 
     bankruptcy petition in which he made false representations 
     and statements to evade payment of federal income taxes. 
     During the bankruptcy case, Butler, who formerly practiced 
     medicine in Albany, Ga., used funds of his professional 
     corporation to pay his personal expenses and those of his 
     family members, while designating the payments as business-
     related expenditures.


                                 Hawaii

       On December 10 a federal jury in the District of Hawaii 
     found attorney Stacy Moniz of Kaneohe guilty of filing a 
     false income tax return, structuring cash transactions to 
     evade currency reporting requirements, failing to report the 
     receipt of $15,000 cash in the operation of his law office, 
     making false statements to the IRS, and making a false 
     statement under penalty of perjury in a bankruptcy 
     proceeding. The bankruptcy count arose from Moniz's falsely 
     reporting a client to be a creditor in his August 1997 
     bankruptcy case.
       Arthur Kahahawai pleaded guilty Oct. 4 in the District of 
     Hawaii to two counts of bankruptcy fraud. Kahahawai concealed 
     from the bankruptcy trustee and his creditors a $71,517 
     workers' compensation settlement that he received less than 
     one month before filing for bankruptcy.
       Miyoko Mizuno, a/k/a Miyoko Proctor, pleaded guilty in the 
     District of Hawaii Sept. 24 to concealment of assets in her 
     bankruptcy case. The debtor attempted to discharge 
     approximately $185,000 in unsecured debts by filing for 
     Chapter 7 bankruptcy. She listed no interests in real 
     property, when in fact she had deeded to her son a 
     condominium and her residence while retaining a life interest 
     in both properties, which could generate substantial rental 
     income.
       Edward O'Kelley, former owner and president of HOJE 
     Construction, was sentenced April 23 in the District of 
     Hawaii to 33 months in prison for bankruptcy fraud 
     (concealment of assets and fraudulent transfer), and money 
     laundering. O'Kelley had been found guilty in a jury trial 
     for his role in putting HOJE Construction into Chapter 7 
     bankruptcy and hiding its assets in bank accounts in Alaska 
     and Texas. HOJE performed subcontracting work on military 
     projects in Hawaii and Alaska from 1992 through 1995. 
     O'Kelley and HOJE operations manager Harry Jordan conspired 
     to hide more than $450,000, which the bankruptcy trustee 
     recovered.
       Harry Jordan pleaded guilty to bankruptcy fraud Feb. 8 in 
     the District of Hawaii; he was sentenced to one year 
     probation with one month home confinement, and ordered to pay 
     $75,000 in restitution. The court took into account that 
     Jordan, the former operations manager of HOJE Construction 
     Inc., cooperated with the United States Attorney and 
     testified against HOJE president Edward O'Kelley, who was 
     found guilty of bankruptcy fraud and money laundering. HOJE 
     performed subcontracting work on military projects in Hawaii 
     and Alaska from 1992 to 1995, when it filed for bankruptcy. 
     More than $450,000 in concealed assets have been recovered.


                                Illinois

       A federal jury in the Northern District of Illinois Oct. 22 
     convicted Vincent M. Gramarossa on two counts of bankruptcy 
     fraud and eight counts of money laundering. Gramarossa 
     defrauded bankruptcy creditors by skimming more than $580,000 
     from his business, a State Farm Insurance agency in suburban 
     Chicago. Gramarossa's confirmed Chapter 11 reorganization 
     plan directed that he pay half his profits to creditors, but 
     Gramarossa devised a scheme under which he diverted 
     commissions to conceal approximately one-third of his 
     commissions.


                                Indiana

       Bankruptcy debtors' attorney David T. Galloway of Porter 
     County, Ind., pleaded guilty April 5 in the Northern District 
     of Indiana to criminal contempt and agreed to resign from the 
     practice of law for three years. Galloway served as counsel 
     for a Chapter 7 debtor who concealed a pending personal 
     injury action from the bankruptcy case trustee. The debtor 
     testified at the Section 341 meeting of creditors that his 
     medical debts resulted from illness. After the Section 341 
     meeting, the United States Trustee's office in South Bend, 
     Ind., and the case trustee investigated the nature of the 
     medical debts, leading to the discovery of the personal 
     injury lawsuit.


                                Kentucky

       Debtors Daniel Caldera and Martha Kay Caldera of 
     Elizabethtown, Ky., were sentenced Oct. 20 in the Western 
     District of Kentucky for bankruptcy fraud. Daniel Caldera 
     pleaded guilty to concealing a $101,295 payment from C&S 
     Carpentry Service Inc.'s bankruptcy estate. He was 
     sentenced to 21 months imprisonment plus two years 
     supervised release, and ordered to pay $11,272 in 
     restitution. Martha Kay Caldera pleaded guilty to filing a 
     bankruptcy petition containing a materially false 
     declaration--that she and/or her spouse did not own an 
     annuity when in fact her spouse did. She was sentenced to 
     24 months probation, including six months of home 
     incarceration.


                               Louisiana

       Former district attorney James A. Norris, Jr. was sentenced 
     June 22 in the Western District of Louisiana to 33 months in 
     prison

[[Page S5388]]

     and three years supervised release, and ordered to pay 
     $490,000 in restitution for bankruptcy fraud. On March 10, a 
     jury found Norris guilty of four counts of making false oaths 
     in a bankruptcy proceeding, in connection with his four 
     statements under oath that he had burned $500,000 cash in his 
     backyard. In 1989, Norris withdrew approximately $500,000 
     from his law partnership's account in a dispute over business 
     decisions; his former law partners ultimately obtained a 
     court judgment against him and filed an involuntary 
     bankruptcy petition against him.
       Attorney Betty L. Washington was sentenced Jan. 20 in the 
     Eastern District of Louisiana to 33 months in prison, and 
     ordered to pay approximately $5,000 in restitution, based on 
     a jury verdict finding multiple counts of fraud, including 
     bankruptcy fraud. In her Chapter 7 bankruptcy case Washington 
     concealed her right to receive legal fees from a client. 
     Further, as part of a scheme to obtain more than $20,000 in 
     automobile loans, Washington tried to mislead a bank into 
     believing her bankruptcy case had been concluded.


                                 Maine

       On June 8 Catherine Duffy Petit was sentenced in the 
     District Court for the District of Maine to 15 years and 
     eight months in prison and three years supervised release, 
     and ordered to forfeit nearly $164,000 and to pay restitution 
     of nearly $8 million, based on her conviction on 54 counts 
     (reduced by the court from 78) of conspiracy, bankruptcy 
     fraud, securities fraud, and other violations. Petit and co-
     conspirators had raised almost $7 million--ostensibly for 
     litigation expenses--by selling interests in Petit's state 
     court suit against a bank.


                             Massachusetts

       On July 8 attorneys Wendy Golenbock and Cheryl B. Stein of 
     Weston, Mass., were each sentenced in the District of 
     Massachusetts to 21 months in jail for bankruptcy fraud. The 
     attorneys attempted to conceal their property interest in a 
     Cape Cod, Mass., vacation home from their bankruptcy trustee 
     and creditors. In March 1999, a jury found them guilty of 
     bankruptcy fraud and conspiracy to commit bankruptcy fraud.
       Prosecutors in Boston announced Feb. 9 the settlement of 
     charges filed against Sears, Roebuck & Co. for improper debt 
     collection from Chapter 7 debtors. Sears agreed to pay a $60 
     million criminal penalty, which is the largest ever paid in a 
     bankruptcy fraud case. The monies will be deposited into the 
     Crime Victims' Fund. Sears already paid over $180 million in 
     restitution and $40 million in civil fines to state attorneys 
     general, in connection with civil settlements in the case.


                               Minnesota

       Mark John McGowan of Mound, Minn., was sentenced Sept. 1 to 
     one year in prison and two years of supervised release for 
     bankruptcy fraud and perjury. In his Chapter 7 bankruptcy 
     schedules, McGowan listed a $100,000 house that he claimed 
     exempt as his homestead although he actually rented the house 
     and had no intent to occupy it.
       Daniel J. Bubalo of Edina, Minn., was sentenced June 8 to 
     21 months in prison and ordered to pay $85,000 in restitution 
     following his conviction on two counts of bankruptcy fraud. 
     After Bubalo's bankruptcy case was converted from Chapter 11 
     to Chapter 7, and without the Chapter 7 trustee's knowledge, 
     Bubalo sold for $70,000 a Duluth, Minn., bar valued at 
     $175,000. He later testified that the property's status had 
     not changed since his case was converted.


                                Missouri

       Keith D. Linhardt of Warrenton, Mo., pleaded guilty Feb. 12 
     in the Eastern District of Missouri to bankruptcy fraud and 
     perjury. Linhardt admitted that he concealed financial 
     accounts as well as his interests as primary beneficiary of 
     seven life insurance policies--totaling more than $1.5 
     million--on his wife, who died on a camping trip in April 
     1998. In July 1998, at his Section 341 meeting with 
     creditors, Linhardt testified to the trustee concerning his 
     non-debtor spouse as though she were alive. On January 15, 
     1999, Linhardt pleaded guilty to second degree murder of his 
     wife and was sentenced to life in prison. He also pleaded 
     guilty to four counts of insurance fraud and was sentenced to 
     20 years in prison, consecutive to the life sentence.


                               New Jersey

       Michelle A. Pruyn of Medford, N.J., pleaded guilty Oct. 1 
     in the District of New Jersey to concealing company income 
     from her creditors, the Bankruptcy Court, and the IRS during 
     her Chapter 7 bankruptcy case. Pruyn was the former president 
     and owner of Sigma Acquisition Corp., Televid Media Buying 
     Inc., and other New Jersey-based video production-related 
     companies. She concealed assets worth at least $240,000 from 
     the court and her creditors by failing to disclose her 
     equitable interest in a Pennsauken, N.J., commercial building 
     and the existence of an investment account held in the name 
     of the Cogan Corp., to which she diverted part of the 
     receipts of Sigma and the other companies she owned.
       Alexander Alegria of Fords, N.J., pleaded guilty July 21 to 
     filing a false bankruptcy petition. He admitted that he 
     falsely stated his Social Security number on the petition and 
     that he sought to discharge approximately $25,000 in debt he 
     had incurred under the false SSN.


                                 Nevada

       John and Rena Kopystenski of Las Vegas were sentenced on 
     December 2 to 21 months in prison and ordered to pay $67,000 
     in restitution after pleading guilty in the District of 
     Nevada to bankruptcy fraud, money laundering, and aiding and 
     abetting. The Kopystenskis were principals of debtor Quality 
     Ice Cream Inc., which went through several bankruptcies under 
     different names with essentially the same assets.


                                New York

       Joseph W. Kennedy Jr. of Rochester, N.Y., was sentenced 
     Nov. 3 to 27 months in prison and three years supervised 
     release, and ordered to pay $235,000 in restitution, based on 
     his conviction on three counts of bankruptcy fraud. Kennedy 
     failed to disclose in his Chapter 7 schedules that he owned 
     one insurance agency and was a 47 percent shareholder and 
     officer in another insurance agency.
       Kenneth Stenzel of Queens County, N.Y., was sentenced Aug. 
     31 in the Eastern District of New York to five years 
     probation and ordered to pay restitution of $5,920 payable to 
     the Chapter 7 trustee, based on his guilty plea to bankruptcy 
     fraud. Stenzel intentionally made a materially false 
     statement by stating in his bankruptcy schedules that he was 
     unemployed, when he was actually earning more than $5,000 a 
     month as a computer programmer.
       Garden City, N.Y., attorney Brent Kaufman pleaded guilty 
     July 26 in the Eastern District of New York to two counts of 
     bankruptcy fraud arising from the filing of two false proofs 
     of claim on behalf of a fictitious creditor. Kaufman, an 
     associate with a Chapter 7 bankruptcy trustee's law firm, 
     admitted embezzling $117,000 from five bankruptcy estates.


                                  ohio

       Albert J. DeSantis, formerly of Columbus, Ohio, and Upper 
     Arlington, Ohio, was sentenced August 26 to 51 months 
     imprisonment based on his plea of guilty to charges of 
     bankruptcy fraud, money laundering, and witness tampering. 
     The former Columbus, Ohio, real estate developer filed for 
     Chapter 11 bankruptcy relief but failed to list assets 
     exceeding $920,000 in value, including a residence and a bank 
     account. He also counseled two employees to withhold 
     information from the federal grand jury that was 
     investigating his conduct in the bankruptcy case.


                                oklahoma

       Mary Ann Adams and John Quincy Adams pleaded guilty Sept. 
     15 to bank fraud in connection with their concealment of more 
     than $90,000 in assets after a bank foreclosed upon their 
     property. The Adamses, who owned an implement company, hid 
     tractor and combine parts, transferred real property, and 
     concealed personal property including certificates of 
     deposits.
       Jesse Joseph Maynard and Samuel Bruce Love were convicted 
     Sept. 1 in the Western District of Oklahoma on eight counts 
     arising from the October 1993 bankruptcy filing on behalf of 
     First Assurance & Casualty Co. Ltd. The defendants concealed 
     more than $270,000 in bankruptcy estate assets from the 
     Chapter 7 trustee, and transferred monies from the bankruptcy 
     estate post-petition.


                                 oregon

       Bankruptcy petition preparer Robert Tank pleaded guilty 
     April 9 to criminal contempt of court in the District of 
     Oregon. In 1996, the United States Trustee obtained an order 
     fining Tank approximately $10,000 and prohibiting him from 
     engaging in certain deceptive practices or practicing law in 
     Oregon. Tank violated the order, and the United States 
     Trustee obtained a national permanent injunction against him. 
     Tank continued to prepare bankruptcy petitions, and engaged 
     in a series of violations of various orders.
       Former Chapter 11 trustee Thomas G. Marks was sentenced 
     March 15 in the District of Oregon to twelve months plus one 
     day in prison, three years probation, and payment of 
     restitution, for embezzling funds in three Chapter 11 
     bankruptcy cases where he acted as a fiduciary after the case 
     was confirmed. The United States Trustee discovered the 
     embezzlement of approximately $108,000 based on an inquiry 
     from Marks' former business partner. The United States 
     Trustee obtained Marks' resignation as fiduciary in the 
     cases, and arranged the appointment of successor fiduciaries 
     to pursue bond claims relating to the losses.


                              pennsylvania

       On Nov. 15 the District Court for the Eastern District of 
     Pennsylvania sentenced Philadelphia attorney Steven Bernosky, 
     and barred him from practicing law for three years, for 
     embezzling approximately $14,000 from a Chapter 11 bankruptcy 
     estate. Bernosky served as debtor's counsel in the Chapter 11 
     bankruptcy case of Morris Schiff Co. The debtor company's 
     property was sold for approximately $14,150, and Bernosky 
     improperly deposited a check for the sale proceeds into his 
     personal account. Bernosky made partial restitution of 
     $11,000 before sentencing and produced a check for the 
     balance at the sentencing hearing. He was sentenced to five 
     years probation and ordered to pay a $2,500 fine. He pleaded 
     guilty April 7 after a one-count information was filed March 
     31.
       Chester Wiles was sentenced June 7 in the Eastern District 
     of Pennsylvania to 24 months incarceration for false 
     declaration in bankruptcy, to a concurrent 18-month term of 
     incarceration on 12 other counts, and to five years of 
     supervised release; he was also ordered to pay approximately 
     $225,000 in restitution and a special assessment fine of 
     $1,300. Wiles had assumed the identity of a

[[Page S5389]]

     deceased person and fraudulently obtained credit in the 
     decedent's name for 2\1/2\ years, before filing for 
     bankruptcy twice in the decedent's name. He pleaded guilty to 
     13 counts including false statement in bankruptcy, bankruptcy 
     fraud, false statements to obtain a HUD-insured mortgage, 
     false statements in loan and credit applications, credit card 
     fraud, wire fraud, interstate transportation of stolen goods, 
     and use of an unassigned Social Security number.


                             south carolina

       Auctioneer J. Max McCaskill pleaded guilty Nov. 2 in the 
     District of South Carolina to two counts of embezzlement from 
     bankruptcy estates. McCaskill was a former Bankruptcy Court 
     deputy clerk and a former employee of a bankruptcy trustee in 
     South Carolina. While employed to auction bankruptcy estate 
     property, he sold the property but failed to turn over the 
     proceeds to the bankruptcy trustee.


                                 texas

       Tronnald Dunnaway of Richardson, Texas, was sentenced Oct. 
     3 to 13 months in jail and three years supervised release and 
     ordered to pay $23,959 in restitution for his role in a 
     bankruptcy foreclosure scam. Dunnaway pleaded guilty in June 
     on the eve of trial; on June 22, his co-defendant Shelby 
     Daniels was found guilty of 14 counts of bankruptcy fraud in 
     connection with the scam. Daniels and Dunnaway contacted 
     homeowners facing foreclosure, offering to help them with 
     their mortgage problems. They persuaded the homeowners to 
     transfer a part interest in their homes to companies 
     controlled by, or individuals working with, the scam 
     operators. Those companies and individuals then filed for 
     bankruptcy to delay foreclosure on the properties, but 
     the victims ended up losing their homes.
       On June 22, after a five-day jury trial, Shelby Daniels of 
     Dallas was found guilty of 14 counts of bankruptcy fraud for 
     his role in a bankruptcy foreclosure scam. Daniels 
     represented himself as a real estate consultant and contacted 
     homeowners facing foreclosure, persuading them to transfer a 
     part interest in their homes to companies he controlled or 
     individuals working with him. The companies and individuals 
     filed for bankruptcy to delay foreclosure. Homeowners paid 
     Daniels a $500 ``set up'' fee plus $500 per month, assuming 
     he was working to address their mortgage problems. They ended 
     up losing their homes. On the eve of trial, Tronnald 
     Dunnaway, who was indicted with Daniels, pleaded guilty to 
     one count of bankruptcy fraud.


                                Virginia

       Lee W. Smith Sr., the principal in the Chapter 11 case of 
     Lee's Contracting Services Inc., was sentenced Nov. 10 to 21 
     months in prison after pleading guilty to one count of 
     bankruptcy fraud and one count of tax evasion. Smith diverted 
     monies from the corporation to personal accounts during the 
     pendency of the Chapter 11 case, which was ultimately 
     dismissed because the debtor owed more than $1 million in 
     unpaid employee withholding taxes.
       The District Court for the Southern District of West 
     Virginia August 4 sentenced Donald S. Pritt to 30 months 
     imprisonment, three years of supervised release, and 
     restitution of $193,990 following his conviction on one count 
     of mail fraud and two counts of bankruptcy fraud. Pritt 
     claimed to be permanently disabled following an all-terrain 
     vehicle accident. He filed disability insurance claims under 
     several recently issued policies and engaged in litigation 
     with the insurance companies and ATV manufacturer. Pritt was 
     ordered to pay in excess of $600,000 in attorney fees to the 
     manufacturer. The bankruptcy counts arose from his transfer 
     and concealment of assets, which began after the state court 
     litigation and continued during the bankruptcy case.
       Ethel Mae Martin was sentenced June 15 in the Eastern 
     District of Virginia to 27 months in prison and 3 years of 
     supervised release for one count of bankruptcy fraud. Martin 
     used at least three Social Security numbers to obtain credit 
     and filed her bankruptcy petition using a fourth SSN.
       Elizabeth Baker pleaded guilty June 8 to one count of 
     making a false oath in connection with her bankruptcy. Baker 
     and her husband filed a Chapter 13 petition in 1995; when her 
     husband later died, Baker received over $99,000 in life 
     insurance proceeds. She converted the bankruptcy case to a 
     Chapter 7 liquidation but did not disclose the receipt of 
     funds to the bankruptcy trustee. Baker's bankruptcy discharge 
     was revoked after the trustee discovered the receipt of funds 
     as well as Baker's false testimony that there were no assets 
     other than those listed in the bankruptcy schedules.


                               Wisconsin

       The Court of Appeals for the Seventh Circuit July 20 upheld 
     the March 1998 conviction of attorney John Gellene for false 
     material declarations in a bankruptcy proceeding, and upheld 
     the trial court's sentencing determinations. Gellene did not 
     disclose that his law firm represented a senior secured 
     creditor as well as the Chapter 11 debtor, giving rise to a 
     conflict of interest in representation. He was convicted 
     after a jury trial in the Eastern District of Wisconsin, 
     sentenced to 15 months in prison, and fined $15,000. In its 
     ruling, the Appeals Court rejected Gellene's argument that 
     his false statements were not material, finding it beyond 
     doubt that ``a misstatement in a Rule 2014 statement by an 
     attorney about other affiliations'' is material.

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