[Congressional Record (Bound Edition), Volume 148 (2002), Part 4]
[Senate]
[Page 5087]
[From the U.S. Government Publishing Office, www.gpo.gov]




               HOMESTEAD EXEMPTION TO THE BANKRUPTCY BILL

  Mr. KOHL. Madam President, the bankruptcy conference will meet on 
Tuesday to discuss and attempt to resolve the remaining differences 
between the House and Senate versions of the bill.
  One of those issues is the Senate provision that addresses the single 
most offensive abuse in the bankruptcy system, the homestead exemption. 
As we all know, the homestead exemption allows debtors in five 
privileged States to declare bankruptcy but still shield unlimited 
millions of dollars in their homes from their creditors.
  With every year that passes, we learn of new cases where scoundrels 
have declared bankruptcy in States like Florida and Texas but have 
continued to live like kings in multi-million dollar mansions.
  Just 2 weeks ago, the New York Times ran a story on former Enron 
executives like Ken Lay and Andrew Fastow who are doing some bankruptcy 
planning of their own. They are selling numerous properties around the 
country worth millions of dollars, but retaining--or in some cases even 
building--luxury homes in Texas or Florida. Using the homestead 
exemption, Lay will be able to retain his $7.1 million condominium in 
the finest apartment building in Houston and Fastow will keep his 
multi-million dollar mansion currently under construction. They will be 
able to enjoy their mansions, even if they declare bankruptcy, as their 
former employees struggle to find a new paycheck or to cover the rent.
  Last year, it was Paul Bilzerian--a convicted felon--who tried to 
wipe out $140 million in debts and all the while held on to his 37,000 
square foot Florida mansion worth over $5 million--with its 10 
bedrooms, two libraries, double gourmet kitchen, racquetball court, 
indoor basketball court, movie theater, full weight and exercise rooms, 
and swimming pool.
  The Bankruptcy Conference has a real chance to put an end to this 
now. The Senate has repeatedly--year after year--voted overwhelmingly 
in favor of a provision that would put a hard cap on the amount of home 
equity that a debtor can retain even after bankruptcy. The Senate 
should insist on a real and meaningful solution to this problem.
  But so far, the only compromises we have been offered are road maps 
that show debtors how to circumvent the law. We have been told that we 
can only impose a residency requirement of two and a half years
  This will not do. First, it does nothing to stop lifelong residents 
of Texas or Florida. Ken Lay has lived there most of his life. So has 
Andrew Fastow. They get away scot free under this proposal. Second, 
most bankruptcy attorneys will tell you that anyone rich enough can 
plan 2 to 3 years in advance.
  In the spirit of compromise, we have agreed to raise the homestead 
cap to $175,000--a figure that far exceeds the average amount of equity 
a Houston homeowner has in their house. So, the average homeowner will 
not be affected at all by this provision, only the extraordinarily 
wealthy debtor. And even now, we remain open to effective and practical 
proposals aimed at solving this inequity.
  Yet, we may not have an opportunity to reach that compromise. 
Instead, those that want the bill so badly that they are willing to 
legislate unfairness into the bankruptcy code are trying to get their 
way.
  We should remember that one of the central principles of the 
bankruptcy bill is that people who can pay part of their debts should 
be required to do so. But the call to reform rings hollow when the 
proposal creates an elaborate, taxpayer-funded system to squeeze an 
extra $100 a month out of middle-class debtors but allows people like 
Burt Reynolds to declare bankruptcy, wipe out $8 million in debt, and 
still hold on to a $2.5 million Florida mansion.
  To put it another way, political expediency may well trump fairness. 
The rich will be able to pour millions of dollars into the value of 
their Florida home, their Texas ranch, or their unimproved plot of land 
secure in the knowledge that their creditors will never be able to 
touch it. Yet, the average debtor will lose their house and most of 
their personal possessions as they try to repay their debts.
  We have made historic changes to the bankruptcy code, but have chosen 
not to remedy the worst abuse of them all. We can only hope that 
between now and the conference committee's meeting on Tuesday, the 
parties to this deal will have a change of heart.

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