[Congressional Record Volume 146, Number 150 (Thursday, December 7, 2000)]
[Senate]
[Pages S11683-S11729]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]
BANKRUPTCY REFORM ACT OF 2000--CONFERENCE REPORT
The PRESIDING OFFICER. Under the previous order, the Senate will now
resume consideration of the conference report to accompany H.R. 2415,
which the clerk will report.
The legislative clerk read as follows:
Conference report to accompany the bill (H.R. 2415) to
enhance security of United States missions and personnel
overseas, to authorize appropriations for the Department of
State for fiscal year 2000, and for other purposes.
Mr. WELLSTONE. Mr. President, it is my understanding that we are now
in debate on the bankruptcy bill; is that correct?
The PRESIDING OFFICER. That is correct.
Mr. WELLSTONE. I thank the Chair.
Mr. President, I yield myself, from Senator Leahy's time, 30 minutes.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. WELLSTONE. I am sorry, I have my own time.
Mr. President, 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 sidelined by 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.
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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. And it also
masks what has been real pain in 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 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. Instead, this
conference report just makes the fresh start of bankruptcy harder to
achieve. But this doesn't change anyone's 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.
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
decide 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 one's means, to concentrate one's 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.
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 in America's working
families.
That's what is 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 United States
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 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.
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
overburdened 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 that this country has learned, punishing
failure doesn't work. You need to correct mistakes, prevent abuse. But
you also need 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 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 a 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.
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 who file
for bankruptcy are not wealthy scofflaws,
[[Page S11685]]
but rather 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 Don 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 have 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 demonstrably 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!
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 interests and in favor of big banks and credit
card companies? 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 Member's 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 are
busy trying to turn their lives around. And I think it is 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?
I want 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
progress 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 Lisa 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 two 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
$6900 per month, so under the bill, close to that amount, about $6200,
the average monthly income for the previous six months, would be deemed
to be their current monthly income, even though their gross monthly
income at the time of filing was only $4800. 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 $5339. 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, and 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 by current law. The time for
filing a new chapter 7 would also be increased by the bill, from 6
years to 8 years.
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 is 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 multi million 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 scoff laws 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 that 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 the real opportunity to prohibit an abuse that all
sides recognize exist, but they also walked away from an opportunity to
protect women from
[[Page S11686]]
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.
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 one would 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 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.
In the interest of full disclosure--something that the industry
itself isn't very good at--I would 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? 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 have 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 is hard to imagine
how the financial services industry could be bigger deadbeats.
According the Office of the Comptroller of Currency, the amount of
revolving credit outstanding--i.e. 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 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
would think.
In other words, those folks who may have come into your office this
year or last year talking about how they needed protection from
customers who 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 this 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 collection.
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.
These are 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 are not illegal, merely unsavory.
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.
[[Page S11687]]
That is pretty brazen, but as my colleagues will hear over and over
in this debate, this isn't just an industry that 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.
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
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'
priorities and you simply need to ask yourself: whose side am I on? Am
I on the side of the 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.
Let me 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 about doing this on an
appropriations bill, on a crop insurance bill, on the electronic
signatures bill, on the Violence Against Women Act. So disparate 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 am 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 into a conference report makes it unamenable. So
they piggy back legislation. Fine. But 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 challenge my colleagues to 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 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 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.
I remind my colleagues of what Senator Kennedy said 4 years ago when
the Senate voted to gut rule XXVIII, the Senate rule limiting the scope
of conference which 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 less 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. We are headed down that slippery slope he
described. For the last three years we have handled appropriations in
this manner. We have combined bills, 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 is why these conference reports are being used
in this way, and that is 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.
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
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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, I end on this note. I think many in this body believe that a
society is judged by its treatment of its most vulnerable members. 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
the sham conference.
Earlier, I used the word ``injustice'' to describe this bill--and
that is exactly right. It will be a 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.
Mr. President, I will not repeat what I said yesterday at the
beginning of this debate. I will respond to some comments that were
made on the floor dealing with chapter 12.
Some of my colleagues have talked about chapter 12 farmers'
bankruptcy relief, and they have made the argument that opposition to
this bankruptcy bill has really held up chapter 12, which is very
important for protection of family farmers. I point out to colleagues
that it is precisely the opposite case.
A year ago when it first became clear that this bankruptcy bill, for
very good reasons, was not going to move forward, under the able
leadership of Senators and Representatives--Senators such as Senator
Grassley--legislation was introduced and passed which extended chapter
12 bankruptcy protection for farmers. Within about 20 days, it was
signed by the White House and passed. No problem.
This past summer, in June, the House passed an extension, but for
some reason the majority leader took no action over here. Then in
October, the House passed a 1-year extension for chapter 12 for family
farmers. Again, the majority leader took no action over here.
This can pass within 24 hours. What we have here is a bit of a game
going on where chapter 12 becomes held hostage to a bankruptcy bill
with many harsh features which will be vetoed by the President and, in
my view, either the veto will be sustained or we will not be here and
it will be pocket vetoed and it will not become law and should not
become law.
But let me be clear. Chapter 12, the bankruptcy relief for family
farmers, can be passed separately within a day or two. It is not a
problem. So no one from any ag State should believe that somehow you
have to vote for a harsh piece of legislation, that targets the most
vulnerable citizens, that is completely one sided, that calls for no
accountability from credit card companies or larger banks, in order to
get bankruptcy relief for family farmers. It is just simply not true.
The proponents of this bill have argued--they have been pretty
explicit about this--that often the people who are filing for chapter 7
do so because they want to get out of their obligations, because they
are untrustworthy, because they are dishonest, and because they sort of
feel no stigma in filing for bankruptcy.
I would, one more time, like to point out on the floor of the Senate
that about 50 percent of the people who file for chapter 7 do so
because of major medical bills that have put them under. Quite often,
it becomes a double whammy: Either you not only are faced with a major
medical bill that puts your family under--we have not done anything to
help our families afford health care--or, which is the double whammy,
you cannot work because you are the one who is ill, in which case you
lose your income, or it can be a loved one who is faced with a serious
illness or disabling injury and you are the one who takes care of them,
in which case, again, you can lose your job and your income.
So I do not really think we ought to be viewing families who file
chapter 7 because of major medical bills as dishonest or untrustworthy.
Now the largest single group of those citizens who file for
bankruptcy are women. They are one-third of all the filers. They are
the fastest growing group. Since 1981, the number of women filing alone
increased by more than 700 percent.
It is not so surprising that single parents--women with children--are
among the largest or disproportionate number of people who file for
bankruptcy. Because, in addition to medical costs, divorce is a major
factor in bankruptcy--income drops--women again are especially hard
hit. Many of them have not worked prior to divorce, and now they have
custody of the children and find themselves in very difficult financial
circumstances.
Are single women with children deadbeats? All too much of 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 divorce
until their income stabilizes. 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 the help the most because it is based upon 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 or children, but that spouse's income is
considered.
This piece of legislation does not provide a whole lot of help to
many hard-pressed single parents, most of whom are women.
I have heard some of my colleagues out here on the floor talking
about economic growth, low unemployment, saying: Given this economic
performance, how can you have people filing for bankruptcy? Surely, it
must be, again, that these are people who feel no stigma.
You know what. This rosy picture masks the fact that there is real
pain in certain industries, and there are certain communities and
certain families under siege.
This is a news release from the LTV Corporation, Hoyt Lakes, MN,
which had previously announced on May 24, 2000, its intention to close
the local mining operation. They were going to close at the end of the
summer. Now they have said, in this release, that they are going to
cease permanently on February 24, 2001. This is some holiday gift from
this company to--I don't know--1,300 or 1,400 miners. These miners and
their families wonder what is going to happen to them. These are the
kinds of families who all too often find themselves in these difficult
economic circumstances, even with this booming economy, and quite often
have to file for chapter 7.
Are we going to make the argument that these families are without a
sense of responsibility? Are we going to make the argument that these
families are loafers and they feel no stigma?
What does this piece of legislation do to help keep people from
having to undergo these wrenching experiences that force them into
bankruptcy? Nothing. Zero. Tough luck. The only thing this piece of
legislation does is make it harder for people to file bankruptcy, to
file chapter 7, to rebuild their lives.
We do not do anything to help on health care costs. We do not do
anything in terms of dealing with the unfair dumping of steel with a
fair trade policy. We do not do anything in terms of passing an
Elementary and Secondary Education Act. We do not do anything on
affordable housing. We do not raise the minimum wage. We do not do
anything to make these families more economically secure. But instead,
what we do is we make it difficult for people to rebuild their lives.
This is sham reform. When you push the rhetoric aside, one thing
becomes clear: The bankruptcy system is a critical safety net for many
middle-class, working-class, low-income families. It is a difficult,
demoralizing process, but it is a critical safety net for families. And
we are tearing up that safety net.
I say to my colleagues, there may be many different standards that
different Members have when they bring legislation to the floor of the
Senate. We
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come from different backgrounds. We come from different States. We have
different philosophies about the role of Government in society. We have
different 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 to the most vulnerable people and most vulnerable families in
this country.
I believe strongly--and I have argued yesterday and today--that that
is exactly what we are doing. That is what is at stake here. This is a
debate about priorities. This is a debate about what side you are on.
This is a debate about with whom you stand. Will you stand with the big
banks and credit card companies or will you stand with hard-pressed
families, with seniors, with single women with children, with African
Americans, with Hispanics, with people of color, with consumers?
What the Congress is poised to do here with this bill is worse within
the context of this Congress because this is a Congress that has failed
to address skyrocketing drug costs for seniors; this is a Congress that
has failed to pass a Patients' Bill of Rights; this is a Congress that
has failed to make sure that Americans have access to affordable health
care; this is a Congress that has failed to invest in education; this
is a Congress that has failed to invest in affordable child care; this
is a Congress that has failed to raise the minimum wage. But instead,
with this bill we declare war on working families.
What is clear is that this piece of legislation will be a 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 heaviest on the
supposed rash of wealthy abusers of the Code, they will fall hardest on
low- and middle-income families who desperately need this safety net of
bankruptcy.
I commend to my colleagues, but I will not take a lot of time on it,
the May 15, 2000, issue of Time magazine whose cover story on so-called
bankruptcy reform legislation was entitled ``Soaked by Congress.'' I
hope they will read it.
I will quote from Brady Williamson, Chairman of the National
Bankruptcy Commission. Please remember, 116 law professors in this
country who teach bankruptcy law, who do their scholarship in this
area, have said this bill is harsh and one-sided, without balance, and
should not pass.
Brady Williamson, Chairman of the National Bankruptcy Review
Commission, notes in the article from Time magazine: The bankruptcy
bill would condemn many working families to ``what essentially is a
life term in debtors' prison.
I will talk a little bit about this piece of legislation in relation
to what the Senate passed before. 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
this purpose, there is no question that this is a significantly worse
piece of legislation--I heard colleagues yesterday say ``better''--than
passed by the Senate. Does this piece of legislation 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 which was adopted by the Senate. It was taken out in
conference.
I ask my colleagues who support this bill, how can you claim that
this bill is designed to crack down on wealthy scoff laws 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, you have a huge exemption for people who can go buy
million-dollar plus mansions. How do you explain that back home? How
will you explain that you supported letting wealthy debtors shield
their assets from creditors at the same time you voted to end the
practice under current law of stopping eviction proceedings against
tenants who were behind on rent and who filed for bankruptcy? Poor
tenants are evicted. Wealthy people can shield their assets and go buy
multimillion-dollar homes. On the one hand, we gut tenants' rights,
while on the other hand we shield wealthy homeowners. That is what this
piece of legislation is about.
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.
Some folks are watching the progress of this bill and they are
watching the way this bill has developed over the last year with a
considerable amount of awe and envy. Can my colleagues name one other
bill on which 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; that is not a priority. Certainly not a
meaningful prescription drug benefit for seniors; that is not a
priority. Certainly not reauthorization of the Elementary Secondary
Education Act. On many issues, on most issues, there has been nothing
done in this do-nothing Congress. But on the so-called bankruptcy
reform, the Senate and House leadership can't seem to get enough. One
can only wonder what we could have accomplished for working families if
the leadership had the same determination on these other issues.
Unfortunately, those other issues did not have the financial services
industry behind them.
You have to give them credit, no pun intended. Over the past couple
of years, the financial services industry has played this Congress like
a violin. And what do you know, we are trying to ram through this
bankruptcy bill in the 11th hour as the 106th Congress comes to a
close.
In reading the consumer credit industry's propaganda, you would think
the story of bankruptcy in America is one of large numbers of
irresponsible, high-income borrowers and their conniving attorneys
using the law to take advantage of naive and overly trusting lenders.
As it turns out, that picture of the debtors is almost completely
inaccurate. The number of bankruptcies has fallen steadily over the
past several months. It turns out that the people about whom we are
talking are vulnerable citizens. The major reason is major medical
costs. I have made that argument.
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 card companies brazenly dangle literally billions of
credit card offers to high-debt families every year. There is no
accountability for them. They encourage credit card holders to make low
payments toward the card balances, guaranteeing that a few $100 in
clothing or food will take years to pay off. The lengths these
companies go to keep their consumers in debt is ridiculous.
So in the interest of full disclosure, something that the industry
itself is not very good at, I would like my colleagues to be aware of
what the credit card industry is practicing even as it preaches the
sermon of responsible borrowing. After all, debt involves a borrower
and a lender. Poor choice, irresponsible behavior by either party can
make the transaction go sour. So how responsible has the industry been?
It depends upon 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 for
perhaps even higher cost credit such as payday loans. So I guess by the
standard of responsibility to the bottom line, this industry is doing
great.
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 is hard to imagine
how the financial services industry could be bigger deadbeats.
From studies from the Office of the Comptroller of Currency, some of
the settlements that have been reached with Providian Financial
Corporation, Sears & Roebuck, American Capital Corporation, a
subsidiary of GE, the Department of Justice brought an antitrust suit
against Visa and Mastercard. We have example after example after
example of abuses by this industry but
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not one word in this piece of legislation that calls for any
accountability.
In case my colleagues miss the blatant hypocrisy of what is going on
here, the big banks and credit card companies are pushing to rig the
system so you cannot file for bankruptcy unless you perform credit
counseling, at the same time that they are jeopardizing the health of
the credit counseling industry by pumping credit cards, by themselves
abusing the system, and hardly making it easier for people, only making
it more difficult.
To make it simple for my colleagues, this debate is fundamentally a
referendum on Congress's priorities. You simply need to ask yourself
again: Whose side am I on?
Are you on the side of working families who need a financially fresh
start because they are overburdened with debt? Fifty percent of
bankruptcies are because of major medical bills. Are you for preserving
this critical safety net for the middle class? Will you stand with the
civil rights community and the religious community and the women's
community and consumer groups and labor unions who fight for ordinary
Americans 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 there is a clear choice for Senators.
Mr. President, I reserve the remainder of my time.
The PRESIDING OFFICER. Who yields time?
Mr. GRASSLEY. Mr. President, I yield myself such time as I might
consume.
First of all, in response to the Senator from Minnesota, I was a
little bit amused at the use of the words ``blatant hypocrisy.'' I
don't question his use of those words at all. But the fact is that this
bill passed with 83 Senators voting for it. It passed the Senate and
went to conference. Three-fourths of the members of his caucus voted
for this legislation. If there is blatant hypocrisy, it is very
bipartisan hypocrisy.
Mr. WELLSTONE. Mr. President, will the Senator yield for a question?
Mr. GRASSLEY. I sure will, only for the purpose of a question.
Mr. WELLSTONE. My understanding is that the bill passed with the
Schumer provision in it, and it also dealt with the homestead
exemption. That is a different bill from the one we are considering
right now. Am I not correct?
Mr. GRASSLEY. The Senator is correct, but his reference was in regard
to the credit card industry--not the Schumer amendment and not the
provision on homestead.
The PRESIDING OFFICER. The Senator from Iowa.
Mr. GRASSLEY. Mr. President, second, the interest in this legislation
and the reason this is such an important piece of legislation is that
there is a lot of understanding at the grassroots of America that it is
immoral and unethical for people with the ability and the means to
repay some of their debt to go into bankruptcy court and be discharged
of that debt.
It is particularly wrong when it hurts the very same low-income and
middle-income people about whom the Senator from Minnesota talks. They
have to pay $400 more per family per year for goods and services. They
pay a higher fee or price because somebody else isn't paying their
bills. That is not going to be absorbed by the business in most cases;
it is going to be passed on to the consumer.
On the basis of ability to pay, particularly for the necessities of
life of food and clothing and things of that nature, it is going to
hurt the low-income people and middle-income people of America
disproportionately because somebody else isn't paying their bills.
There is an understanding at the grassroots of America that this just
isn't right. That is why this legislation has such overwhelming
support.
I refer to this chart because it has letters from my constituents. I
bet the Senators from Minnesota and other States are getting letters
from their constituents saying the same thing.
We have a letter from a constituent of mine in Des Moines who says:
It is insane that such practice has been allowed to
continue causing higher prices to consumers. Debtors should
be required to pay their debts.
A constituent from Keokuk, IA:
Bankruptcies are out of hand. It is time to make people
responsible for their actions. Do we need to say this?
In other words, it is unconscionable to that constituent that we
would have a situation with 1.4 million bankruptcies in America, with
the number doubling in 5 or 6 years, at a time when we have the best
economic growth in our Nation.
Another constituent:
We need to make more people responsible for their savings
while at the same time protecting those who fall on hard
times. I realize this is a delicate balance. But the way it
is now, there is very little change going this route.
This bill is a very delicate balance. That is why it passed with 83
votes. It also preserves what this constituent said in the letter. She
understands that there are some people who go into debt through no
fault of their own. And for the 100-year history of the bankruptcy code
of the United States, we have recognized that certain people may be in
hard times through no fault of their own and they are entitled to a
fresh start. This allows that fresh start. But, at the same time for
those who have the ability to repay, it sends a clear signal to not go
into bankruptcy court because you are not going to get off scot-free
anymore.
Another constituent from Fontanelle, IA, says:
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 their poor management
and bankruptcy.
That may be a small business person who, unlike a lot of
corporations, cannot pass on this $400 per family in additional costs
for goods and services because somebody else isn't paying their bills.
This person may be so small that they have to absorb those costs
unfairly and may be putting their own business in jeopardy.
Another constituent from Cedar Rapids:
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.
If it has become a right or entitlement, the statistics of the last 6
or 7 years show an increase of about 700,000 to 1.4 million. It is an
example maybe of some additional people in America seeing it as a way
to manage their finances. It becomes a financial management tool for
some.
Another constituent from Waverly, IA:
Many don't think the business is who loses. We make it too
easy now.
A constituent from Washington, IA:
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.
There is a person who quite obviously figured out the ease of using
bankruptcy as a financial planning tool.
A Cedar Falls constituent:
It is way too easy to avoid responsibility.
From Indiana, IA:
If one assumes debt, they need to pay it off. We have got
to take responsibility for our purchases.
That reminds me of the President in his speeches during his second
term, and maybe even at the ending of his first term. He always talked
about the importance of individual responsibility and individuals have
to be responsible.
As we hopefully present this bill to the President of the United
States today, I want to remind President Clinton of how often he talked
about the necessity of individual responsibility. If he believes that--
and I believe he does believe it--then signing this bill is very
important to fulfill his own statement that government ought to promote
individual responsibility.
A constituent from Harlan, IA:
Too many people use bankruptcy as a way out. We need to
make sure people are held accountable for all of their debts.
From Fort Madison:
Personal responsibility is a must in our country. Sickness
or loss of a job is one thing, but the majority of people
just do not pay and spend their money elsewhere knowing they
can unload the debt with the help of the courts.
That is a person who understands the basic principles of bankruptcy:
No. 1, sickness, loss of a job, something beyond the control of an
individual, there ought to be, and there has been for 100 years under a
bankruptcy code, the right for a fresh start.
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The other side of that is whether there is an ability to repay.
People should pay what they can according to the ability to pay the
debt. It also recognizes there are some people, again, who use this as
a financial planning tool.
One of my constituents I quote is from Cedar Rapids:
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.
Maybe that statement is not quite as sympathetic to those people who
are in bankruptcy through no fault of their own. I don't know for sure.
But I am happy to tell that constituent the principle behind this bill,
the principle behind the bankruptcy code of the last 100 years, that
there is a social policy in this country that some people are in debt
through no fault of their own and they are entitled to a fresh start.
She thought there should never be a bankruptcy or nobody should be able
to go to bankruptcy court.
That is the balance of this legislation. This is a balance that has
been recognized by the vast majority of this body with those 83 votes
we had for original passage. There are things about this legislation I
don't like. There are some things that even the Senator from Minnesota
said should be tightened up. I won't go into what those are, but I
agree with him.
In legislation, particularly as this legislation is, with varying
interests--some not wanting any and some wanting a lot more--compromise
is the name of the game. There hasn't been a compromise of basic
principle here. There may be a compromise of degree, and I am not going
to give up just because this bill passes and it is not as much in the
direction he wants or I happen to agree with him on a couple of points
and perhaps I might move in that direction in the future.
But we have had 20 years without bankruptcy reform. We have gone from
300,000 bankruptcies filed per year in the early 1980s to 1.4 per
million now, and we have had studies showing it will go up another 15
percent. These are in good times. What about bad times, if we have a
recession in the future? There are indications of a Clinton recession
coming on now with the indices turning down and confidence in the
economy turning down and the manufacturing sector being in recession.
Maybe we are starting in this administration with a recession. Then if
we are at 1.4 million when times are good, how many hundred thousands
more are we going to have when we do have bad times?
When we have bad economic times, high interest rates are not good for
the economy. We had testimony from Secretary Summers that bankruptcies
will drive up interest rates.
I appreciate very much my friend from Minnesota and his strong
position against this bill, even though I disagree with it. Hopefully,
in the very next couple of hours he will not be successful in what he
has been so successful doing for the last year and a half, not wanting
this bill to pass. He has been a tough competitor and one I enjoy
competing against. But I think he is very much wrong as he approaches
this bill. The evidence is the wide bipartisan support it has had not
only in this body, but it passed originally by a veto-proof margin in
the House of Representatives.
I yield the floor.
The PRESIDING OFFICER (Mr. Voinovich). The Senator from Minnesota.
Mr. WELLSTONE. First of all, let me say I like my colleague from Iowa
so much that I will let his comment about the Clinton recession pass
and not respond to that.
I also want to make it clear that my use of the word ``hypocrisy'' of
course was not aimed at any Senator and certainly not the Senator from
Iowa, who I actually really love working with even though we don't
agree on all policies.
I have to say one more time that there is a lot of hypocrisy in a
piece of legislation that on the one hand goes after this percentage
and on the other hand in conference committee knocks out an amendment,
so that now we have millionaires in a position to be able to shield
their money and go buy multimillion-dollar homes in other States.
If that is not hypocrisy, I don't know what is. If that doesn't tell
you about how lopsided a piece of legislation this is, I don't know
what does.
I also think it is more than just a little hypocritical to have a
piece of legislation that in the main targets the most vulnerable
citizens--I have made that point over and over again--with study after
study saying that the highest percentage would be 12 percent, probably
3 percent of the people at most ``gaming'' this.
People who file for chapter 7 do so because they are in difficult
circumstances. Major medical illness puts them under, a divorce, loss
of job.
But at the same time that we are now going to make it virtually
impossible for many families who find themselves in difficult economic
circumstances to rebuild their lives, we don't have one word to say by
way of demanding some accountability for these credit card companies
that push this debt on to people, that send these cards to our kids,
that do all the solicitation, that charge exorbitant interest rates,
that are reckless in their lending policies. Not a word. Not a word.
Could it be these are the people with more clout in the Congress? I
fear that is part of the problem.
I say to my colleague from Iowa and other Senators, it is simply not
the case that most of the people who file for bankruptcy are gaming the
system. Let me give a case study which goes to why this bill is so
profoundly wrong. LTV is going to shut down. Miners up on the Iron
Range are going to be without a job.
I know the way this bill works. It is an honest disagreement, but it
is a wrong disagreement. If one of these families 2 months from now has
a major illness--now they are going to have trouble paying their
mortgage--do you know what this bill does? This bill doesn't figure
their income in February, after they have been laid off. This bill
figures their average income over the prior 6 months, during all the
times they were gainfully employed.
That is not going to work for these miners, that is not going to work
for these hard-pressed working families, and you had better believe I
am going to be out here on the Senate floor raising Cain in behalf of
these Minnesotans.
Finally, let me one more time, before my colleague from Vermont takes
the floor, remind all Senators, but especially Democrats: This is the
majority leader, I believe, who has made a mockery of the legislative
process. We have taken a State Department embassy bill and gutted it.
There is not a word left; there is only a number. Instead, you had a
bankruptcy bill put in, completely unrelated--never mind rule XXVIII--
without the deliberation, without the debate, without the ability offer
an amendment. This is not the way we legislate. This is the Senate at
its very worst.
There may be a different majority 2 years from now. We can do the
same thing to the minority. Frankly, it should not be done by anyone. I
certainly hope Democrats will vote against this. The minority leader
yesterday said he is going to vote against this bill because, he said,
it does not meet the standard of fairness. And it does not--not on
substance and not on process, not on the basic standard of what the
Senate should be about. I hope Senators will vote against this piece of
legislation.
I yield the floor.
The PRESIDING OFFICER. The Senator from Vermont.
Mr. LEAHY. Mr. President, parliamentary inquiry: How much time is
available to the Senator from Vermont?
The PRESIDING OFFICER. The Senator has 29 minutes.
Mr. LEAHY. I thank the Chair. I like to see him back. I wish we were
not still in session, but I suspect the Presiding Officer probably had
things he might have planned to be doing during this time, as did my
distinguished friend from Iowa.
My distinguished friend from Iowa and I have been here for numerous
lame duck sessions. After 26 years here, I have yet to see what good
was ever accomplished in one of these lame duck sessions. I think the
statement made by my distinguished friend from Minnesota just now
emphasizes the kind of mischief that sometimes happens in lame duck
sessions, when people want to leave, yet we have, as in this case, a
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bankruptcy bill that none of the Democrats had a chance, really, to do
much about. It gets put in--what was it, I ask my friend from
Minnesota, a bill on embassies?
Mr. WELLSTONE addressed the Chair.
Mr. LEAHY. I yield on my time.
Mr. WELLSTONE. My colleague is correct. That is right. Though there
is not a word about that. There is nothing left except for the bill
number.
Mr. LEAHY. This was not a case where there was a concern the
embassies were all going bankrupt? The embassy in London or in Moscow
or, heaven forbid, in Dublin, might be in bankruptcy court in the
Southern District of New York? That is not the case?
Mr. WELLSTONE. I say to my colleague from Vermont that argument has
not been made. So far, that argument has not been made.
Mr. LEAHY. I thank my friend from Minnesota. I appreciate his
pointing this out. I just want students who might look at this
afterward and wonder what bankruptcy has to do with embassies to go
back and read what the distinguished Senator from Minnesota says, which
is, of course, that it has absolutely nothing to do with embassies. It
is a parliamentary trick to get a piece of special interest legislation
through.
It is unfortunate this kind of trick had to be carried out because
the Republican majority could have worked with the President, they
could have worked with the Democrats, to pass bankruptcy legislation
that is more balanced and more fair. We did this 2 or 3 years ago. I
remember Senator Grassley, Senator Durbin, others, worked together and
we passed a piece of bankruptcy legislation that was here in the
Senate. It was strongly backed by both Democrats and Republicans. I
think we passed it by 97 or 98 votes. There was only one vote against
it. It was overwhelmingly passed. It shows what happens when
Republicans and Democrats work together.
Mr. President, I am disappointed that the majority refuses to work
with the President and us to pass bankruptcy legislation that is better
balanced and more fair. Despite the President's repeated attempts to
offer reasonable compromises for the last six months, the majority is
continuing to push this unfair and unbalanced bill. It appears that the
same mistakes that killed a chance for passage of the bipartisan
balanced bankruptcy reform 2 years ago, in the last Congress, are being
repeated in this Congress. We should work together to finish the work
of the 106th Congress. Instead, there seems to be this effort to pass
flawed legislation that virtually guarantees a Presidential veto.
I had hoped we would have acted on the administration's four letters
on the resolution of key issues needed for the President to sign a fair
and balanced bill, that we could have at least met to discuss them so
we could have a bill the President could sign.
I am the ranking Democrat currently on the Senate
Judiciary Committee. I was not a conferee of the conference report.
Instead, the Republican leadership created a sham conference to create
and file this flawed bankruptcy bill to make sure the Democrats would
not have any say over it. It might be a nice exercise. It might look
good in fundraising letters. But when you have a Democratic President,
it is obvious we are spending hundreds of thousands of dollars of time,
effort, and taxpayer money up here to pass something that is not going
to be signed into law. It may help for the next fundraiser, but it does
not help bringing about the kind of bankruptcy reform we actually need
in this country.
The Senate had requested a conference in August 1999 on legislation
to enhance security of U.S. missions and the security of personnel
overseas and to authorize appropriations for the State Department, what
the distinguished Senator from Minnesota was just talking about. That
did not proceed.
On October 11, 2000, the House appointed conferees not from the
committee with jurisdiction over any embassy security issues, but from
the House Judiciary Committee. Then a few hours later, out of nowhere,
the leadership filed a conference report that strikes every aspect of
the underlying legislation on which the two Houses had gone to
conference and put in this wholly unrelated matter with reference to a
bankruptcy bill that had not even passed. It had only been introduced
that day. There was no debate, nothing. It is like: Whoops, open the
closet door, let the special interests out, slam it down, and please
pass it.
We Americans are great at telling other countries how to run
democracies. We each tell them how to run elections. I hope in the last
couple of years those countries that get lectures from us about how to
run their democracies have not been watching how matters have slipped
before the U.S. Senate. Matters of great consequence are slipped before
the U.S. Senate without any votes, with the hope they will slip through
in the dark of night. I hope those countries, when we tell them how to
run elections, are not watching--I don't know--Presidential elections
or anything like that in our country.
I look at Canada. I come from the State of Vermont. I think of Canada
as that giant to the north. I look at Canada. The whole country votes
with paper ballots. Two hours later, they have them all hand counted
with no mistakes and the country accepts the result. I hope we won't
lecture them as we often do.
But I hope we will not tell people this is the way to pass
legislation. I hope we will not tell countries how to do it based on
this bill. It is an autocratic, behind-closed-doors, undemocratic
process, and it makes a mockery of the legislative process.
This is unfortunate, since both Democrats and the administration have
been trying to negotiate in good faith with the Republicans to achieve
fair and balanced bankruptcy legislation. Everyone in this Chamber
knows we have to have some bankruptcy reform legislation. But it cannot
be one sided to any one special interest, it has to be balanced.
There was not even a meeting of the sham conference committee, as far
as I can tell. And the House had passed--talk about a CYA; that means
``carefully you're allowed,''--but, in an effort to make sure nobody
questions them about this sham process that has slipped through behind
closed doors, the House passed a 398-1 vote to instruct conferees to
insist on a public meeting of the conference with open debate. By God,
we are for government in the sunshine, 398-to-1. Are we not virtuous
people in the other body? And the press releases went out. Of course, 2
hours later, the sham conference report was filed, the one that was
done behind closed doors, not done in the open. But everybody could
say: Why, I voted to have that open, 398-1.
The bipartisan informal process that produced many improvements to
the Senate-passed bill with respect to its bankruptcy provisions was
for nought in the end. We worked in an informal bipartisan conference
and made these improvements. We dropped the controversial nonrelevant
amendments on the 3-year minimum wage increase, regressive tax cuts,
mandatory minimum sentences for certain drug offenses, and private
school vouchers.
We added a new provision to include a $6,000 floor in the means test
to protect low-income debtors.
We added a new provision to take into account up to 10 percent of the
debtor's administrative expenses in the means test calculations.
We added a new provision to allow for adjustments of up to 5 percent
from the IRS standards for reasonable food and clothing expenses in the
means test calculations to take into account the regional difference in
costs.
We struck the provision that exempted creditors with small claims
from sanctions against creditors who file abusive motions, and, thus,
we made all creditors subject to these sanctions for coercive behavior.
We expanded the eligibility for the waiver of filing fees to debtors
with income less than 150 percent of the poverty line.
All of these things we did with Democrats and Republicans working
together, each side giving some things, each side adding things. We had
a better bill. We even added a new temporary bankruptcy judgeship for
the following courts: the District of Delaware, the Southern District
of Georgia, the Eastern District of North Carolina, and the District of
Puerto Rico.
Finally, we added privacy protections for the financial information
of debtors to protect patient medical records in
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bankruptcy health care businesses, to destroy all debtors' tax returns
after 3 years of the close of the case, to provide Congress with the
authority to add appropriate privacy safeguards to protect electronic
bankruptcy data, and to add safeguards for the collection of bankruptcy
data.
That was a good bipartisan start with Republicans and Democrats
working together. We could have a fair and balanced final bankruptcy
reform bill. It was something people on all sides of the issue were
applauding. They were saying: Finally, Republicans and Democrats are
working together.
Do you know what happened? Some in the Republican majority found this
was going on and said: We can't have it; we can't have that balance; it
has to be one sided; it has to be our way or no way, and they stopped
those meetings.
We actually resolved most of the issues between the two bills. There
were two key issues outstanding. We could have brought it back for a
vote. One was discharge of penalties for violence against family
planning clinics, medical clinics, and the other was a problem with
wealthy debtors who used overly broad homestead exemptions to shield
assets from creditors by putting money into multimillion-dollar houses,
declaring bankruptcy, and thumbing their nose at their creditors.
Everything I heard told me we could have reached bipartisan agreement
on these matters, too. Now this backdoor conference report does not
adequately address either of these two abuses currently in the
bankruptcy system.
The Senate passed the Schumer amendment to prevent the discharge of
penalties for violence against family planning clinics. This was not a
partisan vote. It was 80-17. People said, no matter how you feel about
abortion, no matter how you feel about medical matters or family
planning, we are not going to condone violence against legitimate
medical clinics.
Does the conference report reflect this? No. There is not a single
provision to end abusive bankruptcy filings used to avoid the legal
consequences of violence, vandalism, and harassment to deny access to
legal health services. As a result, we could have all kinds of clinic
violence. If you are sued for it, just declare bankruptcy and get away
with it. That is wrong.
The administration made it crystal clear in four letters to
congressional leaders that an end to this abuse of the current
bankruptcy system was needed to gain the President's signature. Four
times they said they were not going to allow people to firebomb
clinics, harass people, assault people, and if they are sued, to simply
say: We will declare bankruptcy. Four times.
The OMB Director Jack Lew wrote to Congressional leaders on May 12,
2000:
The abuses of the bankruptcy system must be stemmed,
including abuse by those who would use bankruptcy to avoid
penalties for violence against family planning clinics.
The President wrote congressional leaders on June 9:
I am deeply disturbed that some in Congress still object to
a reasonable provision that would end demonstrated abuse of
the bankruptcy system. We cannot tolerate abusive bankruptcy
filings to avoid the legal consequences of violence,
vandalism, and harassment used to deny access to legal health
services. An effective approach, such as the one offered by
Senator Schumer's amendment, should be included in the final
legislation.
A few weeks later the President again wrote to congressional leaders
to reiterate his position saying:
I cannot support a bankruptcy bill that fails to require
accountability and responsibility from those who use
violence, vandalism, intimidation, and harassment to deny
others access to legal health services. . . . The final
legislation must include an effective approach to this
problem, such as the one contained in the amendment by
Senator Schumer, which passed the Senate by a vote of 80-17.
This is a no-brainer. We already debated it and voted on it 80-17. We
have a hard time getting an 80-17 vote here to support the bean soup in
the Senate cafeteria.
Gene Sperling, national economic adviser to the President, in his
letter of September 22, made it clear that President Clinton would veto
any bankruptcy reform legislation that did not end this abuse of
bankruptcy law. He said:
Our society should not tolerate those who develop a
strategy to first threaten and intimidate doctors, health
care professionals, or their patients and then turn to the
bankruptcy courts to avoid legal liability for their actions.
I reiterate that the President will not sign any legislation
that does not contain effective means to ensure
accountability and responsibility of perpetrators of clinic
violence.
Mr. President, how much time is still available to the Senator from
Vermont?
The PRESIDING OFFICER. Just under 13 minutes.
Mr. LEAHY. I thank the Chair.
We should not use the bankruptcy law to shield purveyors of violence.
We should close this loophole.
Six defendants in the Nuremberg files web site case filed bankruptcy
to avoid their debts under the law. This web site depicted murder
weapons with dripping blood and advocated the killing of pro-choice
physicians and public figures. Indeed, as some of these people were
killed, their names were crossed out on the web site. Why should
somebody who is sued for this kind of violence, purveying this kind of
violence, be allowed to go to bankruptcy court and say, ``See ya, I'm
home free''?
Dr. Barnett Slepian, who was murdered 2 years ago in Buffalo on
October 23, 1998, was on this heinous Internet site. After he was
murdered, his name was crossed out.
If I can make a personal note, when Dr. Slepian was murdered in
upstate New York because his name was on the Nuremberg files web site,
within days they determined the chief suspect was a man from Vermont.
In fact, there is now an arrest warrant out for him.
I mention that also not just because I am from Vermont, but when I
checked the Internet file, I found that along with this man's name, my
name was there. I was listed as one of the people who should be shot
and killed. I take that a little bit personally, especially when the
FBI are now looking for a man from my State who is suspected of
shooting and killing one of the people whose name was on that list with
mine. Dr. Slepian's name has been crossed out. Mine has been left on
the list of those who should be shot and killed.
Frankly, I find it a little bit difficult to think, when these people
are sued for this kind of thing, and judgments are rendered against
them, that they can just go into bankruptcy court and say: See ya.
So nobody will think that there is any kind of conflict of interest,
I am not part of any suit against them. I am not going to do that. But
for those who have, they ought to at least get their settlement or
other judgment, win or lose, in the courts. But we should not let
anybody walk into our Federal bankruptcy court--because of a huge
loophole that this Congress does not have the guts to close--and just
walk home scot-free.
It is hypocrisy at the worst, when we voted 80-17 in this body to
close the loophole, and when all but one Member of the other body voted
to have an open conference on this, that both bodies ignored that. That
is hypocrisy. It is wrong.
If anybody thinks they do not know the reason why some people in this
country look at the Congress and ask what is going on, there is one of
your reasons right there. Maybe we ought to look at some of the
elections this year and say: Our people are saying they are fed up with
this.
In fact, this suspect is still at large, and with a reward of $1
million for his arrest.
You tell me--anybody in this body--you tell me--anybody who is
listening to this debate--that somehow it is fair to let people such as
that escape because of a loophole that we do not have the guts to close
in our bankruptcy law.
Clearly, the perpetrators of violence and illegal intimidation should
not be able to abuse the bankruptcy laws to avoid responsibility for
their actions. Bankruptcy should not be used to avoid the legal
consequence of clinic violence, harassment, and intimidation.
If we do not want to do something against violence, apparently we do
not want to do anything in bankruptcy to offend those who have
multimillion-dollar estates in the right States.
In the Senate, we passed, by a vote of 76-22, an amendment to create
a $100,000 nationwide cap on any homestead exemption. Again, we could
say we are only concerned about the little people. We are concerned
about people paying the debt. All people--we want
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everybody to pay their bills. Whether they are rich or poor, we want
them to pay their bills. We are equal to everybody.
Of course, that would have eliminated one of the most flagrant abuses
in bankruptcy laws--debtors moving to expensive homes in a handful of
States with unlimited exemptions, declaring bankruptcy, and then
keeping their millions of dollars in the homes that they have in those
States.
Senator Kohl, along with Senator Sessions, put together an amendment
that the Senate overwhelmingly adopted. I am beginning to see why
everybody voted for it. Some must have gotten word that it would be
gutted as soon as it got off the floor, gutted behind closed doors,
where nobody votes and nobody's fingerprints are on them. Even to talk
about: OK, you want to raise it to $100,000? Raise it to $500,000. Then
all of a sudden we find it is gutted. It is going to build a lot of
homes in Texas and Florida. It is an amazing coincidence those two
States are going to have the advantage of not having that provision. If
you want to declare bankruptcy, just put your millions of dollars in a
house in Texas or Florida, and under this you are safe.
Again, the Administration made it crystal clear in four letters to
congressional leaders that the President would not sign any bankruptcy
reform bill that did not end the abuse of unlimited homestead
exemptions. In fact, the Republican leadership reached an agreement
with Democrats and the Administration to include a nationwide $500,000
cap on homestead exemptions in bankruptcy, but then the majority
changed its mind. Why? I do not understand why the majority then
reverted to a flawed homestead provision in this conference report.
As early as May 12, 2000, OMB Director Jack Lew made clear the
Administration's position. Director Lew wrote to Congressional leaders:
It is fundamentally unfair to ask low- and moderate-income debtors to
devote future income to repay the debts that they can, while leaving
loopholes that allow the wealthy to shield income and assets from their
creditors. High or unlimited homestead exemptions allow people with
expensive homes to avoid their responsibility to repay a significant
portion of their debts.
On June 9, 2000, the President, himself, wrote to congressional
leaders about the need to end abusive homestead exemptions in any final
bankruptcy reform bill. President Clinton wrote: I am concerned, for
example, that the final bill may not adequately address the problem of
wealthy debtors who use overly broad homestead exemptions to shield
assets from their creditors.
Again, a few weeks later on June 29th, the President reiterated his
position by writing to congressional leaders: The proposed limitation
on State homestead exemptions will address, for the first time, those
who move their residence shortly before bankruptcy to take advantage of
large State exemptions to shield assets from their creditors. But the
proposal does not address a more fundamental concern: unlimited
homestead exemptions that allow wealthy debtors in some States to
continue to live in lavish homes. In light of how other provisions
designed to stem abuse will affect moderate-income debtors, it is
unfair to leave this loophole for the wealthy in place.
A few weeks ago, it appeared the majority was finally beginning to
understand and accept the President's commonsense approach by agreeing
to a federal cap on homestead exemptions. On September 22, Gene
Sperling, National Economic Advisor to the President, wrote to Majority
Leader Lott: The President appreciates your significant movement on the
homestead issue. We realize that the offer goes against strongly held
views of some members of your caucus, and we are grateful for the
effort. While we had proposed placing a cap of $250,000 on the size of
state homestead exemptions, we could accept a homestead cap of
$500,000, were we to reach agreement on other issues.
It does not take a rocket scientist to understand that the President
would veto a bankruptcy conference report that did not adequately
address the discharge of penalties for violence against family planning
clinics and the problem of wealthy debtors who use overly broad
homestead exemptions to shield assets from their creditors. Four times
the Administration wrote to congressional leaders about the need to
address these two areas of bankruptcy abuse. Four times.
But this conference report fails adequately to address either of
these two abuses of the current bankruptcy system.
Unfortunately, the majority is repeating the same mistakes that
killed bankruptcy reform in the last Congress. Instead of keeping on
the track of bipartisan compromise that was headed toward enacting a
fair and balanced bill, the majority veered off course on behalf of
special interests. The result is an unfair and unbalanced bankruptcy
conference report.
Fortunately, bankruptcy filings have been declining for the last
couple of years. In 1999, the per capita personal bankruptcy rate
dropped by more than 9 percent. In the 2000 fiscal year, the decline
continued. According to the Administrative Office of the U.S. Courts,
bankruptcy filings for fiscal year 2000 are down 6.8 percent for
personal filings, down 6.6 percent for business filings and down 9.2
percent for chapter 7 filings. Over the last two years, Chapter 7
filings have dropped 15 percent and personal bankruptcy filings overall
have declined by 12 percent.
In my home state of Vermont, the recent decline in personal
bankruptcy filings is even more dramatic. In 1999 consumer bankruptcy
filings in the District of Vermont dropped 11 percent compared to 1998
and fell an additional 20 percent so far this year as compared to last
year that is approximately a one-third decrease over the last two
years.
Clearly, the justification that we must pass this flawed measure now
because of a bankruptcy crisis rings hollow given the latest bankruptcy
filing facts across the nation. There is no need to rush a bad bill
into law.
On June 9, 2000, President Clinton wrote to congressional leaders
that: I have long made clear my support for legislation that would
encourage responsibility and reduce abuses of the bankruptcy system on
the part of debtors and creditors alike. We also must ensure that a
reasonable fresh start is available for those who turn to bankruptcy as
a last resort when facing divorce, unemployment, illness, and uninsured
medical expenses. Bankruptcy reform legislation should strike the right
balance.
Unfortunately, this conference report fails to strike that right
balance. The President will and should veto it.
The administration has helped to make the economy a lot better. We
can take a moment. Let us wait until next year and pass a good bill.
Let us take care of those problems that are in there, but let's not
allow the haters, the crime inciters, the murderers, and the
firebombers to go free. For Pete's sake, let's not let somebody who has
amassed millions of dollars of assets, and even more millions of debt,
to say: I will go buy a house in Texas or Florida because then I can
escape my creditors.
Mr. President, how much time does the Senator from Vermont have
remaining?
The PRESIDING OFFICER. Four and one-half minutes.
Mr. President, I yield the floor and reserve the remainder of my
time.
Mr. GRASSLEY addressed the Chair.
The PRESIDING OFFICER. The Senator from Iowa.
Mr. GRASSLEY. We are waiting for the Senator from Alabama to come and
speak. Before he gets here, I will take a moment, so I yield myself
such time as I might consume.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. GRASSLEY. I am glad the Senator from Vermont pointed out the many
compromises that were made to accommodate the President and to
accommodate Democrats in the Senate. He did not say this, but there
were also a lot of changes made to accommodate Republicans. But he
pointed out that we have two issues on which we disagree. That is what
the Senator from Vermont said. I do not think that Senators should vote
against this bill over two issues which are not central to the concept
of bankruptcy reform.
I was disappointed, however, in his comments on the process. He
referred to a very unusual process. I confess that it was a very
unusual process by
[[Page S11695]]
which this bill was conferenced and got to the Senate floor. But I
think I heard him say something about Democrats not being consulted.
There was a 3-3 ratio on this conference. Normally there would not be a
3-3 ratio; there would probably be one more Republican than Democrat.
But because of Senator Coverdell's death, it ended up on this
conference there were three Republicans and three Democrats. So the
point is, we would not be here today if it were not for help from
Democrats, even in conference.
I only say that because the Senator from Vermont is a friend of mine.
He is very strongly opposed to this legislation. But I thought I ought
to point out the fact that there are those small, insignificant
modifications of his comments that I thought I ought to make. Whether
he would consider those clarifications or not, that is his judgment.
But I want them on the record for my point of view.
I also address an issue raised by Senator Leahy. Some have stated
that the bankruptcy conference report should be opposed on the grounds
that it does not contain a provision that would prevent abortion
protesters from using bankruptcy as a way to get out of paying debt
arising as a result of violence or intimidation at abortion clinics.
On this issue, I draw my Senator's attention--in other words, the
attention of the Senator from Vermont--to a memo prepared by the
nonpartisan Congressional Research Service.
This memo--which I will provide to any Senator who wants to see it,
and I will include it in the Record--concludes that not one single
abortion protester has ever used bankruptcy in this way. I repeat,
according to the Congressional Research Service, a truly nonpartisan
resource, no one has ever used bankruptcy to skip out on debts arising
from violence or intimidation at an abortion clinic.
This issue, of course, is a red herring. It has been put forth by
people who flat out oppose needed bankruptcy reform as a way of
defeating this legislation. There is absolutely no merit to their
argument.
I hope people will see it for what it is--an empty political ploy. I
hope Senators will see through this political ploy and support the
bankruptcy conference report.
I ask unanimous consent to print in the Record the memo from the
Congressional Research Office.
There being no objection, the memo was ordered to be printed in the
Record, as follows:
Congressional Research Service,
Library of Congress,
Washington, DC, October 26, 2000.
Memorandum
To: Hon. Charles Grassley.
From: Robin Jeweler, Legislative Attorney, American Law
Division.
Subject: Westlaw/LEXIS survey of bankruptcy cases under 11
U.S.C. Sec. 523.
This confirms our phone conversation of October 25, 2000.
You requested a comprehensive online survey of reported
decisions considering the dischargeability of liability
incurred in connection with violence at reproductive health
clinics by abortion protesters. Our search did not reveal any
reported decisions where such liability was discharged under
the U.S. Bankruptcy Code.
The only reported decision identified by the search is
Buffalo Gyn Womenservices, Inc. v. Behn (In re Behn), 242
B.R. 229 (Bankr. W.D.N.Y. 1999). In this case, the bankruptcy
court held that a debtor's previously incurred civil
sanctions for violation of a temporary restraining order
(TRO) creating a buffer zone outside the premises of an
abortion service provider was nondischargeable under 11
U.S.C. Sec. 523(a)(6), which excepts claims for ``willful and
malicious'' injury. The court surveyed the extant and
somewhat discrepant standards for finding ``willful and
malicious'' conduct articulated by three federal circuit
courts of appeals. It granted the plaintiff's motion for
summary judgment and denied the debtor/defendant's motion to
retry the matter before the bankruptcy court. Specifically,
the court held:
``[W]hen a court of the United States issues an injunction
or other protective order telling a specific individual what
actions will cross the line into injury to others, then
damages resulting from an intentional violation of that order
(as is proven either in the bankruptcy court or (so long as
there was a full and fair opportunity to litigate the
question of volition and violation) in the issuing court) are
ipso facto the result of a `willful and malicious injury.'
''--242 B.R. at 238.
The PRESIDING OFFICER (Mr. L. Chafee). The Senator from Utah.
Mr. HATCH. Mr. President, this consumer bankruptcy reform legislation
is one of the most important legislative efforts to reform the
bankruptcy laws in decades. I thank my distinguished friend and
colleague from Iowa for his hard work on this, of course, the
distinguished Senator from New Jersey, and so many others, Senator
Biden from Delaware. There are many others as well.
This is important. Before talking about the substance of the
legislation, I personally thank the majority leader who has worked hard
and tirelessly to keep this legislation on track despite the many
obstacles that it has faced--I have to say phony obstacles at that.
Thanks to the majority leaders's commitment to moving this
legislation, we now find ourselves in a position to weed out many of
the abuses in the bankruptcy system and also to enhance consumer
protection.
I also acknowledge and thank the ranking member of the Senate
Judiciary Committee, Senator Leahy, who has worked with me and Senator
Grassley and others to reach agreement on many of the bill's
provisions.
Most of all, I commend the original authors of the legislation,
Senators Grassley and Torricelli, chairman and ranking minority member
of the Subcommittee on Administrative Oversight and the Courts,
respectively, for their hard work in crafting this much needed
legislation and for their unrelenting commitment to making the
development and passage of this bill a bipartisan process.
As I have mentioned, my praise also goes to Senator Sessions and
Senator Biden, who have shown unwavering dedication to accomplishing
the important reforms in this bill, and to the many other Members of
the Senate for their hard work and cooperation.
I was deeply troubled by a comment made on the floor yesterday by a
colleague from the other side of the aisle to the effect that this bill
was written by Republicans and is being forced upon Senate Democrats.
Nothing could be further from the truth. I am compelled to set the
record straight on that point. The entire development of this bill has
taken place in a bipartisan manner. In fact, throughout the entire
process of consideration of this bill, beginning as long ago as the
drafting stage, numerous changes suggested by the minority have been
made.
It is no secret that in the informal conference process, we worked
together with Senate Democrats. And with rare exception, the provisions
that are contained in the final conference product were agreed to and
were done with the full bipartisan cooperation and support of the
Senate negotiators. Furthermore, in an effort to reach a bipartisan
agreement and address concerns of the White House, we took issues that
were important to many of us on the Republican side off the table.
For example, I agreed to remove from consideration a provision I had
sought which would have prevented criminal check kiters and
counterfeiters from collecting attorney's fees in lawsuits that they
bring against debt collectors--I might add, multiple lawsuits that
really don't make sense. Many others in the majority also made
concessions and a good faith effort to resolve differences and move
forward with the long overdue comprehensive bankruptcy reform.
Here on the Senate floor, the assertion was made that not a single
organization that advocates for kids supported this bill. I simply
cannot allow that kind of misrepresentation to stand uncorrected. In
fact, there is tremendous support for this legislation from child
advocates.
Let me give some illustrations. A letter from Laura Kadwell,
President of the National Child Support Enforcement Association,
representing over 60,000 child support professionals across America:
I'm writing to urge you to support the Bankruptcy Reform
Act of 2000. NCSEA is committed to ensuring that both parents
fulfill their responsibilities to provide emotional and
financial support to their children--including honoring
legally-owed child support obligations. The pending
legislation will forward this goal significantly.
In a letter from Howard Baldwin, President of the Western Interstate
Child Support Enforcement Council, an organization comprised of child
support professionals from the private and public sectors west of the
Mississippi River:
I would like to express our membership's unqualified
support.
The resolution of the California Family Support Council, consisting
of approximately 2,500 persons employed by
[[Page S11696]]
county and State agencies which administer the Federal child support
program in California:
Now therefore be it resolved that the California Family
Support Council * * * directs the president of the California
Family Support Council to convey to the California
congressional delegation and to the President its
enthusiastic endorsement of the Bankruptcy Reform Bills.
How about a letter from Betty D. Montgomery, attorney general of the
State of Ohio:
As the chief law enforcement officer for [Ohio], I stand
committed to protecting our most vulnerable citizens [and
this legislation] will further promote the objectives of our
state and national child support enforcement program and
further ensure that those families in need are protected.
A vote for this conference report will mean a vote to stop letting
deadbeat parents use bankruptcy to avoid paying child support. It will
mean a vote to stop paying lawyers ahead of children who rely on child
support. I have worked with Senator Torricelli, the National
Association of Attorney Generals, and the National Women's Law Center
to improve current bankruptcy law with respect to child support and
alimony. Currently bankruptcy law is simply not adequate. Frankly, I
was outraged to learn of the many ways deadbeat parents were
manipulating and abusing the current bankruptcy system in order to get
out of paying their domestic support obligations. I am proud of the
improvements we are making in this legislation over current law in
terms of ensuring that parents meet their child support and other
domestic support obligations in bankruptcy.
I have worked tirelessly, as others have--those I have mentioned--
provision by provision, both last year and this year, to make this
conference report one that dramatically improves the position of
children and ex-spouses who are entitled to domestic support. No one
who actually looks at what the conference report says can in good
conscience say that this bill is not a tremendous improvement for
children and families over current law.
This bill for women and children gives child support first priority
status, up from seventh in line, meaning they will be paid ahead of the
lawyers, if you can imagine that. It is about time. It makes staying
current on child support a condition of discharge. It makes debt
discharge in bankruptcy conditional upon full payment of past due child
support and alimony. It makes domestic support obligations
automatically nondischargeable without the cost of litigation. It
prevents bankruptcy from holding up child custody, visitation and
domestic violence cases. And it helps avoid administrative roadblocks
to get kids the support they need.
It is a very important set of changes, without which we are going to
be abusing children in the law.
That is not all. The conference report makes more improvements over
current law for women and children. This chart shows that. It makes the
payment of child support arrears a condition of plan confirmation. It
provides better notice and more information for easier child support
collection. It provides help in tracking down deadbeats. It allows for
claims against a deadbeat parent's properties. It allows for the
payment of child support with interest by those with means. And it
facilitates wage withholding to collect child support from deadbeat
parents. It does all of that.
I am also happy to say that the conference report prevents deadbeats
from using the automatic stay in bankruptcy to avoid paying their
support obligations. The bankruptcy reform stops deadbeat parents from
abusing the automatic stay.
The conference report prevents deadbeats from using bankruptcy's
automatic stay to avoiding child support with this legislation.
The automatic stay cannot be used to put a hold on the interception
of a deadbeat parent's tax refund to pay support.
The automatic stay cannot be used to prevent the reporting of overdue
support owed by deadbeat parents to any consumer reporting agency.
The automatic stay cannot be used to prevent the withholding,
suspension, or restriction of driver's licenses, professional and
occupational licenses, and recreational licenses when deadbeats default
on domestic support obligations.
And suspending the driver's license of the deadbeat parent can be a
very effective way of getting them to pay the child support they owe.
This is important stuff. It has taken lot of time to get this done.
We will pass this bill. But if the administration doesn't accept this
bill and it winds up vetoing it, it will be a tragedy.
These are just a few of the many improvements the conference report
makes in this area as compared with current law.
I have had a long history of advocating for children and families in
Congress and throughout my legal career. I support a conference report
that puts child support first in line ahead of the lawyer's fees and
that doesn't let debtors who owe child support turn their backs on
children when they file for bankruptcy.
In another provision I authored, the conference report protects for
the first time in bankruptcy education savings accounts set up by
parents and grandparents for their children and grandchildren.
All things considered, it is pretty simple. A vote for this
conference report is a vote for our Nation's kids.
Just look at the bankruptcy consumer provisions. A vote for this
conference report is a vote for consumers. The legislation includes a
whole host of new consumer protections that do not exist under current
law, such as:
New disclosure by creditors and more judicial oversight of
reaffirmation of agreements to protect people from being pressured into
onerous agreements;
A debtors' bill of rights to prevent the bankruptcy mills from
preying upon those who are uninformed of their rights;
New consumer protections under the Truth in Lending Act, such as
required disclosure regarding minimum monthly payments and introductory
rates for credit carts;
Penalties on creditors who refuse to negotiate reasonable payment
schedules outside of bankruptcy;
Penalties on creditors who fail to properly credit plan payments in
bankruptcy;
Credit counseling programs to help avoid the cycle of indebtedness;
Protection of educational savings accounts; and
Equal protection for retirement savings in bankruptcy.
You can't look at this bill and what it means to people in this
country without realizing that this is a step forward.
A vote for this legislation is also a vote for families by preventing
wealthy people from continuing to abuse the system at the expense of
everyone else.
Under the current system, people with high incomes can run up massive
debts and then use bankruptcy to get out of honoring them. All of us
end up paying for the unscrupulous who abuse the system. In fact, it
has been estimated that every American family pays $550 a year in a
hidden taxes as a result of these abusers. This legislation helps
eliminate this hidden tax by implementing a means test to make wealthy
people who can repay their debts honor them.
Let me make one thing absolutely clear. The poor are not affected by
the means test. In fact, the legislation provides a safe harbor for
those who fall below the median income. So they are not subjected to
the means test at all. Again, only those above the median income are
affected, and the means test could not deny anyone bankruptcy relief.
It just requires those who have the means to repay their debts, based
on their income, to do so. It is that simple.
A vote for the conference report also is a vote to stop allowing a
few wealthy individuals to abuse the homestead exemption. The
conference report tackles the problem of the homestead exemption.
Although rare, that problem is offensive to those of us who work hard
to make good on our debts.
The conference report reaches a compromise which targets the major
abuse of bankruptcy by those who move to States with generous homestead
exemptions purely in order to file bankruptcy and keep an expensive
home. Although this reform provision does not go as far as some of us
would like, without it we are back to business as usual with no
improvement to current law at all.
A vote for this conference report is also a vote for families who
work to
[[Page S11697]]
save for retirement. I mentioned earlier that the conference report
contains my provision to provide equal treatment for retirement savings
plans in bankruptcy. For example, the retirement savings of teachers
and church workers are clearly given the protection in bankruptcy as
much as everyone else. They deserve nothing less.
A vote for the conference report is a vote for our country farmers
and the men and women who work hard every day in the face of many
challenges. Without this reform package, family farmers lose out on the
special bankruptcy protections they need in chapter 12.
I urge my colleagues to think for a moment about the children, the
consumers, families, and farmers who will end up getting hurt if
comprehensive bankruptcy reform is not enacted this year. I urge my
colleagues to support and cast a vote for them and to support this
bankruptcy reform.
I also urge the President of the United States to sign this
bankruptcy reform into law.
Mr. SESSIONS. Mr. President, I thank Senator Hatch for his leadership
on this bankruptcy bill and for shepherding it through the Judiciary
Committee.
I remember distinctly when we first began to discuss the problems of
children, alimony and child support, the leadership and the firm
position Senator Hatch took to guarantee that children and alimony
payments would have an enhanced position in bankruptcy, much higher
than it had ever been before. That was the goal of Senator Hatch, who
has worked on this bill and previous bankruptcy bills and studied this.
I am looking at a letter from some professors who don't seem to get
it. But the Senator has studied and sponsored the amendment that made
some of the historic changes.
Is there any doubt in your mind, Senator, that the children will
benefit from those child support payments, and women will have more
protections for alimony payments under this bill that we are about to
pass than if the bill does not pass?
Mr. HATCH. I thank the Senator for his very intelligent question.
There is no question that this bill will make dramatic changes in
bankruptcy laws to the benefit of children, parents, families,
farmers--just name them--in large measure because of the work of the
distinguished Senators, Mr. Grassley, Mr. Torricelli, and others,
including our ranking member Senator Leahy, and especially the
distinguished Senator from Alabama.
The distinguished Senator from Alabama has been here just long enough
to show how effective he is and what a perfect job he has done on the
Judiciary Committee. I personally compliment the Senator. He has played
a significant and noble role in this bill, as have others, but, in
particular, I consider him one of the best lawyers, one of the best
legal practitioners in this whole body. I am very proud of the work the
Senator and so many others have done on this bill, without which it
would have been much tougher for me as chairman of the committee. This
bill has made a true difference in the lives of the children of this
country.
If we don't have this bill put on the law books of this country,
families, children, farmers, consumers, and others are going to be
drastically hurt. Yes, no bill is absolutely perfect, but we have too
many people at cross-purposes. But we have worked every day this bill
has been in existence with our colleagues on the other side. That is
why we have a number of them who are willing to support this bill, not
only willing but enthusiastically do so.
We couldn't have come this far without the work of the distinguished
Senator from Alabama. I have great respect for the Senator and I am
grateful he is on the floor today. I am grateful the Senator is one of
the people who is helping to make the case for this bill. There are
good people on both sides of the aisle, good people who understand
these important matters, good people who know that children are a focal
point of much of this bill.
I thank the Senator for his question.
The PRESIDING OFFICER. Who yields time to the Senator from Alabama?
Mr. HATCH. I yield such time as he shall need.
The PRESIDING OFFICER. The Senator from Alabama.
Mr. SESSIONS. Mr. President, we have had quoted on the floor a letter
from a group of professors that expressed opposition to this bankruptcy
bill. I think we owe it to those who quoted from it to treat the letter
seriously and analyze item by item the complaints they have made and
discuss it on the floor. I must say that after examining the letter
carefully, I must take issue with the professors' conclusions. I intend
to try to go over the points that they raise fairly and honestly, and
to state the situation as I see it. In fact, I think it is quite plain.
The professors are wrong and they are making misleading statements
about it.
For example, the letter from the professors says:
Women and children will have to compete with powerful
creditors to collect their claims after bankruptcy.
The fact is, the bill makes currently exempt assets--that is,
homestead, household effects, tools of the trade--those kinds of things
that normally today cannot be made to be sold to pay alimony or child
support--non-exempt. Thus, wives and mothers will not have to compete
with anyone before, during, or after bankruptcy for these key assets.
In fact, a mother, for child support, can take the home--the homestead
notwithstanding--of a deadbeat dad and take other assets that he has
that otherwise under current law would be exempt. It is a major step
forward for the rights of children.
The letter from the professors further says:
Credit card claims increasingly will be excepted from
discharge and remain a legal obligation after bankruptcy.
The fact is, the bill makes only credit card debt incurred by fraud
nondischargeable, just like taxes and child support are
nondischargeable. Debtors who defraud creditors should not be able to
discharge their debts in bankruptcy and not pay them. They only ought
to be able to discharge the debts they lawfully incurred. That is the
current law. That is the law today. You cannot discharge fraudulent
debts. In addition, of course, credit card debt is at the end of the
line if you have to pay anything. It is a non-secured debt. It is the
last priority to be paid in the list of priorities.
This letter goes on to say:
Large retailers will have an easier time obtaining
reaffirmations of debt that legally could be discharged.
That is absolutely false. I was charged by Senator Grassley to meet
with Senator Reid and the representatives from the White House to
develop reaffirmation language that would strengthen protections for
people who were asked to reaffirm debts.
Frankly, reaffirmations are not all that bad. Many times, people have
every reason to want to reaffirm their debts and keep their washing
machine, their TV, their furniture, their automobile they use to get to
and from work. They want to keep it. They reaffirm their debt and they
do not lose it. So we worked out language to which the White House
agreed. It strengthens the protections provided to those debtors. It
was language agreed-upon in a bipartisan way.
The letter further says:
Giving first priority to domestic support obligations--
Which is in the bill, giving them first priority of payment--
does not address the problem, and that 95 percent of
bankruptcy cases make no distributions to any creditors
because there are no assets to distribute.
First, the money is going to the bankruptcy court and to lawyers. In
our rule, children would be above the courts and the lawyers.
``Granting women and children a first priority permits them to stand
first in line to collect nothing,'' the professors say. But the fact
is, the means test will place above-median-income-deadbeat-dads into
Chapter 13 if they can repay some of their debt--median income for a
family of four, by the way, is about $45,000. So, to reiterate,
deadbeat dads who are above median income, will be forced into chapter
13 (instead of being able to file Chapter 7) if they can afford to pay
back some of the debts they owe--maybe it is 20 percent, maybe it is 30
percent--but they will be put into chapter 13 to pay that. And for 5
years the judge can order them to pay on those debts what percentage he
or she believes the debtor is financially able to pay and maintain a
decent standard of living.
[[Page S11698]]
But what is first? What is first paid by that deadbeat dad? His
alimony and child support. He would be under court-monitored
supervision and direction to pay the first fruits of his income
directly in the form of child support and alimony. In effect, you have
a bankruptcy judge helping ensure, for 5 years, the full payment of
child support and alimony. I believe that is going to be a historic
step forward. In fact, this will place children and women in a higher
level than they have ever been before.
The letter further says:
Under current law, child support and alimony share a
protected post-bankruptcy position with only two other
recurrent collectors of debt--taxes and student loans. The
bill would allow credit card debt and other consumer credit
to share that position, thus elbowing aside women trying to
collect on their own behalf.
That is not true. I can understand why some of our Senators are
concerned about the bill after they read this letter. It has a bunch of
professors' names on it. They think it is true--but it is not true. The
fact is, the bill allows only consumer debt that was incurred by fraud
to be nondischargeable, which is fundamentally the law today. Even so,
only alimony and child support claimants will be able to levee on any
of these assets. No one else can levee or get ahead of a parent or a
child to claim these exempt assets. Thus, mothers will not have to
compete with the IRS, the student loan companies, credit card
companies, or anyone else, to attach exempt assets after bankruptcy.
Further, I believe the bill will provide more assets for distribution
to women and children than before, during, and after bankruptcy. Before
bankruptcy, debtors will receive credit counseling information which
will help keep fathers on a budget, teach them how to maintain a
budget, and out of bankruptcy and paying their alimony and child
support in the first place. During bankruptcy, deadbeat dads will be
required to pay all past due alimony and child support and to undergo
court supervision for up to 5 years under chapter 13, as they pay their
No. 1 priority, child support claims.
After bankruptcy it is much more likely that a father who has
undergone credit counseling, who has been subjected to 5 years of court
supervision of his finances, and where alimony and child support were
the first things he was required to pay and where he knows that he
cannot shield his exempt assets from alimony and child support, will be
up to date on all his payments if he has gone through that process--
much more so than today.
I see Chairman Grassley is here. I had a number of matters, but I
know he would like to wrap up at this time.
Mr. GRASSLEY. No, I do not want to wrap up. I would like to have
permission to interrupt the Senator, and for him not to lose the right
to the floor. I would like to say something for 30 seconds on the bill,
if I could.
There has been a report since early today about the White House, or
personnel at the White House, calling Democrats who have always
supported this bill to vote against it. I am not sure I know exactly
why the White House is calling and saying that, but I presume it is
because they would like to have fewer folks than the two-thirds we had
on the cloture to override a veto, if the President would veto this
bill. I don't know that the President would veto it. I know there are a
lot of people at the White House who would like to have him veto it.
I say to those Democrats who have voted and supported this
legislation so much over the last 3 years, particularly on that 83-14
vote by which it passed, I hope they will not respond to that kind of
pressure from the White House. I hope they know Chuck Grassley well
enough to know that if I had voted for a bill in the Reagan
administration or the Bush administration, three or four times, and a
President Reagan or his staff, or a President Bush or his staff, called
me up and asked me to change my mind just to protect the President, if
I would do it--I would not do it. I hope they would not do it.
I return the floor to the Senator from Alabama.
Mr. SESSIONS. I thank the chairman.
Mr. President, what is the time situation? Are we still set for a
vote?
The PRESIDING OFFICER. We are set for a vote at 3:45. The Senator has
1\1/2\ minutes remaining.
Mr. SESSIONS. Mr. President, I have at least six or seven more items
that I could refer to from the professors' letter that I believe are
based on complaints about an early version of the bill, matters that
are not even in the bill today, and other items that are completely
distorted in how it affects the poor people in America today.
Let me simply say this: We need bankruptcy reform. We have shown a
doubling of bankruptcy filings in the last decade.
It is time for us to move this bill forward to create a body of law
that is less subject to abuse than current law, to close many of the
loopholes or at least partially close them.
The fact we have not been able to do everything is not a basis to
object, in my view. The perfect is the enemy of the good. This is a
good bill. I would like to see all the homestead exemptions removed, at
least as we agreed earlier. Senator Grassley supported that. The House
would not agree. We got half the problems of homestead eliminated in
this bill.
If we do not pass the bill, we will have the current law which has a
host of problems and none of them fixed.
That is where we are. We have a good piece of legislation. Chairman
Grassley has done a magnificent job of listening to everybody and
working out an agreement that is acceptable. Chairman Hatch has
likewise been tough in trying to complete this bill. I believe we have
a good piece of legislation, and I hope the vote will be overwhelming
again today.
Mr. HATCH. As chairman of the Senate Judiciary Committee, I have a
question for the chairman of the Subcommittee and principal author of
H.R. 2415. Because we were forced to proceed in an unconventional
procedural manner with respect to this legislation, can you provide any
guidance for courts and practitioners on this legislation?
Mr. GRASSLEY. Certainly. The following is what H.R. 2415 does:
H.R. 2415
Background and Need for the Legislation
The bankruptcy system is currently in a state of crisis. In
recent years, America has witnessed a dramatic explosion in
the number of bankruptcy filings. According to statistics
from the Administrative Office of the United States Courts,
bankruptcies have exploded from 331,000 in 1980 to just under
1.4 million in 1999. It is a matter of serious concern to
Congress that the explosion in bankruptcy comes at a time of
unprecedented prosperity, with low unemployment and high
wages. Unemployment is at an all-time low. Consumer
confidence has been high and the Dow Jones Industrial Average
at one point rose above the 10,000 mark. Thus, the high rate
of bankruptcy filings cannot reasonably be attributed to a
slow economy.
This state of crisis has a significant negative impact on
the American economy. According to the Department of Justice,
creditors lose 3.22 billion dollars annually as a result of
Chapter 7 bankruptcies filed by individuals who could repay
their debts. Obviously, the existence of multi-billion dollar
losses attributable to high levels of bankruptcy filings is a
clarion call for Congress to reform our bankruptcies laws to
require bankrupts who could repay some portion of their debts
to do so.
Given the strong performance of the economy, many feel that
the recent explosion in personal bankruptcy filings is at
least partly attributable to the decreased moral stigma
associated with declaring bankruptcy. See Testimony of
Professor Todd Zywicki, Joint Hearing of the Subcommittee on
Administrative Oversight and the Courts and the Subcommittee
on Commercial and Administrative Law, March 11, 1999;
Testimony of Tahira Hira, Subcommittee on Administrative
Oversight and the Courts Hearing, ``S. 1301, The Consumer
Bankruptcy Reform Act: Seeking Fair and Practical Solutions
to the Consumer Bankruptcy Crisis'' (March 11, 1998);
Testimony of Kenneth R. Crone, Subcommittee on Administrative
Oversight and the Courts Hearing, ``The Increase in Personal
Bankruptcy and the Crisis in Consumer Credit,'' (April 11,
1997); Lee Flint, ``Bankruptcy Policy: Toward a Moral
Justification for Financial Rehabilitation of Consumer
Debt,'' 48 Wash. & Lee L. Rev. 515 (1991); David Gross and
Nicholas Souleses, ``Explaining the Increase in Bankruptcy
and Delinquency: Stigma Versus Risk-Competition''
(Preliminary, 1998); F.H. Buckley and Margaret F. Brinig,
``The Bankruptcy Puzzle,'' 27 J. Legal Stud. (1998).
In the view of many in Congress, a decreased moral stigma
associated with bankruptcy means that filing for bankruptcy
is no longer viewed as a last resort reserved for financially
troubled Americans who have no other option but to seek debt
forgiveness. As Americans become accustomed to high levels of
consumer bankruptcy, it is only natural that declaring
bankruptcy has lost much of the shame previously associated
with it. Individuals who would have struggled to meet
[[Page S11699]]
their financial obligations in the past are filing bankruptcy
today in record numbers. See Judge Edith H. Jones and Todd J.
Zywicki, ``It's Time for Means Testing,'' 1999 B.Y.U. L. Rev.
177. For example, recent studies suggest that almost half of
filers learned about their option to file for bankruptcy from
friends or family. See, e.g., Vern McKinley, ``Ballooning
Bankruptcies: Issuing Blame for the Explosive Growth,''
Regulation, Fall 1997, at 38. At the same time, there have
been strong expressions of concern from the Federal Trade
Commission that attorney advertising is leading consumers to
file bankruptcy without being fully informed.
It is the strong view of the Congress that the Bankruptcy
Code's generous, no-questions-asked policy of providing
complete debt forgiveness under Chapter 7 without serious
consideration of a bankrupt's ability to repay is deeply
flawed and encourages a lack of personal responsibility.
Both H.R. 833 and its Senate counterpart S. 625 proposed
amendments to section 707(b) of the Bankruptcy Code to
require bankruptcy judges to dismiss a Chapter 7 case, or
convert a Chapter 7 case to another chapter if a bankrupt has
a demonstrable capacity to repay his or her debts. HR 2415
maintains the section 707(b) structure. In general, the
agreement embodied in HR 2415 used S. 625 as the base for the
means test. Like S. 625, a presumption arises that a Chapter
7 bankrupt should be dismissed from bankruptcy or converted
to another chapter if, after taking into account secured
debts and priority debts as well as living expenses, the
bankrupt can repay over 5 years the lesser of 25 percent or
more of his or her general nonpriority unsecured debts (but
at least $6,000), or $10,000. This test requires those with
greater debts to pay proportionately more than those with
smaller debts. For example, the cases of debtors whose
unsecured, nonpriority debts are over $100,000 will be
dismissed under the means test (absent ``special
circumstances'' discussed later) if their projected ability
to pay over 5 years is over $10,000, even though that is
considerably less than 25% of their debt. Conversely, the
cases of debtors whose debts in that category are less than
$36,000 will only be dismissed under the means test if their
projected ability to repay over 5 years is over $6,000,
permitting debtors in this category to remain in chapter 7
even though they have the ability to repay a percentage of
their unsecured, nonpriority debts considerably greater than
25%. The debtor can rebut this presumption only by
demonstrating ``special circumstances'' that would clearly
demonstrate that the bankrupt in fact does not have a
meaningful ability to repay his or her debts. It is
not intended that the ``special circumstances'' category
will be interpreted broadly to allow bankrupts to avoid
repayment of financial obligations for reasons unrelated
to finances, income or expenses. Therefore, the
presumption of abuse may only be rebutted, first on a
demonstration that the increases in spending or decreases
in income arise directly from ``special circumstances''
and are justified by those circumstances, second, that
they are reasonable and necessary, and, third, that there
is no reasonable alternative to the expense or income
adjustment. For example, if a loss of income occurred
because a debtor voluntarily elected to waive a bequest or
otherwise reduce income, there would be a reasonable
alternative to the reduction because the debtor could have
not elected, even though there may have been good reasons
to do so. Moreover, the kind of ``special circumstances''
Congress intended would not be present to justify the
adjustment, nor would it be reasonable and necessary.
Therefore, the additional adjustment to income would not
be allowed. Proof that the debtor permitted the reduction
in an attempt to avoid payment of creditors or other
inappropriate intent is not necessary, and a significant
burden is on the debtor to justify the adjustment.
On the other hand, if the debtor was a well paid medical
doctor who prior to bankruptcy changed from a demanding
private practice requiring 80 hours a week to a significantly
less well-paid research staff position with regular nine to
five hours in order to have more time to assist in the care
of a seriously disabled child, there would clearly be
``special circumstances'' which justified the adjustment, the
income reduction would be reasonable and necessary, and the
special relationship of parent and child would clearly lead
to the conclusion that there was no reasonable alternative to
the adjustment.
General Overview of the Current Consumer Bankruptcy System
Under current law, individuals considering bankruptcy often
proceed under Chapter 7, where the bankrupt will surrender
all assets which do not qualify for an exemption to a
bankruptcy trustee. The bankruptcy trustee then sells the
bankrupt's property and distributes the proceeds to the
creditors. Any deficiency which remains after the sale of
these assets is simply erased (or ``discharged''), and the
bankrupt cannot be required to repay debts which have been
erased during bankruptcy. Chapter 7, often referred to as
``straight bankruptcy,'' is the oldest and most commonly used
type of bankruptcy proceeding.
Individuals may also declare bankruptcy under Chapter 13 of
the Bankruptcy Code. Chapter 13 provides for the development
of a repayment plan that allows a debtor to repay some
portion of his or her debts. At the end of the repayment
period, the unpaid portion of debt is erased, and a debtor
cannot be required to repay the unpaid portion of the
discharged debt. Unlike Chapter 7, the purpose of Chapter 13
is to rehabilitate financially-troubled consumers by using
future earnings to repay debts in exchange for a discharge of
the unpaid portions of those debts. Two other chapters are
also available to individual debtors, but are only rarely
used by consumers. Chapter 11, usually used by those with
significant assets, permits a debtor to negotiate a plan of
reorganization of the debtor's financial affairs with
creditors, and in some instances force that plan or unwilling
creditors. A discharge is available when the plan is
confirmed. Chapter 12 is available for family farmers.
Earlier Reform Efforts To Reduce Consumer Bankruptcy Abuse
The idea of requiring bankrupts to repay their debts when
they have the ability to do so is not new. This topic has
been the subject of many proposed amendments, from the early
1930s to the current Congress. S. 625 is merely an extension
of this longstanding effort to ensure that bankruptcy is
reserved for those truly in need of debt forgiveness. See
Oversight Hearing on Personal Bankruptcy, Committee on the
Judiciary, Subcommittee on Monopolies and Commercial Law,
97th Cong. 2nd Sess., (1982).
The general structure of the present federal Bankruptcy
Code is the result of the Bankruptcy Reform Act of 1978, Pub.
L. 95-598. The 1978 Act was the first major overhaul and
attempt to update comprehensively the bankruptcy law since
passage of the Chandler Act in 1938. 52 Stat. 840 (1938).
Prior to the Chandler Act, individuals in serious financial
trouble usually had no choice but to file for ``straight
bankruptcy'' under Chapter VII, a proceeding similar to
present Chapter 7 under the Bankruptcy Code. However, the
Chandler Act provided small debtors a new, alternative
procedure, the Chapter XIII Wage Earner's Plan, which allowed
an individual to retain nonexempt assets by proposing a plan
to pay his or her existing debts from future income, after
which the wage earner would receive a discharge of any unpaid
balances of his debts. See generally, Dvoret, ``Federal
Legislation, Bankruptcy Under the Chandler Act: Background,''
27 Geo. L.J. 194 (1938).
The debate over Chapter XIII occurred years earlier in
joint hearings before the House and Senate Judiciary
Committees in 1932, during the Seventy-Second Congress. By
the time it was enacted in 1938, Chapter XIII codified
informal practices which had developed without explicit
statutory authorization. In the mid 1930's in Birmingham,
Alabama a former special referee in bankruptcy, Valentine
Nesbitt, first developed a ``repayment option'' which was the
model for Chapter XIII. See Weinstein, The Bankruptcy Law of
1938 (1938).
In 1932, Congress conducted hearings on S. 3866. Section 75
of this bill would have established a repayment plan for wage
earners. Section 75 provided a method for an indebted wage
earner to come into court without being labeled ``a
bankrupt,'' and get the benefit of a court injunction to fend
off creditors while the wage earner arranged to repay his
pre-bankruptcy debts in installments. Section 75, with
certain modifications, eventually became Chapter XIII,
enacted in 1938 as part of the Chandler Act.
Since the 1938 amendments, there have been several
proposals to limit bankruptcy relief to those who lack
genuine repayment capacity. In the 1960s, Congress considered
several such proposals. See H.R. 12784, 88th Cong., 2d Sess.
(1964); H.R. 292, 89th Cong., 1st Sess. (1965); S. 613, 89th
Cong., 1st Sess. (1965); H.R. 1057 & H.R. 5771, 90th Cong.,
1st Sess. (1967). Under these proposals, an individual debtor
seeking relief under the liquidation provisions of the
bankruptcy laws would be denied relief if the court concluded
that he or she could pay substantial amounts of debt out of
future earnings under a Chapter XIII plan.
Importantly, one of these proposals, S. 613, was introduced
by Senator Albert Gore, Sr., the father of the current Vice
President. When he introduced S. 613, Senator Gore indicated
that Chapter 7 resembled a special interest tax loophole,
which the wealthy could use to avoid paying their fair share.
Senator Gore, Sr. also commented on the moral consequences of
a lax bankruptcy system:
``I realize that we cannot legislate morals, but we, as
responsible legislators, must bear the responsibility of
writing laws which discourage immorality and encourage
morality; which encourage honesty and discourage deadbeating;
which make the path of the social malingerer and shirker
sufficiently unpleasant to persuade him at least to
investigate the way of the honest man.''--Cong. Rec. 905,
January 19, 1965.
Given the current bankruptcy crisis, Senator Gore's words
from over 30 years ago seem prescient.
Following the 1978 amendments, in the early 1980s, Senator
Dole introduced S. 2000 during in the 97th Congress. In the
House of Representatives, Congressman Evans introduced H.R.
4786, which eventually garnered 269 co-sponsors. Congress did
not pass either proposal in the 97th Congress, so these
measure were reintroduced in the 98th Congress as H.R. 1169
and S. 445. As a result of these efforts, Congress created
Section 707(b) of the Bankruptcy Code in 1984 to allow judges
to dismiss Chapter 7 cases if granting relief would
constitute a ``substantial abuse'' of the Bankruptcy Code.
Pub. Law 105-165. The focus of the effort was to require
bankrupts who had the ability to pay a significant percentage
of their debts ``without difficulty''
[[Page S11700]]
to proceed under Chapter 13 instead of Chapter 7. However,
the term ``substantial abuse'' was not defined and creditors
and trustees were expressly forbidden from presenting
evidence to a judge that granting relief in a particular case
would result in a ``substantial abuse.''
Despite Congress' intent that section 707(b) would control
inappropriate use of chapter 7 by those with ability to pay,
that section has not been effective. Although many factors
are at work, much of the reason for this ineffectiveness has
been the ingrained point of view that ``honest'' debtors have
a ``right'' to a chapter 7 discharge even when they have
ability to pay. To illustrate, the Fourth Circuit has taken a
``totality of the circumstances'' approach to determining
whether there is substantial abuse. In re Green, 934 F.2d 568
(4th Cir. 1991)(a ``totality of circumstances'' test is
appropriate when deciding section 707(b) cases in which
ability to repay can be outweighed by other factors, like the
debtor's good faith or honesty). Some bankruptcy judges have
taken the totality of the circumstances approach suggested by
In re Green as a justification for either ignoring ability to
pay completely, or doing so in effect. See In re Adams, 209
B.R. 874 (Bankr. M.D. Tenn. 1997)(Paine, J.)(honest debtor
with ability to repay cannot be dismissed from chapter 7); In
re Braley, 103 B.R. 758 (Bankr. E.D. Va. 1989)(Bonney, J.).
Other Circuit Courts have disagreed and insisted that debtors
with ability to pay must do so. In re Kelley, 841 F.2d 908
(9th Cir. 1988); In re Walton, 866 F. 2d 981 (8th Cir. 1989);
United States Trustee v. Harris, 960 F.2d 74 (8th Cir. 1992);
In re Koch, 109 F. 3d 1285 (8th Cir. 1997); In re Lamanna,
153 F. 3d 1 (1st Cir. 1998). A few bankruptcy courts have
followed the direction of these Circuit Courts, In re
Shelley, 231 B.R. 317 (Bankr. D. Neb. 1999)(Minahan, Jr. J.);
In re Cox, 2000 Bankr. Lexis 571 (Bankr. N.D. Fla., May 16,
2000).
It was this evidence which led Congress to conclude that
the complete overhaul of section 707(b) was necessary, with
clear, non-discretionary requirements imposed on the
bankruptcy court to reject the notion that debtors were
entitled to a discharge as a matter of right without regard
to their ability to pay and to assure that in practice those
with ability to pay would not be entitled to chapter 7
relief. In the 105th Congress, the House passed HR 3150 and
the Senate passed S. 1301, two bills which would have
inserted means-testing in section 707(b). A Conference
Committee reconciled the two bills and produced a Conference
Report (H. Rep. 105-794) which passed the House at the end of
the 105th Congress but was never voted on in the Senate.
Senate Report 105-253 provides the legislative history of S.
1301. House Report 105-540 provides the legislative History
of HR 3150.
The Current Legislation
HR 2415 is the culmination of these efforts and is intended
to both remove unequivocally the bankruptcy court's
discretion with regard to whether a debtor with ability to
pay should be dismissed from chapter 7, and to restrict as
much as possible reliance upon judicial discretion to
determine the debtor's ability to pay. Limited judicial
discretion remains to deal with the hardship case, but that
discretion is not to be abused by lax enforcement of the
standards in HR 2415.
Section 102 of HR 2415 provides that a Chapter 7 case will
be presumed to be an ``abuse'' of Chapter 7 if the debtor has
the ability to repay, in a 5-year repayment plan, 25% of the
debtor's nonpriority unsecured claims (but not less than
$6,000), or $10,000, whichever is less. For purposes of
determining the debtor's repayment ability, section 102
provides that the debtor's monthly expenses shall be
applicable monthly expenses under standards issued by the
Internal Revenue Service (``IRS'') for the area in which the
debtor resides. The IRS standards applicable under section
102 are the IRS ``National Standards,'' ``Local Standards,''
and certain categories of ``Other Necessary Expenses'' which
are specifically listed in the Standards. These Internal
Revenue Service standards are currently used to determine
appropriate living expenses for taxpayers who are required to
repay delinquent taxes. These standards have been developed
by the Treasury Department to assist the Department in the
collection of taxes and, of course, can be revised from time
to time, as needed. These expense categories allow
expenses for housing, food, transportation, and, for
purposes of the means test, certain specified ``other
necessary expenses.''
In order to provide flexibility in appropriate cases of
hardship, Section 102 also provides that in some cases where
the presumption applies the debtor may be able to demonstrate
``special circumstances'' that ``justify'' additional
expenses or an adjustment to the debtor's income for which
there is no reasonable alternative. In addition, the debtor
must demonstrate that the adjustments are reasonable and
necessary and there is no reasonable alternative to the
expense or income adjustment. If the debtor can make this
showing, the presumption is rebutted. It is not intended that
the ``special circumstances'' test will allow the presumption
of abuse to be rebutted by relying on factors other than
ability to pay.
The presumption of abuse arises due to a financial
calculation assessing a Chapter 7 debtor's ability to pay.
Thus, the presumption of abuse under Section 707(b) may only
be rebutted if the debtor shows changes to expenses or
changes to income not otherwise accounted for in the means
test and that meet all of the requirements of the ``special
circumstances'' test. Other factors are not relevant.
In applying the ``special circumstances'' test, it is
important to note that a debtor who requests a ``special
circumstances'' adjustment is requesting preferential
treatment when compared to other consumers, and it is those
other consumers who, by paying their debts, must assume the
cost of the debts discharged by the debtors seeking the
preferential treatment. It also is important to note that,
because of the protections established for debtors whose
income falls below the median income level, the preferential
treatment provided under the ``special circumstances''
standard primarily benefits higher income individuals.
As indicated earlier, in order to ensure fairness with
respect to the consumers who must pay the cost when others
discharge debts in bankruptcy, it is essential that the
``special circumstances'' test establish a significant,
meaningful threshold which a debtor must satisfy in order to
receive the preferential treatment. The House/Senate
agreement incorporated in HR 2415 is premised upon the belief
that the relief sought by a debtor who files for bankruptcy
is financial in nature and the debtor's right to obtain
preferential relief under the ``special circumstances''
provision should be assessed based on financial
considerations only. Thus, the agreement is not intended to
allow debtors to continue expenses unless they clearly
demonstrate that they meet the ``special circumstances'' test
for such adjustments.
Under this bankruptcy reform package, the Office of United
States Trustee or bankruptcy administrator is required to
file a motion to dismiss or convert a Chapter 7 case if the
bankrupt's current monthly income equals or exceeds the state
median income and the presumption of abuse applies. If the
Office of United States Trustee or bankruptcy administrator
determines after investigation that such a motion is not
warranted because the presumption of abuse can be rebutted,
then it must file an explanatory statement with the
bankruptcy court detailing why a motion to dismiss or convert
is not appropriate. If private trustees or creditors
disagree, they can commence a motion under 707(b).
Importantly, creditors are now explicitly given the power
to bring 707(b) motions before the bankruptcy court, although
creditors' and private trustees' motions are restricted to
cases in which the debtor's current monthly income exceeds
the applicable state median income. Moreover, HR 2415 gives
Chapter 7 trustees important new financial incentives for
ferreting out bankrupts who have repayment capacity and
provides for appropriate penalties for bankruptcy attorneys
who recklessly steer individuals with repayment capacity to
Chapter 7 bankruptcy, or file schedules which misstate
income, expenses or assets. HR 2415 also contains penalties
for creditors who file inappropriate motions under section
707(b). Thus, contrary to the assertions of some, there are
real and meaningful reasons why creditors will not improperly
use their right to file 707(b) motions.
The new section 707(b) also provides that in addition to
the means test, Chapter 7 debtors' cases may be dismissed if
the filing is not in good faith or the ``totality of the
circumstances'' indicate that granting relief under Chapter 7
would constitute abuse. No inference should be drawn, however
that by referencing the ``totality of the circumstances''
Congress intended to approve the result in In re Green, 934
F.2d 568 (4th Cir. 1991) or similar cases. Such cases are
rejected by the means test reforms and the change in the
standard from ``substantial abuse'' to ``abuse'' in HR 2415.
However, situations in which courts dismiss debtors from
Chapter 7 today clearly continue to be grounds for dismissal
under HR 2415, including such cases as In re Lamanna, 153 F.
3d 1 (1st Cir. 1998). In addition, since the standard for
dismissal is revised to require ``abuse'' rather than
``substantial abuse'', the courts are clearly given
additional discretion to control abusive use of chapter 7
when that is appropriate.
Congress thus intends that the new section 707(b) provide a
tightly-focused mechanism for identifying bankrupts who have
repayment capacity and sorting them out of Chapter 7, as well
as dealing with other forms of abuse. At the same time, the
new section 707(b) means test contains procedural safeguards
which ensure that any special financial circumstances of a
debtor will be appropriately considered before he or she is
dismissed from bankruptcy or converted to another chapter.
Enhanced Consumer Protections and Credit Card Disclosures
Importantly, HR 2415 retains Title XIX of the Senate bill.
This title amends the Truth in Lending Act (``TILA'') to
require significant new minimum payment disclosures in
connection with open-end credit plans. Among other things, HR
2415 requires credit card companies, on the front of each
monthly statement, to provide:
--a statement that making only minimum payments will
increase the interest costs and the time it takes to repay
the account balance;
--an example showing the length of time it would take to
repay a specified amount if making minimum payments only; and
--a toll-free telephone number which cardholders could call
to receive additional repayment information.
[[Page S11701]]
HR 2415 requires the Federal Reserve Board to promulgate a
table that would set forth information for use by credit card
issuers in responding to cardholders who make inquiries
through the toll-free telephone number. Finally, the Federal
Reserve Board is authorized to study the types of information
available to consumers regarding factors qualifying potential
borrowers for credit, repayment requirements, and the
consequences of default, including information related to
minimum payments. The study would include consideration of
the extent to which the availability of low minimum payment
options is a cause of consumers experiencing financial
difficulty.
HR 2415 also amends TILA to require certain applications or
solicitations for credit cards that include an introductory
rate of less than one year, and all promotional materials
accompanying such an application or solicitation, to include
the following relating to introductory rates:
--use the term ``introductory'' in immediate proximity to
each listing of the introductory rate; and
--disclose when the introductory period will end and the
annual percentage rate that will apply at the end of the
introductory period.
In addition, HR 2415 requires a clear and conspicuous
disclosure, in a prominent manner on or with an application
or solicitation, of the rate, if any, that will apply if the
introductory rate is revoked, and a general description of
the circumstances or events that would result in such a rate.
HR 2415 also requires a credit card issuer to clearly and
conspicuously provide disclosures regarding the key features
of the credit plan, such as interest rate and basic fees,
with Internet-based credit card applications and
solicitations. These disclosures must be readily accessible
to consumers in close proximity to the solicitations and
these disclosures must be updated regularly to reflect the
current policies, terms, and fee amounts applicable to the
credit card account. HR 2415 also provides that, if a lender
imposes a late fee for failing to make payment by the payment
due date, the lender must state on each periodic statement
the payment due date (or, if the card issuer contractually
establishes a different date, the earliest date on which a
late fee may be imposed). The lender also must state the
amount of the fee that will be assessed if payment is
received after that date.
Importantly, HR 2415 amends TILA to provide that an open-
end creditor cannot terminate an account prior to its
expiration date solely because the consumer has not incurred
finance charges on the account.
New disclosures are now required in connection with
consumer credit plans secured by the consumer's principal
dwelling in which the extension of credit may exceed the fair
market value of the dwelling. Under the amendment, a creditor
must disclose at the time the creditor distributes an
application to the consumer for such a plan that interest on
the portion of the credit extension that is greater than the
fair market value of the dwelling is not tax deductible for
federal income tax purposes.
The Congress also directs that the Federal Reserve Board
study the existing protections limiting consumer liability
for unauthorized use of debit cards. In addition, the Board
is directed to study the impact that extensions of credit to
college students have on the rate of bankruptcy cases filed.
In addition to these new credit card disclosures, HR 2415
contains several important reforms which will protect
individuals and help them better understand their rights and
remedies. Reaffirmations occur when a debtor agrees to pay a
debt which would otherwise be wiped away in bankruptcy.
Section 524 of the Bankruptcy Code sets the conditions which
must be met before such agreements will be considered legally
binding. The bankruptcy reform package retains the Senate-
passed amendments related to the reaffirmation agreements,
with slight changes affecting only credit union debt.
HR 2415 also requires the Attorney General to designate
prosecutors and investigators to enforce current criminal
statutes designed to protect debtors in bankruptcy court from
deceptive or coercive collection practices as well as
enforcing those same statutes against debtors in appropriate
cases. By committing substantial new resources to fighting
abusive creditor and debtor practices and bankruptcy fraud,
it is intended that the Department of Justice step up
enforcement of these under-used statutes.
The bankruptcy reform package contains a provision which
penalizes creditors who refuse to negotiate reasonable
repayment schedules outside of bankruptcy. Under this
provision, the amount that a creditor may collect in
bankruptcy can be reduced if an approved credit counseling
agency approved under the credit counseling provision of HR
2415 for the judicial district in which the debtor's case is
pending makes a reasonable offer of repayment at least 60
days prior to declaring bankruptcy and the creditor
unreasonably rejects this offer. During Senate consideration
of S. 625, the Department of Justice indicated support for
promoting alternative dispute resolution in this way but then
suggested that the provision be ``clarified'' in such a way
that it will not apply to governmental creditors. See Letter
to The Honorable Orrin G. Hatch, Chairman, Committee on the
Judiciary, April 9, 1999. Thus, if the Congress were to
accept the suggestions of the Department of Justice, non-
governmental creditors would be subject to a tougher standard
than currently contained in the bankruptcy reform package,
but the Internal Revenue Service would be free to avoid
alternative dispute resolution. Given its history in dealing
with taxpayers, it was considered inappropriate to create
such a special exemption for the Internal Revenue Service.
Reducing Abusive Uses of the Bankruptcy Code
As the National Bankruptcy Review Commission correctly
noted, many of the worst abuses of the bankruptcy system
involve individuals who repeatedly file for bankruptcy with
the sole intention of using the automatic stay (i.e., a court
injunction which arises whenever a bankruptcy case is filed).
National Bankruptcy Rev. Comm. Rep., ``Bankruptcy the Next
Twenty Years,'' October 20, 1997 vol. 1, at 262. Accordingly,
HR 2415 contains restrictions on repeat filers and on
multiple owners who serially file. It is expected that these
changes will dramatically reduce the number of inappropriate
bankruptcy filings.
HR 2415 also requires random audits of bankruptcy petitions
to verify the accuracy of information contained in bankruptcy
petitions, and makes debtor attorney's responsible to
diligently inquire into the accuracy of the information
provided on the schedules. Many Members of Congress are
concerned that there is little incentive for individuals to
list all of their assets or fully and accurately disclose
their financial affairs, including their income and living
expenses, when they file for bankruptcy. Of course, such
laxity fosters an environment in which the overall financial
condition of the bankrupt is likely to be inaccurate, with
the result that creditors may receive less than they could
when a bankrupt's financial affairs are accurately disclosed.
Accordingly, the random audit procedures will restore some
integrity to the system, since material misstatements are
required to be reported to the appropriate authorities.
Enhanced Protections for Child Support
Balanced bankruptcy reform must protect the status of child
support. According to some estimates, more than one-third of
bankruptcies involve spousal and child support orders. And in
about half of those cases, women were creditors trying to
collect court-ordered support from their former husbands.
These support orders are a lifeline for thousands of families
struggling to maintain self-sufficiency.
HR 2415 contains all of the child support provisions of the
Senate-passed version of bankruptcy reform (S. 625),
including provisions closing various serious loopholes which
allowed those who owed child support, alimony and in some
instances other marital dissolution obligations to use the
bankruptcy laws to delay and sometimes defeat payment of
those obligations. HR 2415 also contains a new provision
which requires bankruptcy trustees to notify child support
creditors of their right to use state child support
enforcement agencies to collect outstanding amounts due. In
addition, HR 2415 permits general creditors to disclose the
last known billing address of a debtor who owes child support
or alimony to child support claimants. Taken together, these
changes place child support and alimony claimants in a far
better position under HR 2415 than under current law.
Business Provisions
HR 2415 contains the small business reform measures from
the Senate passed version of HR 833. Although business
bankruptcy filings are low at this time, several changes to
Chapter 11 are warranted. HR 2415 contains provisions
intended to speed up Chapter 11 for small business debtors,
enact recommendations of the United Nations Commission on
Internal Trade Law regarding transnational bankruptcy and
clarify the treatment of tax claims in bankruptcy.
Importantly, HR 2415 provides new deadlines on tenants
under non-residential leases to decide whether to reject or
assume leases under section 365 of the Bankruptcy Code. Under
current law, once a tenant under a non-residential real
property lease has filed for Chapter 11 relief, it has 60
days to decide whether to accept or reject its lease, with
extensions for cause. Unfortunately, bankruptcy judges have
allowed the exception for cause to swallow the rule. Today,
bankruptcy judges routinely extend the time within which
retail debtors must assume or reject the lease for years,
including until confirmation of the plan. Moreover, while
these tenant-debtors are supposed to pay their rent while the
proceedings continue, they do not always do so and bankruptcy
judges have not always compelled them to do so.
Thus, landlords are often left with significant uncertainty
since they may have no clear indication as to whether a
tenant will continue in a lease and the tenant may not be
current on post-petition rents. It is hoped that the
provisions contained in the current bankruptcy reform
agreement will mitigate the unfairness confronting landlords
of non-residential leases. The House bill provided that an
unexpired lease of nonresidential property will be deemed
rejected if the trustee has not assumed or rejected it by the
earlier of the date of confirmation of a plan or a date that
is no more than 120 days after the date of the order for
relief, with an additional 120 days if granted by the court
for cause. The court, under the House bill, could then grant
an extension beyond 240 days after the date of the order for
relief ``only
[[Page S11702]]
upon prior written consent of the lessor.'' The Senate bill
provided that such a lease would be deemed rejected if the
trustee has not acted by the earlier of the date of
confirmation of a plan or the date which is 120 days after
the date of the order for relief. No additional extension is
permitted except ``upon motion of the lessor.'' Both bills,
then, were quite similar, especially in denying bankruptcy
judges discretion in extending the deadline for assuming or
rejecting a lease after an absolute period following the
order for relief--240 days in the former and 120 days in the
latter. Both the Departments of Justice and the Interior
favored a 120 day deadline, with no discretion in the
bankruptcy judge.
HR 2415 provides that an unexpired non-residential real
property lease is deemed rejected if the trustee has not
acted by the earlier of the date of confirmation of a plan or
the date which is 120 days after the date of the order for
relief. The court may extend the 120 day period for an
additional 90 days, prior to the expiration of the 120 day
period, upon motion of either the trustee or the lessor for
cause, for a total of 210 days after the date of the order
for relief. If the court has granted such 90 day extension,
the court may grant a subsequent extension only upon prior
written consent of the lessor. This can be in the form of (1)
a motion of the lessor or (2) a motion of the trustee,
provided that the trustee has a prior written consent of the
lessor. Importantly, HR 2415 clearly retains both bills'
denial of bankruptcy judges' discretion in extending this
date: in no circumstance may the time to assume or reject
unexpired nonresidential real property leases extend beyond
the earlier of (1) the time of confirmation or (2) 210 days
from the time of entry of the order for relief, without the
prior written consent of the lessor--either in the form of a
lessor's motion, or in the form of a prior written consent to
a trustee's motion, to extend the time. Moreover, a lessor's
written consent to one extension beyond the 210 period does
not constitute such consent for a subsequent extension: each
such extension beyond 210 days requires the separate written
consent of the lessor.
Finally, HR 2415 adds language to Section 365 (f)(1) of the
Bankruptcy Code for the purpose of assuring that section
365(f) does not override any part of Section 365(b). HR 2415
provides that section 365(f) is not only subject to Section
365(c), but also to Section 365(b), which is to be given full
effect. Contrary legal interpretations in case law are
overturned.
Section by Section Explanation
Title I--Needs Based Bankruptcy
Sections 101-103: Dismissal for Abuse and the Means Test
These three sections expand present 707(b) of the
Bankruptcy Code to require a court to dismiss a chapter 7
petition filed by an individual debtor whose debts are
primarily consumer debts (or with the debtor's consent,
convert to another bankruptcy chapter) if the debtor's case
meets certain standards. Present law already requires that an
individual debtor's case be dismissed if it is a
``substantial abuse'' and the debtor's debts are primarily
consumer debts, but also creates a presumption against
dismissal and prevents anyone other than the court or the
United States Trustee from raising the issue. There has been
concern that present 707(b) is not effective to prevent
inappropriate use of chapter 7, and in particular debtors who
have ability to repay their debts from using chapter 7 to
obtain a discharge without repaying creditors what they can
afford, needlessly costing consumers who pay their bills in
higher credit prices.
These sections reorganize present section 707(b) to change
the standard for dismissal from ``substantial abuse'' to
``abuse'' in order to provide strengthened controls against
abusive use of chapter 7. They also replace the presumption
against dismissal from chapter 7 with a presumption of
dismissal if the debtor has ability to pay as determined by a
new means test. The changes are intended to broaden rather
than limit controls on improper use of chapter 7.
The means test.--Section 102 establishes a means test
enforced by required dismissal from chapter 7. To apply the
means test, the debtor must complete revised schedules of
income and expense similar to those now required, but revised
to show net income determined in a particular way and a
calculation of how much the debtor can afford to pay under
the new means test. The means test should for the most part
be self-enforcing. It should be infrequent that a debtor will
fill out the schedule of income and expenses which show that
the debtor has ability to pay, and still file in chapter 7.
Forms should be developed for these revised schedules which
are clear and understandable, and promote accurate and
efficient administration of the means test. The schedules
should be filed with the debtor's petition. It is intended
that the anti-fraud provisions of the bankruptcy and other
laws be applied vigorously by the bankruptcy courts and
others whenever fraudulent completion of the schedules is
apparent.
The means test initially focuses upon the debtor's net
income determined according to standards set forth in these
sections. The debtor's current monthly income is first
determined by averaging the debtor's monthly income for the
prior six months and excluding social security or certain war
reparations income. Next, the debtor's monthly expenses are
determined. These include monthly expenses as specified under
the National Standards and Local Standards issued by the
Internal Revenue Service for the area in which the debtor
resides, and the debtor's actual monthly expenses for the
categories specified as Other Necessary Expenses under those
same standards. The categories specified as Other Necessary
Expenses means only those categories of expense specifically
listed in the Internal Revenue Service Manual at 5323.423(1),
(3) and (4).
It is not intended that additional expenses will be
deductible except as otherwise specified in section 707(b).
For example, an additional allowance is available if
demonstrated to be reasonable and necessary up to 5% of the
monthly allowances for food and clothing categories as
specified by the National Standards. Moreover, actual monthly
expense allowances are specified for certain reasonably
necessary family violence expenses and for reasonable and
necessary continued expenses of supporting an elderly,
chronically ill or disabled family member. The debtor's
monthly expenses for priority debts and secured debts
(including the averaged cost of curing arrearages with
respect to secured debts as permitted in chapter 13) are also
deductible. They are determined based on the average of those
expenses over a 60 month period.
Also allowed are deductions for actual average monthly
expenses that are entitled to administrative expense priority
under the Bankruptcy Code, but never more than 10% of
projected plan payments, as determined under a schedule to be
issued from time to time as necessary by the Executive Office
of United States Trustees. This schedule is to be based on
the standing chapter 13 trustee's fee as allowed from time to
time in each district and should not include other amounts.
Other fee schedules may be provided for cases when a debtor
qualifies for chapter 12 or would have to use chapter 11
because excluded from chapter 13. In applying the 10% cap,
only projected plan payments which are reasonable and
necessary should be considered. Generally, plan payments to
pay secured debt should be excluded from projected plan
payments when calculating administrative expenses, unless
there is a compelling reason for concluding that payment of
the secured debt would be included in the debtor's plan.
Although the administrative expenses may be otherwise
entitled to priority, it is intended that they be accounted
for under this specific administrative expense provision and
not also allowed under the provision for priority expenses.
Actual expenses for private elementary or secondary private
school tuition not exceeding $1,500 per child per year are
also deductible.
Once the monthly expense allowances are determined, they
are then subtracted from current total monthly income to
obtain the debtor's net monthly income. Net income is then
multiplied by 60. If the result is greater than the lesser of
a threshold amount of (1) $10,000 or (2) 25% of the
nonpriority unsecured claims in the debtor's case but not
less than $6,000, there is a presumption that the debtor's
case must be dismissed from chapter 7.
This presumption may be rebutted if there are special
circumstances that justify adjustments to income or expenses
for which there is no reasonable alternative. To claim such
additional expense or income adjustment, the debtor must
itemize, explain and document why the expense or income
adjustment is reasonable and necessary in addition to
meeting the special circumstances test and demonstrates
there is no reasonable alternative to the expenses or
income adjustment. If it is determined that special
circumstances as described do exist, the debtor may
recalculate income and expenses based on the adjustments
and apply the threshold to the resulting net income. The
presumption can only be rebutted by demonstrating that an
expense or income adjustment appropriate under the special
circumstances test causes the debtor's net income to be
below the applicable threshold amount.
An important additional feature of the means test is the
``safe harbor.'' If the debtor's current monthly income is
less than the appropriate state median income as determined
by current statistical information supplied by the Bureau of
the Census, then only the judge, United States trustee,
bankruptcy administrator, or trustee may bring a motion under
section 707(b). The safe harbor provides further limits
motions against debtors whose current monthly income is less
than the appropriate state median income as determined by
current statistical information supplied by the Bureau of the
Census, in that for such debtors, neither the judge, the
United States Trustee, the bankruptcy administrator, a
private trustee nor a party in interest can bring a motion to
dismiss under the presumed abuse provisions of the means
test. It is expected that the Bureau of the Census will
promptly make available state median income information by
family size for households of 1-4 members based upon
information it collects. For these purposes, a family or
household consists of the debtor and the debtor's dependents,
and in a joint case, the debtor's spouse. The median income
for families larger than 4 persons is determined by taking
the monthly median income for a family of 4 and adding $525
to that figure for each additional family member.
Under subsection (e) of section 102 of HR 2415, creditors
are permitted to report information concerning a debtor's
failure to satisfy the means test or other abuse to the
United States Trustee, bankruptcy administrator, case trustee
or judge assigned the
[[Page S11703]]
case, and participate with them in the preparation and
presentation of a motion to dismiss, as in Kornfield v.
Schwartz, 164 F. 3d 778 (2d Cir. 1999). Contacts with the
judge, however, cannot be ex parte.
The bill provides that the Internal Revenue Service
standards relied upon for the means test will be studied by
the Executive Office of United States Trustees, with a report
to the respective Judiciary Committees of both Houses of
Congress within 2 years of the effective date.
Disposable income test.--This section also amends section
1325(b)(2) to define disposable income for cases of debtors
with current monthly income over median income, using the
same basic concepts, to the extent they are applicable, that
are used in applying the means test. It is intended that
there be a uniform, nationwide standard to determine
disposable income used in chapter 13 cases, based upon means
test calculations.
Present law requires that in a chapter 13 plan, all of the
debtor's disposable income be used to pay creditors under the
plan, but does not define the term. This section both
requires (1) that all of the debtor's disposable income be
applied to pay unsecured creditors, and (2) that for debtors
whose current monthly income is in excess of the applicable
median income level, their disposable income be determined
using basic means test concepts which define current monthly
income (section 101(10A)), and allowable expenses (section
707(b)(2)(A)(ii), (iii) and (B)).
To determine disposable income for those over the
applicable median income level, first, current monthly income
as defined in HR 2415 is determined. From that amount,
amounts reasonably necessary to be expended for the
maintenance and support of the debtor or a dependent of the
debtor are deducted. The deductions for the expenses of
providing support and maintenance are to be determined in
accordance with the standards of section 707(b)(2)(A) and
(B). Thus, the debtor is allowed the amounts permitted for
food and housing under National Standards and Local Standards
issued by the Internal Revenue Service. Actual expenses for
other amounts in categories specified as Other Necessary
Expenses are also allowed, just as when applying the means
test. Expenses for secured debts which are paid outside of
the plan should be accounted for as required under
707(b)(2)(A)(iii), and payments for secured debt paid under
the plan should be what is provided in the plan as long as it
is not more than the amount permitted under that same
provision. Priority debt payments under the plan are not
reasonably necessary to be expended and should not be
included in the calculation, since under this provision,
disposable income is determined for the purposes of setting
the amount which must be paid to both nonpriority and
priority unsecured creditors. The means test only determines
the projected amount available to pay nonpriority unsecured
creditors.
The provision also provides for the adjustment of the
determination of disposable income if the debtor has
obligations to pay child support, foster care payments or
disability payments for a dependent child, and for certain
continuing charitable contributions as allowed under present
law. As with the means test, adjustments are also permitted
to income or expenses based on the ``special circumstances''
provisions of the means test.
Once net monthly income is determined, it is then
multiplied by the applicable commitment period to determine
the total amount which the plan must apply over its duration
to pay unsecured creditors. If the plan does not apply all of
disposable income to pay unsecured creditors, the plan is not
confirmable.
Administration of the means test.--Several important
additional provisions assist in the efficient administration
of the means test. Enforcement of the means test is in the
first instance the responsibility of the United States
trustee or bankruptcy administrator for the district in which
the chapter 7 case is pending. The United States trustee or
bankruptcy administrator will be involved in determining
whether debtors have accurately disclosed their income and
expenses, and in preliminarily reviewing debtor's claims that
``special circumstances'' exist which justify adjustments to
otherwise allowed monthly income and expense amounts. Case
trustees, judges and creditors are also entitled to
investigate means test issues and raise them by motions to
dismiss, or by bringing them to the attention of others
involved in the enforcement process.
When the debtor's chapter 7 petition is first filed, the
court is to review the debtor's income and expense schedule
and determine whether this is a case in which the presumption
in favor of dismissal applies. That will be determinable on
the face of the schedules, since debtors are required to do
the necessary calculations of the means test threshold. If
the presumptions arises, the court is to notify creditors
within ten days after the case is filed that this is a
presumption case.
Next, the United States trustee or bankruptcy administrator
is required to review the debtor's filing to evaluate whether
there should be a motion to dismiss filed. The United Sates
Trustee or bankruptcy administrator is to file with the court
a statement whether the debtor's case would or would not be
presumed to be an abuse under the means test of section
707(b) not later than 10 days after the date of the first
meeting of creditors. Moreover, if the debtor's current
monthly income is over the median income level and the
debtor's net income is more than the means test threshold,
the trustee or administrator must also either file with the
court a motion to dismiss, or a statement why no motion is
being filed. However, if the debtor's gross income is between
100% and 150% of median income, and the debtor's net income
determined in a special short-hand calculation based on core
expenses is under the threshold, the trustee is relieved of
any obligation to file a motion to dismiss. This ``mini
screen'' does not change the substantive requirements of the
means test. Its application is limited and is intended only
to permit the United States trustee or bankruptcy
administrator to use a short-hand method of calculating the
debtor's income available to pay creditors. If the short-hand
calculation of net income indicates that the debtor does not
meet ability to pay criteria, further administration of the
means test is not required. Otherwise, the full means test
calculation will be made to determine whether dismissal or
conversion is appropriate. In other cases, a similar
calculation can be made since the short-hand method of
calculation is one stage of the full means test calculation.
To ensure that debtors and creditors and their respective
counsel do not abuse the process, they are specifically
subjected to the standards of Bankruptcy Rule 9011 with
respect to the claims and defenses debtors and creditors and
their counsel assert in section 707(b) motions. Certain small
businesses with less than 25 employees are exempted from this
requirement. In addition, the accuracy of the schedules the
debtor must file with the petition, and particularly the
statements of assets, debts and income, expenses and means
test calculations, is enforced by a requirement that debtor's
counsel have no knowledge that the schedules are incorrect
after appropriate inquiry. An attorney's inquiry is expected
to be more than a cursory acceptance of the debtor's word and
must be sufficient to verify or disprove any knowledge,
information or belief which would lead a diligent attorney to
doubt the accuracy of the schedules.
Dismissal for abuse.--Dismissal under 707(b) is also
authorized when there is ``abuse''. It is intended that by
changing the standard for dismissal from ``substantial
abuse'' to ``abuse'', stronger controls will be available to
the courts, the United States trustee or bankruptcy
administrator, private trustees and creditors to limit the
abusive use of chapter 7 based on a wide range of
circumstances. The ``bad faith'' and ``totality of the
circumstances'' of the debtor's situation is adopted as an
appropriate standard. It is intended that all forms of
inappropriate and abusive debtor use of chapter 7 will be
covered by this standard, whether because of the debtor's
conduct or the debtor's ability to pay. If a debtor's case
would be dismissed today for ``substantial abuse'' as in In
re Lamanna, 153 F. 3d 1 (1st Cir. 1998), it is intended that
the case should be subject to dismissal under H.R. 2415.
Cases which have decided that a debtor's ability to pay
should not be considered when determining abuse, or can be
outweighed if the debtor is otherwise acting in good faith,
are intended to be overruled. In dealing with ability to pay
cases which are abusive, the presumption of abuse and the
safe harbor protecting debtors from application of the
presumption will not be relevant.
In addition, the standard of abusive conduct is
specifically intended to include consideration of whether a
chapter 7 filing is being used without justification to
secure rejection of a personal service contract.
Section 104. Notice of alternatives
This provision amends Bankruptcy Code section 342(b) to
expand on the contents of the notice which an individual
debtor whose debts are primarily consumer debts must receive
before filing a bankruptcy petition. The content and form of
the notice is to be prescribed by the United States trustee
or bankruptcy administrator for the district in which the
petition is filed, and must contain a description of chapters
7, 11, 12 and 13, review the benefits and costs of each
chapter, the services that are available from a nonprofit
credit counseling agency, and a disclosure of the debtor's
responsibilities in completing a petition with respect to the
accuracy of the schedules and other information provided. It
is intended that this notice will be in an easily understood
form, designed to assist debtors in better understanding the
alternatives for debt adjustment offered by the Bankruptcy
Code, the debtor's responsibilities in seeking such relief,
and as uniform as possible throughout the country.
Section 105. Debtor Financial Management Training Test
Program
The Executive Office of United States Trustees is directed
to develop financial management training curricula and
materials to educate individual debtors in personal financial
management. The materials are to be developed after
consultation with experts. The materials are to be tested in
6 judicial districts over 18 months. At the end of the test,
a report on the results is to be provided to the Speaker of
the House and the President pro tem of the Senate.
Section 106. Credit counseling
Credit counseling is an alternative to filing bankruptcy
for some debtors. It is intended that debtors be fully
informed before they file bankruptcy about this less drastic
alternative to bankruptcy in all instances, but particularly
when they have only received information about their
alternatives from petition preparers or attorneys.
[[Page S11704]]
This provision establishes the requirement that before
individual debtors file for bankruptcy, they must be made
aware that credit counseling services are available. Debtors
are not required to actually undergo credit counseling, but
they must be made aware that such alternatives to bankruptcy
do exist. The case of a debtor must be dismissed if it is
filed without meeting that requirement unless the debtor can
demonstrate exigent circumstances which temporarily excuse
satisfying the requirement. It is expected that when courts
do not enforce this requirement sua sponte, the United States
trustee or bankruptcy administrator will bring the matter to
the court's attention by appropriate motion, but any trustee
or other party in interest could do so.
Concern has been expressed that the bankruptcy relief
debtors obtain under present law stops at the discharge,
failing to educate debtors about basic budget management so
they can avoid financial difficulties in the future. Under
this section, individual debtors will be required to attend a
course of instruction in personal financial management
approved by the United States trustee or bankruptcy
administrator for the district in which the petition is
filed. It is intended that the United States trustees and
bankruptcy administrators will strongly promote the
development of effective courses, both through the formal
approval process and informally. If the debtor fails to
attend a required course, the debtor will not be able to
obtain a discharge in either chapter 7 or 13. Provisions
similar to those applicable to credit counseling allow the
United States trustee or bankruptcy administrator to excuse
all filers in a district from the requirement if the trustee
or administrator finds that there are not enough providers of
the courses in the district. Congress intends that this
exemption will not be lightly imposed, and that the trustee
or administrator will use every reasonable effort to see that
there are adequate credit counseling and courses of
instruction available.
Credit counseling agencies and courses of instruction
concerning financial management included in the program must
be approved by the United States trustee or bankruptcy
administrator for the district. This section sets standards
which the United States trustee or bankruptcy administrator
must apply in deciding whether to approve a particular agency
or course. Prior to approval, the qualifications of the
agency or course are to be carefully reviewed by the United
States trustee or bankruptcy administrator. It is intended
that they will require applicants to provide adequate
information about qualifications and programs for this
purpose. Agencies and courses will be initially approved only
for a probationary period of no more than 6 months. After
that, their qualifications and performance will be reviewed
each year by the United States Trustee or bankruptcy
administrator. Review of the United States trustee or
bankruptcy administrator's decision to renew approval for the
first full year term after the probationary period and every
2 years thereafter is available in the United States district
court at the request of any party in interest. In addition,
at any time the district court sitting as a bankruptcy court
can review and disapprove an agency or course of instruction.
Section 107. Schedule of reasonable and necessary expenses
This provision directs the Director of the Executive Office
of United States Trustees to issue schedules of reasonable
and necessary administrative expenses for each judicial
district not later than 180 days after enactment. It is
intended that the administrative expenses for these purposes
include only the chapter 13 trustee's fee as allowed in the
district from time to time, and that the schedules will be
revised as necessary to reflect changes in that fee. Since
the trustee's fee is determined as a percentage of payments
made to creditors, the Director may determine that
the appropriate way to state the schedule is by providing
percentage amounts and a method for determining projected
plan payments. These will generally just be unsecured
debts unless there is a compelling reason to conclude
otherwise.
title ii--enhanced consumer protections
Section 201. Promotion of alternate dispute resolution
This section permits the court, on motion of the debtor and
after a hearing, to reduce a claim based in whole on
unsecured consumer debts by not more than 20% if (1) the
claim was filed by a creditor who unreasonably refused to
negotiate a reasonable alternative repayment system proposed
by an approved credit counseling agency acting on behalf of
the debtor; (2) the debtor's offer was made at least 60 days
before the filing of the bankruptcy petition and provided for
payment of at least 60% of the debt over the repayment period
of the loan, or a reasonable extension thereof; and (3) no
part of the debt under the alternative repayment schedule is
nondischargeable. An approved credit counseling agency means
one approved under the credit counseling provisions of this
Act.
This section applies only to claims which are based on
debts which are wholly unsecured consumer debts. The
provision is also carefully drafted so as only to require
creditors to negotiate, when reasonable, alternative
repayment systems so long as they are reasonable. It does not
require creditors to accept any alternative repayment
proposal, although it is expected that negotiations could
result in reasonable alternative plans being adopted.
Furthermore, the debtor's proposal must provide for at least
60% repayment to the creditor. The debtor's proposal should
not be considered reasonable if it is unlikely the debtor
will be able to make the repayments as proposed.
Section 202. Effect of discharge
A creditor's willful failure to credit plan payments in the
manner required by the plan is a violation of the post-
discharge injunction under section 524(a)(2) if the
creditor's acts to collect and failure to credit payments in
the manner required by the plan causes material injury to the
debtor. However, if a plan has been dismissed, is in default,
or the creditor has not received payments required under the
plan, the failure to credit the payments is not a violation
of the injunction.
This provision also clarifies that it is not a violation of
the post-discharge injunction for a creditor that holds a
claim secured in whole or in part by real property that is
the debtor's principal residence to take actions in the
ordinary course of business to seek or obtain periodic
payments associated with a valid security interest in lieu of
a mortgage foreclosure or other enforcement proceeding not
barred by the injunction. Congress intends this provision to
clarify the law in this area so as to provide a safe harbor
for mortgage lending, but the existence of this clarifying
provision is not intended to suggest that similar action
taken by creditors whose debt is not secured or is secured by
other types of property would be a violation of the post-
discharge injunction.
Section 203. Discouraging abuse of reaffirmation practices
This provision amends section 524(c)(2) of the Code to
provide a clearly understandable disclosure form to explain
the debtor's rights and obligations in the reaffirmation
process. It is intended that a single nationwide form as set
out in the statute will be used for all reaffirmations in all
bankruptcy courts, and that it will be the only disclosure
required in the reaffirmation process. It is expected that
the nationwide form will assist those who teach budgeting and
financial management in secondary schools, provide credit
counseling, or assist those in financial difficulty in
educating consumers about the benefits and disadvantages of
reaffirmations so that debtors who do reaffirm will be better
informed about what they are doing. The provision is also
intended to create a nationwide method of processing
reaffirmations so that companies who must administer
reaffirmations in several areas are freed from special
requirements in particular localities.
The statutory form, in addition to clearly explaining to
debtors what they are doing when they reaffirm, also provides
a form which may be used as the reaffirmation agreement and a
form for the debtor's attorney's certification when the
debtor is represented. Debtors must also fill out a Part D in
which they state their ability to pay the amount being
reaffirmed based upon their income and expenses, including
other reaffirmed debts. If debtors cannot complete the form
showing they have ability to pay the reaffirmed amount, there
is a presumption of undue hardship for a period of 60 days,
and the reaffirmation must be submitted for review by the
court even when the debtor's attorney certifies that the
reaffirmation is in the debtor's best interest. Since income
and expenses for these purposes are those the debtor will
have post-discharge, the standards of income and expense
under section 102 of HR 2415 are not relevant. The debtor's
actual post-discharge income and expenses as the debtor
determines them will control.
Credit unions are permitted to change the form to reflect
that the debtor may fill out a simpler Part D when a credit
union member is reaffirming a debt. The credit union member
only needs to indicate that will pay the reaffirmed
obligation, and there is no presumption of undue hardship or
requirement of review by the judge.
Creditors and debtors must make good faith efforts to
comply with the requirements imposed by this section.
However, there is no intention that errors in completing or
using the disclosure forms or complying with the procedural
requirements of this section will be construed as a violation
when those errors occur in good faith. Under present law,
violations of the reaffirmation requirements are enforceable
only as violations of the post-discharge injunction.
Enforcement of the injunction is an equitable proceeding in
which the equities are weighed, courts take into account the
good faith of the creditor. Under this section, creditors may
accept payments from debtors before and after the filing of a
reaffirmation agreement, and may accept and retain payments
under a reaffirmation agreement which the creditor believes
in good faith to be effective, even though subsequently it is
determined that the reaffirmation agreement is not in fact
effective. For example, if the creditor and debtor agree
that the debtor is responsible to file the reaffirmation
agreement, and the debtor does not do so, the creditor
should be able to accept and retain payments from the
debtor unless it knew the debtor had not in fact filed the
agreement with the court. Likewise, if a debtor indicates
that he or she has ability to pay in Part D, a creditor
can rely upon that statement. Moreover, the requirements
of subsection (c)(2) and those added by this section are
satisfied if the disclosures required under those
provisions are given in good faith. For the purposes of
this section, ``good faith'' is
[[Page S11705]]
to be broadly construed as honesty in fact under the
circumstances. The narrow standard of good faith under the
Truth in Lending Act is not intended.
The requirements of present law are continued that debtors
who do not have counsel who will certify that a reaffirmation
is in the debtor's best interest must have the reaffirmation
approved by the court before it can be effective. Otherwise,
a reaffirmation is effective upon filing the completed and
signed statutory form and reaffirmation agreement with the
court.
The provision also directs that United States attorneys in
each district will designate a specific person within their
offices to address violations of criminal law relating to
bankruptcy crimes when they involve abusive reaffirmations or
materially fraudulent statements on schedules.
Subtitle B--Priority Child Support
Bankruptcy law has long recognized the legal and moral
importance of the payment of obligations incurred by a debtor
for the support of his or her spouse and children. As such,
it has striven to avoid having bankruptcy become a haven for
those who would avoid such obligations or an inadvertent
impediment for those who wish to comply with those
obligations. However, the treatment of domestic support in
bankruptcy had developed somewhat haphazardly over time as
new issues and concerns have been raised and addressed
piecemeal. Moreover, the Code had lagged behind in dealing
with the changing legal status of payments made to
governmental entities for such obligations, specifically
whether such payments were to be paid directly to support the
child or family of the debtor, or were to be retained by the
government because the parent or child was receiving public
assistance.
Under current nonbankruptcy law the status of a support
obligation may change rapidly as the recipient moves on or
off government assistance even though the underlying
responsibility to support the child or family is unaltered.
Thus, there is little reason for payments of domestic support
obligations to governmental entities not to be treated
equally with payments of such obligations directly to a
parent or child, or for a debtor to have a lesser duty to
satisfy those debts.
Prior to HR 2415 the principle of favored treatment for all
domestic support obligations had only been partially
recognized in the Code, and there were a number of areas in
which bankruptcy filings impacted domestic matters which were
not dealt with at all.
Accordingly, Congress undertook a comprehensive review of
all aspects of the treatment of domestic support obligations
under the Code to determine how to create a coherent and
consistent structure to deal with such obligations in
bankruptcy.
The following basic principles were employed in the support
amendments contained in these provisions:
1. Bankruptcy should interfere as little as possible with
the establishment and collection of on-going obligations for
support, as allowed in State family law courts.
2. The Bankruptcy Code should provide a broad and
comprehensive definition of support, which should then
receive favored treatment in the bankruptcy process.
3. The bankruptcy process should insure the continued
payment of on-going support and support arrearages with
minimal need for participation in the process by support
creditors.
4. The bankruptcy process should be structured to allow a
debtor to liquidate nondischargeable debt to the greatest
extent possible within the context of a bankruptcy case and
emerge from the process with the freshest start feasible.
There were a number of areas under former law where these
goals were not met. Support and debts in the nature of
support were not treated uniformly in the Bankruptcy Code or
by bankruptcy courts. Conspicuously, debts owed to the
government and based upon the payment of government funds for
the maintenance and support of the children or family of the
debtor were not given the advantages which the Code affords
to debts payable directly to the family of the debtor.
Specifically, support debts assigned or owed to the
government on the petition date have not been entitled to any
priority under section 507(a), have not been protected from
loss of their secured status under section 522(f)(1)(A), and
have been recoverable by the trustee as a preference under
section 547(c)(7)(A). Conversely, support debts which were
not assigned on the petition date were entitled to superior
treatment as provided in sections 507(a)(7), 522(f)(1)(A),
and 547(c)(7)(A).
Because support debts which are assigned to a governmental
entity when a petition is filed may become unassigned during
the course of a Chapter 12 or 13 bankruptcy plan, and vice
versa, the disparate treatment of these debts in the
Bankruptcy Code makes little sense. A family which is in need
of support after assistance terminates certainly should not
lose the advantages the Code gives unassigned support simply
because the support was assigned on the petition date. The
contrary was also true. Governmental entities under former
law received the advantages given to the creditor of
unassigned support when the support became assigned during
bankruptcy. An overriding purpose of Subtitle B is to
eliminate substantially such distinctions in the treatment of
support obligations.
In addition to the disparate treatment of support debts
found in the Code, the courts also drew distinctions with
respect to the dischargeability of support debts owed to the
government and support debts owed to the parent or child of
the debtor. These distinctions were often arcane and
technical. To illustrate, if the debts were owed to the
government and based upon the payment of public
assistance, the dischargeability of such debts turned on
the irrelevant circumstance of when the aid was paid. As a
result, judgment debts for support based upon the payment
of public assistance prior to the date a petition for on-
going support was entered could be discharged while an
arrearage accrued under an on-going order could not, even
when the support debts were based on identical criteria.
And contributing to a lack of uniformity, the decisional
law was not consistent. Moreover, many debts which were
incurred by a debtor based upon the responsibility of a
governmental entity to provide for the support and
maintenance of a child, but which debts were never owed to
the child or family of the debtor directly, could be
discharged. In particular the following were found to be
dischargeable: debts incurred for the costs of maintenance
of a child in a juvenile detention facility; debts
incurred to support a child who was made a ward of the
state; debts for support which had not been reduced to a
judgment at the time the bankruptcy petition was filed;
and debts for child support and maintenance resulting from
the placement of the debtor's children in shelter care
facilities. In all of these situations debtors have the
same legal, equitable, and moral obligations to provide
for the support of their children, but under the
peculiarities of former law they could transfer that
burden to the taxpayers. The domestic support enforcement
provisions of HR 2415 is designed to insure compliance
with those obligations, during and after bankruptcy.
Section 211. Definition of domestic support obligation
To ensure that all debts relating to the support of a
debtor's spouse, former spouse, family or child are given a
similar treatment in bankruptcy, section 211 of HR 2415
provides a sweeping definition for the concept of a
``domestic support obligation.'' This definition is intended
to clarify the following:
1. The domestic support obligation includes interest on
that obligation as provided under applicable nonbankruptcy
law. Thus, if a State provides for prejudgment or
postjudgment interest on support, such interest is included
in the definition of a domestic support obligation.
2. To be nondischargeable support, the obligation must be
owed to or recoverable by a ``spouse, former spouse, or child
of the debtor or such child's parent, legal guardian, or
responsible relative'' or the debt must be owed to a
governmental unit. As distinguished from former law as
interpreted by the courts, the debt no longer need be owed to
the person or entity filing the claim. It need only be
recoverable by such entity. This definition is meant to
preserve present statutory or decisional law affecting the
dischargeability of debts in the nature of support owed to
attorneys or other persons or entities providing assistance
to the creditor spouse and children in a domestic proceeding.
Nor is there any remaining requirement that the debt be
assigned to a government or recoverable under Title IV-D of
the Social Security Act for the debt to be excepted from
discharge. The debt need only be owed to or recoverable by a
governmental unit. Likewise, the debt does not become
dischargeable simply because the support was ordered to be
paid to the government or a nonparent. Support ordered to be
paid to a legal guardian or responsible relative is also not
dischargeable.
3. As under the former law, to be excepted from discharge
the debt must be ``in the nature of support.'' Unlike the
former law, however, a debt based upon assistance provided by
a governmental unit for the benefit of a spouse, former
spouse or child of the debtor, is now specifically included
as a debt in the nature of support. This classification
applies whether or not the debt incurred by the debtor is
specifically designated as support and whether or not the
spouse, former spouse or child has a separate legal right to
establish a support obligation.
4. Under former law the support debt had to made ``in
connection with a separation agreement, divorce decree, or
other order of a court of record.'' Therefore, it was
arguable that if the debt had not been reduced to an
agreement, decree or order on the date a petition for relief
was filed, it was not excepted from discharge. The new
definition of a domestic support obligation specifies to the
contrary that the debt may be established ``or subject to
establishment before or after an order for relief'' to
qualify as a nondischargeable debt.
5. Finally the definition of a domestic support obligation
continues to exclude support which has been assigned to a
nongovernmental entity, unless the assignment is merely made
for the purpose of collecting the debt. This definition
codifies existing case law.
Having created this definition of a ``domestic support
obligation,'' HR 2415 uses it in twenty specific places. In
so doing, HR 2415 generally treats support related debts
similarly, no matter how the debt arose or to whom the debt
is owed.
Section. 212. Priorities for claims for domestic support
obligations
All domestic support obligation debts are given a first
priority. Within that priority
[[Page S11706]]
two categories of support debts are established. Support
debts owed directly to support recipients, as of the date of
the bankruptcy petition, are paid prior to debts owed or
assigned to the government. Therefore all claims filed as
priority 1(A) must be paid prior to claims filed as priority
1(B).
When, however, such claims are filed by a governmental unit
and that unit receives payments on the claim, the subsequent
application and distribution of moneys are governed not by
the claim as it existed on the petition date, but by
nonbankruptcy law applicable to such governmental units.
Thus, receipt of money claimed as a priority 1(A) debt may be
distributed by the government to reimburse itself for the
payment of public assistance if the creditor assigns that
debt to the government postpetition. Likewise, debts which
are assigned to the government prepetition and claimed as
priority 1(B) debts will be distributed directly to the
support obligee if the debt is no longer assigned as of the
date the government received the funds.
Other changes in distribution may also occur. If the
trustee pays a governmental entity on a claim in one month,
and the debtor owes but has not paid a support order accruing
in that month, the governmental unit may credit the payment
to the current month's obligation, not to the claim. The
governmental unit may also credit any payment received on
the claim against newly accrued postpetition judgment
interest, rather than against the principal portion of the
claim. The purpose of these rules relating to governmental
support claims is to allow the distribution of money
received as support in the same manner it would be
distributed if the debtor had not filed a bankruptcy
petition.
Section 213. Requirements to obtain confirmation and
discharge in cases involving domestic support obligations
Section 213 sets up four check points to ensure that
debtors are complying with their domestic support obligations
when they have filed a bankruptcy case under Chapters 11, 12,
and 13.
1. A case can be converted or dismissed at any time if the
debtor does not remain current in the payment of an on-going
support obligation. Under former law the Code did not
explicitly require such payments or mandate an early
termination of a plan when a debtor was not in compliance
with an on-going support order, although some courts used
their discretion to dismiss such cases for ``cause.'' HR 2415
allows the court to convert or dismiss a Chapter 12 or 13
plan for failure of the debtor to pay postpetition on-going
support.
2. To be confirmed a plan must provide for payment of all
past due priority claims for domestic support obligations.
The Code does, however, provide two exceptions. It allows a
creditor the option of accepting less than full payment under
the plan. It also allows a debtor to ``cram down'' a less
than full payment plan for priority support debts which are
assigned to a governmental entity, so long as the plan
provides for payment of all disposable income of the debtor
for the maximum five year period allowed for a plan in
Chapters 12 and 13. However, since these debts will not be
discharged in any event, the debtor will be given a
substantial incentive to propose and complete such a plan.
3. A plan under Chapters 11, 12, and 13 may not be
confirmed unless the debtor has remained current in the
payment of all support first becoming due postpetition. Nor
can a debtor in a Chapter 12 or 13 case obtain a discharge
unless all support becoming due postpetition has been paid.
These provisions are designed to be self-executing, at least
to the extent they do not require affirmative action on the
part of a support creditor to implement them. Payment of
domestic support obligation arrears, in order to receive a
discharge, is required only to the extent ``provided for by
the plan.'' Thus, agreements made at the time of confirmation
to accept less than full payment or the use of ``cram down''
rights possessed by the debtor may allow the debtor to
receive a discharge without full payment of all prepetition
domestic support obligations. Of course, completion of such a
plan would not discharge any remaining domestic support
obligations, but would allow the debtor to be relieved from
other debts covered by the general discharge under the
relevant chapter.
4. HR 2415 allows, but does not require, the debtor to
include in a plan the payment of postpetition interest on a
nondischargeable debt if the debtor is able to do so after
paying other debts. This provision is a departure from former
law which did not allow a claim for interest, unless the
claim was secured, even though interest continued to accrue
on nondischargeable debts. As a result, even if the debtor
provided for full payment of the prepetition support debt,
this debtor would be left at the end of the plan with a
remaining debt for interest. Accordingly, while a debtor will
often not have sufficient income to make postpetition
interest payments, the debtor may wish, if feasible, to make
such payments in order to obtain a fresh start at the
completion of the plan.
Section 214. Exceptions to automatic stay in domestic support
obligation proceedings
HR 2415 also adds additional exceptions to the automatic
stay. Under section 362(a) various activities of creditors
are stayed once a bankruptcy petition has been filed. Under
former law there were exceptions to the automatic stay which
permitted the establishment of paternity, and the
establishment or modification of a support order but they did
not deal with a number of other domestic issues. In addition,
under former law the automatic stay did not apply to the
collection of support so long as it was collected from
property which was not property of the bankruptcy estate.
Since property of the estate included debtor's income in
Chapter 12 and 13 cases, at least until confirmation of the
plan, a support creditor had no way of obtaining either on-
going support or prepetition support arrearages, unless the
obligor/debtor paid these debts voluntarily or the creditor
obtained relief from the stay. These amendments deal with
both issues. They include the following:
1. The existing exceptions are amended to refer to the new
definition of a domestic support obligation. Additional
language is added to clarify that certain other family-
related matters such as custody, divorce, and domestic
violence proceedings may continue to be pursued without
obtaining relief from the automatic stay except to the extent
a divorce proceeding seeks to deal with the division of
estate property. Property division issues in a divorce are
not intended to impinge on the exclusive jurisdiction of the
bankruptcy court over estate assets.
2. Section 362(b)(2)(C) is added to provide for the
withholding of income from property of the debtor or from
property of the estate for the payment of a domestic support
obligation. In this provision Congress has divested the
bankruptcy court of exclusive jurisdiction over the
bankruptcy estate to the extent a debtor's wages are estate
property. Under prior law such withholding would have been
allowed only if it were determined that the debtor's income
was no longer property of the estate. This section
specifically allows the use of estate property to pay support
through the wage withholding process without any bankruptcy
imposed limitation. The purpose of this provision is to allow
income withholding to be implemented or to continue after a
Chapter 11, 12 or 13 petition is filed, just as it would if a
Chapter 7 petition were filed. The income withholding
provisions were enacted to allow compliance with procedures
mandated in the Child Support Enforcement Program, Social
Security Act, Title IV-D. Income withholding applies to the
collection of on-going support and support arrearages. It may
be implemented by court order or through an administrative
process.
3. Use of other support enforcement techniques are also
excepted from the reach of the automatic stay. Under the
amendment, the withholding, suspension, or restriction of
drivers' licenses, professional and occupational licenses,
and recreational licenses under state law as provided in the
Social Security Act is not stayed. Likewise, the automatic
stay does not bar the reporting of overdue support to a
consumer reporting agency as required by the Social Security
Act. Also excepted from the automatic stay is the
interception of tax refunds as required by the Social
Security Act. Thus, refunds which are payable to the debtor
by the State taxing authorities or the IRS, and even refunds
which the debtor intends to include or includes in his or her
bankruptcy estate, may be seized to satisfy support
obligations as required or allowed under State and federal
law without requiring relief from the automatic stay.
Finally, under the enforcement of medical support obligations
as mandated by the Social Security Act is not stayed.
Section. 215. Nondischargeability of certain debts for
alimony, maintenance, and support
This section makes all domestic support obligations non-
dischargeable. The most significant effect of this change is
that all debts owed to a governmental entity which are
derived from payments by the government to meet needs of the
debtor's family for support and maintenance are excepted from
discharge. This change will nullify the holdings cited in
footnotes 2, 4, 5, 6, and 7. By amending 523(a)(5) and (15),
all ``domestic support obligations'' as broadly defined in
new section 101(14A) of the Bankruptcy Code are excepted from
discharge.
Section 215 also makes nondischargeable all non-support
debts incurred in connection with a divorce or separation.
Previously such debts may have been determined to be
nondischargeable only if the support creditor brought a
timely proceeding to determine the dischargeability of the
debt and proved not only that the debtor had the ability to
pay the debt but that discharging the debt would result in a
benefit to the creditor which outweighed the detriment to the
debtor. This provision gives debts resulting from the
division of property the same protection from discharge as
support debts.
Section. 216. Continued liability of property
Section 522(c)(1) of the Code, as amended by this section,
incorporates the new definition of a domestic support
obligation into the existing provision which subjects
otherwise exempt assets to debts for nondischargeable taxes
and support obligations. This section expands this principle
to preempt state law and specifically provides that under
federal law such exempt property must be made available to
satisfy a domestic support obligation, notwithstanding state
law to the contrary. The purpose of this provision is to
nullify the Fifth Circuit en banc holding in Matter of Davis,
170 F.3d 475 (5th Cir. 1999), and to reinstate the holding of
the original Fifth Circuit panel.
[[Page S11707]]
Section 522(f)(1) allows a debtor to avoid judicial liens
on exempt property, but contains an exception for liens which
secured unassigned child support. This section extends this
exception to domestic support obligations. Therefore, any
judicial lien placed on the debtor's property which secures a
support related obligation, whether assigned or not, may not
be avoided even though the lien impairs the exemption to
which the debtor would otherwise have been entitled.
Section 217. Protection of domestic support claims against
preferential transfer motions
Section 547(c)(7) previously barred the trustee from
recovering, as a preferential transfer, bona fide payments of
an unassigned support obligations. This section extends this
exception to all domestic support obligations.
Section 218. Disposable income defined
This section adds language to the disposable income test
under chapters 12 and 13. The language added to chapter 13
simply repeats language already added by section 102 of this
Act.
Section 219. Collection of child support
This section improves the information available to child
support and alimony claimants when the person who owes
support or alimony files for bankruptcy. In those cases, the
chapter 7, 11, 12 or 13 trustee is to provide both the
support claimant and the State child support collection
agency with information about the filing, and inform the
claimant about the availability of free or low cost
collection services through the State agency. Additionally,
when the debtor is discharged, the trustee is to notify the
claimant and the State agency of the fact of the discharge
and certain information about the location of the debtor. If
a debt has been determined to be nondischargeable or is
reaffirmed, the trustee is also to notify the claimant and
the State agency of the name of the creditor affected.
Creditors whose names are the subject of a notification are
required, when asked, to provide the last known address of
the debtor.
Section 220. Nondischargeability of certain educational
benefits and loans
This provision makes certain student loans offered by non-
governmental creditors nondischargeable.
Section 221. Amendment to discourage abusive bankruptcy
filings
This provision inserts strong new regulation of bankruptcy
petition preparers. It is intended that this regulation be
strongly enforced.
Section 222. Sense of Congress
The sense of Congress is expressed that States should
develop courses on personal finances for use in primary and
secondary education. Consumer credit has become widely
available in our economy. Congress considers it to be of the
greatest importance that educational programs like those
sponsored and promoted by the Jump Start Coalition of
governmental and private entities be encouraged. By educating
children when they are young in the basics of personal
financial management, inappropriate use of consumer credit
can be reduced, and better ability of average citizens to
manage financial crises can be promoted.
Section 223. Additional amendments
This section provides a new 10th priority under section 507
of the Bankruptcy Code for claims based on driving while
intoxicated under influence of drugs.
Section 224. Protection of retirement savings
This provision broadens the exemptions for retirement
savings available under present law to cover all forms of
pensions and savings plans allowed to be exempt from current
income taxation under the Internal Revenue Code. It provides
protection from creditors' claims for tax-favored retirement
plans or arrangements which are not already protected from
creditors' claims under current law. The section carries no
implication that the protection from the bankruptcy estate
afforded to plans by virtue of section 541 of the Bankruptcy
Code as applied in the Shumate decision, and the line of
cases following that decision, or by any provision of the
Bankruptcy Code or other state or federal law that protect
plan assets from creditors, is in anyway reduced. This
amendment to the Bankruptcy Code is in accordance with
longstanding Congressional policy of conserving and
preserving plan assets for use as retirement security for
participants in their retirement years. As such, it is
intended to be in addition to the protections provided by
current law and is not in any way intended to supplant or
supercede protections which exist in current law.
Section 224 covers plans that have received determination
letters from the Internal Revenue Service as well as plans,
such as public plans, that have not received such letters but
are intended to be operated in accordance with ERISA and or
Internal Revenue Code, as applicable. It also covers plan
assets in transit such as when they are directly transferred
by a plan administrator to a plan sponsored by another
employer or to an Individual Retirement Account. The same
protection is provided when the plan assets are distributed
directly to an employee upon termination of employment and
within 60 days of the distribution of the employee transfers
the distributed amount in another qualified retirement plan
or into an Individual Retirement Account.
In addition, the Section provides that if there is an
outstanding pension plan loan to a participant at the time of
bankruptcy filing such loan is not to be discharged or a stay
issued on any withholdings from the wages of the debtor that
are being used to make level repayments of the loan. A stay
of the withholding would result in a default and under the
ERISA rules cause the amount of the unpaid balance to become
taxable income. The ensuing tax liability would take
precedence over unsecured creditors' claims. A plan loan is
actually a special nontaxable distribution which the
participant is expected to return to the plan.
Under the asset limitation provision of this section, the
maximum amount exempt for bankruptcy purposes in an IRA or
Roth/IRA, other than a simplified employee pension under
section 408(k) of the Internal Revenue Code or a simple
retirement account under 408(p) of the Internal Revenue Code,
is limited to $1,000,000, excluding rollover contributions
under 402(c), 402(e)(6), 403(a)(4), and 403(a)(5) of the
Internal Revenue Code, as well as earnings thereon. The
$1,000,000 maximum amount is subject to adjustment under
section 104 of the Code. In addition, the $1,000,000 maximum
amount is subject to increase if the interests of justice so
require.
Section 225. Protection of Education Savings
Section 225 protects certain educational savings in the
event of bankruptcy. Qualified State Tuition Programs
represent a joint effort by the federal government and the
states to encourage saving for post-secondary education.
Congress has expressed a clear interest in encouraging the
post-secondary education of children by permitting
individuals to save exclusively to cover the expenses of
higher education through Qualified State Tuition Programs on
a tax-favored basis. However, Congressional interest in
promoting saving for post-secondary education would be
frustrated if accounts in Qualified State Tuition Programs
are pulled into the bankruptcy estate of the debtor because
of certain rights of the donor.
Therefore, with certain exceptions, section 225 excludes
from a debtor's bankruptcy estate funds and earnings on such
funds contributed to an account established pursuant to a
qualified state tuition program under Section 529 of the
Internal Revenue Code of 1986, as amended (``IRC''). The
funds in these accounts may be used for qualified higher
education expenses (including tuition, fees, books, supplies
and room and board) of a designated beneficiary of the debtor
and cannot be transferred to any person other than a
qualified family member without adverse federal tax and other
consequences. Section 225 would only permit exclusion from
the bankruptcy estate funds in qualified state tuition
programs for a restricted group of designated beneficiaries,
limited to children and grandchildren (including step-
children and step-grandchildren). The provision recognizes
that adopted and foster children fall into this category and
that ``step-grandchild'' is intended to include both the
stepchild of the debtor's child as well as the child of the
debtor's stepchild.
This provision makes clear that, subject to certain
requirements, contributions to these accounts are not to be
pulled into the debtor's estate for bankruptcy purposes. All
contributions and earnings thereon are thus protected except:
(1) contributions made to a program less than 365 days before
the date of filing the bankruptcy petition; or (2)
contributions in excess of $5000 made to a program less than
720 days before filing the bankruptcy petition.
Section 225 includes similar provisions extending
protection to funds placed in education individual retirement
accounts, as defined in Section 530 of the Internal
Revenue Code.
Sections 226-229. Debtor's bill of rights
These four sections, derived from federal law regulating
credit repair agencies, provide for new disclosures and
restrictions on practices with which bankruptcy petition
preparers, attorneys and anyone else who meets the definition
of a debt relief agency must comply. Congress was concerned
that debtors who file bankruptcy be better informed about the
nature and scope of bankruptcy, the different remedies that
are available, and the significance of the step they are
taking, so that they can both better evaluate it, better
understand what is going to happen, and better protect
themselves. It is also the intent that debtors be better able
to negotiate with their attorneys about fees and services
provided. For example, provisions require that debtors be
clearly informed about what services an attorney will provide
the debtor and for what fee.
Bankruptcy petition preparers must comply with these
provisions as well as those imposed under the Code and
section 221 of HR 2415.
Section 226. Definitions
This section defines various terms, including who is an
``assisted person'', what is ``bankruptcy assistance'', and
who is a ``debt relief agency''. It is intended that these
provisions be broadly interpreted since they define the scope
of the protections which debtors receive under the related
provisions. Authors, publishers, distributors or sellers of
works subject to copyright protection when acting solely as
such an author, publisher, distributor or seller are excluded
from the definition. Thus an attorney who writes a book on
how to file bankruptcy is not a debt relief agency when
promoting or selling the copyrighted book. But when that same
attorney represents debtors filing petitions, the attorney is
a debt relief agency because no
[[Page S11708]]
longer acting in the capacity of an author, even if he gives
his clients a copy of the book.
Section 227. Restrictions on Debt Relief Agencies
This section creates a new section 526 of the Code which
proscribes certain practices by debt relief agencies and
provides for enforcement of violations of this section and
new Code sections 527 and 528.
Enforcement is provided for any violations of new Code
section 526, 527 or 528. Intentional or negligent failures to
comply with any requirements of the three sections permit the
debtor to obtain restitution of any fees or charges made by
the agency, as well as actual damages and reasonable
attorneys fees. The same damages are available for
intentional or negligent disregard of the material
requirements of the Bankruptcy Code or Rules. Any contract
for bankruptcy assistance that does not comply with the
material requirements imposed is void, except that the
assisted person can enforce it. State attorney generals are
also empowered to enforce the provisions of these sections,
and the United States District Court are granted concurrent
jurisdiction of any such enforcement proceeding. The court,
the United States Trustee or the debtor may also seek
injunctive relief or civil penalties against intentional
violators or those with a clear and consistent pattern or
practice of violation of any of these sections.
The section also provides that its requirements in new
sections 527 and 528 do not excuse any person from complying
with State laws unless the State law is inconsistent with
those sections. Also specifically preserved from preemption
are any practice of law requirements under State or federal
law if they conflict with the requirements of sections 526,
527 or 528 added to the Code. It is not expected that any of
these new sections will impose upon debt relief agencies
requirements that would force them to violate applicable
unauthorized practice of law restrictions. For example,
providing the disclosures under section 527 should not be the
practice of law, since the content of the disclosure is set
by federal law and does not involve giving a debtor advice.
For similar reasons, the additional information debt relief
agencies are required by section 527(c) with respect to
valuation of assets, completion of the list of creditors and
exempt property should not involve giving legal advice.
However, in the event applicable unauthorized practice rules
proscribe non-lawyers from providing such information, the
provision states that it is only required to the extent
permitted by nonbankruptcy law.
Section 228. Disclosures
This section creates new Bankruptcy Code section 527 which
requires a debt relief agency to deliver to an assisted
person required disclosures either described or set forth in
the section. Within 3 business days after the agency first
offers to provide bankruptcy assistance in a written, face to
face, telephone, internet or similar solicitation or contact,
the agency must provide, the agency must provide a clear and
conspicuous written notice which states that the information
the assisted person provides in the bankruptcy proceeding
must be complete, accurate and truthful, assets and
liabilities must be completely and accurately disclosed and
assets must be valued and income and expenses stated after
reasonable inquiry, and that information provided may be
audited. Before the commencement of the case, the agency must
provide the debtor with the notice required under section
342(b)(1) (as amended by this Act) and an additional
disclosure set forth in the section which explains the
bankruptcy process and relief and what the debtor can expect.
The agency must also instruct the debtor in how to value
assets, how to complete the list of creditors, and how to
determine exempt property. Record keeping requirements are
imposed upon the agency to keep copies of the notices
required under this section for a period of 2 years after
delivery. It is expected that the Bankruptcy Rules will
provide model forms of disclosure and specify further the
time and manner in which these disclosures will be made.
Section 229. Requirements for debt relief agencies.
This section creates a new section 528 of the Code that
regulates agencies' contracting and advertising. The agency
is required to execute a written contract with the assisted
person within 5 business days (but before the petition is
filed) of providing any bankruptcy assistance, and provide
the person with an executed copy. If the agency does not
execute a contract within that period of time, it must
terminate its relationship with the assisted person.
The agency must also disclose in any advertisement that the
services or benefits are with respect to bankruptcy relief.
Congress is specifically concerned that debtors understand
the services they are being offered involve bankruptcy. This
section is intended to prevent agencies from describing their
services ambiguously so as to obscure that the assisted
person will be obtaining bankruptcy relief. A standard form
of disclosure that the services are with respect to
bankruptcy relief is set forth in the section.
Title III--Discouraging Bankruptcy Abuse
Section 301. Reinforcement of the fresh start
Present law makes nondischargeable any fee or charge
imposed by a court for filing a case, motion, complaint or
appeal or related costs or expenses. This section restricts
the provision so that it applies only to matters filed by a
prisoner.
Section 302. Discouraging bad faith repeat filings
This section is intended to strongly limit the practice of
using bankruptcy filings and the automatic stay that arises
under section 362 to abuse the bankruptcy process. Debtors
who file bankruptcy only once in a one year period will not
be affected. However, upon a second filing within one year,
the automatic stay will terminate with respect to the debtor
or the debtor's property on the 30th day after the second
filing. The debtor can seek to have the automatic stay
continued by filing a motion and demonstrating that the
second filing is in good faith, but there is a presumption
that under certain circumstances the second filing is not in
good faith.
Upon the third or an additional filing within a one year
period, the automatic stay does not go into effect at all. On
motion made within 30 days of the third filing, the court may
order the stay to take effect as to some or all creditors.
The party in interest must demonstrate that the third filing
is in good faith, and there is a presumption that under
certain circumstances the third filing is not in good faith.
Clear and convincing evidence must be presented in order to
rebut the presumptions which arise both with respect to the
second and third or later filings.
Conduct covered by this section may also provide an
appropriate ground to dismiss a chapter 7 under section
707(b) as revised by HR 2415.
Section 303. Curbing abusive filings
This provision authorizes in rem orders to prevent abusive
use of bankruptcy filings. The bankruptcy court is authorized
to order that the automatic stay be lifted as to a secured
creditor with respect to the current and all subsequent cases
to which the automatic stay would otherwise apply if the
court finds that the filing of a bankruptcy was either part
of a scheme to delay, hinder, and defraud creditors by means
of transferring all or part of an interest in real property
without the secured creditor's consent or court approval, or
involved multiple bankruptcy filings affecting real property.
Once such an order is issued, it can be recorded by anyone
in the real property records affecting the real property
involved, and recording agencies must accept for recording
and record and index any such order so that it will be notice
to third parties. Such a recorded order is notice to third
parties for 2 years after recording. The court can reimpose
the automatic stay in a subsequent case after appropriate
notice and hearing if good cause or changed circumstances are
shown.
In addition, the automatic stay does not apply at all to
prevent acts to enforce security interests in real property
if the debtor is ineligible for bankruptcy under section
109(g) or the filing violates a court order in a previous
case baring the debtor from refiling.
Section 304. Debtor retention of personal property security
This provision is intended to prevent ``ride through'' in
the situations to which it applies. A ``ride through'' is the
debtor's retention of collateral and maintenance of current
payment obligations over the creditor's objection without
reaffirming. This section and section 305, taken together,
are intended to reverse the results of such cases as Capital
Communications Fed. Credit Union v. Boodrow, 126 F. 3d 43 (2d
Cir. 1997) cert denied, 522 U.S. 1117 (1998).
Under this provision, an individual debtor is not permitted
to retain possession of personal property subject to a
security interest securing the purchase price of that
personal property unless the debtor enters into a
reaffirmation agreement which becomes effective under section
524(c) of the Code, or redeems the property under section 722
of the Code. The debtor is given 45 days after the first
meeting a creditors to take one of those two steps or to
relinquish possession of the personal property to the
creditor. If the debtor fails to complete one of the steps
within the prescribed period, the automatic stay is
terminated with respect to the property whether it is
property of the estate or not, and the creditor may take
whatever action as to the property as is permitted by
applicable nonbankruptcy law. Although the automatic stay
ends upon the expiration of the 45 day period, a creditor is
free to allow a debtor to retain possession of collateral and
accept continued payments by not taking any actions to
collect, since this provision is for the creditor's benefit.
However, the trustee can bring a motion before the end of
the 45 day period asserting that the property is of
consequential value or benefit to the estate. If the court
finds that the retention of the property will benefit
creditors significantly, orders appropriate adequate
protection of the creditor's interest, and orders the debtor
to deliver the property to the trustee, the court may
extend application of the stay for a further reasonable
time to permit the trustee to obtain the benefit for the
estate.
The section also amends section 722 to make it absolutely
clear that the full, complete and immediate cash payment of
the redemption amount to the creditor is necessary for there
to be a redemption. Installment redemptions are not
permitted.
[[Page S11709]]
Section 305. Relief from the automatic stay when the debtor
does not complete intended surrender of consumer debt
collateral
Like the previous section, this section is also intended to
prevent ``ride through'' with respect to any property the
section covers. Any personal property of the estate or of the
debtor securing a claim or subject to an unexpired lease is
covered by the section, and in certain instances creditors
will be protected by both this section and the previous
section, in which case the provisions can be applied
cumulatively.
The section provides that the automatic stay terminates if
the debtor fails to timely (1) file a statement of intention
covering the property indicating that the debtor will either
redeem the property under section 722 of the Code, reaffirm
the debt it secures under section 524(c) of the Code, or
assume an unexpired lease under section 365(p) of the Code
(as amended by HR 2415), or (2) take the action specified in
the statement of intention (unless the statement of intention
specifies reaffirmation and the creditor refuses to reaffirm
on the original contract terms). Although the automatic stay
ends upon the expiration of the period for taking action, a
creditor is free to allow a debtor to retain possession of
collateral and accept continued payments by not taking any
actions to collect, since this provision is for the
creditor's benefit.
However, as with the previous section, the trustee can
bring a motion before the end of the period set by section
521(a)(2) asserting that the property is of consequential
value or benefit to the estate, and on similar findings, the
court may extend application of the stay for a further
reasonable time to permit the trustee to obtain the benefit
for the estate.
In addition, this section validates certain clauses which
have the effect of placing the debtor in default by reason of
the occurrence, pendency or existence of a proceeding under
this title, or the insolvency of the debtor.
Section 306. Giving secured creditors fair treatment in
chapter 13
This provision changes the relationship of secured
creditors and debtors in certain situations arising in
chapter 13 proceedings.
First, in order for a debtor's plan to be confirmed, it
must provide that a creditor's lien will continue until the
earlier of payment of the underlying debt under nonbankruptcy
law or the grant of discharge under section 1328. Nothing in
this provision is intended to alter other requirements for
confirmation. Thus if a secured debt will not be fully paid
before the end of the plan, this provision does not authorize
a plan to provide that the lien terminate upon discharge.
Moreover, the plan must provide that if the case is
dismissed or converted without completion of the plan, the
creditor will retains the lien to the full extent permitted
by nonbankruptcy law. It is intended that any benefits
debtors obtain under a plan as against their secured
creditors will be lost unless the debtor fully completes the
plan. In the event a debtor's case is discharged under the
hardship discharge provisions without completion of the plan,
the creditor's lien nonetheless survives unaffected by the
bankruptcy to the extent permitted by nonbankruptcy law.
Second, the extent to which claims secured by purchase
money security interests in personal property are subject to
cramdown to fair market value is limited. It is intended that
cramdown not apply to any collateral described in this
provision during the periods of time specified, and that the
amount of the claim which must be paid under the plan be the
full amount of the claim allowed under section 502 without
application of section 506. Thus, if the debt was incurred
within 5 years prior to filing and the collateral consists of
a motor vehicle acquired for the personal use of the debtor,
the value of the collateral cannot be reduced to the current
fair market value and therefore the amount the plan must pay
under section 1325(5)(B)(ii) over the duration of the plan
must be the amount of the allowed claim under section 502
rather than the allowed secured claim under section 506. A
similar result applies for any other personal property if the
debt was incurred during the one year period preceding the
filing.
Third, terms used in section 1322(b)(2) which limits
cramdown of certain real estate mortgages are defined to make
clear that a debt secured by real estate which is the
debtor's principal residence includes any 1 to 4 family
structure, including incidental property, without regard to
whether the structure is attached to real estate, and
includes condominium or cooperative units and mobile or
manufactures homes or trailers. Incidental property includes
any property commonly conveyed with a principal residence in
the area where it is located.
This provision is intended to reject those cases which have
allowed cramdown of real estate mortgages on the grounds that
the security property is not a ``principal residence'' or
covers property which is not real estate, simply because the
property included multi-family housing, or the mortgage
encumbered incidental property, or covered less traditional
forms of housing such as condominiums, coops or mobile homes
or trailers.
Section 307. Domiciliary requirements for exemptions
This provision limits the state exemptions which debtors
can enjoy in bankruptcy when they have moved into a state
within two years of filing. If a debtor has lived for 2 or
more years in a State immediately prior to filing, the debtor
can use the exemptions allowed by the state where the debtor
resides under section 522 of the Code. If the debtor has
lived in a state for less than 2 years at the time of filing,
then the debtor must use the State exemptions of the State
where the debtor lived 2 years prior to filing if the debtor
lived there all of the 180 days which precede that 2 year
period. If the debtor lived in more than one State during
that 180 day period, the State exemptions of the State
where the debtor lived the longest during that period will
control.
If a debtor has to use a particular State's exemptions, the
law of that State also determines whether the debtor can
elect to use the federal exemptions available under section
522(d) of the Code.
Section 308. Residency requirement
Any home equity acquired within the 7 years prior to filing
is not exempt if: (1) such equity was attributable to
property that the debtor disposed of with the intent to
hinder, delay, or defraud a creditor; and (2) such property
was not an exempt asset. For example, if a debtor disposes of
cash, a non-exempt asset, by exchanging that cash for a
residence with the intention of delaying the payment of a
creditor, such residence would not be exempt from the
bankruptcy estate. It is the intent of Congress that it
should be easier to prove intent to hinder or delay than to
prove intent to defraud.
Section 309. Protecting secured creditors in chapter 13 cases
This provision adjusts the relationship of debtors to
lessors and secured creditors in bankruptcy proceedings.
First, it amends section 348(f) to assure that when a
debtor converts a case from chapter 13 to chapter 7, the
debtor does not retain any benefits of the chapter 13 case
with respect to any secured creditor, unless the full amount
of the secured creditor's claim determined under
nonbankruptcy law has been paid in full, and unless a
prebankruptcy default has been fully cured prior to
conversion. If a debtor converts from chapter 13 to another
chapter and then converts to chapter 7, the courts should
impose similar limitations.
Second, provision is made to allow a debtor and creditor to
arrange for the debtor to assume a personal property lease
rejected or not timely assumed by a trustee. On the other
hand, in a chapter 11 or 13 proceeding, if the plan does not
provide for assumption of the lease, the lease is deemed
rejected as of the conclusion of the hearing on confirmation
and the automatic stay automatically terminates.
Third, in a chapter 13 proceeding, a debtor's plan must
provide that the debtor will make monthly payments if there
are to be periodic payments to a personal property secured
creditor or personal property lessor receiving distributions
under the plan, and those payments must at least be in an
amount sufficient to provide adequate protection. This
provision, however, is not intended to lessen any of the
other protections of secured creditors or lessors provided in
the Bankruptcy Code.
In addition, debtors are required to continue to make
payments to creditors holding claims secured by personal
property and to personal property lessors from 30 days after
the order for relief. These payments are to be made directly
to the creditor or lessor, and the amount of plan payments
which the debtor must make can be reduced by the amount paid
to the creditors or lessors. The debtor must provide an
accounting of these payments to the chapter 13 trustee.
Section 310. Luxury goods
This section provides that certain debts are presumed to be
nondischargeable under section 523(a)(2)(A) of the Bankruptcy
Code. Under section 523(a)(2)(A), a debt is nondischargeable
when it is incurred, among other things, by fraud. For
example, fraud can occur when a cardholder misrepresents his
or her intentions by using a credit card when the objective
facts show that the cardholder did not or could not intend to
repay. This bill provides that if a debtor incurs debts to a
single creditor aggregating for purchases on a credit card of
more than $250 for luxury goods or services within 90 days of
filing for bankruptcy, such debt is presumed to be
nondischargeable. This provision recognizes that debtors may
use open end credit to purchase goods and services necessary
for the support of the debtor shortly before bankruptcy,
while identifying presumptively abusive behavior which
warrants making the debt nondischargeable such as purchasing
a significant amounts of items or services not necessary for
the support of the debtor (i.e. luxury goods and services).
A related provision is included with regard to cash
advances. Cash advances under open-end credit plans
aggregating more than $750 within 70 days of filing for
bankruptcy are presumed to be nondischargeable. This language
is carefully drafted to require the aggregation of all cash
advances within 70 days of filing, even if they involve more
than one creditor. Furthermore, there is no requirement to
demonstrate that the cash advances were for ``luxury goods''
since such a requirement would be virtually impossible to
fulfill given the difficulty of accounting for cash. The
behavior itself is sufficient indicia of abuse.
Section 311. Automatic stay
This section provides that the automatic stay under section
362 will not apply in several situations in which residential
tenants
[[Page S11710]]
file for bankruptcy. First, the automatic stay will not bar
the continuation of an eviction action pending when the
debtor files for relief. Second, eviction proceedings
commenced after filing are not barred by the automatic stay
if the lease has terminated before or after filing of
bankruptcy. Third, the automatic stay also will not bar
eviction proceedings based on endangement to property or
person or the use of illegal drugs, or to any transfer that
is not avoidable under sections 544 or 549 of the Code.
Section 312. Extension of period between bankruptcy
discharges
The period of time which must elapse between bankruptcies
is increased by this provision. When a chapter 7 proceeding
is involved, the period is increased from six to eight
years. Furthermore, a chapter 13 discharge cannot be
granted if the debtor received a discharge under any
chapter of title 11 within 5 years of the order for relief
in the chapter 13 case.
Section 313. Definition of household goods
Section 522(f) of title 11 permits a debtor to void a non-
purchase money security interest in certain categories of
goods if the property subject to the security interest is
otherwise exempt in the debtor's case. One of the categories
is ``household goods''. This section is intended to clarify
what this term means so that there can be a nationwide,
uniform standard for what can be included in this category,
and so that debtors and creditors alike can know whether a
loan is truly secured or unsecured. It is expected that the
additional clarity will assist debtors in obtaining the
lowest price available for this type of secured credit.
Section 314. Debt incurred to pay nondischargeable debts
If a claim arises from payment of a tax to a governmental
unit other than the United States and the tax that was paid
would be nondischargeable under section 524(a)(1), then the
debt incurred to pay the tax is also nondischargeable.
Section 315. Notice to creditors
This section changes the requirements for providing notice
to creditors and also changes what information they must
provide in the schedules or otherwise as part of a bankruptcy
filing.
Notice.--This section is intended to ensure that creditors
receive actual, meaningful, and timely notice of bankruptcy
filings.
In order to ensure proper processing by a creditor, debtors
will need to include the account number in any required
notice to a creditor with respect to any debt owed to such
creditor. Furthermore, any notice required to be given by the
debtor to the creditor must be done so at an address
specified by the creditor. Creditors will be required to
include the account number and appropriate address in the
last two communications supplied to the debtor within the 90-
day period prior to filing for bankruptcy. However, if any
legal requirement impedes the creditor's ability to
communicate with the debtor at any point during the 90-day
period prior to filing, the creditor's burden will be
satisfied if the appropriate information was included on its
last two communications with the debtor. For purposes of this
section, the creditor's communications with the debtor are
those which deal specifically with an individual debt.
``Communications'' do not include promotional material or
other communications that do not pertain specifically to a
debtor's debt to the creditor.
Language in the Bankruptcy Code which states that failure
to include the specified information in a notice does not
invalidate the legal effect of such notice is deleted.
Furthermore, if a creditor in an individual chapter 7 or 13
case has specified an address for notice by filing a
statement to that effect with the court, the court and the
debtor are required to use such an address starting five days
after receiving the address. A creditor may file a notice
address with the court to be used generally by the court,
parties in interest and the debtor to provide notice to the
creditor in all cases under chapters 7 and 13. In the event a
creditor has provided different notice addresses by more than
one of the permitted methods, a debtor may use any one of
them, except that a notice address filed in a particular case
shall control.
Notices which are not sent to the appropriate address as
specified by the creditor are not effective until the notice
is brought to the creditor's attention. If the creditor has
designated an entity to be responsible for receiving notices
concerning bankruptcy cases and has established reasonable
procedures so that these notices will be delivered to such
entity, a notice will not be deemed to have been received by
the creditor until it has been received by the designated
entity. Sanctions for violation of the automatic stay under
section 362 of the Code or for the failure to comply with the
turnover provisions in sections 542 and 543 of the Code may
not be imposed if a creditor has not received proper notice.
Tax Return Information.--The section also requires debtors
to provide certain tax return information. By no later than 7
days before the date first set for the first meeting of
creditors, a debtor must provide the trustee, without any
prior request, the debtor's tax return or transcript, or the
case will be dismissed unless the debtor can show that the
failure to file a return is due to circumstances beyond the
control of the debtor. Such circumstances would include that
the debtor did not file a return for the period required, but
not that the debtor could not find the return unless the
debtor in addition showed that a significant, diligent and
timely effort had been made to obtain at least the transcript
of the return from the Internal Revenue Service and it was
not forthcoming. A transcript is a computer generated line by
line statement of debtor supplied information with respect to
a tax return which the Internal Revenue Service will provide
any tax return filer on request.
Once such information is provided the trustee, creditors in
chapter 7 and 13 cases can obtain it by request to the
trustee or through the procedure set forth for creditors to
obtain copies of the petition and schedules from the court.
It is intended that the trustee and the court will make
arrangements for the tax return information the debtor
provides to be made available to the court to satisfy
creditor requests. Creditors can also request the tax return
directly, in which case the debtor must provide it directly
to the creditor or the case will be dismissed, subject to
limitations already discussed.
Debtors are also required to provide tax returns with
respect to the period after filing, or with respect to pre-
filing periods if they are filed with the taxing authorities
after bankruptcy filing. The Director of the Administrative
Office of United States Courts is to develop procedures for
safeguarding privacy of these returns, and to make a report
to Congress no later and one and one half years after
enactment on the effectiveness of these procedures.
Other information. Debtors are required to provide certain
other information, including ongoing income and expense
information, in certain circumstances.
Section 316. Dismissal for failure to timely file schedules
or provide required information
The Fed. R. Bankr. Pro. already provide that schedules must
be filed within 10 days of filing unless an extension is
granted, and many bankruptcy courts have already established
a general practice of dismissing cases when debtors fail to
provide all required information within 15 days of filing,
unless good cause for additional time is shown. Nothing in
this provision is intended to interfere with such
requirements. However, if an individual debtor after such
extensions as the court may grant, has not filed all of the
information required by section 521(a)(1) within 45 days of
filing a petition, the case is automatically dismissed. On
request of the debtor made before 45 days after filing, the
court may grant up to 45 days additional time for the debtor
to file schedules. Once the time period provided under this
section elapses, the court must enter an order of dismissal
within 5 days of request.
Section 317. Adequate time to prepare for hearing on
confirmation of the plan
A hearing on confirmation of a chapter 13 plan must be held
between 20 and 45 days after the first meeting of creditors.
If a plan cannot be confirmed within that period, the court
should take appropriate action to dismiss or convert the
case.
Section 318. Chapter 13 plans to have a 5-year duration in
certain cases
If a debtor's current monthly income is more than the
monthly median income, the debtor's plan must be no shorter
than 5 years, unless the debtor proposes and confirms a plan
which provides for payment in full of all creditors within a
shorter period. The same rules apply to modifications.
Section 319. Sense of Congress regarding expansion of rule
9011 of the Federal Rules of Bankruptcy Procedure
It is the sense of Congress that Rule 9011 should be
applied to the schedules and other documents filed with the
court.
Section 320. Prompt relief from stay in individual cases
Relief from stay proceedings must be finally decided within
60 days after relief is requested, unless the parties agree
to the contrary, or the court for good cause finds it is
necessary to do so, but then only for a specified period of
time. Otherwise, the stay automatically expires as to the
requesting creditor.
Section 321. Chapter 11 cases filed by individuals
This section changes some chapter 11 provisions to bring
the chapter more closely into conformance with chapter 13
when the debtor is an individual.
First, the property of the estate is expanded from present
law to include all property and earnings acquired between the
time of filing and the closing, dismissal or conversion of
the case. Such property is placed under the supervision of
the court and is protected by the automatic stay. Second,
what may be included in a plan is expanded to permit the
debtor to subject future earnings and income to the plan.
Third, the individual debtor's plan must provide either that
it will pay each claim in full or that at least the debtor's
disposable income over the first 5 years of the plan is paid
to unsecured creditors. Fourth, in an individual case, the
discharge is not granted until completion of payments under
the plan. Provision is made for a hardship discharge. Fifth,
modifications of a plan are subject to the same requirements
as an original plan.
Section 322. Limitation
The state law homestead exemption is limited to a maximum
of $100,000 for the home equity acquired within the 2 years
prior to filing. Amounts acquired within the 2-year period
that exceed $100,000, are not exempt from the bankruptcy
estate. Amounts of home equity acquired prior to the 2-year
period are not subject to the $100,000 cap, but
[[Page S11711]]
are subject to the relevant state law homestead exemption.
For this purpose, equity acquired in a principal residence
prior to the 2-year period and rolled over into another
principal residence after the 2-year period is not subject to
the $100,000 cap, but is subject to the relevant state law
homestead exemption. This rollover provision does not apply
to the sale of a principal residence in one state and the
purchase of another principal residence in another state.
Section 323. Excluding employee benefit plan participant
contributions and other property from the estate
Amounts which have been withheld from wages of employees
for payment as contributions to retirement plans or health
insurance plans, or received from employees for payment over
to such plans are not property of the estate. It is not
intended that this provision will affect money which has been
paid over and received by the respective plans for the
purposes the withholding or contributions have been made.
Section 324. Exclusive jurisdiction in matters involving
bankruptcy professionals
This section gives the district court exclusive
jurisdiction of any property of the debtor as of the
commencement of the case, of property of the estate, and of
all claims that involve construction of section 327 (on
employment of professional persons) or disclosure rules under
that section.
Section 325. United States Trustee Program filing fee
increase
This section changes the filing fees for chapter 7 and 13
cases, and changes the sharing percentages with respect to
such fees.
Section 326. Sharing of compensation
Section 504 of the Bankruptcy Code restricts the extent to
which those being paid compensation or reimbusement in a
bankruptcy case may share such compensation or reimbursement.
This section creates an exception from those rules to permit
bona fide public service attorney referral programs operating
in accordance with non-Federal law regulating attorney
referral services to share such compensation or
reimbursement.
Section 327. Fair valuation of collateral
This section is intended to make clear that when value is
determined under title 11, it shall be determined based
solely upon what it would cost the debtor to purchase a
replacement considering the age and condition of the
property, without deductions for other costs or expenses of
any kind. In personal, family or household transactions,
replacement value is based upon what a retail merchant would
charge for the property, considering age and condition at the
time value is determined.
Section 328. Defaults based on nonmonetary obligations
The requirements of section 365 are altered so that certain
defaults relating to nonmonetary obligations of the debtor
under an unexpired lease of real property need not be cured.
Furthermore, such defaults are excepted from the ordinary
rules applying to impaired classes. Technical changes are
also made to remove certain provisions relating to
Title IV--General and Small Business Bankruptcy Provisions
Subtitle A--General Business Bankruptcy Provisions
Section 401. Adequate protection for investors
This section creates a definition for a ``securities self-
regulatory organization'' and then provides an exception to
the automatic stay for investigations, orders, or delisting
activities by such an organization involving the debtor.
Section 402. Meetings of creditors and equity security
holders
This section gives the court the authority, for cause, not
to convene a meeting of creditors if there is a prepackaged
plan of reorganization. This would save time and expenses in
those instances where the court determines there would be
little or no meaningful benefit to be derived from a
creditors meeting.
Section 403. Protection of refinance of security interest
This provision alters the preference provisions of section
547 of the Bankruptcy Code with respect to when a transfer is
made for the purposes of that section. A transfer is deemed
made at the time it takes effect if it is perfected within 30
days after it takes effect between the parties. Present law
provides only a 10 day period.
Section 404. Executory contracts and unexpired leases
HR 2415 cures some abuses in the Bankruptcy Code regarding
executory contracts and unexpired leases. HR 2415 amends
Section 365(d)(4) of the Bankruptcy Code. It imposes a firm,
bright line deadline on a retail debtor's decision to assume
or reject a lease, absent the lessor's consent. It permits a
bankruptcy trustee to assume or reject a lease on a date
which is the earlier of the date of confirmation of a plan or
the date which is 120 days after the date of the order for
relief. A further extension of time may be granted, within
the 120 day period, for an additional 90 days, for cause,
upon motion of the trustee or lessor. Any subsequent
extension can only be granted by the judge upon the prior
written consent of the lessor: either by the lessor's motion
for an extension, or by a motion of the trustee, provided
that the trustee has the prior written approval of the
lessor. This provision is designed to remove the bankruptcy
judges' discretion to grant extensions of the time for the
retail debtor to decide whether to assume or reject a lease
after a maximum possible period of 210 days from the time of
entry of the order of relief. Beyond that maximum period,
there is no authority in the judge to grant further time
unless the lessor has agreed in writing to the extension.
HR 2415 also amends Section 365(f)(1) of the Bankruptcy
Code to make sure that all of the provisions of Section
365(b) are adhered to and that Section 365(f) does not
override Section 365(b). Congress made clear, in Section
365(b)(1), that the trustee may not assume an executory
contract or unexpired lease of the debtor, unless the trustee
makes adequate assurance of future performance under the
contract or lease. In Section 365(b)(3), Congress provided
that for purposes of the Bankruptcy Code, ``adequate
assurance of future performance of a lease of real property
in a shopping center includes adequate assurance . . . that
assumption or assignment of such lease is subject to all the
provisions thereof, including (but not limited to) provisions
such as a radius, location, use, or exclusivity provision. .
. .''
Regrettably, some bankruptcy judges have not followed this
Congressional mandate. Under another provision of the Code,
Section 365(f), a number of bankruptcy judges have allowed
the assignment of a lease even though terms of the lease are
not being followed.
For example, if a shopping center's lease with an
educational retailer requires that the premises shall be used
solely for the purpose of conducting the retail sale of
educational items, as the lease provided in the Simon
Property Group v. Learningsmith case, then the lessor has a
right to maintain this mix of retail uses in his shopping
centers, even if the retailer files for bankruptcy.
Instead, in the Learningsmith case, the judge allowed the
assignment of the lease to a candle retailer because it
offered more money than an educational store to buy the
lease, in contravention of Section 365(b)(3) of the Code. As
a result, the lessor lost control over the nature of its very
business, operating a particular mix of retail stores. If
other retailers file for bankruptcy in that shopping center,
the same result can occur. The bill remedies this problem by
amending Section 365(f)(1) to make clear it operates subject
to all provisions of Section 365(b). The legal holding in the
Learningsmith case, and other cases like it which do not
enforce Section 365(b), particularly 365(b)(3), are
overturned.
Thus, this section adds language to Section 365(f)(1) for
the purpose of assuring that Section 365(f) does not override
any part of Section 365(b). The section provides that in
addition to being subject to Section 365(c), Section 365(f)
is also subject to section 365(b) which is to be given its
full effect.
Section 405. Creditors and equity security holders committees
This section is intended to permit small business interests
to obtain representation on creditors' committees even though
no small business would otherwise be selected under the
standards for selecting members of creditors' committees in
the present Bankruptcy Code. Bankruptcy judges are given
discretion to increase the size of a creditor's committee to
place a small business concern on the committee as a fully
voting member if the court determines that the small business
creditor holds claims the aggregate amount of which is
disproportionately large in comparison to the annual gross
revenue of that creditor. Congress intends that this standard
be liberally applied in favor of a small business concern.
For example, a claim that was more than 5% of the net profit
after taxes and debt service of the small business concern
would be disproportionately large, since if the claim is not
paid, it would cause a 5% reduction in profitability, often
the difference between success and failure for a small
business.
Section 406. Amendment to section 546 of title 11, United
States Code
Section 407. Amendment to section 330(a) of title 11, United
States Code
Section 408. Postpetition disclosure and solicitation
This provision permits post-petition solicitation of a
prepackaged plan of reorganization if both the pre-petition
solicitation and the post-petition solicitation comply with
applicable nonbankruptcy law. However, the provision only
applies when the holder of a claim or interest solicited
post-petition has been solicited pre-petition, thus avoiding
different standards being applicable to pre- and post-
petition solicitations. Time is crucial in a prepackaged plan
of reorganization in order to minimize the adverse effects of
bankruptcy on the debtor's business and financial affairs.
When it applies, this section permits avoidance of the time
and expense of going through the disclosure statement process
normally applicable to post-petition solicitations.
Section 409. Preferences
The ordinary course of business defense to preference
recovery is liberalized. As under current law, the debt must
be incurred in the ordinary course. The payment, however,
under the new provision must only be in the ordinary course
or according to ordinary business terms.
A new preference exception is also added in business cases.
Aggregate transfers of less than $5,000 are exempted from
preference recovery.
[[Page S11712]]
Section 410. Venue of certain proceedings
Section 411. Period for filing plan under chapter 11
This new provision is designed to deal with the time and
expense of reorganization cases by providing the debtor's
exclusive period to file a plan of reorganization may not be
extended beyond 18 months after the order for relief in the
case. No change is made to current law that permits, for
cause, either the reduction or the extension of the debtor's
initial 120-day exclusivity period, except that the period
may not be extended beyond the new 18 month maximum.
The new provision also provides that, if the debtor files a
plan of reorganization within its applicable exclusivity
period, parties in interest may file a reorganization plan if
the debtor's plan is not accepted by each impaired class
before 180 days after the order for relief, as such date may
be extended for cause up to a maximum of 20 months from the
order for relief in the case.
The new time periods are maximum periods that may not be
extended by the court. They are not, however, minimums.
Debtors will still have to show ``cause'' to extend the
initial 120-day and 180-day periods in section 1121 and any
extensions granted by the court. The establishment of the new
so-called ``exclusivity wall'' is not intended to change the
standards under section 1104 for conversion or dismissal.
Section 412. Fees arising from certain ownership interests
Section 413. Creditor representation at first meeting of
creditors
This section permits either a creditor owed a consumer debt
or any representative of that creditor to appear at and
participate in the meeting of creditors in a case under
chapter 7 or 13 even if the creditor or representative is not
admitted to practice before the court or before the local
federal or state court, notwithstanding any federal or state
rule of practice or statutory provision barring unauthorized
practice of law. It is intended that this provision will
permit non-attorneys to appear at and participate in the
meeting of creditors and any related negotiations entered
into before or after the meeting to facilitate more efficient
and economical participation by creditors in chapter 7 and 13
bankruptcy proceedings.
Section 414. Definition of disinterested person
This provision deletes the per se exclusion of investment
bankers and attorneys for investment bankers from being a
disinterested person. Whether an investment banking firm or
an attorney for an investment banker is disinterested will
depend on an ad hoc application of the definition.
Section 415. Factors for compensation of professional persons
This section permits consideration in setting compensation
of whether the professional is board certified or otherwise
has demonstrated skill.
Section 416. Appointment of elected trustee
This section provides for procedures when a trustee is
elected, and for handling disputes over election of trustees.
Section 417. Utility service
Section 366 of the Code is amended to permit a utility to
refuse to provide service to a debtor under certain
circumstances unless adequate assurance payments are
received.
Section 418. Bankruptcy fees
This provision permits a court to waive filing fees if it
finds that a debtor is unable to pay the fees in installments
and that the debtor's income is under 150 percent of the
official poverty line. The court is expected to examine
carefully the debtor's projected future income over the
period during which installment payments must be made before
concluding that the debtor is truly unable to pay in
installments. The mere fact that the debtor is experiencing
debt difficulty is not, in and of itself, determinative of
whether a debtor can pay in installments. ``Filing fees''
cover any fee which must be paid in order to file a petition
and commence a bankruptcy case under title 11, but not fees
for motions or adversary complaints.
Section 419. More complete information regarding assets of
the estate
This section directs the Advisory Committee on Bankruptcy
Rules of the Judicial Conference to propose for adoption
amended rules and forms directing chapter 11 debtors to
provide information on the value, operations and
profitability of any closely held corporation in which the
debtor has a substantial or controlling interest. This
direction is intended to result in changes to the Bankruptcy
Rules and Forms so that parties in interest will be able to
obtain, on the schedules or otherwise on other disclosures
provided by the debtor full and complete information about
the value of such an interest in a closely held corporation.
Subtitle B--Small Business Bankruptcy Provisions
These provisions effect reforms in chapter 11 cases. They
further two primary goals. First, they are designed to reduce
cost and delay in chapter 11 cases. Second, they are designed
to ensure that the extraordinary protections provided chapter
11 debtors are used to further the public interest, by
limiting those protections to cases in which there is both a
likelihood of successful reorganization and in which the
debtor fully complies with the applicable statutes and rules.
These sections achieve these goals through the following
means:
First, the fast-track plan confirmation rules for small
business cases that were adopted by Congress in 1994 have
been strengthened. Second, the bill simplifies the process of
drafting a plan and disclosure statement to make it easier
for the small business debtor to comply with the fast-track
requirements. Third, the debtor is required to provide
additional information about post-filing operations, and the
Advisory Committee on Bankruptcy Rules is directed to
promulgate forms that will simplify such reporting. Fourth,
the United States trustee is directed to oversee the debtor
in small business cases. Fifth, the bankruptcy courts are
directed to use case-management conferences and scheduling
orders to reduce cost and delay. Sixth, it is made easier to
appoint an independent trustee or examiner and to convert or
dismiss a chapter 11 case in which the debtor is not playing
by the rules or there is little likelihood of a successful
reorganization. Seventh, the bill protects creditors against
repeat filings after a prior chapter 11 case has failed.
Section 431. Flexible rules for disclosure statement and plan
Under current law, the debtor generally files a drafted-
from-scratch plan and disclosure statement, even if the debts
and assets involved are small. This practice is expensive,
and imposes an undue burden on the debtor. Section 1125 of
the Bankruptcy Code is amended to streamline the plan
confirmation process in several ways for small business
debtors. First, it encourages the use of standard-form plans
and disclosure statements. Second, it directs the court to
weigh the cost of providing additional information against
the benefit of such information in determining whether a
disclosure statement provides adequate information. Third, it
provides that a separate disclosure statement is not
necessary if the court determines that the plan provides
adequate information. Fourth, it permits the court to
consider at a single hearing both the adequacy of the
disclosure statement and confirmation of the plan.
Section 432. Definition of small business debtor
Sections 101(51C) and (51D) of the Bankruptcy Code are
amended in two significant respects. First, the debt limit
used to define a small business debtor is increased from $2.0
million to $3.0 million. Second, a debtor with debts within
the limit is treated as a small business debtor whether or
not it elects to be treated as a small business debtor. All
of the provisions applicable to small business debtors are
now mandatory. There are two exclusions from the definition:
(1) cases in which the debtor is primarily engaged in
passive real estate investments; and (2) cases in which
the court has certified that there is an active and
representative committee of unsecured creditors.
Section 433. Standard form disclosure statement and plan
Section 433 directs the Advisory Committee on Bankruptcy
Rules of the Judicial Conference of the United States to
propose standard forms for plans and disclosure statements in
small business cases. Under section 1125 as amended, the
debtor may use either a form approved by the court in which
the case is pending or a form approved by the Rules
Committee. The intent of these provisions is to encourage
experimentation in the use of standard forms. Use of an
approved form does not by itself satisfy the disclosure
requirements. The court must determine that the form provides
information that is adequate in light of the facts of the
case.
Sections 434 and 435. Reporting requirements
New section 308 of the Bankruptcy Code imposes new
reporting requirements on small business debtors, and section
435 of the bill calls for the Advisory Committee on
Bankruptcy Rules to promulgate uniform national reporting
forms. These provisions have three chief aims: (1) to assist
small business debtors in understanding and improving their
businesses through the process of preparing the reports; (2)
to provide the persons interested in a case with information
about that case; and (3) to provide a data base for further
evaluation of the efficacy of chapter 11 for small
businesses. The standard imposed on the Rules Committee in
promulgating uniform national forms is to effect a practical
balance between: (a) the needs of interested parties for
information; (b) ease and lack of expense in preparation; and
(c) ``the interest of all parties that the required reports
help the small business debtor to understand its financial
condition and plan its future.''
Section 436. Duties of trustee or debtor in possession in
small business cases
New section 1116 of the Bankruptcy Code imposes six types
of clear, new duties on small business debtors. The debtor
must: (1) promptly file with the court the best available
financial information about the debtor's business through its
most recent financial statements or federal income tax
return; (2) attend through its responsible individual and
counsel meetings scheduled by the court or the United States
trustee; (3) timely file the schedules and statements of
affairs (with a strict limit on extensions) and financial and
other reports required by law; (4) maintain insurance
necessary to protect the public and the estate; (5) timely
pay all administrative expense tax claims; and (6) allow the
United States trustee at reasonable times after reasonable
notice to inspect the debtor's business premises and books
and
[[Page S11713]]
records. These provisions are designed to assist the debtor,
the courts, and the United States trustee in effectuating
expeditious administration of small business cases. They are
based on recommendations of the National Bankruptcy Review
Commission's small business proposal.
Section 437. Plan filing deadline
Section 1121 of the Bankruptcy Code is amended to require a
small business debtor to file a plan within 300 days after
the petition date. This deadline is based on the assumption
that the typical small business debtor can reasonably file a
plan and disclosure statement within 300 days. Any request
for extension of this deadline is an appropriate occasion to
require the debtor to justify the continuation of the broad
injunctive relief the debtor received automatically upon the
filing of the petition. The amendment does this by requiring
the debtor to show that it is more likely than not that the
debtor will confirm a plan within a reasonable time if the
extension is granted.
Section 438. Plan confirmation deadline
This section provides that a plan shall be confirmed by 175
days after the order for relief, unless such time is extended
under section 1121(e)(3) of the Code. If a plan is not
confirmed within the period and the period is not extended,
it is expected that the case will be dismissed or converted,
as appropriate.
Section 439. Duties of the United States trustee
In small business cases, there is rarely an active,
functioning creditor's committee. As a result, the debtor in
possession is generally not subject to the creditor
supervision contemplated when chapter 11 was first enacted.
To fill this void and to provide adequate supervision of the
debtor, section 586 of the Judicial Code is amended to
enlarge the duties of the United States Trustee in small
business cases. One of these duties is to conduct an initial
debtor interview promptly after the order for relief and
before the official creditors' meeting under section 341 of
the Bankruptcy Code. At this meeting, the United States
Trustee should investigate the debtor's viability, ascertain
what the debtor's business plan is, and explain the debtor's
reporting and other compliance obligations. In addition, new
section 1116 of the Bankruptcy Code authorizes the United
States Trustee to visit the business premises of the debtor
and ascertain the status of the books and records and
timeliness of filing of tax returns.
The amendments to section 586 of the Judicial Code also
require the United States Trustee in cases where there are
grounds for conversion or dismissal under section 1112 of the
Bankruptcy Code to ``apply promptly to the court for
relief.'' This duty applies in all chapter 11 cases, not only
small business cases.
Section 440. Scheduling conferences
Section 105(d) of the Bankruptcy Code is amended to provide
that bankruptcy judges are now required to hold status
conferences and enter scheduling orders in chapter 11 cases
whenever that would ``further the expeditious and economical
resolution of the case.'' The change reflects a determination
that bankruptcy judges should assume responsibility for
reducing cost and delay in the chapter 11 cases before them,
and that active case management by the trial judge is a
proven means of cost and delay reduction.
Section 441. Serial filers
This section creates a new section 362(k) of the Bankruptcy
Code that provides that the filing of a chapter 11 petition
does not create an automatic stay if the debtor: (1) is a
debtor in another pending chapter 11 case; (2) was a debtor
in a chapter 11 case dismissed within the previous two years;
(3) confirmed a plan in a chapter 11 case within the previous
two years; or (4) succeeded to the assets of an entity that
was a chapter 11 debtor within the previous two years. A
debtor affected by this provision is not precluded from
filing a chapter 11 petition, and is not precluded from
seeking protection from creditor action. The protections of
section 362(a) do not go into effect, however, unless and
until the debtor makes the required showing regarding the
likelihood of confirming a plan and the reasons a second
chapter 11 case is necessary. The logic of this provision is
that in each of the four identified circumstances there is
sufficient likelihood of abuse to require the debtor to make
some showing before receiving injunctive relief. The
exception to the automatic stay does not apply to an
involuntary petition that is not filed in collusion with the
debtor or its insiders.
Section 442. Expanded grounds for dismissal, conversion, or
appointment of a trustee or examiner
Section 1112 of the Bankruptcy Code is amended to expand
the circumstances in which the bankruptcy court may dismiss a
chapter 11 case, convert the case to another chapter, or
appoint a chapter 11 trustee or examiner. The most salient
characteristic of chapter 11 is its most problematic--the
debtor is protected against all creditor action automatically
upon filing, while remaining in control of all its assets.
Any non-debtor seeking comparable injunctive relief must show
a likelihood of prevailing on the merits of the dispute and
that the equities weigh in favor of equitable relief. Under
current law, a chapter 11 debtor gets what is perhaps the
broadest injunction available under American law, without
making any showing whatsoever. Some courts impose a heavy
burden on any party who, by moving for dismissal of the
chapter 11 case or appointment of a trustee, seeks to deprive
the debtor of that relief.
The amendment to section 1112 is intended to effect a
significant change in the burden of proof governing motions
to dismiss, convert, or appoint a chapter 11 trustee or
examiner. First, the amendment creates an expanded definition
of ``cause'' for such relief. Each type of cause listed
represents a warning sign that the chapter 11 case is not
proceeding properly (e.g., that assets of the estate are
being diminished, that the debtor is not complying with
applicable statutes or rules, or that the debtor is not
moving promptly toward confirmation of a plan of
reorganization). Second, the amendment creates a new shifting
burden of proof. If a creditor establishes one or more of the
specified warning signs, the burden shifts to the debtor to
show: (1) that the debtor is likely to confirm a plan
promptly; and (2) if the basis for relief is the debtor's
failure to comply with an applicable statute or rule, that
there is a reasonable justification for the lack of
compliance, and that the lack of compliance will be cured
within a reasonable time fixed by the court. If the debtor
fails to meet its burden of proof, the court must convert,
dismiss, or appoint a chapter 11 trustee or examiner,
whichever is in the best interest of creditors and the
estate. In substance, the amended section 1112 adopts a
position midway between current chapter 11 law and
traditional injunction practice. The debtor still receives
the protection of the automatic stay upon filing, but the
debtor will now be required to prove up its entitlement to
that injunction in a wide variety of circumstances.
The bankruptcy court should determine whether there is a
reasonable possibility that the debtor will confirm a plan
within a reasonable time in much the same manner the court
would determine whether a party seeking a preliminary
injunction is likely to prevail upon the merits. The
determination is a preliminary one regarding the likelihood
of prevailing in the future, not a final determination on the
merits. The hearing may often be a summary one. The court
need not conduct a miniature confirmation hearing. The debtor
should be required to prove a likelihood that its business is
financially viable enough to pass the feasibility
requirements of section 1129(a)(11), and that it will be able
to pay in full those claims (i.e., secured and priority
claims) that must be paid in full in order to confirm a plan.
If the debtor shows that it is likely to make a
distribution to general unsecured creditors and that those
creditors have no realistic alternative to debtor's plan, the
debtor need not submit additional evidence that general
unsecured creditors will vote to accept the plan in order to
establish a prima facie case. The moving party or any other
creditor may rebut debtor's evidence. The debtor does not
satisfy its burden of proof when unsecured creditors holding
claims sufficient to block acceptance by that class state
their intent to vote against the plan and the debtor cannot
show a likelihood that it will be able to confirm a plan
notwithstanding such rejection.
Attention from the debtor and the court to the economic
viability of the debtor's business is appropriate in all
cases except liquidating chapter 11 cases. A debtor with a
business that is not viable should not be allowed to remain a
debtor in possession under chapter 11, unless it is avowedly
using chapter 11 to confirm a liquidating plan promptly.
Because the likely-to-confirm-a-plan standard turns on issues
of business feasibility as much as on issues of law, the
parties should be permitted to introduce evidence from
accounting and other professionals concerning the viability
of the debtor's business. The likely-to-confirm-a-plan
standard should be applied in the same manner when it arises
in a motion to extend the deadlines provided for in the
amendments to section 1121.
All of the provisions of the amended section 1112 apply to
all chapter 11 cases. This is so even though some of the
listed examples of ``cause'' for dismissal, conversion, or
appointment of a trustee or examiner resemble duties that
under new sections 308 and 1116 apply only to small business
debtors.
Section 443. Study of operation of title 11, United States
Code, with respect to small businesses
Requires the Adminstrator of the Small Business
Administration, in conjunction with the Attorney General and
the Director of the Executive Office of United States
Trustees and Director of the Administrative Office of United
States Courts to conduct a study of small business
bankruptcies and report to Congress how Federal bankruptcy
laws may be made more effective with regard to such
businesses.
Section 444. Payment of interest
This provision continues present law under section
362(d)(3) which provides that the court shall grant relief
from stay to a real estate secured creditor holding security
in a single asset real estate debtor unless not later than 90
days after the order for relief the debtor has either filed a
plan of reorganization that has a reasonable possibility of
being confirmed or commences making interest payments. This
provision permits the debtor to make those interest payments
from rents or other income the debtor holds, and requires
that the interest be at the nondefault interest rate under
the contract with the creditor.
Section 445. Priority for administrative expenses
This section amends section 503 of the Bankruptcy Code to
provide that certain
[[Page S11714]]
amounts owed with respect to nonresidential real property
leases become administrative expenses.
Title V--Municipal Bankruptcy Provisions
Section 501. Petition and proceedings related to petition
This section amends section 921(d) of the Code to clarify
that the special rules with respect to commencement of a case
of an unincorporated tax or special assessment district in
that section control over the general rules on commencement
of voluntary cases under section 301 of the Code. As a
conforming change, section 301 is amended to divide it into
two subsections, subsection (a), which provides that a
voluntary case is commenced by the filing of a petition, and
subsection (b), which provides that the commencement of a
case is also the order for relief. Section 301 as amended
will continue to govern the voluntary cases which it now
covers, except those covered by section 921(d).
Section 502. Applicability of other sections to chapter 9
Section 901(a) of the Code, which lists the sections of
title 11 which apply to chapter 9 cases, is amended to
include sections 555, 556, 559, 560, 561, and 562. These
sections provide an exception to the stay of proceedings to
allow the liquidation of various types of securities
contracts. The amendment is necessary to avoid a stay
violation or other complications when certain executory
contracts, municipal bonds, for instance, come due and must
be redeemed.
Title VI--Bankruptcy Data
Section 601. Improved bankruptcy statistics
It has been obvious for some time that despite the scope
and frequency of bankruptcy relief, organized statistics with
respect to what occurs during and as a result of the
bankruptcy case are not available. It is strongly felt that
there should be a concerted effort by the federal government
to collect, maintain and disseminate broad information about
the bankruptcy system and how it operates. Such information
should include how much debt is discharged in different types
of bankruptcy cases, as well as other information relative to
assessing how well the bankruptcy system is serving both
debtors in need and the wider group of citizens who pay in
higher credit prices for the discharged debt.
This section creates a standardized and centralized method
for collecting relevant bankruptcy statistics for cases
involving primarily consumer debts filed under chapters 7,
11, and 13. The statistics will be collected by the clerk in
each district. The Director of the Administrative Office of
the United States Courts will compile the statistics,
producing a centralized data source. The Director will make
the statistics available to the public. Furthermore, by
October 31, 2002, the Director will make annual reports to
Congress which include the statistics as well as an analysis
of the information.
The Director's compilation of statistics will be
comprehensive. The requirements of the compilation, as
outlined in the new section 159(c), are self-explanatory. It
is intended that the information required under Section
159(c)(3)(H) should also include the cases involving
sanctions imposed on debtor's counsel under Section 707(b) of
the Bankruptcy Code.
Section 602. Uniform rules for the collection of bankruptcy
data
This provision complements Section 601 by requiring the
Attorney General to issue rules requiring the establishment
of uniform forms for final reports filed by bankruptcy
trustees and monthly operating reports filed by chapter 11
debtors in possession. The information that should be
contained in these reports is self-explanatory. The reports
must also be made publicly available for physical inspection
(at one or more central filing locations) and by electronic
access through the Internet or other appropriate media.
Section 603. Audit procedures
This section requires the Attorney General to establish
procedures for auditing the accuracy and completeness of
information supplied by individual debtors in connection with
their bankruptcy cases under chapter 7 and chapter 13 of the
Bankruptcy Code. The audit must be in accordance with
generally accepted auditing standards and performed by
independent certified public accountants or independent
licensed public accountants. However, the Attorney General is
given discretion to develop alternative auditing standards
not later than two years after the date of enactment of H.R.
2415. Should the Attorney General develop alternative
auditing standards, such standards are expected to have
integrity and reliability comparable to generally accepted
auditing standards. It is intended that the Attorney General
in developing auditing standards, and any others who set
procedures or practices to be used in the audits or supervise
them, will in doing so consult with those units in the
Department of Justice which enforce against bankruptcy fraud
and bankruptcy crimes, including the bankruptcy fraud task
force in the Attorney General's office and bankruptcy fraud
and crime units in the United States Attorneys' offices.
The audits are to be performed on randomly selected cases
and should include at least 1 out of every 250 cases in each
Federal judicial district. Audits are required for schedules
of income and expenses which reflect greater than average
variances from the statistical norm of the district in which
the schedules were filed. The aggregate results of the audits
is to be made public and is required to include the
percentage of cases, by district, in which a material
misstatement of income, expenditures or assets is reported.
A report of each audit must be filed with the court and
transmitted to the United States trustee. Each report must
clearly and conspicuously specify any material misstatement
of income, expenditures or assets. In any case where a
material misstatement of income, expenditures or assets has
been reported, the clerk of the bankruptcy court must give
all creditors in the case notice of the misstatement(s).
Where appropriate, the matter could be referred to the U.S.
Attorney for possible criminal prosecution.
Furthermore, the Bankruptcy Code is amended to make it a
duty of the debtor to supply certain information to an
auditor. This section also adds, as grounds for revocation of
a chapter 7 debtor's discharge, a chapter 7 debtor's failure
to satisfactorily explain a material misstatement discovered
as the result of an audit and the failure to make available
all necessary documents or property belonging to the debtor
that are requested in connection with such audit.
Section 604. Sense of Congress regarding availability of
bankruptcy data
This section expresses the sense of the Congress that it is
a national policy of the United States that all data
collected by the bankruptcy clerks in electronic form (to the
extent such data related to public records as defined in
Section 107 of the Bankruptcy Code) should be made available
to the public in a usable electronic form in bulk, subject to
appropriate privacy concerns and safeguards as determined by
the Judicial Conference of the United States. Those privacy
concerns and safeguards should be developed keeping in mind
that the data covered is already of public record.
It is also the sense of Congress that a single bankruptcy
data system should be established that uses a single set of
data definitions and forms to collect such data and that data
for any particular bankruptcy case be aggregated in such
electronic record.
Title VII--Bankruptcy Tax Provisions
Section 701. Treatment of certain tax liens
The conference agreement follows the House bill. Section
701 makes several amendments to section 724 of the Bankruptcy
Code to provide greater protection for holders of ad valorem
tax liens on real or personal property of the estate. Many
school boards obtain liens on real property to ensure
collection of unpaid ad valorem taxes. Often, governments are
unable to collect despite the presence of a lien because,
under current law, these liens may be subordinated to certain
claims against and expenses of the bankruptcy estate. The
conference agreement would seek to protect the holders of
these tax liens from, among other things, erosions of their
claims' status by expenses incurred under chapter 11 of the
Bankruptcy Code.
Under the conference agreement, subordination of ad valorem
tax liens is still possible under section 724(b). However,
the purposes are limited to paying for chapter 7
administrative expenses and priority claims for postpetition
``wages, salaries, and commissions'' and claims for
``contributions to an employee benefit plan.'' Thus,
subordination for the purpose of paying chapter 11
administrative expenses is not permitted. Also, section 701
requires the chapter 7 trustee to utilize all other estate
assets before the trustee could resort to section 724 of the
code to subordinate liens on personal and real property of
the estate.
In addition, the conference agreement prevents a bankruptcy
court from determining the amount or legality of ad valorem
tax obligations if the applicable period for contesting or
redetermining the amount of the claim under nonbankruptcy law
has expired. This addresses those instances where debtors or
trustees use section 505 of the Bankruptcy Code as a means to
have bankruptcy courts set aside these types of taxes, to the
detriment of the local communities that depend on them for
revenue.
Section 702. Treatment of fuel tax claims
The conference agreement follows the Senate bill. The
agreement simplifies the filing of claims by states against
truckers for unpaid fuel taxes by modifying section 501 of
the Bankruptcy Code. Rather than requiring all states to file
a claim for unpaid fuel taxes (as is the case under current
law), the designated ``base jurisdiction'' under the
International Fuel Tax Agreement would file a claim on behalf
of all states. This claim would be treated as a single claim.
Section 703. Notice of request for a determination of taxes
The conference agreement follows the Senate bill. Under
current law, debtors may request that the government
determine administrative tax liabilities under section 505(b)
of the Bankruptcy Code in order to receive a discharge of
those liabilities. There are no requirements as to the
content or form of such notice to the government.
The conference agreement requires that each bankruptcy
court clerk maintain a listing under which government
entities may designate their addresses for service of debtor
requests. If a governmental entity does not designate an
address and provide that address to the bankruptcy court
clerk, any request made under section 505(b) of the
Bankruptcy Code may be served at the address of the
appropriate taxing authority of
[[Page S11715]]
that governmental unit. The conference agreement also
provides that governmental entities may describe where
further information concerning additional requirements for
filing such requests may be found.
Section 704. Rate of interest on tax claims
The conference agreement follows the Senate bill with a
modification and a technical correction. Under current law,
there is no uniform rate of interest for payment of tax
claims. Bankruptcy courts have used varying standards to
determine the applicable rate. The conference agreement adds
section 511 to the Bankruptcy Code to simplify the interest
rate calculation. The agreement provides that for all tax
claims (federal, state, and local), including administrative
expense taxes, the interest rate shall be determined in
accordance with applicable non-bankruptcy law and as of the
calendar month in which the plan is confirmed.
The conference agreement modifies the Senate bill to
clarify that the applicable non-bankruptcy law interest rate
would apply to administrative expense taxes, as well as to
all other tax claims.
Section 705. Priority of tax claims
The conference agreement follows the Senate bill with a
modification and a technical correction. Under current law,
in section 507(a)(8) of the Bankruptcy Code, tax claims are
entitled to a priority if they arise within certain time
periods. In the case of income taxes, a priority arises,
among other times, if the tax return was due within 3 years
of the filing of the bankruptcy petition or if the assessment
of the tax was made within 240 days of the filing of the
petition. The 240-day period is tolled during the time that
an offer in compromise is pending (plus 30 days). Though the
statute is silent, most courts have also held that the 3-year
and 240-day time periods are tolled during the pendency of a
previous bankruptcy case.
The conference agreement codifies the rule tolling priority
periods during a previous bankruptcy and adds an additional
90 days. The agreement also includes tolling provisions to
adjust for the collection due process rights provided by the
IRS Restructuring and Reform Act of 1998. During any period
in which the government is prohibited from collecting a tax
as a result of a request by the debtor for a hearing and an
appeal of any collection action taken against the debtor, the
priority is tolled, plus 90 days. Also, during any time in
which there was a stay of proceedings in a prior bankruptcy
case or collection of an income tax was precluded by a
confirmed bankruptcy plan, the priority is tolled, plus 90
days. The conference agreement modifies the Senate bill to
apply the priority tolling periods to non-income taxes as
well.
Section 706. Priority property taxes incurred
The conference agreement follows the Senate bill, replacing
the word ``assessed'' with ``incurred'' in the case of real
property taxes. Under current law, many provisions of the
Bankruptcy Code are keyed to the word ``assessed.'' While
this word has an accepted meaning in the federal system, it
is not used in many state and local statutes and has created
some confusion. Replacing the word ``assessed'' with
``incurred'' in the case of real property taxes in section
507(a)(8)(B) of the Bankruptcy Code eliminates this problem.
Section 707. No discharge of fraudulent taxes in chapter 13
The conference agreement follows the Senate bill. Under
current law, a debtor's ability to discharge his tax debts
varies depending on whether the debtor is in chapter 7
(liquidation) or chapter 13 (income earner plans of
repayment). Chapter 7 contains a much narrower discharge.
Under chapter 7, taxes from a return due within 3 years of
the petition date, taxes assessed within 240 days, or taxes
related to an unfiled return or false return are not
dischargeable. Chapter 13, on the other hand, permits what is
known as a ``superdischarge,'' which allows courts to
discharge these same tax debts.
The conference agreement repeals the superdischarge for
fraudulent and non-filed taxes by amending section 1328(a)(2)
of the Bankruptcy Code. Fraudulent and non-filer claims would
not receive any special treatment. The conference agreement
also repeals the superdischarge for a tax required to be
collected or withheld and for which the debtor is liable in
whatever capacity, such as an employee's share of federal
payroll and trust fund taxes. However, the conference
agreement leaves the superdischarge in place for other tax
claims. Thus, consistent with the IRS Restructuring and
Reform Act of 1998, taxpayers who have complied with a
reorganization plan--which includes paying taxes--would
continue to receive the superdischarge.
Section 708. No discharge of fraudulent taxes in chapter 11
The conference agreement follows the Senate bill with a
modification. Under current law, the confirmation of a plan
of reorganization under chapter 11 discharges the debtor from
all liability. The conference agreement would except, in the
case of corporations, fraudulent taxes, willfully evaded
taxes, and debts for money or property obtained in a false or
fraudulent manner from the broad chapter 11 discharge.
Congress believes the Bankruptcy Code should not encourage
fraud by allowing the discharge of debts incurred through
fraud or false representation simply because those debts were
incurred in a corporate setting.
The conference agreement amends the discharge provisions of
chapter 11 (Bankruptcy Code section 1141(d)) to prevent the
discharge of tax or customs duty tax claims resulting from a
corporate debtor's fraudulent tax returns. It also prevents
the discharge of any unpaid tax obligations that resulted
from a corporate chapter 11 debtor's willful evasion of
applicable tax laws. Further, the conference agreement
modifies the Senate bill to prevent the discharge of any debt
for money, property, services, or credit, obtained by a
corporate debtor in a false or fraudulent manner (applying
section 523(a)(2) of the Bankruptcy Code to corporate
debtors).
Section 709. Stay of tax proceedings limited to pre-petition
taxes
The conference agreement modifies the Senate and House
bills. Under current law, filing a petition for relief under
the Bankruptcy Code triggers an automatic stay which
precludes the commencement or continuation of a case in U.S.
tax court. This rule was arguably extended in Halpern v.
Commissioner, 96 T.C. 895 (1991), in which the tax court
ruled that it did not have jurisdiction to hear a case
involving a post-petition year. The conferees believe that
Halpern went too far.
In order to address this issue, the conference agreement
specifies that the automatic stay is limited to an individual
debtor's prepetition taxes (taxes incurred before entering
bankruptcy). Thus, the automatic stay would not apply to
cases involving an individual debtor's postpetition taxes.
The agreement allows the bankruptcy court to determine
whether the stay will apply to the postpetition tax
liabilities of a corporate debtor.
Section 710. Periodic payment of taxes in chapter 11 cases
The conference agreement follows the Senate bill with a
modification. Section 710 of the conference agreement limits
the discretion of the debtor and the trustee regarding
treatment of pre-petition tax claims in chapter 11 cases.
Under current law, non-tax claims are paid out over several
years in equal installments. Tax claims must be paid out over
six years from the date of assessment and typically include
interest-only payments in the early years and a balloon
payment at the end.
The conference agreement modifies section 1129(a)(9) of the
Bankruptcy Code by reducing the maximum period of tax
payments from six years from the date of assessment to five
years from the entry of the order for relief and by
specifying that payment should be made in ``regular
installment payments.''
The conference agreement modifies the Senate bill to delete
language regarding the interest rate applicable to
installment payments in chapter 11 cases.
Section 711. Avoidance of statutory liens prohibited
The conference agreement follows the Senate bill. Under the
Bankruptcy Code, trustees may act to keep assets in the
bankruptcy estate even though a statutory lien exists against
the asset. The Internal Revenue Code gives special protection
to certain purchasers of securities and motor vehicles
notwithstanding the existence of a filed tax lien. The
conference agreement amends section 545(2) of the Bankruptcy
Code to prevent trustees from using the tax code provision to
displace an otherwise valid lien. In other words, trustees
could not keep securities or motor vehicles in the bankruptcy
estate if they were subject to a lien under the tax code
provisions.
The conference agreement prevents the avoidance of
unperfected liens against a bona fide purchaser, if the
purchaser qualifies as such under section 6323 of the
Internal Revenue Code or a similar provision of either state
or local law.
Section 712. Payment of taxes in the conduct of business
The conference agreement follows the Senate bill.
Bankruptcy laws and statutes-at-large generally require
trustees and receivers to pay business taxes in the ordinary
course. Other kinds of administrative expenses can be paid
only upon motion after a court order. Some bankruptcy courts
have not permitted debtors to pay post-petition tax
liabilities (those accruing after filing a bankruptcy
petition) prior to the approval of a plan for the bankruptcy
estate. The conference agreement amends section 960 of title
28 of the U.S. Code to provide clear authority to pay taxes
in the ordinary course of business. The agreement also amends
section 503(b) of the Bankruptcy Code to require payment of
ad valorem taxes as an allowed administrative expense tax and
eliminates any requirement to file a request for payment of
any administrative expense taxes.
Section 713. Tardily filed priority tax claims
The conference agreement follows the Senate bill. Under
current law, in chapter 7 of the Bankruptcy Code, tax claims
timely filed are entitled to their full statutory priority.
Late-filed tax claims lose their full statutory priority, but
are entitled to distribution as unsecured claims provided
they are filed before the trustee commences distribution of
the estate. The problem is that a claim filed just before
distribution can significantly delay the process of
distribution due to certifying the validity of the claim and
determining its proper priority.
The conference agreement modifies section 726(a)(1) of the
Bankruptcy Code to require a tax claim to be filed either
before the trustee commences distribution or 10 days
following the mailing to creditors of the summary of
[[Page S11716]]
the trustee's final report, whichever is earlier, in order
for the claim to be entitled to distribution as an unsecured
claim.
Section 714. Income tax returns prepared by tax authorities
The conference agreement follows the Senate bill. In
general, taxpayers cannot be discharged from taxes unless a
return was filed. Courts have struggled with what constitutes
filing a return. The tax code authorizes the Secretary of
Treasury to file a return on behalf of a taxpayer if either
(1) the taxpayer provides information sufficient to complete
a return, or (2) the Secretary can obtain sufficient
information through testimony or otherwise to complete a
return.
The conference agreement modifies section 523(a) of the
Bankruptcy Code to provide that a return filed on behalf of a
taxpayer who has provided information sufficient to complete
a return constitutes filing a return (and the debt can be
discharged) but that a return filed on behalf of a taxpayer
based on information the Secretary obtains through testimony
or otherwise does not constitute filing a return (and the
debt cannot be discharged).
Section 715. Discharge of the estate's liability for unpaid
taxes
The conference agreement follows the Senate bill. Under the
Bankruptcy Code, a debtor may request a prompt audit to
determine post-petition tax liabilities. If the government
does not make a determination or request extension of time to
audit, then the debtor's determination of taxes will be
final. Several court cases have held that while this protects
the debtor and the trustee, it does not necessarily protect
the estate.
The conference agreement modifies section 505(b) of the
Bankruptcy Code to clarify that the estate is also protected
if the government does not request an audit of the debtor's
tax returns. Therefore, if the government does not make a
determination of the debtor's post-petition tax liabilities
or request extension of time to audit, then the estate's
liability for unpaid taxes will be discharged.
Section 716. Requirement to file tax returns to confirm
chapter 13 plans
The conference agreement follows the Senate bill with a
modification. Under current law, a debtor may be entitled to
the benefits of chapter 13 (reorganization) even if he is
delinquent in his tax returns. Without access to tax return
information, creditors cannot obtain full information about
the debtor's status. Most districts have established
procedures requiring the filing of returns prior to the
initial meeting of creditors.
The conference agreement amends section 1325(a) of the
Bankruptcy Code (and adds section 1308 to the Code) to
require a debtor to be current on the filing of tax returns
for the four years prior to the filing of a petition in order
to have a chapter 13 plan confirmed. If the returns have not
been filed by the date on which the meeting of creditors is
first scheduled, the trustee may hold open that meeting for a
reasonable period of time to allow the debtor to file any
unfiled returns. The additional period of time may not extend
beyond 120 days after the date of the meeting of the
creditors or beyond the date on which the return is due under
the last automatic extension of time for filing. However, the
debtor may also obtain an extension of time to file from the
court if the debtor demonstrates by a preponderance of the
evidence that the failure to file was attributable to
circumstances beyond the debtor's control.
Section 717. Standards for tax disclosure
The conference agreement follows the Senate bill. Under
current law, before a chapter 11 (business bankruptcy) plan
may be submitted to creditors and stockholders for a vote,
the proponent of the plan must file a disclosure statement in
which holders of claims and interests are given ``adequate
information'' on which they can make a decision as to whether
or not to vote in favor of the plan. A chapter 11 plan's tax
consequences represent an important aspect of that plan.
The conference agreement amends section 1125(a) of the
Bankruptcy Code to require that a chapter 11 disclosure
statement discuss the potential material Federal tax
consequences of the plan to the debtor and to holders of
claims and interests in the case.
Section 718. Setoff of tax refunds
The conference agreement follows the Senate bill. Under
current law, a petition for bankruptcy triggers an automatic
stay of the setoff of any debt owing to the debtor that arose
before the commencement of the case against any debt owed by
the debtor. This automatic stay precludes setoff of a pre-
petition tax refund against a pre-petition tax obligation
unless the bankruptcy court has approved the setoff. Because
the interest and penalties which may continue to accrue are
often nondischargeable, the inability to promptly apply
income tax refunds against tax claims can cause individual
debtors undue hardship.
The conference agreement amends section 362(b) of the
Bankruptcy Code to allow the setoff to occur unless setoff
would not be permitted under applicable tax law because of a
pending action to determine the amount or legality of the tax
liability. In that circumstance, the governmental authority
may hold the refund pending resolution of the action.
Section 719. Special provisions related to the treatment of
State and local taxes
The conference agreement follows the Senate bill,
conforming state and local income tax administrative issues
to the Internal Revenue Code. For example, under federal law,
a bankruptcy petitioner filing on March 5 has two tax years--
January 1 to March 4, and March 5 to December 31. However,
under the Bankruptcy Code, state and local tax years are
divided differently--January 1 to March 5, and March 6 to
December 31. Section 719 of the conference agreement requires
the states to follow the federal convention.
The conference agreement conforms state and local tax
administration to the Internal Revenue Code in the following
areas: division of tax liabilities and responsibilities
between the estate and the debtor, tax consequences with
respect to partnerships and transfers of property, and the
taxable period of a debtor. The conference agreement does not
conform state and local tax rates to federal tax rates.
Section 720. Dismissal for failure to timely file tax returns
The conference agreement follows the Senate bill. Under
existing law, there is no definitive rule concerning whether
a bankruptcy court should dismiss a bankruptcy case if the
debtor fails to file tax returns after entering bankruptcy.
The conferees believe that it is good policy to require that
these returns be filed.
Thus, the conference agreement amends section 521 of the
Bankruptcy Code to allow a taxing authority to request that
the court dismiss or convert a bankruptcy case if the debtor
fails to file a post-petition tax return or obtain an
extension on such a return. The conference agreement provides
that the debtor would have 90 days from the time of the
request to file the return or to obtain an extension, or the
court would be required to dismiss or convert the case.
Title VIII--Ancillary and other cross-border cases
This Title adds a new chapter to the Bankruptcy Code (the
``Code'') for transactional bankruptcy cases. This
incorporates the Model Law on Cross-Border Insolvency to
encourage cooperation between the United States and foreign
countries with respect to transnational insolvency cases.
Title IX is intended to provide greater legal certainty for
trade and investment as well as to provide for the fair and
efficient administration of cross-border insolvencies, which
protects the interests of creditors and other interested
parties, including the debtor. In addition, it serves to
protect and maximize the value of the debtor's assets.
Section 801. Amendment to add Chapter 15 to title 11, United
States Code
Each of the sections of new chapter 15 is discussed in
order.
Section 1501. Purpose and scope of application
The chapter introduces into the Bankruptcy Code the Model
Law on Cross-Border Insolvency (``Model Law''), which was
promulgated by the United Nations Commission on
International Trade Law (``UNCITRAL'') at its Thirtieth
Session, May 12-30, 1997.
Cases brought under this chapter are intended to be
ancillary to cases brought in a debtor's home country, unless
a full United States bankruptcy case is brought under another
chapter. Even if a full case is brought, the court may decide
under section 305 to stay or dismiss the United States case
under the chapter and limit the United States' role to
ancillary case under this chapter. If the full case is not
dismissed, it will be subject to the provisions of this
chapter governing cooperation, communication and coordination
with foreign courts and representatives. In any case, an
order granting recognition is required as a prerequisite to
use the sections 301 and 303 by a foreign representative.
Section 1501 combines the Preamble to the Model Law
(subsection (1)) with its article 1 (subsections (2) and
(3)). It largely follows the language of the Model Law and
fills in blanks with appropriate United States references.
However, it adds in subsection (3) an exclusion of certain
natural persons who may be considered ordinary consumers.
Although the consumer exclusion is not in the test of the
Model Law, the discussions at UNCITRAL recognized that some
such exclusion would be necessary in countries like the
United States where there are special provisions for consumer
debtors in the insolvency laws.
The reference to section 109(e) essentially defines
``consumer debtors'' for purposes of the exclusion by
incorporating the debt limitations of that section, but not
its requirement or regular income. The exclusion adds a
requirement that the debtor or debtor couple be citizens or
long-term legal residents of the United States. This ensures
that residents of other countries will not be able to
manipulate this exclusion to avoid recognition of foreign
proceedings in their home countries or elsewhere.
The first exclusion in subsection (c) constitutes, for the
United States, the exclusion provided in article 1,
subsection (2), of the Model Law. Foreign representatives of
foreign proceedings which are excluded from the scope of
chapter 15 may seek relief from courts other than the
bankruptcy court since the limitations of section 1509(b) (2)
and (3) would not apply to them.
The reference to section 109(b) interpolates into chapter
15 the entities governed by specialized insolvency regimes
under United States law which are currently excluded from
liquidation proceedings under title 11. Section 1501 contains
an exception to the
[[Page S11717]]
section 109(b) exclusions so that foreign proceedings of
foreign insurance companies are eligible for recognition and
relief under chapter 15 as they had been under section 304.
However, section 1501(d) has the effect of leaving to State
regulation any deposit, escrow, trust fund or the like posted
by a foreign insurer under State law.
Section 1502. Definitions
``Debtor'' is given a special definition for this chapter.
That definition does not come from the Model Law but is
necessary to eliminate the need to refer repeatedly to ``the
same debtor as in the foreign proceeding.'' With certain
exceptions, the term ``person'' used in the Model Law has
been replace with ``entity,'' which is defined broadly in
section 101(15) to include natural persons and various legal
entities, thus matching the intended breadth of the term
``person'' in the Model Law. The exceptions include contexts
in which a natural person is intended and those in which the
Model Law language already refers to both persons and
entities other than persons. The definition of ``trustee''
for this chapter ensures that debtors in possession and
debtors, as well as trustees, are included in the term.
The definition of ``within the territorial jurisdiction of
the United States'' in subsection (7) is not taken from the
Model Law. It has been added because the United States, like
some other countries, assets insolvency jurisdiction over
property outside its territorial limits under appropriate
circumstances. Thus a limiting phrase is useful where the
Model Law and this chapter intend to refer only to property
within the territory of the enacting state. In addition, a
definition of ``recognition'' supplements the Model Law
definitions and merely simplifies drafting of various other
sections of chapter 15.
Two key definitions of ``foreign proceeding'' and ``foreign
representative,'' are found in sections 101(23) and (24),
which have been amended consistent with Model Law article 2.
The definitions ``establishment,'' ``foreign court,''
``foreign main proceeding,'' and ``foreign non-main
proceeding,'' have been taken from Model Law article 2, with
only minor language variations necessary to comport with
United States terminology. Additionally, defined terms have
been placed in alphabetical order.
In order to be recognized as a foreign non-main proceeding,
the debtor must at least have an establishment in that
foreign country.
Section 1503. International obligations of the United
States
This section is taken exactly from the Model Law with only
minor adaptations of terminology.
Although this sections makes an international obligation
prevail over chapter 15, the courts will attempt to read the
Model Law and the international obligation so as not to
conflict, especially if the international obligation
addresses a subject matter less directly related than the
Model Law to a case before the court.
Section 1504. Commencement of ancillary case
Article 4 of the Model Law is designed for designation of
the competent court which will exercise jurisdiction under
the Model Law. In United States law, section 1334(a) of title
28 gives exclusive jurisdiction to the district courts in a
``case'' under this title.
Therefore, since the competent court has been determined in
title 28, this section instead provides that a petition for
recognition commences a ``case'', an approach that also
invokes a number of other useful procedural provisions.
In addition, a new subsection (P) to section 157 of title
28 makes cases under this chapter part of the core
jurisdiction of bankruptcy courts when referred to them by
the district court that will rule on the petition is
determined pursuant to a revised section 1410 of title 28
governing venue and transfer.
The title ``ancillary'' in this section and in the title of
this chapter emphasizes the United States' policy in favor of
a general rule that countries other than the home country of
the debtor, where a main proceeding would be brought, should
usually act through ancillary proceedings, in preference to a
system of full bankruptcies (often called ``secondary''
proceedings) in each state where assets are found. Under the
Model Law, notwithstanding the recognition of a foreign main
proceeding, full bankruptcy cases are permitted in each
country (see sections 1528 and 1529). In the United States,
the court will have the power to suspend or dismiss such
cases where appropriate under section 305.
Section 1505. Authorization to act in a foreign country
The language in this section varies from the wording of
articles 5 of the Model Law as necessary to comport with
United States law and terminology. The slight alteration to
the language in the last sentence is meant to emphasize that
the identification of the trustee or other entity entitled to
act is under United States law, while the scope of actions
that may be taken by the trustee or other entity under
foreign law is limited by the foreign law.
The related amendment to section 586(a)(3) of title 28
makes acting pursuant to authorization under this section an
additional power of a trustee or debtor in possession.
While the Model Law automatically authorizes an
administrator to act abroad, this section requires all
trustees and debtors to obtain court approval before acting
abroad. That requirement is a change from the language of the
Model Law, but one that is purely internal to United States
law.
Its main purpose is to ensure that the court has knowledge
and control of possibly expensive activities, but it will
have the collateral benefit or providing further assurance to
foreign courts that the United States debtor or
representative is under judicial authority and supervision.
This requirement means that the first-day orders in
reorganization cases should include authorization to act
under this section where appropriate.
This section also contemplates the designation of an
examiner or other natural person to act for the estate in one
or more foreign countries where appropriate. One instance
might be a case in which the designated person had a special
expertise relevant to that assignment. Another might be where
the foreign court would be more comfortable with a designated
person than with an entity like a debtor in possession.
Either are to be recognized under the Model Law.
Section 1506. Public policy exception
This provision follows the Model Law article 5 exactly, is
standard in UNCITRAL texts and has been narrowly interpreted
on a consistent basis in courts around the world. The word
``manifestly'' in international usage restricts the public
policy exemption to the most fundamental policies of the
United States.
Section 1507. Additional assistance
Subsection (1) follows the language of Model law article 7.
Subsection (2) makes the authority for additional relief
(beyond that permitted under sections 1519-1521, below)
subject to the conditions for relief heretofore specified in
United States law under section 304, which is repealed. This
section is intended to permit the further development of
international cooperation begun under section 304, but is not
to be the basis for denying of limiting relief otherwise
available under this chapter. The additional assistance is
made conditional upon the court's consideration of the
factors set forth in the current subsection 304(c) in a
context of a reasonable balancing of interests following
current case law. The references to ``estate'' in section 304
have been changed to refer to the debtor's property, because
many foreign systems do not create an estate in insolvency
proceedings or the sort recognized under this chapter.
Although the case law, construing section 304 makes it
clear that comity is the central consideration, its
physical placement as one of six factors in subsection 304
is misleading, since those factors are essentially
elements of the grounds for granting comity. Therefore, in
subsection (2) of this section, comity is raised to the
introductory language to make it clear that it is the
central concept to be addressed.
Section 1508. Interpretation
This provision follows conceptually Model law article 8 and
is a standard one in recent UNCITRAL treaties and model laws.
Language changes were made to express the concepts more
clearly in terminology which accords with that of the
bankruptcy laws of the United States.
Interpretation of this chapter on a uniform basis will be
aided by reference to the Guide and the Reports cited
therein, which explain the reasons for the terms used and
often cite their origins as well. Uniform interpretation will
also be aided by reference to CLOUT, the UNCITRAL Case Law On
Uniform Texts, which is a service of UNITRAL. CLOUT receives
reports from national reporters all over the world concerning
court decisions interpreting treaties, model laws, and other
text promulgated by UNCITRAL. Not only are these sources
persuasive, but they are important to the crucial goal of
uniformity of interpretation. To the extent that the United
States courts rely on these sources, their decisions will
more likely be regarded as persuasive elsewhere.
Section 1509. Right of direct access
This section implements the purpose of article 9 of the
Model Law, enabling a foreign representative to commence a
case under this chapter by filing a petition directly with
the court without preliminary formalities that may delay or
prevent relief. It varies the language to fit United States
procedural requirements and it imposes recognition of the
foreign proceeding as a condition to further rights and
duties of the foreign representative. If recognition is
granted, the foreign representative will have full capacity
under U.S. law (subsection (b)(1)), may request such relief
in a state or federal court other than the bankruptcy court
(subsection (b)(2)) and may be granted comity or cooperation
by such non-bankruptcy court (subsection (b)(3) and (c)).
Subsections (b)(2), (b)(3) and (c) make it clear that chapter
15 is intended to be the exclusive door to ancillary
assistance to foreign proceedings. The goal is to concentrate
control of these questions in one court. That goal is
important in a federal system like that of the United States
with many different courts, state and federal, that may have
pending actions involving the debtor or the debtor's
property. This section, therefore, completes for the United
States the work of article 4 of the Model Law (``competent
court'') as well as article 9.
Although a petition under current section 304 is the proper
method for achieving deference by a United States court to a
foreign insolvency under present law, some cases in state and
federal courts under current law have granted comity
suspension or dismissal
[[Page S11718]]
of cases involving foreign proceedings without requiring a
section 304 petition or even referring to the requirements of
that section. Even if the result is correct in a particular
case, the procedure is undesirable, because there is room for
abuse of comity. Parties would be free to avoid the
requirements of this chapter and the expert scrutiny of the
bankruptcy court by applying directly to a state or federal
court unfamiliar with the statutory requirements. Such an
application could be made after denial of a petition under
this chapter. This section concentrates the recognition and
deference process in one United States court, ensures against
abuse, and empowers a court that will be fully informed of
the current status of all foreign proceedings involving the
debtor.
Subsection (d) has been added to ensure that a foreign
representative cannot seek relief in courts in the United
States after being denied recognition by the court under this
chapter.
Subsection (c) makes activities in the United States by a
foreign representative subject to applicable United States
law, just as 28 U.S.C. section 959 does for a domestic
trustee in bankruptcy.
Subsection (f) provides a limited exception to the prior
recognition requirement so that collection of a claim which
is property of the debtor, for example an account receivable,
by a foreign representative may proceed without commencement
of a case or recognition under this chapter.
Section 1510. Limited jurisdiction
Section 1510, article 10 of the Model Law, is modeled on
section 306 of the Code. Although the language referring to
conditional relief in section 306 is not included, the court
has the power under section 1522 to attach appropriate
conditions to any relief it may grant. Nevertheless, the
authority in section 1522 is not intended to permit the
imposition of jurisdiction over the foreign representative
beyond the boundaries of the case under this chapter and any
related actions the foreign representative may take, such as
commencing a case under another chapter of this title.
Section 1511. Commencement of case under section 301 or 303
This section follows the intent of article 11 of the Model
Law, but adds language that conforms to United States law or
that is otherwise necessary in the United States given its
many bankruptcy court districts and the importance of full
information and coordination among them.
Article 11 does not distinguish between voluntary and
involuntary proceedings, but seems to have implicitly assumed
an involuntary proceeding.
Subsection 1(a)(2) goes farther and permits a voluntary
filing, with its much simpler requirements, if the foreign
proceeding that has been recognized is a main proceeding.
Section 1512. Participation of a foreign representative in
a case under this title
This section follows article 12 of the Model Law with a
sight alternation to adjust to United States procedural
terminology. The effect of this section is to make the
recognized foreign representative a party in interest in any
pending or later commenced United States bankruptcy case.
Throughout this chapter, the word ``case'' has been
substituted for the word ``proceeding'' in the Model Law when
referring to cases under the United States Bankruptcy Code,
to conform to United States usage.
Section 1513. Access of foreign creditors to a case under
this title
This section mandates nondiscriminatory or ``national''
treatment for foreign creditors, except as provided in
subsection (b) and section 1514. It follows the intent of
Model Law article 13, but the language required alternation
to fit into the Bankruptcy Code.
The law as to priority for foreign claims that fit within a
class given priority treatment under section 507 (for
example, foreign employees or spouses) is unsettled. This
section permits the continued development of case law on that
subject and its general principle of national treatment
should be an important factor to be considered. At a minimum,
under this section, foreign claims must receive the treatment
given to general unsecured claims without priority, unless
they are in a class of claims in which domestic creditors
would also be subordinated.
The Model Law allows for an exception to the policy of
nondiscrimination as to foreign revenue and other public law
claims. Such claims (such as tax and social security claims)
have been denied enforcement in the United States
traditionally, inside and outside of bankruptcy. The Code is
silent on this point, so the rule is purely a matter of
traditional case law. It also allows the Department of the
Treasury to negotiate reciprocal arrangements with out tax
treaty partners in this regard, although it does not mandate
any restriction of the evolution of case law pending such
negotiations.
Section 1514. Notification of foreign creditors concerning
a case under title 11.
This section ensures that foreign creditors receive proper
notice of cases in the United States.
As ``foreign creditor'' is not defined term, foreign
addresses are used as the distinguishing factor. The Federal
Rules of Bankruptcy Procedure (``Rules'') should be amended
to conform to the requirements of this section, including a
special form for initial notice to such creditors. In
particular, the Rules must provide for additional time for
such creditors to file proofs of claim where appropriate and
must provide for the court to make specific orders in that
regard in proper circumstances. The notice must specify that
secured claims must be asserted, because in many countries
such claims are not affected by an insolvency proceeding and
need not be filed. Of course, if a foreign creditor has made
an appropriate request for notice, it will receive notices in
every instance where notices would be sent to other creditors
who have made such requests.
Subsection (d) replaces the reference to ``a reasonable
time period'' in Mode Law article 14(3)(a). It makes clear
that the Rules, local rules, and court orders must make
appropriate adjustments in time periods and bar dates so that
foreign creditors have a reasonable time within which to
receive notice or take an action.
Section 1515. Application for recognition of a foreign
proceeding
This section follows article 15 of the Model Law with minor
changes.
The Rules will require amendment to provide forms for some
or all of the documents mentioned in this section, to make
necessary additions to Rules 1000 and 20002 to facilitate
appropriate notices of the hearing on the petition for
recognition, and to require filing of lists of creditors and
other interested persons who should receive notices.
Throughout the Model Law, the question of notice procedure is
left to the law of the enacting state.
Section 1516. Presumptions concerning recognition
This section follows article 16 of the Model Law with minor
changes.
Although section 1515 and 1516 are designed to make
recognition as simple and expedient as possible, the court
may hear proof on any element stated. The ultimate burden as
to each element is on the foreign representative, although
the court is entitled to shift the burden to the extent
indicated in section 1516. The word ``proof'' in subsection
(3) has been changed to ``evidence'' to make it clearer using
United States terminology that the ultimate burden is on the
foreign representative.
``Registered office'' is the term used in the Model Law to
refer to the place of incorporation or the equivalent for an
entity that is not a natural person.
The presumption that the place of the registered office is
also the center of the debtor's main interest is included for
speed and convenience of proof where there is not serious
controversy.
Section 1517. Order granting recognition
This section closely follows article 17 of the Model Law,
with a few exceptions.
The decision to grant recognition is not dependent upon any
findings about the nature of the foreign proceedings of the
sort previously mandated by section 304(c). The requirements
of this section, which incorporates the definitions in
section 1502 and sections 101(23) and (24), are all that must
be fulfilled to attain recognition.
Reciprocity was specifically suggested as a requirement for
recognition on more than one occasion in the negotiations
that resulted in the Model Law. It was rejected by
overwhelming consensus each time. The United States was one
of the leading countries opposing the inclusion of a
reciprocity requirement. In this regard, the Model Law
conforms to section 304, which has no such requirement.
The drafters of the Model Law understood that only a main
proceeding or a non-main proceeding meeting the standards of
section 1502 (that is, one brought where the debtor has an
establishment) were entitled to recognition under this
section. The Model Law has been slightly modified to make
this point clear by referring to the section 1502 definition
of main and non-main proceedings, as well as to the general
definition of a foreign proceeding in section 101(23).
Naturally, a petition under section 1515 must show that
proceeding is a main or a qualifying non-main proceeding in
order to win recognition under this section.
Consistent with the position of various civil law
representatives in the drafting of the Model Law, recognition
creates a status with the effects set forth in section 1520,
so those effects are not viewed as orders to be modified, as
are orders granting relief under section 1519 and 1521.
Subsection (4) states the grounds for modifying or
terminating recognition. On the other hand, the effects of
recognition (found in section 1520 and including an automatic
stay) are subject to modification under section 362(d), made
applicable by section 15320(2), which permits lifting the
stay of section 1520 for cause.
Paragraph 1(d) of section 17 of the Model Law has been
omitted as an unnecessary requirement for United States
purposes, because a petition submitted to the wrong court
will be dismissed or transferred under other provisions of
United States law.
The reference to section 350 refers to the routine closing
of a case that has been completed and will invoke
requirements including a final report from the foreign
representative in such form as the Rules may provide or a
court may order.
Section 1518. Subsequent information
This section follows the Model Law, except to eliminate the
word ``same'' which is rendered unnecessary by the definition
of ``debtor'' in section 1502 and to provide for a formal
document to be filed with the court.
Judges in several jurisdictions, including the United
States, have reported a need for a
[[Page S11719]]
requirement of complete and candid reports to the court of
all proceedings, worldwide, involving the debtor. This
section will ensure that such information is provided to the
court on a timely basis. Any failure to comply with this
section will be subject to the sanctions available to the
court for violations of the statue. The section leaves to the
Rules the form of the required notice and related questions
of notice to parties in interest, the time for filing, and
the like.
Section 1519. Relief may be granted upon petition for
recognition of a foreign proceeding
This section generally follows article 19 of the Model Law.
The bankruptcy court will have jurisdiction to grant
emergency relief under Rule 7065 pending a hearing on the
petition for recognition. This section does not expand or
reduce the scope of section 105 as determined by cases under
section 105 nor does it modify the sweep of sections 555 to
560. Subsection (d) precludes injunctive relief against
police and regulatory action under section 1519, leaving
section 105 as the only avenue to such relief. Subsection (e)
makes clear that this section contemplates injunctive relief
and that such relief is subject to specific rules and a body
of jurisprudence. Subsection (f) was added to complement
amendments to the Code provisions dealing with financial
contracts.
Section 1520. Effects of recognition of a foreign main
proceeding
In general, this chapter sets forth all the relief that is
available as a matter of right based upon recognition
hereunder, although additional assistance may be provided
under section 1507 and this chapter have no effect on any
relief currently available under section 105.
The stay created by article 20 of the Model law is imported
to chapter 15 from existing provisions of the Code.
Subsection (a)(1) combines subsections 1(a) and (b) of
article 20 of the Model Law, because section 362 imposes the
restrictions required by those two subsections and additional
restrictions as well.
Subsections (a)(2) and (4) apply the Code sections that
impose the restrictions called for by subsection 1(c) of the
Model Law. In both cases, the provisions are broader and more
complete than those contemplated by the Model Law, but
include all the restrains the Model Law provisions would
impose.
As the foreign proceeding may or may not create an
``estate'' similar to that created in cases under this title,
the restraints are applicable to actions against the debtor
under section 362(a) and with respect to the property of the
debtor under the remaining sections. The only property
covered by this section is property within the territorial
jurisdiction of the United States as defined in section 1502.
To achieve effects on property of the debtor which is not
within the territorial jurisdiction of the United States, the
foreign representative would have to commence a case under
another chapter of this title.
By applying section 361 and 362, subsection (a) makes
applicable the United States exceptions and limitation to the
restraints imposed on creditors, debtors, and other in a case
under this title, as stated in article 20(2) of the Model
Law. It also introduces the concept of adequate protection
provided in sections 362 and 363.
These exceptions and limitations include these set forth in
section 362(b), (c) and (d). As one result, the court has the
power to terminate the stay pursuant to section 362(d), for
cause, including a failure of adequate protection.
Subsection (a)(2), by its reference to section 363 and 552
adds to the powers of a foreign representative of a foreign
main proceeding an automatic right to operate the debtor's
business and exercise the power of a trustee under section
363 and 542, unless the court orders otherwise. A foreign
representative of a foreign main proceeding may need to
continue a business operation to maintain value and granting
that authority automatically will eliminate the risk of
delay. If the court is uncomfortable about his authority in a
particular situation it can ``order otherwise'' as part of
the order granting recognition.
Two special exceptions to the automatic stay are embodied
in subsections (b) and (c). To preserve a claim in certain
foreign countries, it may be necessary to commence an action.
Subsection (b) permits the commencement of such an action,
but would not allow for its further prosecution. Subsection
(c) provides that there is not stay of the commencement of a
full United States bankruptcy case. This essentially provides
an escape hatch through which any entity, including the
foreign representative, can flee into a full case. The full
case, however, will remain subject to subchapter IV and V on
cooperation and coordination of proceedings and to
section 305 providing for stay or dismissal.
Section 108 of the Bankruptcy Code provides the tolling
protection intended by Model Law article 2(3), so no
exception is necessary as to claims that might be
extinguished under United States law.
Section 1521. Relief that may be granted upon recognition
of a foreign proceeding
This section follows article 21 of the Model Law, with
detailed changes to fit United States law.
The exceptions in subsection (a)(7) relate to avoiding
powers. The foreign representative's status as to such powers
is governed by section 1523 below. The avoiding power in
section 549 and the exceptions to that power are covered by
section 1520(a)(2).
The word ``adequately'' in the Model Law, articles 21(2)
and 22(1), has been changed to ``sufficiently'' in section
1521(b) and 1522(a) to avoid confusion with a very
specialized legal term in United States bankruptcy,
``adequate protection.''
Subsection (c) is designed to limit relief to assets having
some direct connection with a non-main proceeding, for
example where they were part of an operating division in the
jurisdiction of the non-main proceeding when they were
fraudulently conveyed and then brought to the United States.
Subsections (d), (e) and (f)j are identical to those same
subsections of section 1519.
This section does not expand or reduce the scope of relief
currently available in ancillary cases under sections 105 and
304 nor does it modify the sweep of section 555 through 560.
Section 1522. Protection of creditors and other interested
persons
This section follows article 22 of the Model Law with
changes for United States usage and references to relevant
Code sections.
It gives the bankruptcy court broad latitude to mold relief
to circumstances, including appropriate responses if it is
shown that the foreign proceeding is seriously and
unjustifiably injuring United States creditors. For response
to a showing that the conditions necessary to recognition did
not actually exist or have ceased to exist, see section 1517.
Concerning the change of ``adequately'' in the Model Law to
``sufficiently'' in this section, see section 1521 Subsection
(d) is new and simply makes clear that an examiner appointed
in a case under chapter 15 shall be subject to certain duties
and bonding requirements based on those imposed on trustees
and examiners under other chapters of this title.
Section 1523. Actions to avoid acts detrimental to
creditors
This section follows article 23 of the Model Law, with
wording to fit it within procedure under this title.
It confers standing on a recognized foreign representative
to assert an avoidance action but only in a pending case
under another chapter of this title. The Model Law is not
clear about whether it would grant standing in a recognized
foreign proceeding if not full case were pending. This
limitation reflects concerns raised by the United States
delegation during the UNCITRAL debates that a single grant of
standing to bring avoidance actions neglects to address very
difficult choice of law and forum issues. This limited grant
of standing in section 1523 does not create or establish any
legal right of avoidance nor does it create or imply any
legal rules with respect to the choice of applicable law as
to the avoidance of any transfer or obligation.
The courts will determine the nature and extent of any such
action and what national law may be applied to such action.
Section 1524. Intervention by a foreign representative
The wording is the same as the Model Law, except for a few
clarifying words.
This section gives the foreign representative whose foreign
proceeding has been recognized the right to intervene in
United States cases, state or federal, where the debtor is a
party. Recognition begin an act under federal bankruptcy law,
it must take effect in state as well as federal courts. This
section does not require substituting the foreign
representative for the debtor, although that result may be
appropriate in some circumstances.
Section 1525. Cooperation and direct communication between
the court and foreign courts or foreign representatives
The wording is almost exactly that of the Model Law.
The right or courts to communicate with other courts in
worldwide insolvency cases is of central importance. This
section authorizes courts to do so. This right must be
exercised, however, with due regard to the rights of the
parties. Guidelines for such communications are left to the
Rules.
Section 1526. Cooperation and direct communication between
the trustee and foreign courts or foreign
representatives
This section follows the Model Law almost exactly.
The language in Model Law article 26 concerning the
trustee's function was eliminated as unnecessary because
always implied under United States law. The section
authorizes the trustee, including a debtor in possession, to
cooperate with other proceedings.
Subsection (3) is not taken from the Model Law but is added
so that any examiner appointed under this chapter will be
designated by the United States Trustee and will be bonded.
Section 1527. Forms of cooperation
This section follows the Model Law exactly. United States
bankruptcy courts have already engaged in most of the forms
of cooperation mentioned here, but they now have explicit
statutory authorization for acts like the approval of
protocols of the sort used in cases.
Section 1528. Commencement of a case under title 11 after
recognition of a foreign main proceeding
This section follows the Model Law, with specifics of
United States law replacing the general clause at the end to
cover assets normally included within the jurisdiction of the
United States courts in bankruptcy cases,
[[Page S11720]]
except where assets are subject to the jurisdiction of
another recognized proceeding.
In a full bankruptcy case, the United States bankruptcy
court generally has jurisdiction over assets outside the
United States. Here that jurisdiction is limited where those
assets are controlled by another recognized proceeding, if it
is a main proceeding.
The court may use section 305 of this title to dismiss,
stay, or limit a case as necessary to promote cooperation and
coordination in a cross-border case. In addition, although
the jurisdictional limitation applies only to United States
bankruptcy cases commenced after recognition of a foreign
proceeding, the court has ample authority under the next
section and section 305 to exercise its discretion to
dismiss, stay, or limit a United States case filed after a
petition for recognition of a foreign main proceeding has
been filed but before it has been approved, if recognition is
ultimately granted.
Section 1529. Coordination of a case under title 11 and a
foreign proceeding
This section follows the Model Law almost exactly, but
subsection (4) adds a reference to section 305 to make it
clear the bankruptcy court may continue to use that section,
as under present law, to dismiss or suspend a United States
case as part of coordination and cooperation with foreign
proceedings. This provision is consistent with United States
policy to act ancillary to a foreign main proceeding whenever
possible.
Section 1530. Coordination of more than one foreign
proceeding
This section follows exactly article 30 of the Model Law.
It ensures that a foreign main proceeding will be given
primacy in the United States, consistent with the overall
approach of the United States favoring assistance to foreign
main proceedings.
Section 1531. Presumption of insolvency based on
recognition of a foreign main proceeding
This section follows the Model Law exactly, inserting a
reference to the standard for an involuntary case under this
title.
Where an insolvency proceeding has begin in the home
country of the debtor, and in the absence of contrary
evidence, the foreign representative should not have to make
a new showing that the debtors in the sort of financial
distress requiring a collective judicial remedy. The word
``proof'' here means ``presumption.'' The presumption does
not arise for any purpose outside this section.
Section 1532. Rule of payment in concurrent proceeding
This section follows the Model Law exactly and is very
similar to prior section 508(a), which is repealed. The Model
Law language is somewhat clearer and broader than the
equivalent language of prior section 508(a).
Section 802. Other amendments to titles 11 and 28, United
States Code
Other sections of title 11 have been amended to apply
relevant provisions in those sections to chapter 15 and to
specify which portions of chapter 15 apply in cases under
other chapters of title 11.
The key definitions of foreign proceeding and foreign
representative do not appear in chapter 15, but rather
replace the prior definitions of those terms in section
101(23) and 101(24). The new definitions are nearly identical
to those contained in the Model Law but add to the phrase
``under a law relating to insolvency'' the words ``or debt
adjustment.'' This addition emphasizes that the scope of the
Model Law and chapter 15 is not limited to proceedings
involving only debtors which are technically insolvent, but
broadly includes all proceedings involving debtors in severe
financial distress, so long as those proceedings also meet
the other criteria of section 101(24).
The amendment to section 157(b)(2) of title 28 provides
that proceedings under chapter 15 will be core proceedings
while other amendments to title 28 provide that the United
States Trustee's standing extend to cases under chapter 15
and that the United States Trustee's duties include acting in
chapter 15 cases.
Although the United States will continue to assert
worldwide jurisdiction over property of a domestic or foreign
debtor in a full bankruptcy case under chapters 7 and 13 of
this title, subject to deference to foreign proceedings under
chapter 15 and section 305, the situations different in a
case commenced under chapter 15. There the United States is
acting solely in an ancillary position, so jurisdiction over
property is limited to that stated in chapter 15.
Amendments to section 109 permit recognition of foreign
proceedings involving foreign insurance companies and
involving foreign banks which do not have a branch or agency
in the United States (as defined in 12 U.S.C. section 3103).
While a foreign bank not subject to United States regulation
will be eligible for chapter 15 as a consequence of the
amendment to section 109, section 303 prohibits the
commencement of a full involuntary case against such a
foreign bank unless the bank is a debtor in a foreign
proceeding.
While section 304 is repealed and replace by chapter 15,
access to the jurisprudence which developed under section 304
is preserved in the context of new section 1507. On deciding
whether to grant the Additional Assistance contemplated by
section 1507, the Court must consider the same factors that
had been imposed by former section 304.
The venue provisions for cases ancillary to foreign
proceedings have been amended to provide a hierarchy of
choices beginning with principal place of business in the
United States, if any. If there is no principal place of
business in the United States, but there is litigation
against a debtor, then the district in which the litigation
is pending would be the appropriate venue. In any other case,
venue must be determined with reference to the interests of
justice and the convenience of the parties.
title ix--financial contract provisions
This title addresses recently prominent forms of financial
investments which require special treatment in the insovlency
context. It amends the Federal Deposit Insurance Act to
provide treatment financial contracts, commodities contracts,
securities contracts, forward contracts, repurchase
agreements and swaps. It also amends the Bankruptcy Code to
provide appropriate treatment for those types of financial
investments. The Securities Investor Protection Act is
amended as well to create an exception from the stay under
that Act for certain financial investment instruments.
Finally, the Bankruptcy Code is amended to deal with certain
specialized aspects of asset securitization.
title x--protection of family farmers
Section 1001. Permanent reenactment of chapter 12
Under subsection 1001(a) chapter 12 (Adjustment of Debts of
a Family Farmer with Regular Annual Income) is reenacted
effective October 1, 1999. No time limit or termination date
is established for chapter 12 under this provision.
Subsection 1001(b) repeals subsection 302(f) of the
Bankruptcy, Judges, United States Trustees, and Family Farmer
Bankruptcy Act of 1986, which set a now outdated termination
date of October 1, 1998 for chapter 12.
Section 1002. Debt limit increase
This section amends section 104(b) of title 11, United
States Code, providing for annual or biannual adjustments of
the debt limit for family farmers beginning with the
adjustment to be made on April 1, 2001.
Section 1003. Certain claims owed to governmental units
Subsection 1003(a) provides for payment in full of all
claims entitled to section 507 priority unless the claim is
owed to a governmental unit arising from the sale, exchange,
or other disposition of any farm asset used in the debtor's
farming operation. In that case, the claim is treated as an
unsecured claim and the underlying debt is treated the same
if the debtor receives a discharge or the holder of a
particular claim agrees to a different treatment of that
claim. Subsection 1003(b) amends section 1231(d) of chapter
11, providing that any governmental unit'' may provide a
determination regarding the tax effects of a proposed plan
under chapter 12.
Title XI--Health Care and Employee Benefits
This title amends the Bankruptcy Code to deal with the
problems presented when a health care business, such as a
hospital or nursing home, files for bankruptcy under chapters
7, 9 or 11.
Section 1101. Definitions
Section 1101 defines the terms ``health care business,''
``patients,'' and ``patient records,'' which are added to
definitions section of the Bankruptcy Code (11 U.S.C. '101).
Section 1102. Disposal of patient records
Section 1102 adds a new section 351 in subchapter III of
Chapter 3 of title 11 dealing with the protection and
disposal of patient records in a health care business
bankruptcy situation.
The Trustee is required to follow certain procedures with
respect to general and specific notice to patients and
insurance companies regarding patient records, as well as the
transfer and disposal of such records. These procedures are
intended to protect the privacy and confidentiality of an
individual's medical records when they are in the custody of
a health care business that has filed for bankruptcy relief.
Section 1103. Administrative expenses claim for costs of
closing a health care business
Section 1103 amends section 503(b) of title 11, making the
actual, necessary costs and expenses of closing a health care
business, including the cost or expense of disposing of
patient records and transferring patients to another health
care facility, an allowable administrative expense.
Section 1104. Appointment of ombudsman to act as patient
advocate
Section 1104 (a) adds a new section 332 in subchapter II of
chapter 3 of title 11, providing that the court appoint an
ombudsman to act as an advocate for patients of health care
facilities that have filed for bankruptcy. The ombudsman will
monitor the quality of patient care and report to the court
every 60 days regarding the quality of that care. If the
ombudsman determines that patient care is declining
significantly or is otherwise materially compromised, he/she
is to immediately notify the court by motion or written
report, with notice to appropriate parties in interest. The
ombudsman is to treat any information obtained regarding
patients as confidential information. The ombudsman may not
review confidential patient records, without the prior
approval of the court and under restrictions protecting their
confidentiality. Section 1104(b) provides for compensation of
an ombudsman under section 330(a)(1) of title 11.
[[Page S11721]]
Section 1105. Debtor in possession; duty of trustee to
transfer patients
Section 1105 amends section 704(a) of title 11, stating
that the trustee is to use all reasonable and best efforts to
transfer patients from a health care facility being closed to
another nearby and comparable health care facility, which
maintains a reasonable quality of care.
Section 1106. Exclusion from program participation not
subject to automatic stay
This section permits the Secretary of Health and Human
Services to exclude the debtor from participation in the
medicare program or other Federal healthcare program without
violating the automatic stay.
Title XII--Technical Amendments
Section 1201. Definitions
This section makes technical corrections to the definitions
of the Bankruptcy Code, alters the definitions for ``single
asset real estate'' and ``transfer'', and renumbers the
definitions.
Sections 1202--1212. Miscellaneous technical corrections
These provisions make technical changes to the Bankruptcy
Code provisions on adjustment of dollar amounts, extensions
of time, dismissal, bankruptcy petition preparers,
compensation of professionals, conversion, administrative
expenses, discharge, discriminatory treatment, and property
of the estate provisions.
Section 1213. Preferences
This provision overrules Levit v. Ingersoll Rand Financial
Corp. (In re V.N. Deprizio Const. Co.), 874 F.2d 1186 (7th
Cir. 1989). If a transfer is avoided because it was made
during the period 90 days-1 year before bankruptcy to a non-
insider creditor for the benefit of an insider, the transfer
is avoided only with respect to the insider. It is not
avoided with respect to the non-insider creditor, and
neither the transferred property nor its value may be
recovered from the non-insider creditor.
Sections 1214-1217. Miscellaneous technical corrections
These sections make technical changes to the Bankruptcy
Code provisions on postpetition transactions, property of the
estate, municipal bankruptcy and railroad line abandonments.
Section 1219. Discharge under chapter 12
Section 1219 amends section 1228 (which deals with
discharge under chapter 12) of the Bankruptcy Code to correct
erroneous references.
Section 1220. Bankruptcy cases and proceedings
Section 1220 of the of the Act amends section 1334(d) of
title 28 of the United States Code to correct erroneous
references.
Section 1221. Knowing disregard of bankruptcy law or rule
This section amends section 156(a) of title 18 of the
United States Code, which defined ``bankruptcy petition
preparer'' and ``document for filing,'' by making stylistic
changes and by making a correct reference to title 11 of the
United States Code.
Section 1222. Transfers made by nonprofit charitable
corporations
Section 1222 amends section 363(d) of the Bankruptcy Code
to restrict the right of a trustee to use, sell, or lease
property owned by a nonprofit corporation or trust. First,
the use, sale or lease must be in accordance with applicable
nonbankruptcy law and must not be inconsistent with any
relief granted under certain specified provisions of section
362 of the Bankruptcy Code concerning the applicability of
the automatic stay. Second, the section imposes similar
restrictions with regard to chapter 11 plan confirmation
requirements. Third, it amends section 541 of the Bankruptcy
Code to provide that any property of a bankruptcy estate,
where the debtor is a nonprofit corporation (as described in
section 501(c)(3) of the Internal Revenue Code) may be
transferred to an entity that is not such a corporation, but
only under the same conditions that would apply if the debtor
was not in bankruptcy. The amendments made by this section
apply to cases pending on the date of enactment of this Act.
A limited exception pertains with respect to confirmation of
a chapter 11 plan.
Section 1223. Protection of valid purchase money security
interests
Section 1223 amends section 547(c)(3)(B) of the Bankruptcy
Code extending the applicable perfection period for a
security interest in property acquired by the debtor from 20
days to 30 days after the debtor receives possession of the
property.
Section 1224. Extensions
Section 302(d)(3) of the Bankruptcy, Judges, U.S. Trustees,
and Family Farmer Bankruptcy Act of 1986 is amended by
striking out all references to ``or October 1, 2002,
whichever occurs first'' and ``October 1, 2003, or'' and
``whichever occurs first''. These changes permanently extend
the bankruptcy administrator program in Alabama and North
Carolina.
Section 1225. Bankruptcy judgeships
This section may be cited as the ``Bankruptcy Judgeship Act
of 2000.'' It authorizes the appointment of additional
temporary bankruptcy judgeships in the districts that follow:
(A) One additional bankruptcy judgeship for the eastern
district of California.
(B) Four additional bankruptcy judgeships for the central
district of California.
(C) One additional bankruptcy judgeship for the district of
Delaware.
(D) Two additional bankruptcy judgeships for the southern
district of Florida.
(E) One additional bankruptcy judgeship for the southern
district of Georgia.
(F) Two additional bankruptcy judgeships for the district
of Maryland.
(G) One additional bankruptcy judgeship for the eastern
district of Michigan.
(H) One additional bankruptcy judgeship for the southern
district of Mississippi.
(I) One additional bankruptcy judgeship for the district of
New Jersey.
(J) One additional bankruptcy judgeship for the eastern
district of New York.
(K) One additional bankruptcy judgeship for the northern
district of New York.
(L) One additional bankruptcy judgeship for the southern
district of New York.
(M) One additional bankruptcy judgeship for the eastern
district of North Carolina.
(N) One additional bankruptcy judgeship for the eastern
district of Pennsylvania.
(O) One additional bankruptcy judgeship for the middle
district of Pennsylvania.
(P) One additional bankruptcy judgeship for the district of
Puerto Rico.
(Q) One additional bankruptcy judgeship for the western
district of Tennessee.
(R) One additional bankruptcy judgeship for the eastern
district of Virginia.
The section provides that judgeship vacancies in the above
districts resulting from death, retirement, resignation, or
removal of a bankruptcy judge which occur 5 years or more
after the appointment date shall not be filled.
The section also adds that temporary bankruptcy judgeships
authorized for the northern district of Alabama, the district
of Delaware, the district of Puerto Rico, the district of
South Carolina, and the eastern district of Tennessee under
the Bankruptcy Judgeship Act pf 1992 are extended until the
first vacancy resulting from the death, retirement,
resignation, or removal occurs:
(A) 8 years or more after November 8, 1993, in the northern
district of Alabama.
(B) 10 years or more after October 28, 1993, in the
district of Delaware.
(C) 8 years or more after August 29, 1994, in the district
of Puerto Rico.
(D) 8 years or more after June 27, 1994, in the district of
South Carolina.
(E) 8 years or more after November 23, 1993, in the
district of Tennessee.
The section also amends section 152(a)(1) of title 28 of
the United States Code. It adds that each judge shall be
appointed by the U.S. Court of Appeals for the circuit in
which such a district is located.
Section 1226. Compensating trustees
This section amends section 326 (Limitation on Compensation
of Trustee) with a new subsection (e) providing that, in a
case where a trustee in a chapter 7 case makes a motion to
dismiss or convert under section 707(b) and such motion is
granted, the court shall allow ``reasonable compensation''
under section 330(a) of title 11 for the services and
expenses of the trustee and the trustee's counsel. The
compensation covers the reasonable costs of preparing and
presenting the section 707(b) motion and any related appeals.
This section also adds a new subsection (f) to section 326
providing that, subject to the limits established in
subsection 326(a), the court shall consider the ``results
achieved'' when determining a trustee's compensation.
Finally, this section amends subsection 1326(b) dealing with
payments under a chapter 13 plan. Specifically, a new
paragraph (3) is added to subsection 1326(b) establishing a
formula limiting the amount a debtor must pay under a plan to
compensate a chapter 7 trustee or trustee's attorney who has
been awarded fees in a chapter 7 case, when that compensation
is allowed under section 326(e).
Section 1227. Amendment to section 362 of title 11, U.S. Code
Amends section 362(b)(18) to exempt from the automatic stay
a special tax or special assessment on real property (whether
or not ad valorem), imposed by a governmental unit, if such
special tax or assessment comes due after the filing of the
bankruptcy petition.
Section 1228. Judicial education
Provides that the Director of the Federal Judicial Center,
in consultation with the Director of the Executive Office of
U.S. Trustees, shall develop materials and conduct such
training as may be useful to the courts in implementing this
Act, focusing in particular on the section 707(b) means test
and reaffirmation.
Section 1229. Reclamation
Subsection (a) of this section amends section 546(c) of
title 11, to allow a seller of goods to reclaim those goods
under certain circumstances and establishing the procedures
and time limits for doing so. This provision was amended in
1994 so as to expand the ability of sellers of goods to
reclaim such goods from a trustee by extending the
reclamation demand period from 10 days to 20 days. The
amendment made by this Act extends this period to 45 days,
subject to certain limitations and requirements. Under
existing law and this amendment, the rights and powers of the
trustee under sections 544(a), 545, 547 and 549 are subject
to the right of a seller of goods that has sold goods to the
debtor in the ordinary course of the seller's business.
Specifically, under the new subsection 546(c)(1), the
seller's rights to reclaim goods which an insolvent debtor
received not later than 45 days after the commencement of the
[[Page S11722]]
case is not subject to certain of the trustee's avoiding
powers. However, the seller may not reclaim the goods unless
the seller makes a reclamation demand in writing: (A) not
later than 45 days of the date of receipt of such goods by
the debtor; or (B) not later than 20 days after the date of
commencement of the case, if the 45-day period expires after
commencement of the case. Subsection 546(c)(2) states that a
failure to provide notice in a manner required under
paragraph (1), does not preclude a seller from making a claim
under section 503(b)(8).
As amended, subsection 546(c) contains certain exceptions
to the seller's reclamation rights. First, such rights do not
apply to claims with respect to grain or fish covered in
subsection 546(d). Second, another exception is provided for
priority claims of a governmental unit under subsection
507(c) with respect to an erroneous refund or tax credit.
Finally, reclamation claims are also made subject to the
prior rights of holders of security interests in such goods
or the proceeds of the sale of such goods.
Subsection (b) of this section, amends section 503(b) of
title 11 to add a new paragraph (8) which provides for an
administrative expense allowance for the value of goods
received by the debtor not later than 20 days after filing,
if the goods were sold to the debtor in the ordinary course
of the debtor's business.
Section 1230. Providing requested tax documents to the court
Section 315 of HR 2415 amends section 521 of the Bankruptcy
Code to insert a new subsection which requires the debtor to
provide certain tax documents. In addition, under Rule 2004
discovery, a debtor can be required to disclose tax returns
and other tax information in appropriate cases. If a debtor
fails to do so, this provision provides sanctions.
Subsection (a) withholds a discharge in a chapter 7 case
where the debtor has failed to provide requested tax
documents to the court. Similarly, subsection (b) provides
that the court shall not confirm a reorganization plan under
chapter 11 or chapter 13 unless and until requested tax
documents have been filed with the court. For these purposes,
failure to provide a tax return to the trustee is considered
a refusal to provide it to the court. Subsection (c) provides
that the bankruptcy court must retain all documents submitted
in support of an individual's bankruptcy claim under chapter
7, 11 or 13 for a period of not more than 3 years after the
conclusion of the case. In the event of a pending audit or
enforcement action, the court may extend the time for
retention of the documents beyond the 3 year minimum.
Section 1231. Encouraging creditworthiness
Subsection (a) expresses that it is the sense of Congress
that: (1) some lenders may offer credit to consumers, without
taking all the steps necessary to ensure that consumers have
the capacity to repay the resulting debts; and (2) the
availability of credit may be a factor contributing to
consumer insolvency. Subsection (b) authorizes the Federal
Reserve Board to conduct a study of credit industry practices
with respect to soliciting and extending credit. Subsection
(c) provides that, not later than 12 months after the date of
enactment of this Act, the Board shall make public a report
on the findings of its study of the credit industry. The
Board may then issue regulations that would require
additional disclosures to consumers and take any other
action, consistent with its statutory authority, to encourage
responsible lending practices and greater personal
responsibility on the part of consumers.
Section 1232. Property no longer subject to redemption
This section amends section 541(b) of the Bankruptcy Code
to clarify that pawned, tangible personal property (other
than securities or written or printed evidence of
indebtedness or title) cannot be treated as property of the
bankruptcy estate once the statutory redemption period has
run and the pawned goods have not been redeemed. Thus, pawned
personal property is not part of a debtor's bankruptcy
estate, after the time under the contract for redeeming the
property has expired. This codifies what most courts have
held, and will relieve the courts from the burden of having
to repeatedly rule on whether pawn transactions are subject
to the automatic stay.
Section 1233. Trustees
This section amends 28 U.S.C. 586(d) to allow private
trustees, appointed to a panel under subsection 586(a)(1) or
appointed under subsection 586(b), to obtain judicial review
when they are terminated or cease to be assigned cases.
Judicial review shall be available in the United States
district court for the district for which the panel to which
the trustee was appointed under subsection 586(a)(1) serves,
or the district where a trustee appointed under subsection
586(a) resides. The trustee must first exhaust all
administrative remedies which, if the trustee elects, shall
include a hearing on the record. The final agency decision
will be upheld unless it is found unreasonable and without
cause based upon the administrative record before the agency.
This section also amends 28 U.S.C. 586(e) to allow an
individual appointed under subsection 586(b) to seek judicial
review of a final agency decision to deny a claim for actual,
necessary expenses. Before seeking judicial review, the
individual must exhaust all available administrative remedies
and the final agency decision will be upheld unless it is
unreasonable and without cause based on the administrative
record.
Section 1234. Bankruptcy forms
This section amends 28 U.S.C. 2075 (Bankruptcy rules) by
adding at the end a requirement that a form be prescribed for
the statement required under section 707(b)(2)(C) of title 11
concerning the debtor's current monthly income and the
calculations that determine whether a presumption of abuse
arises under section 707(b)(2)(A)(i). The form may provide
general rules on the content of the statement.
Section 1235. Expedited appeals of bankruptcy cases to courts
of appeals
Subsection (a) of this section strikes the existing
language contained in subsection 158(d) of title 28, United
States Code, and replaces it with language establishing an
expedited appeals process for judgments, decisions, orders,
or decrees issued by bankruptcy judges. Specifically, it
provides that where an appeal of a judgment, decision, order,
or decree of a bankruptcy judge is filed with the district
court, that judgment, decision, order, or decree shall be
deemed to be a judgment, decision, order, or decree of
(``entered by'') the district court 31 days after the appeal
is filed with the district court. This result will occur
unless, not later than 30 days after such an appeal is filed
with the district court, the district court: (1) files its
own decision on the appeal; (2) enters an order extending the
30-day period for cause upon a motion of a party or on its
own motion; or (3) all parties to the appeal file a written
consent that the district court may retain the appeal. An
appeal is to be considered filed with the district court on
the date the notice of appeal is filed, or on the date a
party makes an election under 28 U.S.C. 158(c)(1)(B).
This section also adds a new subsection (e) to 28 U.S.C.
158, providing that the courts of appeals have jurisdiction
over appeals from all final judgments, decisions, orders, and
decrees of district courts under subsection 158(a) and of
bankruptcy appellate panels under subsection 158(b). In
addition, the courts of appeals are granted jurisdiction over
appeals from all judgments, decisions, orders, and decrees of
the district courts entered under the new subsection 158(d),
to the extent such judgment, decision, order, and decree
would be reviewable by the district court under subsection
158(a). An appeal from a district court or a bankruptcy
appellate panel shall be taken in the same manner as civil
appeals are generally taken to the courts of appeals from the
district courts as provided in Rule 4 of the Federal Rules of
Appellate Procedure. The court of appeals, in its discretion,
may exercise jurisdiction over an appeal from an
interlocutory judgment, decision, order, or decree to the
extent provided in paragraph (3) of subsection (e).
Subsection (b) of section 1237 of this Act, merely makes
conforming changes substituting ``section 158(e)'' for
``section 158(d)'' in three sections of the Code.
Section 1236. Exemptions
This section corrects a cross reference.
Title XIII--Methamphetamine and Other Controlled Substances
This title increases the controls on the manufacture and
sale of certain illegal drugs.
Title XIV--Consumer Credit Disclosure
Section 1401. Enhanced disclosures under an open-ended credit
plan
This section would amend section 127(b) of the Truth in
Lending Act (``TILA'') to require new minimum payment
disclosures on monthly billing statements sent to
cardholders. Under this section, the front page of each
monthly billing statement must include a new minimum payment
disclosure. The contents of the disclosure will vary
depending upon the level of minimum payments required under
the applicable credit plan and whether the creditor is
subject to enforcement by the Federal Trade Commission
(``FTC''). It is intended that the Federal Reserve Board
(``FRB'') will implement the new disclosures in a manner that
will enable creditors to preprint the disclosures on the
billing statements they send to cardholders.
Disclosures by federally regulated financial institutions.
Financial institutions that are subject to enforcement under
TILA by a federal agency other than the FTC must provide a
minimum payment warning that will vary depending upon whether
the institution's credit plan typically requires a minimum
payment that is 4% or less, or more than 4%, of the
outstanding balance. If the institution's credit plan
requires minimum payments that are 4% or less of the
outstanding balance, the institution will include the
following on the front of the monthly billing statement.
``Minimum Payment Warning: Making only the minimum payment
will increase the interest you pay and the time it takes to
repay your balance. For example, making only the typical 2%
minimum monthly payment on a balance of $1,000 at an interest
rate of 17% would take 88 months to repay the balance in
full. For an estimate of the time it would take to repay your
balance, making only minimum payments, call this toll-free
number ______.'':
If the financial institution requires a minimum payment of
more than 4% of the outstanding balance, the institution
would make the same minimum payment disclosure with a
different repayment example. Specifically, in such cases, the
institution would indicate that ``[m]aking a typical 5%
minimum monthly payment on a balance of $300 at an interest
rate of 17% would take 24 months to repay the balance in
full.'' However, such an institution may elect to use
[[Page S11723]]
the example applicable to plans requiring minimum payments of
4% or less if it chooses to do so.
Federally regulated financial institutions also would be
required to include in the disclosure a toll-free telephone
number that the institution's open-end credit accountholders
may use to obtain information to be published by the FRB
estimating how long it could take to repay a similar
outstanding balance. The toll-free telephone number may be
operated individually by the institution, jointly with other
creditors, or by a third party. The toll-free number may
connect accountholders to an automated device that enables
accountholders to obtain information through use of a touch-
tone telephone or similar device, so long as accountholders
without a touch-tone telephone or similar device are provided
an opportunity to speak to an individual. The FRB is charged
with developing charts or tables showing how long it could
take to repay various balances, assuming the limited number
of repayment assumptions specified in the bill. It is
intended that the FRB, in preparing the charts or tables,
will use the same methodology as that used in calculating the
88-month and 24-month repayment periods set forth in the
disclosures in new paragraphs (11) (A), (B) and (C) of TILA
section 127(b). The FRB charts or tables would be used for
responding to accountholders who call the toll-free telephone
number.
A special rule is established for depository institutions
with total assets not exceeding $250 million. Under this
special rule, such depository institutions are not required
to comply with the toll-free number provision described
above. Instead, such depository institutions are required to
furnish a toll-free number which the FRB shall establish and
maintain itself, or have established and maintained by a
third party, for a period not to exceed 24 months following
the effective date of this Act. Once the FRB (or third party)
no longer maintains the toll-free telephone number,
depository institutions with total assets not exceeding $250
million shall continue to be required to furnish a toll-free
telephone number under this Act.
Disclosures for creditors subject to FTC enforcement under
TILA. Creditors subject to FTC enforcement under TILA would
be required to include the same minimum payment disclosure as
financial institutions who require minimum payments in excess
of 4% of the outstanding balance. However, instead of
including a toll-free telephone number operated by the
creditor (or third party), those subject to FTC enforcement
under TILA would include a toll-free telephone number through
which accountholders could contact the FTC for an estimate of
the time it would take to repay the accountholder's
outstanding balance. In responding to accountholder calls
made to the toll-free number, the FTC will use the same
repayment charts or tables developed by the FRB.
Additional flexibility. In order to provide added
flexibility in making the new disclosures, new paragraph
(11)(D) allows a creditor to use its own repayment example
rather than those specified in subparagraphs (A), (B) or (C)
provided that the creditor's example is based on an interest
rate greater than 17%.
Exemptions from new disclosure requirements. The new
section 127(b)(11) does not apply to charge card accounts
provided that the primary purpose of such accounts is to
require payment of charges in full each month.
Disclosures for creditors providing actual number of months
to repay balance. Under new section 127(b)(11)(J), a creditor
is not subject to new sections 127(b) (11)(A) or (B) if the
creditor maintains a toll-free number which provides open-end
credit accountholders with the actual number of months that
it will take to repay the accountholder's outstanding
balance. In order to qualify for the exemption in
subparagraph (J), the creditor would simply include the
following statement on each billing statement as provided in
new subparagraph (K) (as included in section 1234 of this
Act):
``Making only the minimum payment will increase the
interest you pay and the time it takes to repay your balance.
For more information, call this toll-free number: ______.''
The toll-free number may be operated individually by the
institution, jointly with other creditors or by a third
party. It is intended that the toll-free number may connect
accountholders to an automated device that enables them to
obtain information through the use of a touch-tone telephone
or similar device, so long as accountholders without a touch-
tone telephone or similar device are provided the opportunity
to speak with an individual.
FRB study. In addition, the FRB has the authority to
conduct a study, if it chooses to do so, to determine the
types of information available to potential borrowers
regarding factors of notifying potential borrowers for
credit, repayment requirements, and the consequences of
default.
Effective date. New section 127(b)(11) of TILA and any
regulations promulgated by the FRB to implement section
127(b)(11) will not take effect until the later of: (A) 18
months after the date of enactment of this Act; or (B) 12
months after the publication of final regulations by the FRB.
Section 1402. Enhanced disclosure for credit extension
secured by a dwelling
This section adds a new disclosure that must be made by
creditors who make either open-end or closed-end loans to
consumers if those loans are secured by the consumer's
principal dwelling. This section provides that, in connection
with credit applications and credit advertisements for such
loans, the creditor must disclose to the consumer that if the
loan exceeds the fair market value of the dwelling, the
interest on the portion of the credit that exceeds the fair
market value is not tax deductible for federal income tax
purposes and that the consumer may want to consult a tax
advisor for further information regarding the deductibility
of interest and charges. This section and any regulations
issued by the FRB to implement this section will not take
effect until the later of: (A) 12 months after the date of
enactment of the Act; or (B) 12 months after publication of
the final regulations by the FRB.
Section 1403. Disclosure related to ``introductory rates''
This section mandates new disclosures regarding
introductory rates on open-end credit card accounts if those
rates will be in effect for less than 1 year (``temporary
rates''). This section provides that an application or
solicitation to open a credit card account which is described
in section 127(c)(1) of TILA must comply with the following
requirements if the account offers a temporary rate:
1. Each time the temporary rate appears in the written
materials, the term ``introductory'' must appear clearly and
conspicuously in immediate proximity to the rate itself.
2. If the rate that will apply after the temporary rate
expires will be a fixed rate, the creditor must disclose the
time period in which the introductory period will expire and
the annual percentage rate that will apply after the end of
the introductory period. This disclosure must be made clearly
and conspicuously in a prominent location closely proximate
to the first listing of the temporary rate. This disclosure
does not apply to any listing of a temporary rate on an
envelope or other enclosure in which an application or
solicitation is mailed.
3. If the annual percentage rate that will apply after the
expiration of the temporary rate will be a variable rate, the
creditor must disclose the time period in which the
introductory period will expire and an annual percentage rate
that was in effect within 60 days before the date of mailing
the application or solicitation. Like the fixed-rate
disclosure, this disclosure must be made clearly and
conspicuously in a prominent location closely proximate to
the first listing of the temporary rate. This disclosure does
not apply to any listing of a temporary rate on an envelope
or other enclosure in which an application or solicitation is
mailed.
4. If the temporary rate can be revoked for reasons other
than the expiration of the introductory period, the creditor
must clearly and conspicuously disclose on or with the
application or solicitation a general description of the
circumstances that may result in the revocation of the
temporary rate and either the fixed rate that would apply
upon the revocation of the temporary rate, or in the case of
a variable rate program, the rate that was in effect within
60 days before the date of mailing the application or
solicitation.
Effective date. This section and any regulations
promulgated by the FRB to implement this section will not
take effect until the later of: (A) 12 months after the date
of enactment of this Act; or (B) 12 months after the
publication of final regulations by the FRB.
Section. 1404. Internet-based credit card solicitations
This section requires that the existing TILA credit card
application and solicitation disclosures must be made in
connection with a solicitation to open a credit card account
via the Internet. It also requires that the new introductory
rate disclosures required under section 1603 of this Act must
be made in connection with Internet solicitations, as
applicable. All disclosures required under this section must
be made in a clear and conspicuous manner. The disclosures
must be readily accessible to consumers in close proximity to
the solicitation to open a credit card account, and updated
regularly to reflect the current policies, terms, and fee
amounts applicable to the credit card account. It is intended
that the disclosures can be made by allowing a consumer to
use a ``link'' or similar method to view the disclosures.
This section and any regulations promulgated by the FRB to
implement this section will not take effect until the later
of: (A) 12 months after the date of enactment of this Act; or
(B) 12 months after the publication of final regulations by
the FRB.
Section 1405. disclosures related to late payment deadlines
and penalties
This section requires that each monthly billing statement
sent to credit cardholders and other open-end credit
borrowers must include a new disclosure if a late payment fee
will be imposed on the borrower for failing to make the
minimum payment by the payment due date. In such cases, the
monthly billing statement must clearly and conspicuously
state the date that the payment is due or, if the card issuer
contractually establishes a different date, the earliest date
on which (or time period in which) a late payment fee may be
charged and the amount of the late payment fee to be imposed
if payment is made after that date (or time period). This
section and any regulations promulgated by the FRB to
implement this section will not take effect until the later
of: (A) 12 months after the date of enactment of this Act; or
(B) 12 months after the publication of final regulations by
the FRB.
[[Page S11724]]
Section 1406. Prohibition on certain actions for failure to
incur finance changes
This section prohibits a creditor under an open-end
consumer credit plan from terminating an account of a
consumer prior to its expiration date (e.g., expiration of
the card in the case of a credit card account) solely because
the consumer has not incurred finance charges on the account.
This provision makes it clear, however, that the creditor may
terminate the account if it is inactive for three or more
consecutive months. New section 127(h) of TILA and any
regulations promulgated by the FRB to implement new section
127(h) will not take effect until the later of: (a) 12 months
after the date of enactment of this Act; or (b) 12 months
after the publication of final regulations by the FRB.
Section 1407. Dual use debit card
This section permits the FRB to conduct a study of existing
consumer protections, including voluntary industry rules,
that limit the liability for consumers when a consumer's ATM
card or debit card is used to access the consumer's asset
account without the consumer's authorization.
Section. 1408. Study of bankruptcy impact of credit extended
to dependent students
This section directs the FRB to conduct a study regarding
the impact that the extension of credit to certain students
has on the rate of bankruptcy. Specifically, the study must
examine the bankruptcy impact of extending credit to
consumers who are claimed as a dependent by their parents or
others for federal tax purposes and who are enrolled within 1
year of successfully completing all required secondary
education requirements on a full-time basis in post-secondary
educational institutions. The results of the study must be
reported to Congress within 1 year after the date of
enactment of the Act.
Section 1409. Clarification of clear and conspicuous
This section directs the Board, in consultation with other
federal banking agencies, the National Credit Union
Administration and the FTC, to promulgate regulations,
including examples of model disclosures, to provide guidance
regarding the meaning of ``clear and conspicuous'' as used in
sections 127(b)(11)(A), (B) and (C) and 127(c)(6)(A)(ii) and
(iii) of TILA as added by this Act.
Title XV--General Effective Date; Application of Amendments
Section 1501. Effective date; application of amendments.
The amendments made by the Act take effect 180 days after
the date of enactment, except as provided elsewhere in the
Act. These amendments apply only with respect to cases
commenced after the effective date.
Mr. HATCH. Thank you. We are in agreement on what this legislation
does.
Mr. DODD. Mr. President, I rise today to speak about the Bankruptcy
Reform Conference Report that is being considered by the Senate. Let me
start by noting that there is strong opposition to this bill--in its
current form--by consumer advocacy groups such as the National Women's
Law Center, the Association for children for Enforcement of Support,
and the Consumer Federation of America.
This conference report is an illustration of what happens when a
sound idea is submitted to an unsound process. The idea of reforming
the Bankruptcy Code to stop obvious abuses was an idea that had broad
support. It was a bipartisan issue. Regrettably, however, this modest
and sensible idea--the idea that we should close the loopholes that a
small number of people were using to game the system--has been warped
into legislation that goes far beyond its original purposes.
The process that created this conference report was highly partisan
and highly unusual. Its provisions were drafted by one party meeting in
secret, with no formal input from members of the Democratic Party.
Indeed, no formal conference was ever held. Instead, at the last minute
the majority found a stalled Department of State authorization bill
that was being managed by Senators who were sympathetic to their
version of the bankruptcy bill and they performed a legislative bait
and switch. They deleted every word from the Department of State bill
and then inserted every word of their bankruptcy bill.
Now the Senate is being asked to vote on a so-called Department of
State authorization bill that contains not a word about the Department
of State. The Department of State bill is nothing but an empty vessel
into which a so-called ``compromise'' bankruptcy bill has been poured.
But we have to be careful here--the word ``compromise'' doesn't mean
what it used to mean, what it normally means in the legislative
process. This isn't a compromise between the two Houses of Congress.
This isn't a compromise between the two parties. This compromise bill
is the result of negotiations among like-minded men and women of the
same political party. This is a majority-only bill. There has been no
meaningful compromise at all.
Aside from the procedural problems with how this bill has been
handled, I have deep and serious concerns about the substance of this
legislation.
This legislation will unintentionally injure honest hard-working
Americans who have fallen on hard times through no fault of their own.
The reason that we have a Bankruptcy Code is because life sometimes
deals people a bad hand and we believe that it's important to give
people a fresh start--an opportunity to overcome the financial
misfortunes that have struck them. This principle is so fundamental
that the Constitution expressly lists the establishment of uniform
bankruptcy laws as a congressional responsibility. It seems that the
Framers understood that society is better off if we find an orderly way
to allow people to pay off their debts to the degree possible, and then
get back on their feet as productive citizens. Regrettably, that
principle seems to suffer at the hands of this conference report.
Evidence suggests that the vast majority of people who file for
bankruptcy do so because some financial crisis beyond their control has
plunged them into debt that they cannot avoid. People file for
bankruptcy because they've lost their jobs or because a child needs
medical care that is not covered by insurance.
The evidence shows that abusive filings are the exception, not the
rule. The median income of the average American family filing for a
chapter 7 bankruptcy is just above $20,000 per year, according to the
General Accounting Office. The majority of people who file for
bankruptcy are single women who are heads of households, elderly people
trying to cope with medical costs, again people who have lost their
jobs, or families whose finances have been complicated by divorce.
For the most part, we are talking about working people or elderly
people on fixed incomes, who through no fault of their own have fallen
on hard times and need the protection of bankruptcy to help put their
lives back together. It is also worth noting that last year, the per
capita personal bankruptcy rate dropped by more than 9 percent, and
again this year the bankruptcy rate has dropped.
The impact that this legislation would have on single-parent
households is particularly disturbing to me. Single parents have one of
the hardest jobs in America. Most work all day, cook meals, keep house,
help their children with homework, and schedule doctors' appointments,
parent-teacher meetings, and extracurricular activities. Life isn't
easy for working single parents and often the financial assistance they
receive in the form of alimony or child support is critical to keeping
their families from falling into poverty. I believe that the conference
report before the Senate would frustrate the efforts of single-parent
families to collect support payments.
I understand that the proponents of this bill believe that they have
treated single-parent families fairly. But what I am worried about is
the unintended--but perfectly foreseeable--consequences of allowing
more debts to survive bankruptcy.
For more than 100 years, the Bankruptcy Code has given women and
children an absolute preference over all others who have claims on a
debtor's estate. Under the well-established rule, if a divorced person
files for bankruptcy, the court doesn't require that person's ex-spouse
or children to compete with creditors for the funds needed to pay child
support and alimony. Instead, alimony and child support are taken out
of the debtor's monthly income first and if there is anything left
over, it is made available to commercial creditors. If there is nothing
left over, then the commercial or consumer debts are discharged and the
debtor's only remaining obligation is to the ex-spouse and children.
This conference report would change the rules. For the first time, it
would make credit card and other consumer debts essentially
nondischargable. So, while a divorced spouse would still be obliged to
pay alimony and child support, his or her other unsecured debts would
remain intact.
Proponents of this bill say this does no harm to divorced spouses and
their
[[Page S11725]]
children because ex-spouses are still at the front of the collections
line. But there is a huge practical difference between being first in
line and being the only one in line. Under current law, nonsupport
debts are often discharged and debtors can focus entirely on meeting
their obligations to their children and ex-spouses. If this conference
report becomes law, that will change--debtors will not be able to focus
on their children, they will--as a matter of law--have to divert
limited financial resources to pay back consumer creditors.
I believe that this change will inevitably lead to conflicts between
commercial creditors and single parents who are owed support and
alimony payments. Sure, they will be first in line, but single parents
will be competing with large creditors. Creditors, I might add, who are
well-represented by teams of lawyers.
I believe that it is a mistake to make single parents compete with
teams of lawyers for the money they need to feed and clothe and educate
their children.
I understand the perspective that says that all debts should be
paid--but when debtors simply cannot pay all of their debts, then I
believe that our laws should protect the interests of children and
families first. Under this legislation, a child support payment could
very well be reduced in order to satisfy an unsecured commercial
creditor. In my view, that change would place the well-being of a child
at a disadvantage and elevate the status of the unsecured creditor.
Low-income children and families will be put at a practical
disadvantage by this bill and will ultimately suffer greater economic
deprivation because they cannot afford to compete with sophisticated
creditors.
Mr. President, Congress should reform the Bankruptcy Code, but we
need to do so in a responsible and effective and fair way. In my
opinion, this conference report--even though it was well-intentioned--
has not answered this call.
Mr. BIDEN. Mr. President, today we reach a point that has been far
too long in coming: a vote on final passage of bankruptcy reform. Just
two days ago, the Senate voted overwhelmingly--67 to 31--to end debate
on this legislation.
I expect the same strong endorsement in today's vote.
For reasons that we are all aware of, it has been a prolonged and
complicated process that has brought us to this point today. In one of
our very first votes this year, the Senate passed bankruptcy reform
legislation by the overwhelming margin of 83 to 14. Similar legislation
passed the House last year, 313 to 108. I personally believe that we
should not have waited for legislation that passed both Houses by
overwhelming margins, many months ago, to finally reach the floor of
the Senate in the last hours of this session.
For vast, bipartisan majorities of both houses, the idea that we need
to restore some balance to our bankruptcy code is not controversial.
The legislation before us today does indeed tighten current law. It
assures that those who have the ability to pay--but only those with the
ability to pay--will have to complete at least a partial repayment
plan. This fundamental change will affect probably fewer than 10
percent of the people who file for bankruptcy, and only those who have
the demonstrated ability to pay.
I would bet, that most of our constituents would be surprised to find
that is not the case today. Today's code makes no clear distinction
between those who have the income to pay some of their debts and those
whose only recourse is to sell off whatever assets they have to pay
their creditors. The bill before us corrects that basic flaw.
I am convinced that flaw has a lot to do with the fact that
bankruptcy filings have been at record levels in recent years, in spite
of the strongest economy we have ever enjoyed. And--contrary to some of
the assertions we have heard recently, those filings are not going
down. After a leveling off, following interest rate reductions a couple
of years ago that made credit easier, the latest statistics show a
revival in the record wave of bankruptcy filings in recent months. The
problem has not gone away--and the growing evidence of a slowing
economy means we should expect even more filings in the coming months.
The fact is, Mr. President, that we have before us legislation that
is the result of weeks of debate and amendment here on the Senate floor
last year. Although we could not convene a formal conference, further
bipartisan discussions continued this summer, including the direct
participation of the White House. I ask my colleagues to consider how
closely the legislation before us today matches the letter and the
spirit of the bill that had such overwhelming support earlier this
year.
I also strongly urge the President to reconsider his threat to veto
this legislation, that contains many provisions that are the product of
direct negotiations with his White House. I know that important voices
in his administration continue to support bankruptcy reform, and I hope
that he will heed their advice.
We still have a strong safe harbor, to protect families below the
median income, along with adjustments for additional expenses that will
assure that only those with real ability to pay will be steered from
Chapter Seven to Chapter 13. Senate language, that gives judges the
discretion to determine whether there are special circumstances that
justify those expenses, prevailed over stricter House language.
Beyond that, the Senate-passed safe harbor provision has actually
been strengthened, with additional protection for those between 100 and
150 percent of the national median income, who are largely exempted
from the means test.
Compared to current law, this legislation provides increased
protections against creditors who try to abuse the reaffirmation
process. This bill also imposes new requirements on credit card
companies to explain to their customers the implications of making
minimum payments on their bills every month.
And a feature of this legislation that I think deserves much more
emphasis is its historic improvement in the treatment of family support
payments--child support and alimony. Compared to current law, there are
numerous specific new protections for those who depend on those
payments.
The improvements are so important that they have the endorsement of
the National Child Support Enforcement Association, the National
District Attorneys Association, and the National Association of
Attorneys General.
These are the people who are actually in the businesses of making
sure that family support payments are made. One passage from a letter
sent to members of the Senate Judiciary Committee deserves repeating
here, Mr. President. Referring to the very real advantages which this
legislation would provide to the women and children who depend on those
support payments, they say that, and I quote ``defeat of this
legislation based on vague and unarticulated fears'' would be
``throwing out the baby with the bathwater.''
I think this last line from the letter deserves special stress: ``No
one who has a genuine interest in the collection of support should
permit such inexplicit and speculative fears to supplant the specific
and considerable advantages which this reform legislation provides to
those in need of support.''
Mr. President, I can think of no stronger rebuttal to the arguments
we have heard recently about the supposed effects of this legislation
on the women and children who depend on alimony and child support.
Finally, Mr. President, I want to briefly address two issues that
have been raised by the President, and by opponents of this
legislation. I honestly believe that compared to the many substantial
victories for Senate positions, those two issues fall far short of
justifying a change in the overwhelming support bankruptcy reform has
received in the last two sessions of Congress.
First, there is the issue of the homestead cap. One of the most
egregious examples of abuse under current law is the ability of wealthy
individuals, on the eve of filing for bankruptcy, to shelter income
from legitimate creditors by buying an expensive house in one of the
handful of states that have an unlimited homestead exemption in
bankruptcy.
It is one of the most egregious abuses, Mr. President, but it is
actually pretty rare, involving only a very
[[Page S11726]]
few of the millions of bankruptcies that have been filed in recent
years. Nevertheless, it is an abuse that should be eliminated. Senator
Kohl and Senator Sessions have been the leaders in the Senate on this.
They are the reason why the Senate included a strong provision--a
``hard cap'' of $100,000 on the value of a home that could be exempt
from creditors in bankruptcy.
That provision is not in the bill before us today, Mr. President, but
the worst abuse--the last-minute move to shelter assets from
creditors--has been eliminated. To be eligible for any state's
homestead exemption, a bankruptcy filer must have lived in that state
for the last two years before filing. If you buy a home within two
years of filing, your exemption is capped at $100,000. That is a huge
improvement over current law.
So I say to my colleagues: if you want to eliminate the worse abuse
of the homestead exemption, then you will vote for the conference
report before us today.
That brings us to the last of the major issues--one that we have come
to call the Schumer Amendment, because of the energy and dedication of
my friend and colleague from New York.
We all know of the confrontations--sometimes peaceful, sometimes
tragically violent--that have occurred in recent years between pro-life
and pro-choice groups over access to family planning clinics. Because
of the threat to the Constitutional rights of the people who run those
clinics and their patrons, Congress passed, and President Clinton
signed, the Free Access to Clinic Entrances Act in 1993. That law makes
it a crime--punishable by fines as well as imprisonment--to block
access to family planning clinics.
Some of those who have been arrested and prosecuted under that law
have brazenly announced that they plan to file for bankruptcy, to
escape the consequences of their crimes--specifically, to avoid paying
damages. Some of these individuals have in fact filed for bankruptcy.
But in no case--in no case that I am aware of, Mr. President, or that
the Congressional Research Service has been able to find--has any
individual escaped a single dollar's liability by filing for
bankruptcy. Not a dollar, not a dime, not a penny. It hasn't happened,
and it won't happen. The reason is simple: current bankruptcy already
states that such settlements--for ``willful and malicious'' conduct--
are not dischargeable in bankruptcy.
If that were not enough, current case law supports a very strong
reading of that provision of current law. When one clinic
demonstrator--who violated a restraining order--attempted to have the
settlement against her wiped out in bankruptcy, her claim was rejected
out of hand. The violation of a restraining order setting physical
limits around a clinic has been ruled to be ``wilful and malicious''
under the current code. The penalties she was assessed were not
dischargeable.
Mr. President, the Congressional Research Service, as of October 26,
conducted an exhaustive, authoritative search which, and I quote: ``did
not reveal any reported decisions where such liability was discharged
under the U.S. Bankruptcy Code.''
So the current bankruptcy statute--and the most recent case law on
this point--all say that the Schumer Amendment is not needed. That is
to take nothing away from the hard work and dedication of my friend and
colleague on the Judiciary Committee, or to minimize the frustration
and outrage many Americans feel at the announced attempts to abuse the
bankruptcy code. It is simply to say that the women who use and who
operate family planning clinics are not without recourse, and not
without the full protection of the law, under the current bankruptcy
code.
I repeat, Mr. President: no one has escaped liability under the Fair
Access to Clinics Entrances Act through an abuse of the bankruptcy
code. No one.
So, Mr. President, we will vote today on a conference report that has
a strong Senate stamp on it, that contains important victories for
Senate positions, victories that make the bill in some ways fairer and
more balanced than the version that passed here in January by an
overwhelming vote.
While the homestead provision is not what I hoped it would be, I will
vote for closing the worst aspects of the homestead loophole in the
current code. I will not let the best be the enemy of the good.
And I will vote for this conference report confident that family
planning clinics, and the women who need and use them, will continue to
enjoy the full protection available under current law.
I urge my colleagues to join me.
Mrs. FEINSTEIN. Mr. President, I support bankruptcy reform, and I
voted in favor of the Senate bankruptcy bill, this past February.
Simply put, people who can afford to repay their debts, should repay
their debts.
However, I cannot support the version of bankruptcy legislation
outlined in the Conference Report to H.R. 2415. The Conference Report
has dropped key provisions from the Senate-passed bankruptcy bill, and
has failed to protect consumers against irresponsible creditor
practices. Thus, I intend to vote ``No''.
Let me recount my concerns.
First, the Conference Report lets wealthy individuals continue to
purchase multimillion dollar homes that are shielded from creditors'
bankruptcy claims. The Senate bill curbed this abuse, voting 76-22 to
approve the Kohl amendment placing a $100,000 nationwide cap on
homestead exemptions. The Conference Report replaced the Kohl amendment
with a two-year ownership or residency requirement that wealthy debtors
can easily sidestep. Debtors should not be able to avoid their
obligations by funneling money into extravagant estates. The Conference
Report lets this egregious practice continue.
Second, I am proud to be an original cosponsor of Senator Schumer's
amendment to prevent anti-abortion extremists from using bankruptcy
laws to avoid paying civil judgements against them. The Senate passed
the Schumer amendment by an overwhelming 80-17 vote. It protects a
woman's right to choose and the ongoing effectiveness of the Freedom of
Access to Clinic Entrances, FACE, Act. The FACE Act has led to
successful criminal and civil judgements against groups that use
intimidation and outright violence to prevent people from obtaining or
providing reproductive health services. I am deeply disappointed that
the Conference Report has omitted this important provision.
Third, I had hoped that the Conference Report would work to improve
the limited consumer credit card protections in the Senate bill.
Unfortunately, the Conference Report has gone the other way--consumer
protections have been deleted. For example, the Senate passed an
amendment by Senator Byrd that would have required any credit card
solicitation on the Internet to be accompanied by information from the
Federal Trade Commission, FTC, that gives consumers advice about
selecting and using credit cards. The Conference Report dropped this
provision.
Additionally, the Conference Report deleted an amendment by Senator
Levin that would have made it clear that consumers do not owe interest
for on-time credit card payments. Presently, many credit card
solicitations advise consumers that interest is not charged on payments
made within a grace period (such as 25 days). However, in the fine
print, these agreements state that if the entire debt is not paid back,
the cardholder is liable for interest on the full amount charged. Say
$995 is paid off of a $1,000 credit debt, most people reasonably assume
that they owe interest on just the unpaid $5. Not so. The credit card
company will charge consumers interest retroactively on the full
$1,000. This important amendment would have brought interest charges in
line with consumer expectations.
When analyzing legislation, it is often telling to review the
opinions of those groups with no financial stake in the outcome.
Overwhelmingly, the non-partisan experts on bankruptcy--the judges,
trustees, and academics--have expressed serious concerns or opposition
to this bankruptcy bill. These organizations include the National
Bankruptcy Conference, NBC, the National Conference of Bankruptcy
Judges, NCBJ, the National Association of Chapter 13 Trustees, NACTT,
the National Association of Bankruptcy Trustees, NABT, and law
professors from many of our nation's law schools.
[[Page S11727]]
On October 30, 2000, for example, 91 law professors wrote to me that
the ``bill is deeply flawed,'' and will not achieve balanced reform.
The professors state that ``. . . the problems with the bankruptcy bill
have not been resolved, particularly those provisions that adversely
affect woman and children.''
Congress should also take note that, after soaring to record levels
in the mid-1990s, bankruptcy filings declined in recent years. In 1998,
bankruptcy filings totaled 1,442,549. In 1999, bankruptcy filings
totaled 1,319,540 cases, a decline of almost 10 percent from the
previous year.
A final note, Mr. President. When the 107th Congress convenes, the
Senate will be evenly divided for the first time in over a century. If
we are to govern, to conduct the nation's business, we have to be able
to work across party lines. The bankruptcy Conference Report we are
considering this afternoon is a case study of how not to govern. There
was no conference; this report emerged as the product of negotiations
held exclusively between House and Senate Republicans. Maybe if they
had consulted with the minority, they could have fashioned a bill the
minority could support. But they didn't. They deliberately excluded us.
The result is a Conference Report the President has vowed to veto.
Bankruptcy reform requires a balanced bill that is fair to both
debtors and creditors. This bill doesn't measure up. I intend to vote
no on passage of the Conference Report to H.R. 2415. I hope that
Congress will revisit bankruptcy reform in the 107th Congress, and work
in a bipartisan way to address known abuses in our bankruptcy laws.
Mr. KERRY. Mr. President, I strongly believe that reform of our
bankruptcy laws is necessary. During the 105th and 106th Congress, I
supported legislation to reform bankruptcy laws and end the abuse of
the system. However, I am unable to support the conference report of
the Bankruptcy Reform Bill because I believe it is unfair and
unbalanced, was completed without appropriate consideration by the
Minority party, and is unfair to many working families and single
mothers. Sponsors of bankruptcy reform have justified the legislation
by arguing that the bill is necessary because we are in the midst of a
``bankruptcy crisis.'' I am among those who believe that, too often,
bankruptcy is used as an economic tool to avoid responsibility for
unsound decisions and reckless spending. There has been a decline in
the stigma of filing for bankruptcy, and appropriate changes are
necessary to ensure that bankruptcy is no longer considered a lifestyle
choice. However, I must point out that the current numbers show that
the bankruptcy rate is lower than it was when the bill was first
introduced. Indeed, if the bankruptcy reform act had been enacted into
law, the sponsors would undoubtedly now be taking credit for this
turnaround in the bankruptcy numbers. However, the current decline came
about without Congressional intervention, demonstrating that to some
degree, free-market forces work to correct any over-use of the
bankruptcy system. The reason is that lenders and credit card
companies, in an effort to maximize their profits, can and do respond
to an unexpected increase in personal bankruptcies by curtailing new
lending to consumers who are credit risks. However, there are still
those who will game the system, and we should narrowly craft
legislation to address such abuse. Unfortunately, this bill fails to
take a balanced approach to bankruptcy reform. I had hoped that through
a legitimate legislative process we would arrive at a compromise that
would have ended the abuses but still provided our most vulnerable
citizens with adequate protections. This bill does just the opposite:
It harms those who most need bankruptcy protection and protects those
who don't. For instance, the bill's safe harbor will not benefit
individuals in most need of help. Because the safe harbor is based on
the combined income of the debtor and the debtor's spouse, many single
mothers who are separated from their husbands and who are not receiving
child support will not be able to take advantage of the safe harbor
provision. 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. Moreover, the bill jeopardizes the
post-bankruptcy collection of child support. By creating many new types
of nondischargeable debts in favor of credit card companies, the bill
would place banks in direct competition with single parents trying to
collect child support after bankruptcy. In addition, the bill gives
creditors new levers to coerce reaffirmations, in which debtors must
agree to pay back debts that otherwise would have been discharged, so
that those debts also will compete with child support obligations.
Finally, the claim of the bill's sponsors that it ``puts child support
first'' is an example of the worst kind of Washington cynicism.
Although the bill moves child support claims from seventh to first
priority in Chapter 7 cases, the provision is virtually meaningless
because almost no Chapter 7 cases involve any distribution of assets to
creditors. Few debtors have any assets to distribute to priority
unsecured creditors after secured creditors receive the value of their
collateral. Therefore, this change would affect fewer than 1 percent of
cases. On the other hand, the conference report protects wealthy
debtors by allowing them to use overly broad homestead exemptions to
shield assets from their creditors. The homestead exemption has been
used by wealthy individuals to shelter millions of dollars in expensive
homes to avoid repaying their creditors. The Conference Report would
delete the Senate amendment that provided a firm homestead cap of
$100,000 and instead allow wealthy debtors to retain expensive homes
while filing for bankruptcy, so long as the debtor owned the property
for two years before the bankruptcy filing. Because wealthier debtors
would have no difficulty tying up their creditors for a relatively
short period of time, the two-year residency requirement would have no
real effect on debtors moving to states with unlimited homestead
amounts to take advantage of this loophole. The bill changes nothing,
as long as the well-counseled debtor makes his homestead purchase at
least 24 months before filing. But, the 24-month rule unfairly
differentiates between consumers who are sophisticated enough to plan
in advance for homestead protection and which are not.
The whole point of bankruptcy reform is to create accountability for
both creditors and debtors. The first part of that equation is missing
entirely in H.R. 2415. At the same time, the bill fails in any way to
impose any restrictions on these industries with regard to the way they
provide credit to those who can least afford to incur a great deal of
debt. The bill does not require important specific disclosures on
monthly credit card statements that would show the time it will take to
pay a balance and the cost of the credit if only minimum payments are
made. This type of disclosure was included in the legislation passed by
the Senate in 1998 and should be part of any reform bill. The
conference report also excludes Senate-passed amendments that would
have provided credit information in electronic credit card applications
over the Internet and protections against finance charges being imposed
on credit card payments made within the creditor-provided grace period.
It also does nothing to discourage lenders from further increasing the
debt of consumers who are already overburdened with debt.
I am also very disappointed that the conference report does not
include an amendment offered by Senator Collins and myself, which was
included in the Senate bill, that would make Chapter 12 of the
Bankruptcy Code, which now applies to family farmers, applicable for
fishermen. I believe that this provision would have made bankruptcy a
more effective tool to help fishermen reorganize effectively and allow
them to keep fishing while they do so.
Finally, this bill is the result of a conference process that was a
sham. In October, the House appointed conferees for the Bankruptcy
Reform Act and without holding a conference meeting, the Majority filed
a conference report striking international security legislation and
replacing it with a reference to a bankruptcy reform bill introduced
earlier that same day. This makes a mockery of the legislative process
and demeans the United States Senate. I
[[Page S11728]]
am hopeful that during the 107th Congress, we can develop bipartisan
legislation that would encourage responsibility and reduce abuses of
the bankruptcy system.
Mrs. MURRAY. Mr. President, I come to the floor today to express my
disappointment with the Bankruptcy Conference Report. I reluctantly
will be voting no on the final conference agreement because it fails
the fairness test and because it fails to protect the most vulnerable
families facing dire financial times.
I have supported bankruptcy reform in the past. I continue to support
fair and balanced reforms to prohibit the misuse of the bankruptcy code
and to prohibit individuals from using the code as a shield against
honoring their financial commitments. We need reform because we all pay
for the abuses. Working families struggling with the cost of credit
deserve reform. Families trying to save to purchase their first home
cannot afford the added burden forced on them due to abuse of our
bankruptcy laws.
Unfortunately, the final product presented to the Senate is
unacceptable. In an attempt to prevent a fair and open debate, this
conference report has bypassed the normal legislative process, and
Senators have been denied the opportunity to improve the legislation.
Clearly this conference report has been driven by special interests and
not the interests of working families. It does not ensure that mothers
and children who depend on child support and alimony payments won't
lose out to big special interests. It does not require any responsible
actions by credit card companies in educating or informing consumers to
the cost of debt.
This conference report is vastly different from the bill that passed
the Senate in March. I supported that bill. The conference report
before us, however, will make it impossible for families to seek
bankruptcy protection when they are hit with overwhelming financial
problems often caused by events beyond their control. In many cases,
families are forced into bankruptcy due to unexpected medical bills
caused by a disabling accident or condition. Many women are forced into
bankruptcy due to the break up of their family and their inability to
collect court ordered child support. These families should not be
turned away simply because credit card companies made reckless
decisions in issuing credit to individuals unable to manage debt or
unaware of the costs of managing debt.
This conference report also eliminates the Schumer Clinic Violence
Amendment that I cosponsored and that I believe must be part of any
reform bill. We cannot allow those who use violence or the threat of
violence to shield themselves from financial responsibilities by
running to bankruptcy court. Without the Schumer amendment, the
Bankruptcy Code will continue to be subject to exploitation by
perpetrators of violence against women. Protecting access to
reproductive health clinics and providers is not an abortion issue, but
a women's health and safety issue.
Violent anti-choice groups provide legal assistance to violent
protesters on how to use the Code to protect their assets against
possible financial liability. Their criminal debts are simply excused
under the current Code. This conference report fails to close that
loophole. The Schumer amendment was adopted on an 80 to 17 vote, but
the final conference agreement simply dropped this bipartisan anti-
violence amendment.
We know that this conference report will be vetoed and has little or
no chance of becoming law. The decision to push this through in a
partisan manner has jeopardized bankruptcy reform. As a result, working
families will suffer. I am hopeful that with the new Congress and the
need to work in a bipartisan manner we will see real bankruptcy reform
in the next Congress. I will continue to work for reform that is
balanced, fair and that protects women against violence and
intimidation. I want reform, but not at the expense of women or
children.
Mr. President, I hope all of my colleagues will honor the mandate we
all received in the election. The American people did not give one
party or one philosophy a mandate to govern. They want a bipartisan
Congress that will put aside political bickering and special interest
and work to solve the problems facing real people and real families.
Mr. LEVIN. Mr. President, earlier in the year, when the Bankruptcy
Reform bill was before the Senate, I voted in favor of the bill. I said
at the time that ``over the course of debate, the Senate adopted more
than 40 amendments, making this a more reasonable approach to
bankruptcy reform.'' However, I also said that ``should this
legislation come back from conference . . . without the modest
amendments we adopted in the Senate, I will consider opposing the bill
at that time.''
The bill before us is one I cannot support. The negotiators who
worked out the differences between the Senate and House passed versions
of the bill, deleted or weakened many of the provisions that were key
components of the Senate-passed bankruptcy reform bill. Both of the
amendments that I sponsored were deleted from the final version of the
bill. One of those amendments simply required a study to determine if
credit card companies use residences or zip codes to determine credit
worthiness. The other amendment I sponsored would have prohibited
credit card companies from applying interest charges on the paid
portion of a balance during a so-called grace period.
Another provision that was deleted was Senator Schumer's amendment,
which passed by an enormous margin in the Senate. The Schumer Amendment
would have ensured that perpetrators of clinic violence, who incurred
debt as a result of unlawful acts, could not discharge that debt in
bankruptcy proceedings.
I am also concerned that the Senate-passed proposal to curb debtor
abuse by closing the homestead loophole was weakened in conference. The
homestead loophole permits debtors in certain states to shield
luxurious homes, while shedding thousands of dollars of debt in
bankruptcy. The Senate passed an amendment to create a $100,000
nationwide cap on the homestead exemption, thus closing the loophole.
The conference report still allows for such abuse of the system so long
as the expensive home was purchased two years in advance of the
bankruptcy filing. This provision allows sophisticated debtors with the
resources to plan ahead for bankruptcy to game the system.
Furthermore, I am disappointed with the unusual legislative process
the majority used to file this conference report. The bill before us
today, H.R. 2415, was originally introduced as the American Embassy
Security Act. Last August, when the Senate passed this legislation and
requested a conference with the House, it dealt with State Department
and international security matters. More than a year later, the House
appointed conferees, stripped the international security provisions
from the bill and replaced them with a version of a bankruptcy reform
bill. That is the wrong way to legislate.
Mr. President, I believe that bankruptcy reform could have been
resolved in a fair and bipartisan way. Unfortunately, it was not
handled in this way and so I cannot lend my support to the bill.
Mr. ROBB. Mr. President, throughout my career I have been a staunch
advocate for fiscal responsibility, believing that as a government we
should make every effort to pay our own way and not leave our debts to
our children. That same principle of fiscal responsibility compelled me
to be an early cosponsor of the bankruptcy reform bill. I believe that,
whenever possible, individuals should take personal responsibility for
debts that they incur and pay what they owe.
Under our current bankruptcy system, debtors can be absolved of their
debts even when they may have the ability to pay. I support bankruptcy
reform because I believe that if an individual has the ability to repay
their debts, they should have an obligation to do so. The conference
report we're considering today adheres to that basic principle.
While I have supported bankruptcy reform throughout this Congress,
however, I'm extremely disappointed with how we got to this point in
the process. There has been a lot of talk about the need for
bipartisanship recently, but there is little evidence of bipartisanship
in the process used to develop this conference report. In fact, that
process
[[Page S11729]]
represents the exact opposite of bipartisanship. The minority was
locked out of the deliberations completely.
In addition, I'm concerned that important provisions that I supported
and which passed overwhelmingly in the Senate were dropped in
conference, specifically the amendment involving violence against
abortion clinics and the amendment involving the homestead exemption. I
continue to support those provisions, but they were not in the bill I
originally cosponsored. And while I had hoped that those provisions
would be included in the final package, the absence of those provisions
doesn't diminish the basic proposition contained in the underlying bill
which caused me to lend my support to the measure in the first place.
Let me conclude by acknowledging the help and friendship of many of
those who have called me or my office over the last few days urging me
to change my position on this legislation. Many of the groups and
individuals who oppose this bill are among those with whom I most often
find common cause and have supported me strongly over the years. It is
particularly painful for me not to be able to oblige them in this
instance. But I made a decision in May of last year to cosponsor this
legislation, and there have been no major substantive changes between
then and now that would compel me to change my position. So while I
regret having to say ``no'' to so many of my friends, I cannot in good
conscience turn my back on a principle which is so fundamental to me--
the principle of personal responsibility. As a result, I will maintain
the position I have held since this bill was introduced and will vote
for final passage.
Mr. HATCH. Mr. President, let me begin by saying that H.R. 2415 is
one of the most important legislative efforts to reform the bankruptcy
laws in decades.
I would like to express my thanks to the people who have worked on
this legislation. First, I want to acknowledge the Majority Leader, who
has worked diligently to keep this legislation on its course. Thanks to
his commitment to moving this legislation, we are in a position to
eliminate the abuses in the current bankruptcy system, while at the
same time, enhance consumer protections.
I also want to acknowledge the Ranking Member of the Senate Judiciary
Committee, Senator Leahy, who has worked with me to reach agreement on
many of the bill's provisions. In addition, I want to commend my
colleagues, Senators Grassley and Torricelli, the Chairman and ranking
minority member of the Subcommittee on Administrative Oversight and the
Courts, respectively, for their hard work in crafting this much needed
legislation, and for their unrelenting commitment to making the
development and passage of this bill a bipartisan process. My thanks
also goes to Senator Sessions and Senator Biden, who have shown
unwavering dedication to accomplishing the important reforms in this
bill; and the many other members of the Senate for their hard work and
cooperation.
The compelling need for this reform is highlighted by the large
number of bankruptcy filings we have seen over the past several years,
which are particularly troubling because they have occurred during a
time of relative prosperity for our Nation. Mr. President, the
bankruptcy system was intended to provide a ``fresh start'' for those
who truly need it. During the process of developing this legislation, I
have remained committed to preserving a bankruptcy system that will
allow those individuals to emerge from severe financial hardship. At
the same time, I believe that individuals should take personal
responsibility for their debts and repay them if they are able to do
so. I believe the complete elimination of debt should be reserved for
those who truly cannot repay their debts, not for those who simply
choose not to repay.
This bipartisan legislation, authored by Senators Grassley and
Torricelli, is carefully structured to achieve an appropriate balance
between the rights and responsibilities of both debtors and creditors.
If enacted, it will enable those truly in need of a fresh start to get
one, and at the same time, reform current law to prevent the system
from being abused at the expense of honest, hard-working Americans. Mr.
President, again I would like to applaud the bipartisan efforts of my
colleagues who have made this a broadly-supported bill that removes
some of the abuses of the current bankruptcy system while enhancing
consumer protections.
I am particularly proud of the great strides this legislation makes
in improving current law. The legislation includes my provision to
prevent deadbeat parents from using bankruptcy to avoid paying child
support. It includes my provision to protect educational savings
accounts that parents and grandparents set up for their children and
grandchildren. And, it includes my provision that ensures that the
retirement savings of teachers and church workers are given the same
protection in bankruptcy as everyone else. It includes my provision
that prevents violent criminals and drug traffickers from taking
advantage of bankruptcy at the expense of their victims. Specifically,
when these criminals voluntarily file for bankruptcy, my provision
protects victims by allowing them to move for dismissal of the
bankruptcy case. The legislation also includes my provision that is
designed to curb fraud in bankruptcy filings by putting in place new
procedures and providing new resources to enhance enforcement of
bankruptcy fraud laws. My provision requires (1) that bankruptcy courts
develop procedures for referring suspected fraud in bankruptcy
schedules to the FBI and the U.S. Attorney's Office for investigation
and prosecution and (2) that the Attorney General designate one
Assistant U.S. Attorney and one FBI agent in each judicial district as
having primary responsibility for investigating and prosecuting fraud
in bankruptcy.
I would like to take a moment to acknowledge a few people who have
worked very hard on this legislation. On my staff, I particularly would
like to thank the Committee's Chief Counsel and Staff Director, Manus
Cooney, the counsels who worked diligently on this measure, Makan
Delrahim, Rene Augustine and Kyle Sampson, and staff assistant Katie
Stahl. On Senator Leahy's Committee staff, I want to recognize Minority
Chief Counsel Bruce Cohen, along with counsel Ed Pagano. On the
Administrative Oversight and the Courts Subcommittee, I would like to
thank John McMickle and Kolan Davis, counsels to Senator Grassley, and
Jennifer Leach, counsel to Senator Torricelli, for their tireless
efforts and input. My thanks also goes to Ed Haden and Sean Costello,
counsels to Senator Sessions. I also would like to express my gratitude
to Senate Legislative Counsel, and in particular I want to recognize
Laura Ayoud of that office, whose hard work made this bill a better
product. Without the dedication and efforts of these loyal public
servants, the important reforms in this legislation would not have been
possible. Thank you.
____________________