[Congressional Record Volume 148, Number 122 (Tuesday, September 24, 2002)]
[Senate]
[Pages S9122-S9123]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. KOHL (for himself, Mr. Sessions, and Mrs. Feinstein):
  S. 2996. A bill to amend title 11, United States Code, to limit the 
value of certain real and personal property that a debtor may elect to 
exempt under State or local law, and for other purposes; to the 
Committee on the Judiciary.
  Mr. KOHL. Mr. President, I rise today to introduce the Bankruptcy 
Abuse Reform Act of 2002. The Senate is very familiar with the issue of 
the homestead exemption. We have voted to close the homestead loophole 
in each of the past three Congresses. Each and every time, the Senate 
strongly supported our proposal to close the homestead loophole and 
prohibit wealthy debtors from moving to Florida or Texas to shield 
their multi-million dollar mansions from their creditors.
  In practical terms, the unlimited homestead exemption means that a 
person can declare bankruptcy in Houston, for example, wipe out most of 
their debts, but shield from creditors a house worth an infinite 
amount. Our amendment will generously cap the homestead exemption at 
$125,000, that is, it permits a debtor to keep $125,000 of equity in 
his or her home after declaring bankruptcy.
  This provision should be law by now. Unfortunately, the politics of 
the bankruptcy bill generally and this provision specifically have 
prevented the homestead loophole from being closed once and for all. 
During the course of this debate, we accepted a compromise that was 
weaker than we would have wanted, but would get at the worst abusers. 
It was not all that we wanted, nor was it that is needed, but is was a 
good first step.
  To those that argue that the compromise that we agreed to is enough, 
we say it only got at some of the abusers who will use this provision 
in the law. Certainly, no matter how well we draft it, we will not be 
able to anticipate everything that some clever lawyer or devious debtor 
will think of to find a way around it. The only way to ensure that no 
debtor will be able to take advantage of this loophole is for the 
Congress to pass a hard cap. Only then can we be certain that the 
loophole would be closed once and for all.
  It appears now, however, that the bankruptcy reform bill has stalled 
and may not be considered before the Congress adjourns for the year. It 
would be a miscarriage of justice to permit the year to end without 
addressing the most scandalous abuse of the bankruptcy laws in an era 
when numerous corporate executives will surely use the homestead 
exemption to protect millions of dollars from their creditors.
  The country has been stunned recently by stories of corporate 
malfeasance, insider dealing, and fraud. And, not by fly-by-night 
companies, but rather the worst wrongdoing went on in companies that 
were entrusted with the nest eggs of millions of Americans in pension 
plans and mutant funds. Those investments have been lost. And, yet 
there is every chance that the people who caused these nightmares may 
walk away from their misdeeds and seek shelter in their luxury homes.

[[Page S9123]]

  Whether we are discussing Ken Lay's $7.1 million, 13,000 square foot 
condominium or Andrew Fastow's newly built multi-million dollar home in 
one of Houston's swankiest neighborhoods, or Scott Sullivan's $15 
million estate in Boca Raton, one thing is clear; these former 
executives must not be permitted to continue to live like kings in 
bankruptcy while their former employees are looking for their next 
paycheck.
  Debtors should not be able to avoid their creditors through luck of 
geography or through strategic bankruptcy planning. The bottom line is 
that bankruptcy must be a refuge of last resort, not a financial 
planning tool for Ken Lay, Scott Sullivan or a host of others. It would 
be a shame if this Congress were not able to close the most egregious 
abuse of all in the bankruptcy laws. It is time to close the homestead 
exemption loophole once and for all.
  I ask unanimous consent that the text of the Bankruptcy Abuse Reform 
Act of 2002 be printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 2996

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Bankruptcy Abuse Reform Act 
     of 2002''.

     SEC. 2. LIMITATION.

       Section 522 of title 11, United States Code, is amended--
       (1) in subsection (b)(2)(A), by inserting ``subject to 
     subsection (n),'' before ``any property''; and
       (2) by adding at the end the following new subsection:
       ``(n)(1) As a result of electing under subsection (b)(2)(A) 
     to exempt property under State or local law, a debtor may not 
     exempt any amount of interest that exceeds, in the aggregate, 
     $125,000 in value in--
       ``(A) real or personal property that the debtor or a 
     dependent of the debtor uses as a residence;
       ``(B) a cooperative that owns property that the debtor or a 
     dependent of the debtor uses as a residence; or
       ``(C) a burial plot for the debtor or a dependent of the 
     debtor.
       ``(2) The limitation under paragraph (1) shall not apply to 
     an exemption claimed under subsection (b)(3)(A) by a family 
     farmer for the principal residence of that farmer.''.

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