[Congressional Record (Bound Edition), Volume 146 (2000), Part 18]
[Senate]
[Pages 26447-26495]
[From the U.S. 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.
  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 non-dischargeability 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

[[Page 26448]]

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, 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

[[Page 26449]]

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 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

[[Page 26450]]

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.
  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.

[[Page 26451]]

  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 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

[[Page 26452]]

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 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.

[[Page 26453]]

  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 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

[[Page 26454]]

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.
  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.

[[Page 26455]]

  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 
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?

[[Page 26456]]


  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 pro-
cess, 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 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

[[Page 26457]]

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 everybody to pay 
their bills. Whether

[[Page 26458]]

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

[[Page 26459]]

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 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

[[Page 26460]]

     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 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.

[[Page 26461]]

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 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.

[[Page 26462]]

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.
  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

[[Page 26463]]

     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 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).

[[Page 26464]]

       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'' 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).

[[Page 26465]]

       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.
       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

[[Page 26466]]

     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 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

[[Page 26467]]

     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 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

[[Page 26468]]

     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.
       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

[[Page 26469]]

     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 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

[[Page 26470]]

     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 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.

[[Page 26471]]


     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.
       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

[[Page 26472]]

     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 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

[[Page 26473]]

     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.
     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

[[Page 26474]]

     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 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

[[Page 26475]]

     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 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

[[Page 26476]]

     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.
     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

[[Page 26477]]

     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 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

[[Page 26478]]

     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 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

[[Page 26479]]

     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 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

[[Page 26480]]

     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 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

[[Page 26481]]

     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 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

[[Page 26482]]

     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 26483]]

      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.

[[Page 26484]]

       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 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

[[Page 26485]]

     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, 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

[[Page 26486]]

     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.
     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

[[Page 26487]]

     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 
     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

[[Page 26488]]

     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 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

[[Page 26489]]

     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.
     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.

[[Page 26490]]

  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 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.

[[Page 26491]]

  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 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

[[Page 26492]]

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. 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

[[Page 26493]]

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 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

[[Page 26494]]

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 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.

[[Page 26495]]

  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.

                          ____________________