[Congressional Record (Bound Edition), Volume 146 (2000), Part 1]
[Senate]
[Pages 83-85]
[From the U.S. Government Publishing Office, www.gpo.gov]



                BANKRUPTCY REFORM ACT OF 1999--Continued

  Mr. GRASSLEY. As everyone knows, we have started with the new 
Congress what we hope will be the final 2 days of the bankruptcy bill 
that we started sometime during the last 2 weeks of the session last 
year. We hope to finish by next Tuesday or Wednesday. We have the 
number of amendments down to about nine, with limits on debate on most 
of those amendments. It looks as if we can see the end of the debate 
and what I hope will be final passage. I think I can predict final 
passage because we did pass this legislation with only one or two 
dissenting votes during the year of 1998. At that particular time, it 
was too late in the session to get the bill back to the House before 
final adjournment, so obviously in 1999 we had to start over again. 
That is concluding now with the House passing the bill in the middle of 
last year by a veto-proof margin.
  At this point, I will say a few words about how we have thought of 
the proper role of bankruptcy over the course of our Nation's history. 
Congress' authority to create bankruptcy legislation derives from the 
body of the Constitution. Article I, section 8, clause 4, authorizes 
Congress to establish ``uniform laws on the subject of bankruptcy 
throughout the United States.''
  Until the year 1898, we did not have permanent bankruptcy laws; they 
were temporary. They were temporary reactions to particular economic 
problems. With each successive bankruptcy act and each major reform of 
our Nation's bankruptcy laws, we have refined our concept of how 
bankruptcy should promote the important social goal of giving honest 
but unfortunate Americans a fresh start while at the same time we guard 
against the moral hazard of making bankruptcy too lax. Quite frankly, 
since 1978 that is exactly what has happened. In the last 6 or 7 years, 
we have seen an explosion of the number of bankruptcies, from about 
700,000 to about 1.4 million.
  We do not have solid statistics on this, but hopefully that 100-
percent rise in bankruptcies over the last 6 years has leveled off now. 
We think it has. If it has leveled off, hopefully it will start to 
decline. Some of that is attributable to our working on this 
legislation and sending a signal not only to people who are unfortunate 
and are considering bankruptcy, but to our entire society that Congress 
is taking a look at this 1978 legislation. The point of that 
legislation may not have been to make it easier to go into bankruptcy, 
but that has been the final product of that 1978 legislation. Hence, 
our reconsideration of that 1978 legislation with the amendments that 
are in this bill will send a signal to the people of this country that 
those who have the ability to pay should not be in bankruptcy in the 
first place. But if they decide to go into bankruptcy, they are not 
going to get off scot-free. That still retains our social practice, 
which has been that if they deserve a fresh start, they will still get 
it.
  The bill before us proposes fundamental reforms which are a logical 
outgrowth and an extension of our prior bankruptcy reform efforts. I am 
talking about certain reforms that have taken place over the last 102 
years. From 1898, which is the start of our permanent bankruptcy 
legislation, until 1938, consumers had only one way to declare 
bankruptcy. It was called straight bankruptcy, or chapter 7 bankruptcy. 
Under chapter 7, which is still in existence, bankrupts surrender some 
of their assets to the bankruptcy court. The court sells these assets 
and uses the proceeds to pay creditors. Any deficiency, then, is wiped 
out, hence the term ``a fresh start.''
  In 1932, the President recommended changes to the bankruptcy laws 
which would push wage earners into repayment plans. Later in the 
1930s--and the exact date is 1938--Congress created, then, as a result 
of this suggestion 8 years before, chapter 13, which permits but does 
not require a debtor to repay a portion of his or her debts in exchange 
for limited debt cancellation and protection from debt collection 
efforts. Chapter 13 is still on the books to this very day, although it 
has been modified several times, most notably that modification in 
1978.
  Under current law, the choice between chapter 7 and chapter 13 is 
entirely voluntary. Since it is entirely voluntary, that is the cause 
of part of the problems we have now. People who have the ability to 
repay, who might use chapter 13 of the bankruptcy code as part of their 
financial planning, try to get into 7 and do not have to go into 13. As 
a result of not going into 13, they can get off scot-free.
  Senators, decades before this Senator, saw a weakness in this. In the 
late 1960s, there was a distinguished Senator from Tennessee by the 
name of Albert Gore, Sr. He introduced legislation to push people into 
repayment plans. This proposal was reported to

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the Senate as part of a bankruptcy tax bill passed by the Finance 
Committee, but the Gore amendment ultimately died in the Senate.
  Later, in the mid-1980s, Senator Dole and a Congressman from Oklahoma 
by the name of Mike Synar tried to steer higher income bankrupts--those 
who could repay some of their debt, those who were going into 
bankruptcy chapter 7 to get off scot-free--to steer those people to 
chapter 13. That was a good idea by Senator Dole and Congressman Mike 
Synar. The efforts of Senator Dole and the Congressman, though, 
ultimately resulted in the creation of section 707(b). This section 
gives bankruptcy judges the power to dismiss the bankruptcy case of 
someone who has filed for chapter 7 bankruptcy if that case is--and 
these are the words from the law--if that case is a ``substantial 
abuse'' of the bankruptcy code.
  This idea sounds very good and probably was quite a step forward by 
Senator Dole and Congressman Synar, but it has not worked so well in 
the real world. First, the term ``substantial abuse'' has not been 
clearly defined, and its actual meaning is very unclear. Why? Not 
because of the intent of the authors, but because we have had so many 
conflicting court cases. The decisions have brought conflicts in this 
area of the law from different parts of the country, so people are not 
sure what the rules are.
  There is a second reason. Creditors and private trustees are actually 
forbidden from bringing evidence of abuse to the attention of the 
bankruptcy judge. I want to think that this was an oversight by Senator 
Dole and Congressman Synar. Or it may have been part of a necessary 
compromise at the time to take a small step forward. But it is 
unreasonable, if you believe there has been a substantial abuse of the 
bankruptcy code, and going into chapter 7 and, according to the 
language of the statute, there has been ``substantial abuse,'' that 
somehow knowledge of that cannot be brought to the attention of a 
bankruptcy judge by creditors and private trustees.
  The bill before our body corrects these two shortcomings. Under this 
bill, 707(b) now permits creditors and private trustees to file motions 
and actually bring evidence of chapter 7 abuses to the attention of the 
bankruptcy judge. This change is very important since creditors have 
the most to lose from bankruptcy abuse, and, of course, the private 
trustees are often in the best position to know which cases are abusive 
in nature. In certain types of cases where the probability of abuse is 
high, the Department of Justice is also required to bring evidence of 
abuse to the attention of bankruptcy judges.
  Additionally, the bill requires judges to dismiss or convert chapter 
7 cases where the debtor has a clear ability to repay his or her debts. 
Under this bill, if someone who has filed for chapter 7 bankruptcy can 
repay 25 percent or more of his or her general unsecured debts, or a 
total of $15,000 over a 5-year period, then a legal presumption arises 
that this case should be dismissed or converted to a repayment plan 
under another chapter.
  Taken together, these changes will bring the bankruptcy system back 
into balance. I am sure it is a balance that Senator Dole and 
Congressman Synar sought in the first instance. Importantly, these 
changes preserve an element of flexibility so each and every debtor can 
have his or her special circumstances considered. That is important, as 
well, as we give some leeway, some flexibility, to the bankruptcy judge 
when this sort of evidence is brought. This will not put any group of 
bankrupts in a straitjacket. All of this means then that their unique 
situation will be taken into account.
  As we proceed to consider this bill, I hope my colleagues will keep 
in mind the balance of this legislation, the fair nature of this 
legislation, as well as its deep historical roots, not going back, I 
suppose, to the beginning of our country but, as far as a uniform 
permanent bankruptcy code, to 1898.
  I also think this is a tribute--as the Senator from Vermont spoke 
about earlier--that we have been working very closely between 
Republicans and Democrats on crafting a bipartisan measure.
  That reminds me again that, as with last fall when we first started 
consideration of this bill--we are continuing it now because we did not 
finish it last year--a great deal of credit goes to the Senator from 
New Jersey, Mr. Torricelli, for his outstanding cooperation with me on 
this legislation, in addition to Senator Leahy because as chairman of 
the subcommittee that handles this legislation, I had to work very 
closely, and enjoyed working very closely, with Senator Torricelli. We 
introduced the bill together. We got it out of subcommittee together. 
We got it out of the full committee together. This enjoyed a great deal 
of bipartisan support in the Senate Judiciary Committee.
  Lastly, I just ask my colleagues to come to the floor. We were told 
that a couple of the authors of these amendments would be prepared to 
come to the floor this afternoon to debate these amendments and, except 
for votes, to take care of some of these amendments. I hope my 
colleagues will come.
  I yield the floor.
  Mr. MOYNIHAN. Mr. President, I would like to point out a concern I 
have with a seemingly innocuous, seemingly beneficial, provision 
contained in the Domenici amendment to S. 625, the Bankruptcy Reform 
Act of 1999--``Section _68. MODIFICATION OF EXCLUSION FOR EMPLOYER 
PROVIDED TRANSIT PASSES.'' The goal of the provision--to expand the use 
of the Federal transit benefit, a ``qualified transportation fringe'' 
in the vernacular--is admirable, but I fear that the way in which the 
provision pursues that goal may, in fact, unintentionally undermine the 
transit benefit.
  The employer-provided Federal transit benefit has evolved since its 
creation within the Deficit Reduction Act of 1984 as a $15 per month 
``de minimis'' benefit. After fourteen years of gradual change, 1998's 
Transportation Equity Act for the 21st Century (TEA-21) codified the 
benefit as a ``pre-tax'' benefit of up to $65 per month. The cap will 
increase to $100 in 2002. The ``pre-tax'' aspect was a major reform 
because it provided an economic incentive--payroll tax savings--for 
employers to offer the program. Companies would save money by offering 
a benefit of great utility to their workers while simultaneously 
removing automobiles from our choked and congested urban streets and 
highways. It is effective public policy. (As an aside, I should note 
that a similar pre-tax benefit of $175 per month exists for parking, 
and so despite all we know about air pollution and the intractable 
problems of automobile congestion, Congress continues to encourage 
people to drive. Discouraging perhaps, but we're closing the gap. If 
one doesn't have thirty years to devote to social policy, one should 
not get involved!)
  Quite consciously, and conscientiously, Congress established a bias 
in the statute toward the use of vouchers--which employers can 
distribute to employees--over bona fide cash reimbursement 
arrangements. We permitted employers to use cash reimbursement 
arrangements only when a voucher program was not ``readily available.'' 
We reasoned that because the vouchers could only be used for transit, 
we would eliminate the need for employees to prove that they were using 
the tax benefit for the intended purpose. Furthermore, by stipulating 
that voucher programs are the clear preference of Congress, we are 
compelling transit authorities to offer better services--monthly 
farecards, unlimited ride passes, smartcards, et al.--to the multitudes 
of working Americans who must presently endure all manner of 
frustrations and indignities during their daily work commute.
  While the new law has only been in effect for less than two years, 
the program is catching on in our large metropolitan areas and should 
continue to expand. We have been alerted, however, to a legitimate 
concern of large multistate employers. Several of these companies have 
noted that establishing voucher programs can be arduous and unwieldy 
when the companies must craft separate programs in multiple 
jurisdictions with different transportation authorities. These 
difficulties,

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coupled with an expertise in administering cash reimbursement programs, 
have convinced the companies that bona fide cash reimbursement programs 
are more practical. Fair enough.
  We should, therefore, make it easier for such companies to offer the 
benefit through cash reimbursement arrangements. While I am committed 
to that end, I have serious reservations about the repeal of the 
voucher preference contained in the Domenici amendment.
  My main objection is that the U.S. Treasury is currently developing 
substantiation regulations for the administration of this benefit 
through cash reimbursement arrangements. These regulations will provide 
companies with a clear understanding of their obligations in the 
verification of their employees' transit usage, an understanding which 
does not exist today. Until these regulations are promulgated, voucher 
programs offer the only true mechanism of verification--vouchers, 
unlike cash, are useless unless enjoyed for their intended purpose. The 
Congress should not take an action that might rapidly increase the use 
of a tax benefit without the existence of accompanying safeguards to 
ensue the program's integrity.
  I will work with my colleagues on the Finance Committee, with my 
revered Chairman, and any Senator interested in this issue, to improve 
the ease with which companies can offer this important benefit to their 
employees. It is, after all, in our national interest. But I must 
strongly oppose efforts to repeal the voucher preference until the 
Treasury establishes a regulatory framework for cash reimbursement. We 
have been told to expect proposed regulations from the Treasury within 
the week. We anxiously await their arrival.
  The PRESIDING OFFICER. The Senator from Montana.
  Mr. BAUCUS. Mr. President, I ask unanimous consent to speak as in 
morning business.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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