[Congressional Record Volume 147, Number 27 (Monday, March 5, 2001)]
[Senate]
[Pages S1805-S1811]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                    BANKRUPTCY ACT OF 2001--Resumed

  Mr. GRASSLEY. Madam President, I am the author of this bankruptcy 
bill that is before the Senate. I know I am not the first to speak on 
it today. There have been proponents and opponents of it.
  Also, let me make very clear that thus far today there have been both 
Republicans and Democrats speaking in favor of the bill that is before 
us.
  I am very happy to be here to discuss this legislation. I thought 
last December, when we got it to the President, might have been the end 
of it and we would have a bankruptcy bill as the law of the land--the 
first major bankruptcy legislation to pass this body since 1978 or 
1979.
  Prior to Senator Kennedy's remarks about the rules that we will be 
working on, Senator Kennedy gave all of us an opportunity to see a list 
of organizations that oppose this bill. I think it is perfectly correct 
for Senator Kennedy to express the views of anybody who opposes the 
bill and in support of his opposition to the bill. But there is a flip 
side of all of the membership of all the organizations that Senator 
Kennedy said were opposed to this legislation. That flip side is that 
they all have members that, because some people in this country don't 
pay their bills, those who do pay their bills and buy products from 
companies that have creditors that have gone into bankruptcy, those 
very same members could, on average for a family of four, pay $400 more 
for goods and services that they would purchase because other people go 
into bankruptcy and don't pay their bills. There is no free lunch.
  I hope we have as much concern about the well-being of the members of 
those organizations that do not go into bankruptcy and have to pay more 
because they are supporting legislation to maintain the status quo 
where it is easy to go into bankruptcy and let somebody pick up the 
cost of your going into bankruptcy.
  That doesn't preclude that I believe firmly in the principle of a 
fresh start when people go into bankruptcy because of causes that are 
no fault of their own. Obviously, in those instances, there are costs 
to all of us who pick up the bill. But what this legislation is trying 
to change is the fact that there is an attitude out there of using the 
bankruptcy code for financial planning when you have some ability to 
repay. We are saying to those people who file for bankruptcy who have 
the ability to repay--and, albeit, they probably are a minority of all 
the people who file for bankruptcy--that it is immoral for them to use 
the bankruptcy code for financial planning. To put this $400 cost every 
year that other people pay for their goods and services who do not go 
into bankruptcy, we are saying to those people who can repay that they 
are not going to use the bankruptcy code for financial planning, and 
they are not going to get off scot free.
  I hope those who look at the long list of organizations that oppose 
this legislation--by the way, I could put up a chart that would have a 
long list of organizations supporting this legislation; I am not going 
to do that. But for those who view those that are against it, remember 
that they have members that are also hurt because there is abuse of the 
bankruptcy code.
  I am glad we are now proceeding to consideration of this bankruptcy 
bill, S. 420. This bill has been long in the making. As we all know, we 
have been working on it for two Congresses now. Prior to those two 
Congresses, I worked on legislation establishing a study commission 
made up of experts in bankruptcy to suggest to us changes in the 
bankruptcy code because we saw a skyrocketing of the number of people 
going into bankruptcy, having reached a peak of 1.4 million people; and 
that happening during a time of good economy as well.
  Besides passing this legislation in the two Congresses, we have given 
this bill very adequate study by holding numerous hearings in the 
Judiciary Subcommittee on Administrative Oversight and the Courts which 
I chaired prior to this Congress. We have the published transcripts of 
these hearings. They are available to the public and any Senator who is 
interested in looking at how thoroughly the committee has been 
considering this legislation.

  The need for bankruptcy reform has been debated on this floor at 
length. In

[[Page S1806]]

fact, this bill should have been enacted last year but was pocket 
vetoed at the last minute by President Clinton.
  The bill we consider today with a new number, S. 420, and a new 
title, the ``Bankruptcy Reform Act of 2001,'' is practically identical 
to last year's bankruptcy reform conference report that passed out of 
the Senate by an overwhelming bipartisan vote of 70-28. The only 
exception is we have made a few changes in this new draft to 
accommodate members of the Democrat Party.
  There was strong bipartisan support in the last Congress. That strong 
bipartisan support continues to this very day. So it is high time that 
we get the job done and get this bill to the President; this President 
will sign it.
  I want to give some background on the development of this bankruptcy 
legislation. In the 106th Congress, Senator Torricelli and I worked 
very closely together on bankruptcy reform. Senator Torricelli, a 
Democrat, and I addressed many concerns and negotiated many 
compromises. We were able to pass out of the Senate the Grassley-
Torricelli bill by a vote of 83-14. The Senate then approved the 
bankruptcy conference report by the vote I mentioned earlier, but I 
want to emphasize how bipartisan it was--70-28; 53 Republican Senators, 
17 Democratic Senators voted for the conference report.
  But then, as I indicated, President Clinton pocket vetoed this bill. 
Congress had adjourned, so it did not have an opportunity to override 
that veto last December. So here we are again trying to pass bankruptcy 
reform.
  My Democratic colleagues--Senators Torricelli, Biden, Johnson, and 
Carper--have joined Senators Hatch, Sessions, and me on this bill, S. 
420, the Bankruptcy Reform Act of 2001. We hope to get additional 
cosponsors from both sides of the aisle. As you can see, there is 
strong bipartisan support for this bankruptcy bill, just as there has 
been a long history of bipartisan support for bankruptcy reform ever 
since I have been in the Senate.
  I note for the record that I believe we have really bent over 
backwards to try to accommodate Senators' concerns with the bill's 
process in this Congress. I do not think it is any surprise to anyone 
that my position is that the bankruptcy bill is unfinished business 
from the last Congress. I think the large majority of us in the Senate 
believe that is the case, that it is unfinished business.
  The bill, being pocket vetoed, had to start over again this year. And 
here we are. Of course, it was really too bad we could not get the job 
done last year, considering the pocket veto.
  So at the beginning of this Congress, I reintroduced the bipartisan 
conference report with no changes--no changes--exactly the same bill. 
The reason I did this was not necessarily because the conference report 
was exactly the way I would have written the legislation, but because I 
felt compromise is necessary. And that conference report, with the 
bipartisan support that it had, was negotiated as best it could be. We 
had reached many carefully crafted compromises. And that bipartisan 
product ought to be our starting point this time.
  So I introduced that as S. 220, the same bipartisan bankruptcy 
conference report language of last year that 70 Members of this body 
supported. I had that bill held at the desk so we could proceed 
expeditiously on this matter. I did not think, with all the work that 
had been done on it over the last 4 years--with only a Presidential 
veto, a pocket veto at that, standing in the way of it being the law of 
the land--that there was much point in going through the process of 
hearings and committee action before we worked on it here. This was one 
way we could expedite the process; save all the busy Senators some 
time, and move on with something that had such broad bipartisan 
support.
  But always in a body of 100, where consensus is what it takes most of 
the time to get anything done, we had Senators with concerns about this 
process. So the Judiciary Committee, of which I am a member, 
accommodated those concerns by not only, once again, holding a hearing 
on bankruptcy reform and the bill, but also by holding a markup of the 
language in S. 220.
  So the Judiciary Committee accepted several amendments that were not 
in the conference report of last time. And that marked-up version of 
the bankruptcy bill was reported out of committee and reintroduced with 
a new number. So we went from S. 220--the exact bill that President 
Clinton pocket vetoed--to now S. 420. That is what we have before us.
  So I hope this clarification on history and on the procedural process 
of this bill will show that, one, the bill is a bipartisan effort; two, 
that we have been working on bankruptcy reform for a very long time and 
have gone over all the fine points of this bill in great detail; and, 
three, that we have bent over backwards to allow a fair process to move 
this bill forward at this time.
  Let me now discuss the merits of bankruptcy reform and why this bill 
is necessary to solve the problems we have before us of a historically 
high number of bankruptcies--1.4 million bankruptcies in 1 year--maybe 
last year just a little bit less than that but now maybe coming back 
up. It is a problem with which we should deal.
  There have been a large number of bankruptcies in good times. And 
remember, the last 20 years--covering the Reagan administration, the 
Bush administration, the Clinton administration, and now the Bush 
administration--have been the best economic years ever in the history 
of America. Yet during this period of time we had 1.4 million 
bankruptcies in 1 year, compared to 300,000 bankruptcies back in the 
early 1980s. Something is wrong, and this gives us an opportunity to 
correct what is wrong.
  To emphasize, when the Senate last considered this bill just 3 or 4 
months ago, we heard a lot about the declining numbers of bankruptcies 
from that top of 1.4 million that I talked about because the opponents 
of this compromise bill were pointing to this temporary downward spike 
in the number of bankruptcies to say that there was no need for any 
bankruptcy legislation.
  I refer my colleagues to a Wall Street Journal article dated December 
1, 2000, which predicted that consumer bankruptcies will rise by 15 
percent this year. According to the article, one expert referred to the 
predicted upswing in bankruptcies as ``the verge of another flood.''
  Opponents to the bill act as if there is nothing to worry about. But 
the fact is, we have a bankruptcy crisis on our hands. Things are more 
than likely going to get worse. We need to pass this bill, and we need 
to pass it right now.

  The Bankruptcy Reform Act before us will help the American people and 
the economy. With the economy slowing down and a declining stock 
market, Americans are anxious about their economic future. If we hit a 
recession without fixing the bankruptcy system, we could face a 
situation where bankruptcies spiral out of control even beyond what 
they were in the good times of 1998, 1997, and 1996.
  The time to act is now, before any recession is in full swing--not to 
send a signal to those people who legitimately, for the past 100 years, 
had a reason to have a fresh start. We do not want to stop those people 
in debt from going to bankruptcy court because of situations beyond 
their control. No, it is not to stop that. But before we get into this 
recession and too many people want to further use the bankruptcy code 
as part of their financial planning, we want to stop those who can 
repay some of their debt or all of their debt, that they know they are 
not going to get off scot-free.
  I will address how this bill will change the way bankruptcy is being 
treated in the United States. Simply put, bankruptcy is a court 
proceeding where people get their debts wiped away. Every debt is wiped 
away through bankruptcy. When this happens, for every debt that is 
wiped away, someone loses money. That is not Washington nonsense. That 
is good old American common sense.
  Of course, when someone who extends credit has their obligation wiped 
away in bankruptcy, they are forced to make a decision. Should this 
loss simply be swallowed as the cost of doing business and absorbed by 
the owner or do you raise prices for other customers to make up for 
your losses? Either way there is no free lunch; somebody pays.
  Presently, when an individual files for bankruptcy under chapter 7, a 
court proceeding takes place and their debts are simply erased. Every 
time a debt is

[[Page S1807]]

wiped away through bankruptcy, someone loses money. When someone loses 
money in this way, he or she has to decide to either assume the loss as 
a cost of business or raise prices for other customers to make up for 
that loss. When bankruptcy losses are infrequent, then maybe lenders 
just swallow the loss, but when they are frequent, lenders need to 
raise prices to other consumers to offset their losses.
  If there are a million businesses out there that have to so deal, I 
would have to say there are a million answers as to how each one of 
those businesses might see a debtor getting their losses wiped away.
  These higher prices obviously eventually translate into higher 
interest rates for future borrowers. We had an outstanding economist by 
the name of Larry Summers--also the last Secretary of the Treasury--
testify before our Senate Finance Committee that bankruptcies tend to 
drive up interest rates. With the possibility of the economy slowing 
right now, we need to at this time fix a bankruptcy system that 
inflates interest rates and threatens to make the slowdown even worse. 
Bankruptcy reform will help our economy through lower interest rates.
  The result of the bankruptcy crisis is that hard-working, law-abiding 
Americans have to pay higher prices for goods and services. S. 420 
makes it harder for individuals who can repay their debts to file for 
bankruptcy under chapter 7 where those debts are wiped away. This would 
lessen the upward pressure on interest rates and higher prices. It is 
only fair to require people who can repay their debts to pull their own 
weight. Under current bankruptcy laws, one can get full debt 
cancellation in chapter 7 with no questions asked. The Bankruptcy 
Reform Act before us asks the fundamental question of whether repayment 
is possible by an individual. If it is, then he or she will be 
channeled into chapter 13 of the bankruptcy code which requires people 
to repay a portion of their debt as a precondition for limited debt 
cancellation.

  The bill does this by providing a means test to steer filers who can 
repay a portion of their debts away from chapter 7 bankruptcy. The test 
employs a legal presumption that chapter 7 proceedings should be 
dismissed or converted into chapter 13 whenever the filer earns more 
than the State medium income and can repay at least $6,000 of his or 
her unsecured debt over 5 years.
  In calculating a debtor's income, living expenses are deducted as 
permitted under IRS standards for the State and locality where that 
debtor lives. Legitimate expenses--such as food, shelter, clothing, 
medical, transportation, attorney's fees, and charitable 
contributions--are taken into account in this analysis as provided for 
under these IRS guidelines. Moreover, a debtor may rebut the 
presumption by demonstrating some sort of special circumstances.
  Responding to the point that is always brought up against this bill--
we have already heard it this afternoon--that somehow, regarding high 
medical expenses, you never get adequate consideration of that by the 
judge if you go into bankruptcy, I don't know what it takes to satisfy 
people on the other side whom I believe are using this medical expense 
issue just as an excuse because they don't want any bankruptcy reform. 
If writing off 100 percent of all medical expenses is not enough, would 
you be satisfied if we wrote a law that allowed you to write off 101 
percent or 102 percent? When I say medical expenses under the IRS 
guidelines can be written off in making a determination of the ability 
to repay or go into chapter 13 and then repay part of your debt, I mean 
that they can be written off.
  The means test takes into account a debtor's income and expenses and 
then, even beyond that, allows the debtor to show special circumstances 
which would justify adjustments to this IRS benchmark means test. In 
this way, then, the bankruptcy reform bill preserves the fresh start I 
have talked about for people who have been overwhelmed by medical debt 
or sudden unforeseen emergencies.
  As stated by the General Accounting Office--not by Senator Grassley 
but by the General Accounting Office--the bill allows for full 100 
percent deductibility of medical expenses before examining repayment 
ability. This bill preserves fair access to bankruptcy for people who 
truly are in need.
  So that I am crystal clear, people who do not have the ability to 
repay their debt can still use the bankruptcy system as they would have 
before. This bill specifically provides that people of limited income 
can still file under chapter 7. There is a specific safe harbor built 
in for these individuals so their debt can be wiped away as is done 
right now--the fresh start.
  I repeat: There is a safe harbor for these poor people, but the free 
ride is over for those who have high incomes and who game the system 
and who don't want to repay their debt but can repay their debt; they 
are no longer going to get off scot free.
  That brings me to the moral issue involved with bankruptcy reform. 
Somehow, I know that in 21st century America you aren't supposed to be 
judgmental about people. Let me say to you I think it is a sad 
commentary that I can get into trouble for being judgmental about 
people, but if I were to do the same thing, commit the same act, I 
would probably get away with it. That is a sad commentary.
  There is this issue of personal responsibility. It has been one of 
the main themes of this bankruptcy reform bill. Since 1993, the numbers 
of Americans who have declared bankruptcy have increased over 100 
percent. That is how you eventually get to that high number 2 years ago 
of one and four-tenths. While nobody knows all the reasons underlying 
bankruptcy crises, the data shows that bankruptcies increased 
dramatically during the same timeframe when unemployment was low and 
real wages were at an all-time high.
  I believe the bankruptcy crisis is a moral crisis. People have to 
stop looking at bankruptcy as a convenient financial planning tool 
while other honest Americans have to foot the bill. It is clear to me 
that our last bankruptcy system must bear some of the blame for this 
crisis. A system where people aren't even asked to pay off their debts, 
obviously, contributes to the fraying of the moral fiber of our Nation 
and to the lack of personal responsibility. Why should people pay their 
bills when we have a system allowing them to walk away with no 
questions asked? Why should people honor their obligations when they 
can take the easy way out through bankruptcy?
  I think the system needs to be reformed because it is fundamentally 
unfair. The Bankruptcy Reform Act before us will then promote personal 
responsibility among borrowers and create a deterrence for those hoping 
to cheat the system, to game the system, to use it for financial 
planning, to get off scot free.
  The bill does more than just provide for a flexible means test. It 
gives judges discretion to consider the individual circumstances of 
each debtor to determine whether they truly belong in chapter 7 and 
then get the fresh start that we all agree they are entitled to if they 
are in this situation because of something beyond their control. But it 
also contains tough consumer protections that people on the other side 
of the aisle, correctly so, have brought to our attention that we ought 
to be doing something about.
  We are going to have procedures in this bill to prevent companies 
from using threats to coerce debtors into paying debts which could be 
wiped away once they are in bankruptcy. That is not fair play, when we 
have activity such as that occurring.
  The bill requires the Justice Department to concentrate law 
enforcement resources on enforcing consumer protection laws against 
abusive debt collection practices. It contains significant new 
disclosures for consumers, mandating that credit card companies provide 
key information about how much they owe and how long it will take to 
pay off their credit card debt by only making a minimum payment--just 
getting on a treadmill and never getting off.
  Consumers will be able to get this information through a toll-free 
number, where they can get information about how long it will take to 
pay off their own credit card balances if they make only the minimum 
payments because we want to help people get off of that treadmill as 
well. We want to do it by educating consumers and improving the 
consumers' understanding of their financial situation.

  Also, credit card companies that offer credit cards over the Internet 
will

[[Page S1808]]

be required, for the first time, to fully comply with the Truth in 
Lending Act. So claims that this bill is unbalanced for the creditor 
and against the debtor are wrong. There are enhanced consumer 
protection and information and education provisions to give the debtor 
more information--hopefully, to avoid bankruptcy in the first place.
  Our bill makes changes that will help particularly vulnerable 
segments of our society. We have heard people against this bill--and, 
again, I think just because they don't want any change in the 
bankruptcy laws whatsoever, and maybe some of them even think we ought 
to make it easier to go into bankruptcy--bring up this issue about 
child support. It is one of their great contributions to the evolution 
of this legislation, that child support now is the No. 1 priority.
  Again, as I said, in the case of these groups of people who are 
against the bill in the case of medical expenses, if 100-percent 
deductibility and consideration of 100 percent of the medical expenses 
isn't enough, should it be 101 percent or 102 percent? Again, if child 
support is the No. 1 priority, what more can I do for you? There isn't 
a number smaller than 1 for a priority when it comes to using the 
assets that are in bankruptcy to see that children are No. 1 in 
consideration. They ought to be No. 1 in consideration. So they have 
the highest priority.
  I wish to make clear that the bankruptcy bill makes a significant 
improvement for child support claimants as well. This bankruptcy bill 
does not hurt them, as opponents try to claim. In fact, the 
organizations that specialize in tracking down deadbeat dads all 
believe this bill will be a tremendous help in collecting child 
support. The people on the front lines say that the bankruptcy bill is 
good for collecting child support. For example, the bill provides that 
parents and State child support enforcement collection agencies are 
given notice when a debtor who owes child support for alimony files for 
bankruptcy in the first instance--I should say, not in the first 
instance of bankruptcy but when they file for bankruptcy, this 
information is going to be made known to them right away because 
bankruptcy trustees are required to notify child support creditors of 
their right to use child support enforcement agencies to collect 
outstanding amounts due.
  In addition, the bill requires creditors to provide the last known 
address of debtors owing support obligations upon the request of the 
custodial parent. Concerns being expressed by opponents to this bill 
then, in regard to this child support issue just do not hold water.
  The Bankruptcy Reform Act before us also makes great strides in 
cracking down on the very wealthy individuals who abuse the bankruptcy 
system. If you listen to our critics, you might get the impression that 
the homestead exemption is one giant loophole, that we don't deal with 
it in this bill at all, and that somehow we are protecting the rich. 
Here again, we had the nonpartisan General Accounting Office look at 
the question of how frequently the homestead exemption is abused by 
wealthy people in bankruptcy. The GAO found that less than 1 percent of 
the bankruptcy filings in the States where there are unlimited 
homestead exemptions involving homesteads of over $100,000--and the 
number of States that fall into that category can be counted on the one 
hand. But in those States 99 percent of the bankruptcy filings are not 
abusive, according to the General Accounting Office. So there is no big 
loophole there. In fact, the provision in the bill with respect to 
homestead is a significant improvement over current law because there 
is presently no Federal cap on homestead exemptions in the current law.
  Our bill changes that by requiring a person be a resident of a State 
for 2 years before claiming the homestead exemption.
  Furthermore, there is a 7-year look-back provision which will allow 
our bankruptcy judges to review the debtor's activities for the past 7 
years to determine whether the debtor was trying to shield assets 
through this homestead exemption.
  This, quite frankly, is one of these very tough issues with which we 
have to deal. On this, I did not have to deal with Democratic Senators 
who think it ought to be tougher, but I had to deal with those within 
my own Republican caucus.
  There was a lot of work that had to be done on this. It is a delicate 
compromise between those who believe the homestead exemption should be 
capped through Federal law and others who are uncomfortable with the 
uniform Federal cap because 150 years ago, their State constitution 
writers wrote a different provision.
  I hope my colleagues will not believe it when others say the 
provisions of this bill that tighten up this exemption, regardless of 
the State constitutions, is a gaping loophole because it is not. The 
homestead provision in the bankruptcy bill substantially cuts down on 
abuses.
  I wish to talk about another thing this bankruptcy bill does that is 
so important in the rural areas of America, particularly as it deals 
with the family farmer. Some may not know that the farmers across the 
country currently have no protection at all against foreclosures and 
forced auctions, and that is because chapter 12 of the bankruptcy code, 
which I wrote about 15 years ago, sunsetted last June. We thought 
President Clinton signing this in December would take care of that 
problem. Chapter 12 has expired leaving farmers without this last-ditch 
safety net.
  The answer is that chapter 12 ceased to exist because opponents of 
bankruptcy reform stalled movement on this legislation last year so 
that it would be timely for President Clinton to pocket veto it after 
we adjourned in December instead of while we were still here, when we 
obviously had the votes to override it.
  Last year's bill would have permanently restored chapter 12 for 
family farmers, but President Clinton did not think that was an 
important enough matter. This matter is too important to family farmers 
for us to be fooling around and not making chapter 12 permanent. It is 
the only chapter of the bankruptcy code that is not permanent law, but 
our bankruptcy bill goes further than just making it permanent.
  The bill enhances these protections and makes more farmers eligible 
for chapter 12. The bill lets farmers in bankruptcy avoid capital gains 
taxes. This is important because it will free up resources to be 
invested in a farming operation that is trying to turn around rather 
than going down the big black hole of the Federal Treasury.
  Farmers need this chapter 12 safety net, and we in Congress should be 
standing up for our family farmers. We can do our duty and make sure 
the family farms are not gobbled up by giant corporate farms, which 
happens when bankruptcies occur. We can give farmers across America a 
fighting chance. I hope the Senate does not give in to people who are 
opposed to this bill and want to fight bankruptcy reform just because 
they do not want any bill whatsoever and let them hurt the family 
farmer by stalling this legislation. It is time we do this for the 
family farmer.
  In addition, patients in hospitals and nursing homes get protection 
under this bill. They deserve it and need it. In the last Congress, the 
Senate adopted these protections unanimously as an amendment I offered. 
Let me provide an example of what could happen--and it has happened. 
This came out in a hearing I held on nursing home bankruptcies.

  I learned of a situation in California a couple, 3 years ago where 
bankruptcy trustees just showed up at a nursing home on a Friday 
evening and evicted the residents. The bankruptcy trustees did not 
provide any notice whatsoever that this was going to happen. There was 
absolutely no chance for the nursing home residents to be relocated. 
The bankruptcy trustees literally put these elderly people out into the 
streets and changed the locks on the doors so they could not get back 
into the nursing home.
  This bankruptcy bill will prevent this from ever happening again. For 
the first time, we will be giving these deserving folks these 
protections. We set up an ombudsman to look out for their interests.
  Getting back to some basics, the truth is, bankruptcies hurt people. 
It is not fair to permit people who can repay to skip out on their 
debts. Yes, we do preserve and must preserve fair access to the 
bankruptcy courts for those who truly need a fresh start. The 
bankruptcy reform bill that we will pass

[[Page S1809]]

does just that, but let those people who can over time pay their debts 
live up to their responsibilities. Let's restore a proper balance in 
the bankruptcy system. This bill does that. Enacting bankruptcy reform 
will help stimulate the economy by lessening pressure on prices because 
people who can pay their debts do not. Also, interest rates go up, as 
Secretary Summers has told us.
  Passing meaningful bankruptcy reform also can help our economy and 
simultaneously contribute to rebuilding our Nation's moral foundation 
by emphasizing, once again, personal responsibility.
  I urge my colleagues to support this bill which has a new number, S. 
420, but not much changed from the bill that was at the desk, S. 220. 
This is a product of much negotiation and compromise. It is fair, it is 
balanced, and it is long overdue.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Alabama is recognized.
  Mr. SESSIONS. Mr. President, I appreciate the opportunity to make 
some remarks on the bankruptcy bill that will be pending this week. I 
also express my admiration for the work of Senator Enzi in the health 
subcommittee on labor issues that he chairs and his intensive work and 
concern to make sure we handle repetitive motion injuries in the right 
kind of way.
  In my personal view, it would be unwise for us to dump a regulatory 
burden on American business, one that has been estimated to cost as 
much as $90 billion, at a time when the economy is in a slowdown and we 
are not really sure about the science that would justify that and all 
experts tell us the regulations are incredibly difficult to write. In 
fact, they are not able to write them. I think we are right to heed 
Senator Enzi's advice.
  Mr. President, one of the objections to the bankruptcy bill was 
expressed in a letter that has been circulated from 91 law professors 
who wrote to show their opposition to the bankruptcy bill. We are 
continually seeing our professors sign off on letters that appear to 
have some substance, but when you examine them, they are not sound. 
This is a very unsound letter.
  Since it has been referred to by Senator Kennedy in the past, and I 
think maybe earlier today--although I don't think he relied on it in 
depth here today--we ought to talk about those charges. In their 
letter, these professors claim to be representing the interests of 
children and women in divorce. They claim to be concerned about poor 
people who are bankrupt and they want to help them. So do I.
  So let's listen to what they say their complaints are. I would like 
to talk about them. It is in many ways quite stunning how inaccurate 
their opinions are.
  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 this bill subjects assets, such as homestead, household 
effects, and tools of the trade--these are assets that cannot be seized 
and sold in bankruptcy. These are assets that the person who filed 
bankruptcy can keep--their homestead and household effects and so 
forth. But for the purposes of children and women and past-due alimony, 
this law will give them greater power than ever before, and they can 
seize those. They can be seized for child support and alimony. That is 
clearly a superior position under this bill than before.
  Wives and mothers will not have to compete with anyone before, 
during, or after bankruptcy for these key assets.
  In addition, Philip Strauss of the San Francisco Department of Child 
Support Services--this is one of the agencies around the country that 
was formed to help women and children collect their child support and 
alimony from deadbeat parents, or those who refuse to pay--wrote to us 
and made a firm statement on this matter. He said competition between 
these creditors and child support claimants just doesn't happen.
  As he said:

       No support collection professional that I know believes 
     this concern to be serious. If support--

  He means child support and alimony--

     and credit card creditors were playing on a level playing 
     field, banks with superior resources might have an advantage. 
     However, nonbankruptcy law--

  This is the nonbankruptcy collection law that favors alimony and 
child support--

     has so tilted the field in favor of support creditors--

  That is child support creditors--

     that competition with financial institutions for the 
     collection of post-discharge debt presents no problems for 
     support creditors.

  Senator Biden said it was laughable at our hearing recently to 
suggest that this bill does anything but enhance the position of women 
and children who may be claimants in bankruptcy.
  The letter from the professors says:

       Credit card claims increasingly will be excepted from 
     discharge and remain legal obligations after bankruptcy.

  The fact is this: Credit card debt that is incurred as a result of 
fraud is already nondischargeable under current law. This bill simply 
makes it slightly easier for creditors when a debtor has obtained the 
money from the creditor by fraud to win their case; only slightly more. 
They will still have to prove that the borrower--the debtor--defrauded 
them. And debtors who defraud creditors should not be able to discharge 
their debt in bankruptcy.
  If somebody loans me money and I obtain that loan through fraud, why 
should I be able to go into bankruptcy court and never pay that person 
back the money I defrauded him out of?
  That is the current law. That is historic law. This bill makes little 
or no change in it. It tightens it up slightly. If you have been 
defrauded, you will be able to collect your money.
  The letter further says:

     . . . large retailers will have an easier time obtaining 
     reaffirmations of debt that legally could be discharged.

  The fact is that in order to obtain a reaffirmation under this bill, 
retailers will have to make sure that new and comprehensive disclosures 
are given. They will be required to disclose material terms of debt 
obligation before the creditor and debtor can reaffirm any discharged 
debt. Judicial review is required in certain cases. Thus, it will be 
much more difficult--not easier--for retailers to reaffirm or get a 
reaffirmation of a debt that is being discharged in bankruptcy.
  I know this. I was asked to negotiate this very question on behalf of 
Senator Grassley and Chairman Hatch. I met with the White House and 
Senator Reed from the other side. We worked hard and came up with 
language that is not excessively burdensome on the court but really 
provides substantial new procedural protections from anyone who would 
think about reaffirming a debt.
  The reason people reaffirm the debt is they may have a washing 
machine, and they have paid on it for a while. They would rather 
reaffirm and keep that machine than have it taken away. Sometimes they 
do it on automobiles and things of that nature. It is a perfectly 
voluntary thing.
  Frankly, I thought the issue was greatly overblown. But we worked 
this out. We increased the control under the new bankruptcy bill that 
is before us today compared to what it was before. A vote to reject 
this bill is a vote to continue the less restrictive reaffirmation 
practices that prevail in the absence of this bill.
  Again, it makes you wonder what these professors are writing about.
  The letter says:

       Giving ``first priority'' to domestic support obligations 
     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. Granting women and 
     children a first priority . . . permits them to stand first 
     in line to collect nothing.
  The fact is, the bill's means test will come into play only if the 
person filing bankruptcy makes more than the median income for the 
state in which he files. Only then will he be required to pay back some 
of his debt, and under that scenario his situation will be different 
from current law.
  This bill's means test will place above-median income deadbeat dads 
into chapter 13--a 5-year repayment plan that will require them for 5 
years under court-ordered direction to pay their money into court, and 
the first fruits of that money go to child support and alimony. That is 
a powerful incentive and guarantee that women and children will receive 
the support obligations due them.

[[Page S1810]]

  The bill also will stop how chapter 13 is used today by deadbeat dads 
to delay or defeat their payment of child support--sometimes for as 
long as 5 years. This bill will strengthen the ability of women and 
children to receive their child support.
  The letter goes on with another charge. It says: Under current law, 
child support and alimony share a protected post-bankruptcy position 
with only two other current collectors of debt--taxes and student 
loans. The bill would allow credit card debt and other consumer credit 
to share that position thereby elbowing aside women trying to collect 
on their own behalf.
  The fact is, the bill only slightly expands what consumer debt is 
nondischargeable. The credit card has to be used for more than $250 
worth of luxuries, and the debt has to be fraudulent to be 
nondischargeable. Even if you had a fraudulent debt of less than $250, 
it would be dischargeable.
  Moreover, only alimony and child support claimants will be able to 
levy on the deadbeat dads' exempt assets, as I mentioned before, such 
as homestead and household furniture. 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, as Philip Strauss, a child support professional, said--he 
has 24 years of experience in collecting assets for women and 
children--

       No support collection professional that I know believes 
     this concern to be serious.

  I agree with Senator Biden. It is laughable. Really. State attorneys 
general will be helping women collect child support and alimony.
  Further, this bill will provide more assets for distribution to women 
and children before, during, and after bankruptcy.
  Before bankruptcy, debtors will have to attend a credit counseling 
session that will help put fathers on a budget, keep them out of 
bankruptcy, and keep them paying this alimony and child support in the 
first place.
  I offered an amendment to this bill that says before a person runs 
down to some bankruptcy lawyer whose primary motivation will be to get 
his fee and file bankruptcy with the least possible cost and time on 
his part in the case, they should at least talk with a credit 
counseling agency. Many of them can show debtors how to establish a 
budget, how to prioritize their debt payment. They can call creditors 
and ask: Would you hold off for 2 months? Then we will start paying 
next month. Otherwise, my client would have to file bankruptcy. They 
are working marvelously well throughout the country to avoid 
bankruptcy, to teach families and deadbeat dads or others how to manage 
money more effectively, and actually preserve families because experts 
say fights over credit are the No. 1 cause of divorce in this country. 
That is a good provision in this bill that would not be enacted into 
law if this bill is not passed.

  I go on to note that 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 
first priority alimony and child support claims.
  After bankruptcy, it is more likely that a father who has undergone 
credit counseling, has been subject to 5 years of court-ordered 
supervision of his finances where alimony and child support were the 
No. 1 priority, and knows he cannot shield his exempt assets from 
alimony and child support claims, will be up to date on all his post-
bankruptcy payments, including alimony and child support.
  The letter further charges:

       [A] single mother with dependent children who is hopelessly 
     insolvent and whose income is far below the national median 
     income would have her bankruptcy case dismissed if she does 
     not present copies of income tax returns for the past three 
     years--even if those returns are in the possession of her ex-
     husband.

  The fact is, although a prior version of the bill did require 3 
years' tax returns to be submitted to the bankruptcy court--and there 
was good reason for that because people do not always tell the truth 
about their income, and 3 years of returns gives you some indication of 
what their true worth and financial ability is--but while it was in the 
previous bill, the conference report version, the present bill today 
that came out of committee only requires that 1 year's return be 
submitted. This bill only requires the current year's return be 
submitted, and even that obligation can be satisfied by a transcript of 
your return obtained from the IRS. These transcripts are free and 
promptly provided by the IRS.
  Further, the bill relieves the obligation of filing even the current 
tax return if the debtor--the destitute mother, in this case--can show 
that she cannot file the return due to circumstances beyond her 
control. I think that more than answers that charge.
  The letter further says:

       A single mother who hoped to work through a Chapter 13 
     payment plan would be forced to pay every penny of the entire 
     debt owed on almost worthless items of collateral, such as 
     used furniture or children's clothes, even if it meant that 
     successful completion of a repayment plan was possible.

  The fact is, a single mother would only be placed in a chapter 13 
repayment plan if, one, she was above the median income, and that is 
adjusted for family size--and for a family of four, the median income 
in my home state of Alabama is $47,000 a year--two, her income after 
deducting medical payments, private school tuition, and medical 
expenses exceeded the lesser of $10,000 or 25 percent of nonpriority 
unsecured debts--but at least $6,000; and special circumstances did not 
make completion of the payment plan impossible.
  So there is an out for the judge. If he finds there are special 
circumstances that provide a hardship for a family, he can avoid this 
plan. Even then, if she did not want to pay for the worthless items of 
collateral, her plan needs only provide for their return to the 
creditor. Why should she have to keep a piece of furniture if she does 
not want to pay that debt on it, and it has been mortgaged?

  The letter says:

       The homestead provision in [this bill] will allow wealthy 
     debtors to hide assets from their creditors.
       The fact is, the current law presents two problems: One, 
     debtors stuffing their cash into homesteads immediately 
     before declaring bankruptcy, sometimes moving to another 
     State that has a more favorable homestead law, to defeat the 
     creditors; and, two, another problem is, wealthy people 
     exempting their long-held homestead from the bankruptcy 
     estate.

  The Senate bill that preceded the conference report last year would 
have solved both of these problems with a $100,000 hard cap on all 
homestead exemptions. I supported that. Senator Kohl and I were the 
prime advocates of that amendment. I debated it on the floor, and we 
won that vote on the floor. The companion House bill that was passed by 
the House of Representatives would have solved neither one of those two 
problems. We solved both of them in our bill in the Senate.
  So what about the bill that has come out of committee and is the bill 
before us today? The bill today solves the more egregious problem by 
providing, one, that all new equity added to a home within 2 years 
prior to filing bankruptcy in excess of $100,000 will be subject to the 
creditors and cannot be protected; and, two, if you move into a new 
State 2 years before filing bankruptcy, your homestead exemption is set 
by the law of the State you left.
  So you cannot carry on the kind of effort that has been done in 
Alabama where a person leaves my hometown of Mobile and drives 50 miles 
to Pensacola, Florida, where they have no homestead exemption, puts all 
their money in a million-dollar house, files bankruptcy, and they do 
not have to pay their creditors because all their money is in the home. 
You would have to plan that at least 2 years in advance under this law. 
So there is no doubt, as Senator Grassley has stated so clearly, that 
this law will be substantially more effective in cracking down on 
homestead abuse than current law.
  We had problems. We had a number of people from Florida, from Texas, 
from Kansas, and some other States out West, whose State constitutions 
provided unlimited homestead protection for farmers and others. They 
did not want to give that up. They fought us tooth and nail, and it 
compromised the ability of this bill to even be passed. But by reaching 
a compromise on this language in the bill, it solved one of the two 
problems, the most egregious problem really, and we made progress over 
current law. We ought to pass this bill. To kill this bill would leave 
even the weaker current law in effect.

[[Page S1811]]

  The letter further says:

       Well-counseled debtors will have no problem timing their 
     bankruptcies or tying up court in litigation to skirt the 
     intent of [this bill's two-year look-back] provision.

  The fact is, it will be very difficult for a debtor to plan 2 years 
ahead to place large amounts of cash into a homestead. Such planning, 
however, could establish a record of the debtor's intent to hinder or 
delay his creditors. If you can show they maneuvered over a 2-year 
period to establish a new homestead in a different State, or put extra 
money in there, then you have a remedy under this bill. If so, our 
legislation contains a 7-year look-back provision to bring any amount 
added to a homestead to defraud, hinder, or delay creditors back into 
the bankruptcy estate, used to pay off debtors of the estate.
  So in conclusion, Mr. President, I reject the assertions in the 
October 30 letter by the anti-reform professors. This bankruptcy bill 
will place women and children in a better position than ever before. 
That is a major reason why an overwhelming bi-partisan majority of the 
House and the Senate supported this bill last year. And that is why we 
should pass it again this year, and the President should sign it.
  I know there is a lot of talk about this bill being harsh and somehow 
unfair to poor people. But all debtors--all poor people filing 
bankruptcy--if the claimants are for child support or alimony, will be 
much advantaged.
  The alimony and child support people will have much greater power 
under this bill to collect their money than under current law. Second, 
anybody making below median income for their State will not be affected 
by the means test and will not be converted to Chapter 7. And I do not 
know how many that is, but I would be willing to guess that at least 80 
percent of the individual bankruptcy filings in this country are by 
people who make below median income. It is only a few at which we are 
looking. The same people who are concerned about those abusing the 
homestead law to defraud their creditors ought to also be concerned 
about doctors and other rich people who have run up a bunch of debts, 
bankrupt against them, and then the next year make $100,000 to $150,000 
a year. By doing that, these people have effectively gotten out of 
their legitimate debts that could easily have been repaid by them. Make 
no mistake, that is the truth. You can go into bankruptcy court today, 
file under chapter 7 and if your income is $250,000 a year, wipe away 
the debt that you owe and, effectively, never pay your creditors. That 
is not right. It's an abuse. If you can pay part of your debts, you 
ought to.

  We have come up with a bright line rule. If you make above median 
income for your State and you can pay the lesser of 25 percent or 
$10,000 of your debts over 5 years, you are required to pay at least a 
portion of those debts you can pay; in other words, you must file in 
Chapter 13. The judge will decide how much you pay and will set up a 
repayment schedule. In short, people should try to repay the debts that 
they owe. We don't need to create a bankruptcy system that is running 
out of control where lawyers are advertising night and day on the TV 
and in the free shopping guides in the grocery stores about how you can 
wipe out your debts and you don't have to pay what you owe.
  When somebody fails to pay what they owe, whether it is to a 
hospital, whether it is to a doctor, whether it is to a bank, whether 
it is to a credit card company, what happens? It drives up the cost of 
those people's business. They have to raise the charges on the honest 
people who pay them.
  There is no free lunch in this country. That is basic economics. 
There is no free lunch. If you don't pay your debt, then somebody else 
is going to pick up the burden.
  We need to have a law that enhances our capacity to ensure people 
don't abuse bankruptcy; that if you are capable of repaying a portion 
of your debts, you do. That is fundamental and what most Americans do.
  When I think about those families sitting around their kitchen tables 
right now worrying about their budgets, trying to decide whether or not 
they can afford to take vacation, and who ultimately decide that they 
can't because they have bills to pay - those are the people we ought to 
honor. Those are the people who demonstrate the kind of character and 
discipline that ought to be affirmed. We ought not to affirm people who 
make above the median income in America and who can easily pay back 
part of their debts, but who decide not to do so.
  I don't believe you can assert one fact in this bill that is not fair 
and just. We have fought over this bill for 4 years. It has passed this 
body at least three times by overwhelming numbers. Unfortunately, it is 
not yet the law. I plan to listen carefully to the complaints about 
this bill that will surely be made on this floor, but frankly I don't 
believe that anybody's complaints will hold water.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Maine.
  (The remarks of Ms. Collins pertaining to the submission of S. 455 
are printed in today's Record under ``Statements on Introduced Bills 
and Joint Resolutions.'')
  The PRESIDING OFFICER. The Senator from Minnesota is recognized.

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