[Congressional Record Volume 146, Number 141 (Tuesday, October 31, 2000)]
[Senate]
[Pages S11385-S11395]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                BANKRUPTCY REFORM ACT CONFERENCE REPORT

  Mr. WELLSTONE. Mr. President, as of today, we are scheduled to have a 
cloture vote tomorrow. It is going to be on the bankruptcy conference 
report. One would think that in the final days of this Congress--of 
this Senate--we actually would be talking about debating and passing 
legislation that would promote the economic security of families in our 
country.
  We could focus on health security for families. We could focus on 
raising the minimum wage. We could focus on affordable child care. We 
could focus on affordable housing. We could focus on reauthorizing the 
Elementary and Secondary Education Act. Thank God people in the country 
are so focused on a good education for their children or their 
grandchildren.
  Instead, we are spending our final days debating an unjust and 
imbalanced bankruptcy bill which is entirely for the benefit of big 
banks and the credit card companies. In one way, I am very sad to say 
this piece of legislation is truly representative of the 106th 
Congress. It is an anti-consumer, giveaway-to-big-business bill, in a 
Congress which has been dominated by special interest legislation. And 
it is representative of the 106th Congress in another way, too: It 
represents distorted priorities. We could be doing so much to enhance 
and support ordinary citizens in our country. Instead, we now have this 
legislation before us.
  I want Senators to know, if they are watching, I will, as they come 
to the floor, interrupt my remarks so others can speak in opposition. 
We have a lot of ground to cover. We intend to cover that ground 
because this piece of legislation deserves scrutiny. It should be held 
up to the light of day so citizens in this country can see what an ill-
made, mishandled attempt this piece of legislation is. Other Senators 
need to understand what bad legislation this is, how terrible its 
impact will be on America's most powerless families, and what a 
complete giveaway it is to banks, credit card companies, and other 
powerful interests.
  This is a worse bill than the bill we voted on earlier in the Senate. 
It is important for colleagues to understand that not only is this a 
worse piece of legislation, we had a provision in the bill that passed 
the Senate--albeit a flawed bill--the Kohl amendment, which said that 
while we are punishing low- and moderate-income people, families that 
have gone under because of bankruptcy, in 40 percent or 50 percent of 
the cases because of medical bills, you certainly don't want to enable 
millionaires to basically buy million-dollar homes in several States 
and in that way shield themselves from any liability. That provision 
was taken out. That is reason enough for Senators to vote against this 
bill.
  In addition, Senator Schumer had a provision that said, when people 
are breaking the law and blocking people from being able to go to 
family planning clinics, they should not be able to shield themselves 
from legal expenses and other expenses by not being held liable when it 
comes to bankruptcy. The Schumer provision was taken out.
  If that is not enough for Senators, the way in which the majority 
leader has advanced this bill makes a mockery out of the legislative 
process. If we love this institution and we believe in an open, public, 
and accountable legislative and political process, then I don't see how 
we can support taking a State Department conference report--I call it 
the ``invasion of the body snatchers''--completely gutting that so 
there is not a word about the State Department any longer and, instead, 
putting in this bankruptcy bill, far worse than the bill passed by the 
Senate.

[[Page S11386]]

  I see Senator Durbin on the floor. I can conclude in 5 minutes, if he 
is here to speak on this.
  I will summarize reasons for opposing this conference report and then 
come back a little later on and develop each of these arguments.
  First, the legislation rests on faulty premises. The bill addresses a 
crisis that does not exist. Increased filings are being used as an 
excuse to harshly restrict bankruptcy protection, but the filings have 
actually fallen sharply in the last 2 years. Additionally, the bill is 
based on the myth that the stigma of bankruptcy has declined. Not true. 
I will develop that argument later on.
  Second, abusive filers are a tiny minority. Bill proponents cite the 
need to curb ``abusive filings'' as a reason to harshly restrict 
bankruptcy protection, but the American Bankruptcy Institute found that 
only 3 percent of chapter 7 filers could have paid back more of their 
debt. Even bill supporters acknowledge that, at most, 10 to 13 percent 
of the filers are abusive.
  Third, the conference report falls heaviest on those who are most 
vulnerable. The harsh restrictions in this legislation will make 
bankruptcy less protective, more complicated, and expensive to file. 
This will make it much more difficult for low- and moderate-income 
citizens to have any protection. Unfortunately, the means tests and 
safe harbor will not shield from the majority of these provisions and 
have been written in such a way that they will capture many debtors who 
truly have no ability to significantly pay off this debt and therefore 
will be in servitude for the rest of their lives.
  Fourth of all, the bankruptcy code is a critical safety net for 
America's middle class. Low- and moderate-income families, especially 
single parent families, are those who are most in need to make a fresh 
start--the fresh start provided by bankruptcy protection. The bill will 
make it very difficult for these families to get out of crushing debt. 
Again, in 40 percent of the cases, these are families who have gone 
under because of a medical bill.
  Fifth of all, the banking and credit card industry gets a free ride. 
The bill as drafted gives a free ride to banks and credit card 
companies that deserve much of the claim for the bankruptcy filings in 
the first place, and the lenders should not be rewarded for this 
reckless lending.
  Sixth of all, this legislation actually might increase the number of 
bankruptcies and defaults. Several economists have suggested that 
restricting access to bankruptcy protection will actually increase the 
number of filings and defaults because banks and these credit card 
companies will be even more willing to lend money to marginal 
candidates.
  Seventh of all, the conference report, again, is worse than the 
Senate bill. We had a very reasonable provision; It was the Kohl 
amendment, which said, if you are going to go after women, and go after 
working families, and go after low- and moderate-income people, and go 
after families who are in debt because of a medical bill that is 
putting them under, then at least make sure you are not going to have 
wealthy Americans who are going to be able to go to several States and 
buy homes worth millions of dollars and shield themselves from any 
liability. That provision is knocked out.
  This is a worse bill than that passed in the Senate. The Schumer 
amendment, again, said if people are blocking people from family 
planning services, they have broken the law; they ought not to be able 
to shield expenses they incurred from liability when it comes to 
bankruptcy. The Schumer amendment was taken out.
  Finally, I say this one more time. This is a larger issue than 
bankruptcy reform. It is a question of the fundamental integrity of the 
Senate as a legislative body. Not one provision of the original State 
Department authorization bill, aside from the bill number, remains part 
of this legislation. To replace in totality a piece of legislation with 
a wholly new and unrelated bill in conference takes the Congress one 
step closer to a virtual tricameral legislature--House, Senate, and 
conference committee. If you believe in the integrity of this 
legislative process, and if you believe we all ought to be in a 
position to be good legislators, you should vote against this cloture 
motion on those grounds alone.
  I conclude this way. Other colleagues are on the floor. I will 
develop these arguments later on. At one point in time, the argument 
was suggested that only a tiny minority opposed this bill. Well, when I 
look at the opposition of labor unions, and I look at the opposition of 
every single consumer organization, and I look at the opposition from 
women and children's groups, and I look at the strong opposition from 
the civil rights community and a good part of the religious community, 
and when I see letters signed by bankruptcy professors, the academic 
community, judges, all the people who know this system well, who say 
this piece of legislation is egregious--it is one sided: it is 
imbalanced; it is unjust; it is too harsh--I realize that this piece of 
legislation should be stopped. I hope that tomorrow Senators, Democrats 
and Republicans, will oppose this on substantive grounds and also on 
the basis of the way in which this has been done. The way in which this 
has been done at the very end of this session is an affront to the 
integrity of this process. No Senator should vote for cloture who 
believes in an open, honest process with real integrity.
  Before I launch into my first point, Mr. President, I'd like to 
observe that in July my friend from Iowa, the author of this bill, 
referred to the opposition to this bill as the ``radical fringe.'' 
Well, I'm pretty proud of the company I'm keeping no matter now 
dismissive my colleague. Because you know what? The labor unions all 
oppose this bill. The consumer groups all oppose this bill. The women 
and children's groups all oppose this bill. The civil rights groups all 
oppose this bill and the many members of the religious community oppose 
this bill. Indeed one of the broadest coalitions I have ever seen 
united together opposes this so-called bankruptcy reform.
  I would say to my colleagues, you can tell a lot about a person--or a 
bill--by who its friends are. But you can also tell a lot about a bill 
by who its enemies are. The radical fringe? I see millions of working 
families who have nothing to gain and everything to lose under this 
legislation.
  Now, Mr. President, you have to give the proponents of this bill 
credit for chutzpah: They still preach the urgent need for this 
legislation despite the fact that nearly all the evidence points to the 
contrary. In fact, in the months since the Senate passed bankruptcy 
reform, any pretense of necessity has evaporated. The number of 
bankruptcies has fallen steadily over the past year, charge offs on 
credit card debt are down significantly and delinquencies have fallen 
to the lowest levels since 1995. Now proponents and opponents agree 
that nearly all debtors resort to bankruptcy not to game the system but 
rather as a desperate measure of economic survival and that only a tiny 
minority of chapter 7 filers--as few as 3 percent--could afford any 
debt repayment.
  And I have to congratulate my friends on another point, because they 
had almost convinced the Congress and the American public to view 
bankruptcy as a giant loophole for scam artists instead of a safety 
net. A key part of this argument is the belief--wholly unsubstantiated 
as far as any objective observer call tell--that the high number of 
bankruptcies in the 1990's is a result of a decline in the stigma of 
bankruptcy. In fact, my friend from Iowa said in July that ``With high 
numbers of bankruptcies occurring at a time when Americans are earning 
more, the only logical conclusion is that some people are using 
bankruptcy as a way out.''
  With all due respect, while that has been a common assertion on the 
part of the bill's proponents that's all it is: an assertion. Virtually 
nothing backs it up. Indeed it's an assertion that flies in the face of 
all evidence that bankruptcy remains a deeply embarrassing, difficult 
and humbling experience for the vast majority of the people who file. I 
think my colleagues should actually talk to some folks who have filed 
for bankruptcy. Ask them how it felt to tell their friends and family 
about what they had to do, ask them how it felt to let down lenders to 
whom they owed money. Ask them how they felt about telling their 
employer.
  In fact, it's a shame that when a group of my colleagues and I hosted 
some of the debtors profiled in Time magazine expose of this 
legislation--

[[Page S11387]]

``Soaked by Congress''--the bill's proponents attacked the 
credibility of the Time article but didn't bother to visit with Charles 
and Lisa Trapp, or Patricia Blake, or Diana Murray all who came to 
Washington to explain--from the perspective of people who have been 
there--what it's like to file for bankruptcy and why they were driven 
by that extreme.

  A review of the academic papers on bankruptcy suggests that the 
evidence for a decline in the stigma of bankruptcy is slim. This was 
the conclusion of a September 2000 Congressional Budget Office report 
entitled ``Personal Bankruptcy: A Literature Review.'' In fact, CBO 
found some objective evidence that argues that the stigma of bankruptcy 
is a strong deterrent to filing noting a study that showed that while 
18 percent of U.S. households could benefit from filing for bankruptcy, 
only 0.7 percent did--suggesting that stigma might hold some back.
  In the book, ``the Fragile Middle Class'' by Theresa Sullivan, 
Elizabeth Warren and Jay Westerbrook--all academic bankruptcy experts--
the authors argue that the stigma remains:

       Bankruptcy is, in many ways, where middle class values 
     crash into middle class fears. Bankruptcy debtors are 
     unlikely either to feel in charge of their destiny or to feel 
     confident about planning their future. Discharging debts that 
     were honestly incurred seems the antithesis of middle-class 
     morality. Public identification as a bankruptcy debtor is 
     embarrassing at best, devastating at worst. It is certainly 
     not respectable, even in a country with large numbers of 
     bankruptcies, to be bankrupt. Bankruptcy debtors have told us 
     of their efforts to conceal their bankruptcy. Arguments that 
     the stigma attached to bankruptcy has declined are typically 
     made by journalists who are unable to find any bankrupt 
     debtors willing to be interviewed for the record and by 
     prosperous economists who see bankruptcy as a great bargain.

  Of course the stigma argument isn't new. As early as the 1920's then 
Solicitor General of the United States Thomas Thacher argued that 
Americans were all too comfortable with filing for bankruptcy. Indeed, 
as David Moss notes in a 1999 American Bankruptcy Law Journal article, 
quote: ``those who today worry about declining stigma might be 
surprised to learn that the stigma associated with bankruptcy had, 
according to some observers, already disappeared by 1967.''
  Of course there are other very logical explanations of why the filing 
rate in the 90's is quite high--they just aren't as convenient for the 
big banks and credit card industry.
  Mr. President, we know why people file for bankruptcy. Bankruptcy is 
the only solution for families who find their debt and the interest on 
their debt outstrips their income. The question is, why do families 
find themselves in those circumstances? And when they do, what do we as 
a society do to keep those families solvent. Or if we don't help them 
to remain solvent, how do we at least let them pick up the pieces, get 
on with their lives, reenter productive society.
  That's what this debate is about. That's exactly what's at stake in 
this debate; the solvency of the middle class.
  But, Mr. President, one not-so-small footnote that overshadows this 
whole debate is the fact that the number of bankruptcy filings have 
been dropping like a stone for the past 2 years. My colleagues are 
driving this heartless bill with talk of a bankruptcy ``crisis,'' a 
dramatic increase in the number of filings, but with all due respect 
they are trying to scare us with yesterday's ghosts. A study released 
on September 8 of last year by Professor Lawrence Ausubel of the 
University of Maryland notes that the peak increase in bankruptcy 
filings came and went in 1996. In fact, filings in 1998 were barely an 
increase over 1997 and we now know that there were 112,000 fewer 
bankruptcies in 1999 that there were in 1998--a nearly 10 percent 
decline. And the numbers so far have continued the sharp decline in 
2000.

  We're being led to believe that it's the high number of bankrupts 
that are driving this legislation. And do you know what? They are, but 
for the wrong reasons. The credit card companies are counting on the 
United States Senate to overreact to the number of bankruptcies, they 
are counting on you to ignore their complicity in the huge debt burdens 
on most American families, the financial services industry is counting 
on the Congress to overlook the evidence that the bankruptcy crisis is 
self correcting. The problem may be abating, but they still want the 
fix to pad their profits. The high number of people filing for 
bankruptcy--most of whom have terrible circumstances that force them to 
do so--are an excuse, not a justification.
  Still, regardless of how many people file or why they file, my 
colleagues continue to maintain that this bill is driven by necessity. 
To do this they would track more debtors into chapter 13 instead of 
chapter 7 through the use of a means test. But again, their goal flies 
in the face of the evidence. First of all, we know through independent 
studies of those who file for bankruptcy that only about 3 percent of 
all debtors who file for chapter 7 could afford to pay any of their 
debts and that in 95 percent of chapter 7 filings there were no 
meaningful assets to be liquidated to pay back creditors. This is in 
line with other evidence that nearly all debtors file for bankruptcy do 
so because of some sudden, drastic economic disruption which it often 
takes years to recover from.
  Bankruptcy does not occur in vacuum. We know that in the vast 
majority of cases it is a drastic step taken by families in desperate 
financial circumstances and overburdened by debt. The main income 
earner may have lost his or her job. There may be sudden illness or a 
terrible accident requiring medical care. Certainly most Americans have 
faced a time in their lives where they weren't sure where the next 
mortgage payment or credit card payment was going to come from, but 
somehow they scrape by month to month. Still, such families are on the 
edge of a precipice and any new expense--a severely sick child, a car 
repair bill--could send a family into financial ruin. Despite the 
current economic expansion there are far too many working families in 
this situation. That is the true story behind the high number of 
bankruptcy filings in recent years and I want to make clear to my 
colleagues that the evidence shows that the very banks and credit card 
companies who are pushing this bill have a lot to do with why working 
families are in this predicament today.
  The bankruptcy system is supposed to allow a person to climb back up 
after they've hit bottom, to have a fresh start. There is no point to 
continue to punish a person and a family once their resources are over 
matched by debt. The bankruptcy system allows families to regroup, to 
focus resources on essentials like their home, transportation and 
meeting the needs of dependents. Sometimes the only way this can occur 
is to allow the debtor to be forgiven of some debt, and in most cases 
this is debt that would never be repaid because of the debtor's 
financial circumstances.
  The sponsors of this measure and the megabucks and credit card 
companies behind this bill don't like to focus on those situations. 
They paint a picture of profligate abuse of the bankruptcy system by 
irresponsible debtors who could pay their debt but simply choose not 
to. Such people do take advantage of the system, there is no question. 
But this bill casts a wider net and catches more than just the 
bankruptcy ``abusers.''
  Again, a study done last year by the American Bankruptcy Institute 
found that only 3 percent of debtors who file under chapter 7--where 
debtors liquidate assets to repay some debt while the rest of the 
debtor's unsecured debt is forgiven--would actually have been able to 
pay more of their debt than they are required to under chapter 7. Even 
the U.S. Justice Department found that the number of abusive claims was 
somewhere between 3-13 percent. This means that the number of people 
filing abusive bankruptcy claims is astonishingly low. But this 
legislation seeks to channel many more debtors into chapter 13 
bankruptcy--where the debtor enters a 3-5 year repayment plan and very 
little debt is forgiven. Yet in the pursuit of the few, this bill 
imposes onerous conditions, and ridiculous standards on all bankrupts 
alike. Additionally, under current law, 67 percent of the debtors in 
chapter 13 fail to complete their repayment plan often because they did 
not get enough relief from loans, and because economic difficulties 
continued. So this legislation would take individuals, the majority of 
whom desperately need a true fresh start, and

[[Page S11388]]

force them into a bankruptcy process which two-thirds of debtors 
already fail to complete successfully. And my colleagues call this 
reform?
  And yet when given the opportunity to target real, proven abuses by 
wealthy deadbeats and scofflaws, the sponsors took a pass. Again, Mr. 
President, the very small number of abusive filers are an excuse not a 
justification for this bill that falls most heavily on those most in 
need of fresh start relief. This conference report does not match it's 
rhetoric.


                   how the bill harms the vulnerable

  Mr. President, I want to take some time to talk about the effect this 
bill will have on low- and middle-class debtors. Remember, nearly all 
debtors file for bankruptcy are not wealthy scofflaws, but rather are 
people in desperate economic circumstances who file as a last resort to 
try and rebuild their finances, and, in many cases, end harassment by 
their creditors. And in particular I want to remind my colleagues of 
the May 15, 2000, issue of Time magazine whose cover story on this so-
called bankruptcy reform legislation was entitled ``Soaked by 
Congress.''
  The article, written by reporters Dan Bartlett and Jim Steele, is a 
detailed look at the true picture of who files for bankruptcy in 
America. You will find it far different from the skewed version being 
used to justify this legislation. The article carefully documents how 
low and middle income families--increasingly households headed by 
single women--will be denied the opportunity of a fresh start if this 
punitive legislation is enacted. As Brady Williamson, the chairman of 
the National Bankruptcy Review Commission, notes in the article, the 
bankruptcy bill would condemn many working families to ``what 
essentially is a life term in debtor's prison.''
  Now proponents of this legislation has tried to refute the Time 
magazine article. Indeed during these final days of debate you will 
hear the bill's supporters claim that low and moderate income debtors 
will be unaffected by this legislation. But colleagues, if you listen 
carefully to their statements you will hear that they only claim that 
such debtors will not be affected by the bill's means tests. Not only 
is that claim demonstratably false--the means test and the safe harbor 
have been written in a way that will capture many working families who 
are filing for chapter 7 relief in good faith--but it ignores the vast 
majority of this legislation which will impose needless hurdles and 
punitive costs on all families who file for bankruptcy regardless of 
their income. Nor does the safe harbor apply to any of these 
provisions.
  Now, you might ask why the Congress has chosen to come down so hard 
on ordinary working folk down on their luck. How is it that this bill 
is so skewed against their interest and in favor of big banks and 
credit card companies? Well, maybe that's because these families don't 
have million dollar lobbyists representing them before Congress. They 
don't give hundreds of thousands of dollars in soft money to the 
Democratic and Republican parties. They don't spend their days hanging 
outside the Senate Chamber waiting to bend a members ear. Unfortunately 
it looks like the industry got to us first.

  They may have lost a job, they may be struggling with a divorce, 
maybe there are unexpected medical bills. But you know what? They're 
busy trying to turn their lives around. And I think it's shameful that 
at the same time this story is unfolding for a million families across 
America, Congress is poised to make it harder for them to turn it 
around. Who do we represent?
  So Mr. President, I'd like to take a few minutes to explain exactly 
what the effects of this bill will be on real life debtors--the folks 
profiled in the Time article. I hope the authors of the bill will come 
to the floor to debate on these points. There could be the opportunity 
for some real discussion on an issue that has yet to be addressed by 
the bill's supporters. Specifically, I challenge them to come to the 
floor and explain to their colleagues how making bankruptcy relief 
harder and much more costly to achieve will benefit working families.


                        Charles and Linda Trapp

  Charles and Linda Trapp were forced into bankruptcy by medical 
problems. Their daughter's medical treatment left them with medical 
debts well over $100,000, as well as a number of credit card debts. 
Because of her daughter's degenerative condition, Ms. Trapp had to 
leave her job as a letter carrier about 2 months before the bankruptcy 
case was filed to manage her daughter's care. Before she left her job, 
the family's annual income was about $83,000, or about $6,900 per 
month, so under the bill, close to that amount, about $6,200, the 
average monthly income for the previous 6 months, would be deemed to be 
their current monthly income, even though their gross monthly income at 
the time of filing was only $4,800. Based on this fictitious deemed 
income, the Trapps would have been presumed to be abusing the 
Bankruptcy Code, since their allowed expenses under the IRS guidelines 
and secured debt payments amounted to $5,339. The difference of about 
$850 per month would have been deemed available to pay unsecured debts 
and was over the $167 per month triggering a presumption of abuse. The 
Trapps would have had to submit detailed documentation to rebut this 
presumption, trying to show that their income should be adjusted 
downward because of special circumstances and that there was no 
reasonable alternative to Ms. Trapp leaving her job.
  Because their current monthly income, although fictitious, was over 
the median income, the family would have been subject to motions for 
abuse filed by creditors, who might argue that Ms. Trapp should not 
have left her job, and that the Trapps should have tried to pay their 
debts in chapter 13. They also would not have been protected by the 
safe harbor. The Trapps would have had to pay their attorney to defend 
such motions and if they could not have afforded the thousand dollars 
or more that this would have cost, their case would have been dismissed 
and they would have received no bankruptcy relief. If they prevailed on 
the motion, it is very unlikely they could recover attorney's fees from 
a creditor who brought the motion, since recovery of fees is permitted 
only if the creditor's motion was frivolous and could not arguably be 
supported by any reasonable interpretation of the law (a much weaker 
standard than the original Senate bill). Because the means test is so 
vague and ambiguous, any creditor could argue that it was simply making 
a good faith attempt to apply the means test, which after all created a 
presumption of abuse.

  Of course, young Annelise Trapp's medical problems continue and are 
only getting worse. Under current law, if the Trapps again amass 
medical and other debts they can't pay, they could seek refuge in 
chapter 13, where they would be required to pay all that they could 
afford. Under the new bill, the Trapps could not file a chapter 13 case 
for five years. Even then, their payments would be determined by the 
IRS expense standards and they would have to stay in their plan for 5 
years, rather than the 3 years required to current law. The time for 
filing a new chapter 7 would also be increased by the bill from 6 years 
to 8 years.


                              Lucy Garcia

  Lucy Garcia was on the verge of eviction from her apartment when she 
went to her bankruptcy attorney. As described in Time, after she 
separated from her husband, it was difficult to make ends meet and she 
fell behind on her rent. When she filed her bankruptcy case, the 
automatic stay prevented her eviction temporarily. In that time, she 
received her tax refund and was able to catch up in her rent and thus 
prevent the eviction. Under the bill now before the Senate, Ms. Garcia 
and her two children would have become homeless, because there would 
have been no automatic stay of their eviction.
  Depending on how the means test is interpreted (and there are 
numerous ambiguities that will lead to widespread litigation that most 
consumer debtors cannot afford), Ms. Garcia might not even be allowed 
to file a chapter 7 case under the bill. For food, clothing, 
housekeeping supplies, personal care items and services, and 
miscellaneous she would be allowed to spend $863 per month and she 
actually spends $1,191. The deemed surplus of $328 multiplied by 60 is 
more than $6,000 and more than 25 percent of her debt and therefore her 
case could be deemed an abuse of chapter 7.
  The IRS budget used by the means test only allows $4.93 a day for 
food per

[[Page S11389]]

person. No one could properly feed a child for $4.93, a day let alone 
an adult, especially in New York City where Ms. Garcia lives. The food 
budget for three people like Lucy's family with gross income of $2,600 
a month is $444 per month according to the IRS website. The amount 
allowed for food for lower income families is even less, as low as 
$3.02 a day per person. under the bill, the trustees in all cases will 
be required to use the means test even if the debtor's income is under 
the national median as in this case. (Apparently, the credit industry 
is trying to confuse Senators by confusing two different sections of 
the bill. Credit card lobbyists mislead by telling Senators the means 
test does not apply if the income is below the median income in a case 
like Ms. Garcia's. This is false. The language of the bill says 
creditors cannot challenge cases if the income is below the median, but 
under the section about trustee duties the trustee must apply the means 
test whether the creditor challenges the case or not.)
  Ms. Garcia barely had the money to pay her attorney when she filed 
her bankruptcy case. She still barely has enough to meet expenses. She 
certainly would not have had the funds to defend against a motion filed 
under the means test. She would not have been able to afford the 
additional filing fees in the bill, combined with the additional 
attorney's fees that the bill will cause due to the substantial 
additional paperwork requirements.
  Because she did not have all of the bills she had received in the 
last 90 days before bankruptcy, her attorney would have had to spend 
significant time trying to determine the addresses at which creditors 
might ``wish to receive correspondence'' as required by the bill, 
and might not have been able to give notice to some creditors that 
would be deemed ``effective'' under the bill. These creditors would 
then be free to continue to harass Ms. Garcia even after she filed her 
bankruptcy petition.

  Ms. Garcia would also have been required to give up her television in 
which Sears claimed a security interest, since there was no room in her 
budget for payments to redeem (with payment of the retail value 
required by the bill) or reaffirm the debt. With two children, ages 6 
and 9, loss of her television would have been a real hardship.


                              allen smith

  Allen Smith is a resident of Delaware, which has no homestead 
exemption. In other words, he cannot shield his home from his 
creditors. Ironically, under this bill, wealthy scofflaws can shield 
multimillion dollar mansions from their creditors with a little 
planning, but not Mr. Smith. As a result when the tragic medical 
problems described in the Time article befell his family, he could not 
file a chapter 7 case without losing his home. Instead he filed a 
chapter 13 case, which required substantial payments in addition to his 
regular mortgage payments for him to save his home. Ultimately, after 
his wife passed away and he himself was hospitalized he was unable to 
make all these payments and his chapter 13 plan failed. Had Delaware 
had a reasonable homestead exemption, and had Mr. Smith been able to 
simply file a chapter 7 case to eliminate his other debts, he might 
have been able to save his home.
  Mr. Smith's financial deterioration was caused by unavoidable medical 
problems. Before he thought about bankruptcy he went to consumer credit 
counseling to try to deal with his debts. However, it appears that he 
went to consumer credit counseling just over 180 days before the case 
was filed, and he did not receive a briefing, so the new bill would 
have required him to go again. This would have been very difficult, 
considering his medical problems. In fact, his attorney, demonstrating 
dedication to clients that sharply contrasts with the creditor 
propaganda picture of bankruptcy lawyers just out to make a buck, made 
several home visits to Mr. Smith and his wife, who was a double 
amputee.
  The new bill would also have required a great deal of additional time 
and expense for Mr. Smith and his attorney, through new paperwork 
requirements and a requirement that he attend a credit education 
course. Such a course would have done nothing to prevent the enormous 
medical problems suffered by Mr. Smith and his wife. He did not get in 
financial trouble through failure to manage his money. He is 73 years 
old and had never before had debt problems. The bill makes no 
exceptions for people who cannot attend the course due to exigent 
circumstances, so Mr. Smith might never have been able to get any 
relief in bankruptcy under the new law.
  Under the new bill, Mr. Smith would also have had to give up his 
television and VCR to Sears, which claimed a security interest in the 
items. Under the bill, he would not be permitted to retain possession 
of these items in chapter 7 unless he reaffirms the debt or redeemed 
the items. Sears may demand reaffirmation of its entire $3,000 debt 
under the bill, and to redeem Mr. Smith would have to pay their retail 
value. After his wife died and her income was gone, Mr. Smith did not 
have the money to pay these amounts to Sears. Since he is largely 
homebound, loss of these items would have been devastating.
  Sadly, Mr. Smith's medical problems continue. Under current law, if 
he again amasses medical and other debts he can't pay, he could seek 
refuge in chapter 13, where he would be required to pay all that he can 
afford. Under the new bill, Mr, Smith cannot file a chapter 13 case for 
5 years (until he is 78 years old). The time for filing a new chapter 
7 has also been increased, from 6 years to 8 years.


                              maxean bowen

  Maxean Bowen's case shows how every single bankruptcy debtor would be 
impacted by the bill. She didn't have the money to pay her bankruptcy 
attorney and had to get it from relatives. With the increased costs for 
paperwork, obtaining tax records and taking a credit education course, 
it is not clear that Ms. Bowen would even have been able to afford 
bankruptcy relief. Her debt problems stemmed from a disability that 
caused her to be unable to work at her job, reducing her income to $800 
per month for herself and her 11-year-old daughter. Thus, her situation 
was not a result of mismanaging her credit, and a credit education 
course would not have prevented it. Nonetheless, unless she could find 
the money to pay for such a course, she could get no bankruptcy relief 
under the bill.


                       chapter 13 made unworkable

  Mr. President, I want to talk for a moment about cross purposes in 
this bankruptcy measure because it highlights a fundamental reality 
about this legislation: it has become larded up with special interest 
provisions which not only hurt middle class consumers but also 
completely undermine the ostensible purpose of the legislation: to 
track more debtors into chapter 13 where they repay their creditors.
  Now, again, to repeat what I've stated earlier, I think this is a 
questionable premise to begin with. After all, under current law--where 
debtors are allowed to choose which chapter of the code to file under--
67 percent of the debtors in chapter 13 fail to complete their 
repayment plan often because they did not get enough relief from loans, 
and because economic difficulties continued. So this legislation would 
take individuals, the majority of whom desperately need a true ``fresh 
star'', and force them into a bankruptcy process which \2/3\ of debtors 
already fail to complete successfully. And this is what my colleagues 
call reform.
  But I say to my colleagues, this legislation will make chapter 13 
unworkable for many more debtors and will likely reduce the number of 
chapter 13 cases. In fact, the U.S. Trustees have estimated that one 
piece of this bill alone--the restriction on ``cramdown'' will reduce 
the number of chapter 13 cases by 20 percent.
  How would this happen? Well, ``cramdown'' refers to how certain 
secured debt--like an auto loan--is valued during bankruptcy. Remember, 
secured debt is made up of loans that are attached to some physical 
property the lender can repossess, such as a car. Under current law, if 
a debtors owes more on a car than it is worth, the amount she must 
repay to keep her car is equal to the current value of the car not the 
amount of the loan left unpaid. This is fair to the lender because it 
ensures that the lender gets repaid the same amount that it would get 
if it repossessed and sold the vehicle. The rest of the loan doesn't 
just go away, but it gets classified as unsecured debt--like credit 
card debt--which is less likely to be repaid.

[[Page S11390]]

  But under this conference agreement, the debtor must pay back the 
full value of the loan to keep her car. This will force debtors to pay 
more debt in chapter 13 cases, will cause more chapter 13 debtors to 
lose their cars--and jeopardize their ability to get to their job. Does 
it make sense to make chapter 13 harder to complete if \2/3\ of the 
cases fail already? In addition, the ability to cramdown debt is one of 
the major attractions of filing under chapter 13, so the effect of this 
provision of the bill will be to discourage debtors from filing chapter 
13--the exact opposite of the supposed purpose of the bill.
  But wait, the authors didn't stop there at making chapter 13 harder. 
This bill will require many more debtors to file 5-year chapter 13 
plans instead of 3-year plans. This extends the time in which debtors 
must have steady income and increases the amount of debt they must 
pay--significant and unworkable requirements for chapter 13 relief. 
This conference report will also force chapter 13 debtors to abide by 
strict IRS standards of ``disposable income'' which can disallow 
abnormally high housing or transportation costs.
  Mr. President, all of these provisions will make chapter 13 less 
attractive and harder to complete. As I said, the U.S. Trustees believe 
that the cramdown provisions alone will lower the number of chapter 13 
cases by 20 percent. But the added impact of these other hurdles could 
well make chapter 13 cases impossible to complete for many debtors. 
Remember, 67 percent already fail to complete such plans.
  All of this raises a fundamental question for the supporters of this 
legislation: If you want more debtors to pay more of their debt back, 
why are you making it harder for them to do so? The reality, Mr. 
President is that between the means test barring relief under chapter 7 
and the new restrictions and burdens making chapter 13 less workable, 
the legislation may well force thousands of debtors from gaining any 
relief under either chapter of the code. Such debtors will find 
themselves in bankruptcy purgatory--they will have to either lower 
their income (or borrow more money) so that they can qualify for 
chapter 7 or be denied a fresh start altogether and be left at the 
mercy of their creditors. Many such people might very well have filed 
chapter 13 cases under current law.
  But don't just take my word for it colleagues. In a July 12 ``Dear 
Colleague'' letter the author of the Senate bill admits that. The 
attachment to the letter states: ``the proposed bills will result in 
fewer chapter 13s.'' What does all of this add up to, Mr. President? 
Exactly this: on one hand, you have the bill's supporters claiming that 
this will cause more debtors to file under chapter 13 and result in 
greater repayment of creditors, and on the other you have a letter from 
the author of the legislation saying precisely the opposite.
  I say to my colleagues, this cuts to the heart of this entire debate. 
I hope the banks and credit unions that have been tricked into 
supporting this legislation ask some hard questions of their lobbyists 
here in Washington: why are you asking me to support this bill when it 
will result in fewer chapter 13 repayment plans that allow me to 
collect what I'm rightfully owed? Indeed the chief economist of the 
Credit Union National Association, Bill Hampel, now believes that the 
proposed changes to the Bankruptcy Code will not result in increased 
loan recoveries for credit unions.
  Where are the savings to consumers in this bill, Mr. President? 
Supporters are running around claiming billions in dollars will be 
saved under this bill. Well, if fewer people are filing for chapter 13, 
and those that do file will be more likely to drop out, where are the 
savings? I hope the sponsors come to the floor to answer this question.
  I think there could be two answers Mr. President. The first answer is 
that there will be no increased repayments under this bill. That there 
will be no lowering of the cost of credit for consumers.
  But the second answer is even more troubling, because I think the 
truth is, Mr. President, that the only way this bill could result in 
increased payments to creditors is that it will deny many debtors from 
filing for bankruptcy altogether. Fresh starts will be too costly and 
prohibitively difficult for many under this bill so lives will be 
ruined, wages will be garnished, homes will be lost, and cars will 
be repossessed. I mean we all know there aren't many assets out there 
to be seized, but I guess the theory is that if you squeeze enough 
stones you will eventually get some blood. But the cost will be 
increased misery, the cost will be more economic devastation for those 
who are already devastated.


            bankruptcy is a safety net for the middle class

  The proponents of this bill argue that people file because they want 
to get out of their obligations, because they're untrustworthy, because 
they're dishonest, because there is no stigma in filing for bankruptcy.
  But any look at the data tells you otherwise. We know that in the 
vast majority of cases it is a drastic step taken by families in 
desperate financial circumstances and overburdened by debt. The main 
income earner may have lost his or her job. There may be sudden illness 
or a terrible accident requiring medical care.
  Specifically we know that nearly half of all debtors report that high 
medical costs forced them into bankruptcy--this is an especially 
serious problem for the elderly. But when you think about it, a medical 
crisis can be a double financial whammy for any family. First there are 
the high costs associated with treatment of serious health problem. 
Costs that may not be fully covered by insurance, and certainly the 
over 30 million Americans without health insurance are especially 
vulnerable. But a serious accident or illness may disable--at least for 
a time--the primary wage earner in the household. Even if it isn't the 
person who draws the income, a parent may have to take significant time 
to care for a sick or disabled child. Or a son or daughter may need to 
care for an elderly parent. This means a loss in income. It means more 
debt and the inability to pay that debt.
  Are people overwhelmed with medical debt or sidelines by an illness, 
deadbeats? This bill assumes they are. For example, it would force them 
into credit counseling before they could file--as if a serious illness 
or disability is something that can be counseled away.
  Women single filers are now the largest group in bankruptcy, and are 
one third of all filers. They are also the fastest growing. Since 1981, 
the number of women filing alone increased by more than 700 percent. A 
woman single parent has a 500 percent greater likelihood of filing for 
bankruptcy than the population generally. Single women with children 
often earn far less than single men aside for the difficulties and 
costs of raising children alone. Divorce is also a major factor in 
bankruptcy. Income drops, women, again, are especially hard hit. They 
may not have worked prior to the divorce, and now have custody of the 
children.
  Are single women with children deadbeats? This bill assumes they are. 
The new nondischargeability of credit card debt will hit hard those 
women who use the cards to tide them over after a divorce until their 
income stabilizes. And the safe harbor in the conference report which 
proponents argue will shield low and moderate income debtors from the 
means test will not benefit many single mothers who need help the most 
because it is based on the combined income of the debtor and the 
debtor's spouse, even if they are separated, the spouse is not filing 
for bankruptcy, and the spouse is providing no support for the debtor 
and her children. In other words, a single mother who is being deprived 
of needed support from a well-off spouse is further harmed by this 
bill, which will deem the full income of that spouse available to pay 
debts for determination of whether the safe harbor and means test 
applies.
  Mr. President, you will hear my colleagues talk about high 
economic growth and low unemployment and wonder how so many people 
could be in circumstances that would require them to file for 
bankruptcy. Well, the rosy statistics mask what has been modest real 
wage growth at the same time the debt burden on many families has 
skyrocketed. At it also masks what has been real pain as certain 
industries and certain communities as the economies restructure. Even 
temporary job loss may be enough to overwhelm a family that carries 
significant loans and often the reality is that a new job may be at

[[Page S11391]]

a lower wage level--making a previously manageable debt burden 
unworkable.

  So what does this bill do to keep people who undergo these wrenching 
experiences out of bankruptcy? Nothing. Zero. Tough luck. In stead, 
this conference report just makes the fresh start of bankruptcy harder 
to achieve. But this doesn't change anyone circumstances, this doesn't 
change the fact that these folks no longer earn enough to sustain their 
debt. Mr. President, there is not one thing in this so called 
bankruptcy reform bill that would promote economic security in working 
families. It is sham reform.
  When you push the rhetoric aside, one thing becomes clear: The 
bankruptcy system is a critical safety net for working families in this 
country. It is a difficult demoralizing process, but for nearly all who 
decided to file, it means the difference between a financial disaster 
being temporary or permanent. The repercussions of tearing that safety 
net asunder will be tremendous, but the authors of the bill remain deaf 
to the chorus of protest and indignation that is beginning to swell as 
ordinary Americans and Members of Congress begin to understand that 
bankrupt Americans are much like themselves--are exactly like 
themselves--and that they are only one layoff, one medical bill, one 
predatory loan away from joining the ranks.
  For the debtor and his family the benefit of bankruptcy--despite the 
embarrassment, despite the humiliation of acknowledging financial 
failure--is obvious, to get out from crushing debt, to be able to once 
again attempt to live within ones means, to concentrate ones income on 
clear priorities such as food, housing and transportation. But it is 
also the fundamental principles of a just society to ensure that 
financial mistakes or unexpected circumstances do not mean banishment 
forever from productive society.
  Mr. President, the fresh start that is under attack here in the 
Senate today is nothing less than a critical safety net that protects 
America's working families. As Sullivan Warren and Westbrook put it in 
``The Fragile Middle Class'':

       Bankruptcy is a handhold for middle class debtors on the 
     way down. These families have suffered economic dislocation, 
     but the ones that file for bankruptcy have not given up. They 
     have not uprooted their families and drifted from town to 
     town in search of work. They have not gone to the underground 
     economy, working for cash and saying off the books. Instead, 
     these are middle class people fighting to stay where they 
     are, trying to find a way to cope with their declining 
     economic fortunes. Most have come to realize that their 
     incomes will never be the same as they once were. As their 
     comments show, they realize they can live on $30,000 or 
     $20,000 or even $10,000. But they cannot do that and meet the 
     obligations that they ran up while they were making much 
     more. When put to a choice between paying credit card debt 
     and mortgage debt, between dealing with a dunning notice from 
     Sears and putting groceries on the table, they will go to the 
     bankruptcy courts, declare themselves failures, and save 
     their future income for their mortgage and their groceries.
  I say to my colleagues, there may be many different standards that 
different members have for bringing legislation to the floor of the 
United States Senate. We come from different backgrounds, we come from 
different states, we have different philosophies about the role of 
government in society. We have differing priorities. But for God's 
sake, there should be one principle that all of us can get behind and 
that is that we should do no harm here in our work to America's working 
families.
  That's what at stake here. This is a debate about priorities. This is 
a debate about what side you're on. This is a debate about who you 
stand with. Will you stand with the big banks and the credit card 
companies or will you stand with working families, with seniors, with 
single women with children, with African-Americans and Hispanics.
  But I would say to my colleagues on the floor of the U.S. Senate 
today that this is not a debate about winners and losers. Because we 
all lose if we erode the middle class in this country. We all lose if 
we take away some of the critical underpinnings that shore up our 
working families. Sure, in the short run big banks and credit card 
companies may pad their profits, but in the long run our families will 
be less secure, our entrepreneurs will become more risk adverse and 
less entrepreneurial.
  How so? Well this is how a Georgia Congressman described the issue in 
1841:

       Many of those who become a victim to the reverses are among 
     the most high-spirited and liberal-minded men of the 
     country--men who build up your cities, sustain your 
     benevolent institutions, open up new avenues to trade, and 
     pour into channels before unfilled the tide of capital.

  Mr. President, this is still true today.
  This isn't a debate about reducing the high number of bankruptcies. 
No way will this legislation do that. Indeed, by rewarding the reckless 
lending that got us here in the first place we will see more consumers 
over burdened with debt.
  No, this is a debate about punishing failure. Whether self inflicted 
or uncontrolled and unexpected. This is a debate about punishing 
failure. And if there is one thing that this country has learned, 
punishing failure doesn't work. You need to correct mistakes, prevent 
abuse. But you also lead to lift people up when they've stumbled, not 
beat them down.
  Of course, what the Congress is poised to do here with this bill is 
even worse within the context of this Congress. This is a Congress that 
has failed to address skyrocketing drug costs for seniors, this is a 
Congress that has failed to enact a Patients' Bill of Rights much less 
give all Americans access to affordable health care. This is a Congress 
that does not invest in education, that does not invest in affordable 
child care. This is a Congress that has yet to raise the minimum wage.
  But instead, we declare war on America's working families with this 
bill.
  What is clear is that this bill will be the death of a thousand cuts 
for all debtors regardless of whether the means test applies. There are 
numerous provisions in the bankruptcy reform bill designed to raise the 
cost of bankruptcy, to delay its protection, to reduce the opportunity 
for a fresh start. But rather than falling the heaviest on the supposed 
rash of wealthy abusers of the code, they will fall hardest on low- and 
middle-income families who desperately need the safety net of 
bankruptcy.


                   lenders should be held responsible

  You know, a lot of folks must be watching the progress of this 
bankruptcy bill over the course of this year with awe and envy. Can my 
colleagues name one other bill that the leadership has worked so hard 
and with such determination to move by any and all means necessary? 
Certainly not an increase in the minimum wage. Certainly not a 
meaningful prescription drug benefit for seniors, certainly not the 
reauthorization of the Elementary and Secondary Education Act. On many 
issues, on most issues, this has been a do nothing Congress. But on so-
called bankruptcy reform, the Senate and House leadership can't seem to 
do enough.
  One can only wonder what we could have accomplished for working 
families if the leadership had the same determination on other issues.
  Unfortunately those other issues did have the financial services 
industry behind it. And you have to give them credit--no pun intended--
over the past couple of years they have played the Congress like a 
violin. And what do you know, here we are trying to ram through this 
bankruptcy bill in the 11th hour as the 106th Congress draws to a 
close.
  In reading the consumer credit industry's propaganda you'd think the 
story of bankruptcy in America is one of large numbers of 
irresponsible, high income borrowers and their conniving attorney using 
the law to take advantage of naive and overly trusting lenders.
  As it turns out, that picture of debtors is almost completely 
inaccurate. The number of bankruptcies has fallen steadily over the 
past months, charge offs (defaults on credit cards) are down and 
delinquencies have fallen to the lowest levels since 1995, and now all 
sides agree that nearly all debtors resort to bankruptcy not to game 
the system but rather as a desperate measure of economic survival.
  It also turns out that the innocence of lenders in the admittedly 
still high numbers of bankruptcies has also been--to be charitable--
overstated.
  As high cost debt, credit cards, retail charge cards, and financing 
plans for consumer goods have skyrocketed in recent years, so have the 
number of bankruptcy filings. As the consumer credit industry has begun 
to aggressively court the poor and the vulnerable, bankruptcies have 
risen. Credit

[[Page S11392]]

card companies brazenly dangle literally billions of card offers to 
high debt families every year. They encourage card holders to make low 
payments toward their card balances, guaranteeing that a few hundred 
dollars in clothing or food will take years to pay off. The lengths 
that companies go to keep their customers in debt is ridiculous.
  So Mr. President, in the interest of full disclosure--something that 
the industry itself isn't very good at--I'd like my colleagues to be 
aware of what the consumer credit industry is practicing even as it 
preaches the sermon of responsible borrowing. After all, debt involves 
a borrower and a lender; poor choices or irresponsible behavior by 
either party can make the transaction go sour.
  So how responsible has the industry been? Well I suppose that it 
depends on how you look at it. On the one hand, consumer lending is 
terrifically profitable, with high-cost credit card lending the most 
profitable of all (except perhaps for even higher costs credit like 
payday loans). So I guess by the standard of responsibility to the 
bottom line they've done a good job.
  On the other hand if you define responsibility as promoting fiscal 
health among families, educating on judicious use of credit, ensuring 
that borrowers do not go beyond their means, then it's hard to imagine 
how the financial services industry could be bigger dead beats.

  According to the Office of the Comptroller of Currency, the amount of 
revolving credit outstanding--that is, the amount of open-ended credit 
(like credit cards) being extended--increased seven times during 1980 
and 1995. And between 1993 and 1997, during the sharpest increases in 
the bankruptcy filings, the amount of credit card debt doubled. Doesn't 
sound like lenders were too concerned about the high number of 
bankruptcies--at least it didn't stop them from pushing high-cost 
credit like Halloween candy.
  Indeed, what do credit card companies do in response to ``danger 
signals'' from a customer that they may be in over their head. 
According to ``The Fragile Middle Class,'' an in depth study of who 
files for bankruptcy and why, the company's reaction isn't what you'd 
think.

       Many credit card issuers respond to a customer who is 
     exceeding his or her credit limit by charging a fee--and 
     raising their credit limit. The practice of charging default 
     rates of interest, which often run into the 20 to 30 percent 
     range, makes customers who give the clearest signs of 
     trouble--missing payments--among the most profitable for the 
     issuers.

  That may sound stupid to you and me colleagues, but it gets more 
bizarre: Banks actively solicit debtors for new credit after they file 
for bankruptcy--this way, the company knows this customer will take on 
debt, but will not be legally able to seek another bankruptcy discharge 
for another 6 years.
  As ``The Fragile Middle Class'' goes on to state:

       [Many] attribute the sharp rise in consumer debt--and the 
     corresponding rise in consumer bankruptcy--to lowered credit 
     standards, with credit card issuers aggressively pursuing 
     families already carrying extraordinary debt burdens on 
     incomes too low to make more than minimum repayments. The 
     extraordinary profitability of consumer debt repaid over time 
     has attracted lenders to the increasingly high-risk-high-
     profit business of consumer lending in a saturated market, 
     making the link between the rise in credit card debt and the 
     rise in consumer bankruptcy unmistakable.

  So in other words colleagues, those folks who may have come into your 
office this year or last year talking about how they needed protection 
from customers walked away from debts, who thought Congress should 
mandate credit counseling--to promote responsible money management--as 
a requirement for seeking bankruptcy protection, who argued that reform 
of the bankruptcy code is needed because of decline in the stigma of 
bankruptcy have been pouring gasoline on the flames the whole time. Of 
course, in the end, if his bill passes, it's working families who get 
burned.
  But guess what? It gets even worse, because the consumer finance 
industry isn't just reckless in its lending habits, big name lenders 
all too often break or skirt the law in both marketing and collecting.
  For example:
  In June of this year the Office of the Comptroller of the Currency 
reached a settlement with Providian Financial Corporation in which 
Providian agreed to pay at least $300 million to its customers to 
compensate them for using deceptive marketing tactics. Among these were 
baiting customers with ``no annual fees'' but then charging an annual 
fee unless the customer accepted the $156 credit protection program 
(coverage which was itself deceptively marketed). The company also 
misrepresented the savings their customers would get from transferring 
account balances from another card.

  In 1999, Sears, Roebuck & Co. paid $498 million in settlement damages 
and $60 million in fines for illegally coercing reaffirmations--
agreements with borrowers to repay debt--from its cardholders. But 
apparently this is just the cost of doing business: Bankruptcy judges 
in California, Vermont, and New York have claimed that Sears is still 
up to its old strong arm tactics, but is now using legal loopholes to 
avoid disclosure. Now colleagues, Sears is a creditor in one third of 
all personal bankruptcies. And by the way, this legislation contains 
provisions that would have protected Sears from paying back any monies 
that customers were tricked into paying under these plans.
  This July, North American Capital Corp., a subsidiary of GE, agreed 
to pay a $250,000 fine to settle charges brought by the Federal Trade 
Commission that the company had violated the Fair Debt Collection 
Practices Act by lying to and harassing customers during collections.
  In October, 1998, the Department of Justice brought an antitrust suit 
against VISA and Mastercard, the two largest credit card associations, 
charging them with illegal collusion that reduced competition and made 
credit cards more expensive for borrowers.
  Now Mr. President, this is just a few examples, I could go on and on. 
At a minimum, these illegal and unscrupulous practices rob honest 
creditors who play by the rules of repayment. And the cost to debtors 
and other creditors alike are tremendous.
  But other practices aren't illegal, merely unsavory.
  For example, credit card companies perpetuate high interest 
indebtedness by requiring low minimum payments and in some cases 
canceling the cards of customers who pay off their balance every month. 
Using a typical minimum monthly payment rate on a credit card, it would 
take 34 years to pay off a $2,500 loan, and total payments would exceed 
300 percent of their original principal. A recent move by credit card 
industries to make the minimum monthly payment only 2 percent of the 
balance rather than 4 percent--further exacerbates the problems of some 
uneducated debtors.
  Lenders routinely offer low ``teaser'' interest rates which expire in 
as little as 2 months and engage in ``risk-based'' pricing which allows 
them to raise credit card interest rates based on credit changes 
unrelated to the borrower's account. Many credit card contracts now 
contain binding arbitration clauses--buried in the fine print of 
contracts which are often not even included with pre-approved card 
offers--that cut off the borrowers ability to seek redress in the 
courts in the case of a dispute.
  Even more ironic: at the same time that the consumer credit industry 
is pushing a bankruptcy bill that requires credit counseling for 
debtors, the Consumer Federation of America found that many prominent 
creditors have slashed the portion of debt repayments they shared with 
credit counseling agencies--in some cases by more than half. This may 
force some agencies to cut programs and serve fewer debtors. At the 
same time, the industry has stopped the practice of eliminating or 
significantly reducing the interest rates charged on debts being 
repaid with the help of a counseling agency making counseling less 
likely to succeed.

  Mr. President, let me repeat myself in case my colleagues somehow 
missed the blatant hypocrisy of what's going on here: The big banks and 
credit card companies are pushing to rig the system so that you cannot 
file for bankruptcy unless you perform credit counseling at the same 
time that they are jeopardizing the health the credit counseling 
industry and making it significantly more costly for debtors.
  That's pretty brazen, but as my colleagues will hear over and over in 
this debate, this isn't just an industry that

[[Page S11393]]

wants to have it both ways, it wants to have it several different ways.
  Of course these are mild abuses compared to predatory lending. 
Schemes such as payday loans, car title pawns, and home equity loan 
scams harm tens of thousands of more Americans on top of those shaken 
down by the mainstream creditors. Such operators often target those on 
the economic fringe like the working poor and the recently bankrupt. 
They even claim to be performing a public service: providing loans to 
the uncreditworthy. It just also happens to be obscenely profitable to 
overwhelm vulnerable borrowers with debt at usurious rates of interest. 
Hey, who said good deeds don't get rewarded?
  Reading this conference report makes it clear who has the clout in 
Washington. There is not one provision in this bill that holds the 
consumer credit industry truly responsible for their lending habits. My 
colleagues talk about the message they want to send to deadbeat 
debtors, that bankruptcy will no longer be a free ride to a clean 
slate. Well what message does this bill send to the banks, and the 
credit card companies? The message is clear: make risky loans, 
discourage savings, promote excess, and Congress will bail you out by 
letting you be more coercive in your collections, by putting barriers 
in between your customers and bankruptcy relief, and by ensuring that 
the debtor will emerge from bankruptcy with his vassalage to you 
intact. This is in stark contrast to the numerous punitive provisions 
of the bill aimed at borrowers.
  So Mr. President, the record is clear: lenders routinely discourage 
healthy borrowing practices, encourage excessive indebtedness and 
impose barriers to paying of debt all in the name of padding their 
profits. It would be a bitter irony if Congress were to reward big 
banks, credit card companies, retailers, and other lenders for their 
bad behavior, but that is exactly what passage of bankruptcy reform 
legislation would do.
  I would characterize the debate like this and make it very simple for 
my colleagues. This is fundamentally a referendum on Congress's 
priorities and you simply need to ask yourself: whose side am I on? Am 
I on the side of working families who need a financial fresh start 
because they are overburdened with debt? Am I for preserving this 
critical safety net for the middle class? Will I stand with the civil 
rights community, and religious community, and the women's community, 
and consumer groups and the labor unions who fight for ordinary 
Americans and who oppose this bill?
  Or will you stand with the credit card companies, and the big banks, 
and the auto lenders who desperately want this bill to pad their 
profits? I hope the choice will be clear to colleagues.


           MORE BANKRUPTCIES, NOT LESS, IS THE LIKELY RESULT

  Mr. President, at the beginning of my statement I said the bankruptcy 
``crisis'' is over and it ended without Congress passing legislation. 
Ironically, it probably ended because Congress didn't act. The 
bean counters in the consumer credit industry realized that all these 
bankruptcies weren't good for profits so they started lending less 
money, and they were more careful about who they lent money to. In 
fact, the overall consumer debt level actually declined in 1998, and 
guess what--fewer bankruptcies. And this trend has continued in 1999 
and so far in 2000. But if this conference report become law, 
bankruptcy protection will be harshly rolled back. It will be even more 
profitable to over burden folks with debt--and the banks and the credit 
card companies will fall all over themselves trying to do it. but this 
time America's working families will pay more of the price.

  This argument isn't purely theoretical, history and empirical data 
back it up. I want to ready my colleagues a few passages from an 
article published in the August 13, 1984 issue of Business week. This 
article, entitled ``Consumer Lenders Love the New Bankruptcy Laws,'' 
was written in the recent aftermath of Congress' last tightening of the 
bankruptcy code in 1984.
  Here's how the article begins, quote:

       It doesn't take much to get a laugh out of Finn Casperson 
     these days. Just ask him the outlook for Beneficial Corp. now 
     that the U.S. has a tough new bankruptcy law. `It looks a lot 
     rosier,' says the chairman of the consumer finance company, 
     punctuating the assessment with a hearty chuckle.

  The article then explains what the banks and the credit card 
industries got back in 1984:

       But when someone seems to be abusing the revised law, a 
     judge can, on his or her own, throw a case out of chapter 7, 
     leaving the debtor to file under chapter 13. And in chapter 
     13, where an individual works out a repayment plan under 
     court supervision, lender now can get a court order assigning 
     all of a borrower's income for three years to repaying 
     debts--after allowance for food and other basic needs. Merely 
     empowering a judge to determine that a debtor is abusing the 
     bankruptcy courts was the change most responsive to the 
     lenders' contention that bankruptcy was being used by people 
     capable of meeting their obligations.

  Does this sound familiar to colleagues? It should. These ``reforms,'' 
are substantially similar to what industry says are desperately needed 
now--the means to curb abusive filings. That was exactly what Congress 
gave them in 1984. But the critical question is, how did lenders behave 
after the 1984 ``strengthening'' of the bankruptcy code? That story 
will help us answer the question: if we give them this new stricter, 
lopsided law in 2000, what will they do with it?
  That 1984 Business Week article suggested what was to come:

       Lenders say they will make more unsecured loans from now 
     on, trying to lure back the generally younger and lower-
     income borrowers recently turned away.

  But, Mr. President, that's exactly the problem. The consumer finance 
industry went after these folks with a vengeance. Lenders felt so 
protected by the new bankruptcy law that they eventually through 
caution to the wind and began using the aggressive, borderline 
deceptive and abusive, tactics that are now common in the industry.
  And guess what, both bankruptcies and consumer debt levels exploded 
after 1985. And some independent observers point the figure directly at 
the 1984 reforms and the lending industry's foolhardy reaction. In a 
1999 Harvard Business School study entitled ``The Rise of Consumer 
Bankruptcy: Evolution, Revolution, or Both?'' David Moss of the Harvard 
Business School and Gibbs Johnson, an attorney, lay out the case. The 
say:

       It is conceivable, therefore, that the procreditor reforms 
     of 1984 actually contributed to the growth of consumer 
     (bankruptcy) filings. This could have occurred if the reforms 
     exerted a larger impact in encouraging lenders to lend--and 
     to lend more deeply into the income distribution--than they 
     did in deterring borrowers from borrowing and filing.

  Mark Zandi, in the January 1997 edition of ``The Regional Financial 
Review,'' writes:

       While forcing more households into a chapter 13 filing 
     through an income test would raise the amount that lenders 
     would ultimately recover from bankrupt borrowers, it would 
     not significantly lower the net cost of bankruptcies. Tougher 
     bankruptcy laws will simply induce lenders to ease their 
     standards further.

  Again, we know this is exactly what happened. Credit card companies 
sent out over 3.5 billion solicitations last year. They use aggressive 
tactics to sign up borrowers--and to keep you in debt once they get 
you. And they also went after low income individuals--even though they 
might be worse credit risks. Why? Because they are desperate for 
credit, they are a captive audience and can be charged exorbitant 
interest rates and fees. Despite the fact that there are hundreds of 
credit card firms targeting low income borrowers, interest rates and 
terms on these cards have not been driven down by the supposed 
competition. For these borrowers, the market is failing. And firms who 
aren't squeamish about using aggressive collection tactics have proved 
that the poor, or those with bad credit--even though they might be less 
credit worthy onpaper--can be kept to default rates as low as those for 
wealthier borrowers. This is because the poor are more vulnerable to 
intimidation and they are less likely to have legal defense against law 
suits.
  Mr. President, I ask you, could the Senate play a better joke on the 
American people? The supposed bankruptcy ``crisis'' of the 1990's--
which bill supporters say merits a harsh rollback of bankruptcy 
protection for debtors--actually has its origins in the last time 
Congress ``reformed'' the bankruptcy code in favor of industry. I ask 
you, why would we be so stupid again? It's like our parents used to 
say: ``Fool me once, shame on you. Fool me twice, shame on me.''

[[Page S11394]]

                   worse than what the senate passed

  Now Mr. President, not only does the majority leader want to ram 
through bankruptcy legislation on the State Department authorization 
conference report, which he has literally hijacked for that purpose, 
there is no question that this is a significantly worse legislation 
than what passed the Senate. In fact, there's no pretending that this 
is a bill designed to curb real abuse of the bankruptcy code.
  Does this bill take on wealthy debtors who file frivolous claims and 
shield their assets in multimillion dollar mansions? No, it guts the 
cap on the homestead exemption adopted by the Senate. I ask my 
colleagues who support this bill: how can you claim that this bill is 
designed to crack down on wealthy scofflaws without closing the massive 
homestead loophole that exists in five states? And in a bill that falls 
so harshly on the backs of low and moderate income individuals?
  I wonder how my colleagues who vote for this conference report will 
explain this back home. How will they explain that they supported 
letting wealthy debtors shield their assets from creditors at the same 
time they voted to end the practice under current law of stopping 
eviction proceedings against tenants who are behind on rent who file 
for bankruptcy? With one hand we gut tenants rights, with the other we 
shield wealthy homeowners.
  Nor does this bill contain another amendment offered by Senator 
Schumer and adopted by the Senate that would prevent violators of the 
Fair Access to Clinic Entrances Act--which protects women's health 
clinics--from using the bankruptcy system to walk away from their 
punishment. Again, I thought the sponsors of the measure wanted to 
crack down on people who game the system. What could be a bigger misuse 
of the system then to use the bankruptcy code to get out of damages 
imposed because you committed an act of violence against a women's 
health clinic?
  And yet the secret conferees on his bill simply walked away. They 
walked away from a real opportunity to prohibit an abuse that all sides 
recognize exists, but they also walked away from an opportunity to 
protect women from harassment. They walked away from the opportunity to 
protect women from violence.
  So why shouldn't people be cynical about this process? Ever since 
bankruptcy reform was passed by the Senate this bill has gotten less 
balanced, less fair, and more punitive--but only for low and moderate 
income debtors. So again, I would say to my colleagues, this bill is a 
question of our priorities. Will we stand with wealthy dead beats or 
will we take a stand to protect women seeking reproductive health 
services from harassment?
  But unfortunately, these were not the only areas where the shadow 
conferees beat a retreat from balance and fairness. For example:
  Safe harbor dollar amounts--The Senate bill provided that the higher 
of state or national median income should be used for the safe harbor 
from the means test. The shadow conference uses state median income, 
which is a far lower number in many states. This is an important issue 
because debtors in high income/high expense areas of low-income states 
will be very much disadvantaged.
  Safe harbor treatment of women not receiving child support--The 
shadow conference has inserted the ``Hyde safe harbor'' which protects 
some low income families from the arbitrary means test based on 
Internal Revenue Service expense standards. But this safe harbor will 
not benefit many single mothers who need help the most because it is 
based on the combined income of the debtor and the debtor's spouse, 
even if they are separated, the spouse is not filing for bankruptcy, 
and the husband is providing no support for the debtor and her 
children. In other words, a single mother who is being deprived of 
needed support from a well-off spouse is further harmed by this bill, 
which will deem the full income of that spouse available to pay debts 
for the safe harbor determination. This unfair treatment appears 
clearly intended, since the safe harbor from creditor motions elsewhere 
in the same section is worded differently, and does not take into 
account the income of a separated nondebtor spouse, except to the 
extent support is actually being paid by that spouse.
  Gutting the Durbin means test ``mini-screen''--The Senate bill 
contained an amendment meant to give bankruptcy judges more flexibility 
in applying the means test for moderate income debtors. The provision 
was changed in a way that turns the intent of this provision on its 
head. Instead of creating more flexibility in the means test, it would 
mean much less flexibility.
  Elimination of protections for family farmers and family fishermen--
The Senate bill enhanced bankruptcy protections for family farmers and 
added protections for family fishermen. Senate negotiators have 
reportedly agreed to eliminate entirely the new protections for 
fishermen, as well as most of the new protections for family farmers.
  Unrealistic valuation of property--Senate negotiations have 
reportedly agreed to a House provision that would change current rules 
on property valuation. Under this provision, property would have to be 
valued at retail value, without accounting for any of the costs of 
sale, despite the fact that resale at such value would be impossible.
  Elimination of Byrd and Levin amendments on consumer credit--The 
amendment to the Senate bill offered by Senator Byrd required that 
consumer information be included in Internet credit card applications. 
The Levin amendment prohibited certain finance charges on credit card 
payments made within the grace periods provided by creditors. Senate 
negotiations have reportedly agreed to delete both of these important 
amendments.
  Unrealistic notice requiremnts--A provision from the House bill 
requires that debtors use the address provided in pre-bankruptcy 
communications to provide any necessary notice to their creditors. 
Under this provision, it would be impossible in many cases for debtors 
to know what address to use, since debtors often do not retain their 
pre-bankruptcy communications.
  Elimination of sanctions against creditors who file abusive motions--
The Senate bill contained sanctions against creditors who file motions 
claiming ``abuse'' which are coercive or not substantially justified. 
These sanctions would have been a key protection against overly 
aggressive creditors for debtors in bankruptcy. Senate negotiators have 
reportedly agreed to eliminate these sanctions.
  Filing of tax records--S. 625 required debtors to provide tax returns 
only if requested by a party in interest. The shadow conference 
requires the filing of tax records in every case.


                           a terrible process

  Mr. President, let me just say a few words about the process on this 
legislation, which is terrible. The House and Senate Republicans have 
taken a secretly negotiated bankruptcy bill and stuffed it into the 
State Department authorization bill in which not one provision of the 
original bill remains. Of course, State Department authorization is the 
last of many targets. The majority leader has talked abut doing this on 
an appropriations bill, on a crop insurance bill, on the electronic 
signatures bill, on the Violence Against Women Act. So desperate are we 
to serve the big banks and credit card companies that no bill has been 
safe from this controversial baggage.
  We are again making a mockery of scope of conference. We are 
abdicating our right to amend legislation. We are abdicating our right 
to debate legislation. And for what? Expediency. Convenience.
  However, I'm not sure that we have ever been so brazen in the past. 
Yes we have combined unrelated, extraneous measures into conference 
reports. Usually because the majority wishes to pass one bill using the 
popularity of another. Putting it into a conference report makes it 
privileged. Putting it into a conference report makes it unamendable. 
So they piggy back legislation. Fine. But Mr. President, this may be 
the first time in the Senate's history where the majority has hollowed 
out a piece of legislation in conference--left nothing behind but the 
bill number--and inserted a completely unrelated measure.
  I would challenge my colleagues walk into any high school civics 
class room in America and explain this process. Explain this new way 
that a bill becomes law. What the majority has essentially done is 
started down the road toward a virtual tricameral legislature--House, 
Senate, and conference

[[Page S11395]]

committee. But at least the House and the Senate have the power under 
the constitution to amend legislation passed by the other house--
measures adopted by the all-powerful conference committee are not 
amendable.

  Is bankruptcy reform so important that we should weaken the integrity 
of the Senate itself? It is not. I would question whether any 
legislation is that important, but to make such a blatant mockery of 
the legislative process on a bill that is going to be vetoed anyway? 
That is effectively dead? Just to make a political point? What have we 
come to?
  This is a game to the majority. The game is how to move legislation 
through the Senate with as little interference as possible from actual 
Senators.
  Colleagues I want to remind you of what Senator Kennedy said 4 years 
ago when the Senate voted to gut rule 28, the Senate rule limiting the 
scope of conference, that we are violating with this conference report. 
Speaking very prophetically he said:

       The rule that a conference committee cannot include 
     extraneous matter is central to the way that the Senate 
     conducts its business. When we send a bill to conference we 
     do so knowing that the conference committee's work is likely 
     to become law. Conference reports are privileged. Motions to 
     proceed to them cannot be debated, and such reports cannot be 
     amended. So conference committees are already very powerful. 
     But if conference committees are permitted to add completely 
     extraneous matters in conference, that is, if the point of 
     order against such conduct becomes a dead letter, conferees 
     will acquire unprecedented power. They will acquire the power 
     to legislate in a privileged, unreviewable fashion on 
     virtually any subject. They will be able to completely bypass 
     the deliberative process of the Senate. Mr. President, this 
     is a highly dangerous situation. It will make all of us 
     willing to send bills to conference and leave all of us 
     vulnerable to passage of controversial, extraneous 
     legislation any time a bill goes to conference. I hope the 
     Senate will not go down this road. Today the narrow issue is 
     the status of one corporation under the labor laws. But 
     tomorrow the issue might be civil rights, States' rights, 
     health care, education, or anything else. It might be a 
     matter much more sweeping than the labor law issue that is 
     before us today.

  He was absolutely right, Mr. President. We are headed down that 
slippery slope he described. For the last three years we have handled 
appropriations in this manner. We've combined bills together, the text 
is written by a small group of Senators and Congressmen and these bills 
have been presented to the Senate as an up or down proposition. And now 
we're doing it with so-called bankruptcy reform.
  Conference reports are privileged. It is very difficult for a 
minority in the Senate to stop a conference report as they can with 
other legislation. That's why these conference reports are being used 
in this way. And that's why the rules are supposed to restrict their 
scope.
  Last year, Senator Daschle attempted to reinstate rule 28 on the 
Senate floor. He was voted down, and he spoke specifically about how we 
have corrupted the legislative process in the Senate:

       I wish this had been a one time event. Unfortunately, it 
     happens over and over and over. It is a complete emasculation 
     of the process that the Founding Fathers had set up. It has 
     nothing to do with the legislative process. ``If you were to 
     write a book on how a bill becomes a law, you would need 
     several volumes. In fact, if the consequences were not so 
     profound, some could say that you would need a comic book 
     because it is hilarious to look at the lengths we have 
     gone to thwart and undermine and, in an extraordinary way, 
     destroy a process that has worked so well for 220 years.

  So where does it stop? As long as the majority want to avoid debate, 
as long as the majority wants to avoid amendments and as long as 
Senators will go along to get along we will find ourselves forced to 
cast up or down votes on legislation--a rubber stamp yes or no--with no 
ability to actually legislate.
  And each Senator who today votes for this conference report should 
know: they may find themselves in the majority today, they may be OK 
with letting this bill go because they are not offended by what it 
contains, but be forewarned, the day will come when you will be on the 
other side of this tactic. Today it is bankruptcy reform, but someday 
you will be the one protesting the inclusion of a provision that you 
believe is outrageous.
  Regardless of the merits of bankruptcy reform, this is a terrible 
process. I would urge my colleagues to vote ``no'' to send a message to 
the leadership. Send a message that you want your rights as Senators 
back.
  Finally, Mr. President, let me end on this note. I think many in this 
body believe that a society is judged by its treatment of its most 
vulnerable members. Well, by that standard this is an exceptionally 
rough bill in what has been a very rough Congress. All the consumer 
groups oppose this bill, 31 organizations devoted to women and 
children's issues oppose this legislation.
  There is no doubt in my mind that this is a bad bill. It punishes the 
vulnerable and rewards the big banks and credit card companies for 
their own poor practices. And this legislation has only gotten worse in 
sham conference.
  Earlier, Mr. President, I used the word ``injustice'' to describe 
this bill--and that is exactly right. It will be bitter irony if 
creditors are able to use a crisis--largely of their own making--to 
convince Congress to decrease borrower's access to bankruptcy relief. I 
hope my colleagues reject this scheme and reject this bill.
  The PRESIDING OFFICER. The Senator from Wisconsin is recognized.

                          ____________________