[Congressional Record (Bound Edition), Volume 151 (2005), Part 3]
[Senate]
[Pages 2993-2994]
[From the U.S. Government Publishing Office, www.gpo.gov]




                           BANKRUPTCY REFORM

  Mr. FRIST. Mr. President, I will address my leader comments this 
morning to the bill S. 256, the Bankruptcy Abuse Prevention and 
Consumer Protection Act of 2005. This legislation was passed with 
bipartisan support in the Judiciary Committee on the 17th. Over the 
last 7 years, it has repeatedly passed this Senate and the House with 
bipartisan majorities. Yet we still do not have a bill as law. That is 
the goal in this Congress.
  Both sides of the aisle recognize the current system is calling out 
for reform. Personal bankruptcies are skyrocketing and, at the same 
time, wealthy debtors are walking away from debts that they have the 
ability to repay. This abuse does not just hurt the creditor they owe, 
but it hurts all who end up paying higher fees and higher prices as a 
result of the system that is out of control.
  It is fitting that a Senator from Tennessee is talking about this 
issue. As it happens, a city in my home State of Tennessee, Memphis, 
has come to be known as the bankruptcy capital of America. Memphis 
ranks No. 1 in personal bankruptcy filings if you compare Memphis to 
331 metropolitan areas. The total bankruptcy filing rate in Memphis in 
2004 was roughly 26 people for every 1,000 residents. That is well over 
three times the national average.
  Bankruptcy has become so common that it has lost the stigma it had 
even a short generation ago. Today it is just another method for 
getting out of debt, a tool just to get out of debt. Some folks have 
even been known to plan their bankruptcy. They buy a house or they buy 
a car or furniture or whatever else they need and then file a 
bankruptcy form. They figure they can get the big ticket items upfront, 
and for everything else they will use cash.
  It is not altogether an accident that the Memphis bankruptcy system 
is what one attorney calls a ``well-oiled'' machine. It was Memphis's 
very own U.S. Representative, Walter Chandler, who established a 
chapter of bankruptcy law with the 1938 Chandler Act. His motivation 
was simple. America was going through the Great Depression. Times were 
tough for everyone. Debtors wanted to pay back what they owed, and 
local businesses needed to stay afloat. Congressman Chandler reformed 
the system to help those in dire financial trouble go to the courts and 
work out, appropriately, a payment plan.
  Congress has passed, and the courts have upheld, Federal bankruptcy 
laws for over 100 years. The Constitution gives Congress the express 
power to ``establish uniform laws on the subject of bankruptcies 
throughout the United States.''
  And the Supreme Court has stated:

       One of the primary purposes of the Bankruptcy Act is to 
     give debtors a new opportunity in life in a clear field for 
     future effort, unhampered by the pressure and discouragement 
     of preexisting debt.

  Unfortunately, however, we veered away from this original positive, 
constructive, good intent. Bankruptcy filings were low during the early 
part of the 20th century. They were generally tied to whatever the 
business cycle might have been. In the past two decades, the number of 
bankruptcies have skyrocketed, actually accelerating during the 
economic boom, speeding up during the boom of the 1980s and the 1990s. 
The total number of bankruptcies more than doubled during the 1980s and 
then doubled, once again, from 1990 to 2003.
  For too many people, bankruptcy is no longer a last resort. It has 
become a first stop. Opportunistic debtors who have the means to repay 
use the law to evade personal responsibility.

[[Page 2994]]

  Unlike in Memphis, where filers typically use chapter 13, the 
overwhelming number of filers nationally--over 70 percent--opt for 
chapter 7 so they can walk away from their debt.
  Where does all this leave us? It leaves us at an historic high of 
over 1.6 million filings per year. Personal bankruptcies outnumber 
business bankruptcies by a multiple of more than 45 to 1. Among those 
filings, we see an increasing number which are fraudulent. In fact, the 
FBI estimates at least 10 percent of all filings involve fraud of some 
type. In most of the fraud cases that are identified, the filer in some 
way hides or pushes their assets over to the side. For example, a 
debtor would file chapter 7, claiming to have no assets of any kind, 
but they still drive a luxury sedan, may have a boat in the driveway, 
and even sport expensive jewelry and clothing.
  The result is pretty clear. Every bill you pay, I pay, that the 
American people pay includes what is a ``bankruptcy tax'' that amounts 
to about $400 a year for every man, woman, and child in this country--
an unnecessary bankruptcy tax of $400 for every man, woman, and child 
in this country.
  That is what we are addressing on the floor of the Senate this week. 
For that bankruptcy tax, people say: How do you pay that tax? I was 
meeting with some Tennesseans earlier this morning. They asked: What do 
you mean? How do you pay that tax?
  The tax is a hidden tax, but you pay it. It is in every electric 
bill, every phone bill, every mortgage payment you pay, every purchase 
of furniture, every car loan you obtain--$400 a year. Interest rates 
are higher, downpayment requirements are larger, grace periods become 
shorter, and late-payment penalties are astronomical, all because some 
people are shirking their debt obligations. The people who are hurt 
most by all of this are the low-income earners.
  Say, for example, you have a dishwasher and the dishwasher breaks. 
The owner would go to the neighborhood store. But because of the high 
rate of personal bankruptcies, they could not get credit. The store 
would no longer give credit. The owner, who has this broken dishwasher, 
cannot afford to pay for it with cash but is denied that opportunity to 
purchase because credit cannot be issued. The store cannot make the 
sale. It is those low-income earners who are disproportionately 
affected by a system that is out of balance.
  Without credit, saving up enough money to buy a couch or to even pay 
for school clothes can become a real hardship. And high interest rates 
can make using a credit card, as we all know, risky.
  Ultimately, bankruptcy abuse by wealthy debtors disproportionately 
harms those who can least afford it. That is why the Bankruptcy Reform 
Act enjoys strong bipartisan support, strong support from both sides of 
the aisle.
  It establishes a means test that is based on a fair principle, a 
simple principle, and that is this, that those who have the means 
should repay their debts. A simple principle: Those who have the means 
should repay their debts.
  It specifically exempts anyone who earns less than the median income 
in their State. It also allows every consumer to show special 
circumstances, if they exist, if they cannot handle a repayment plan. 
We know the No. 1 reason people file for bankruptcy is because of an 
unexpected health emergency. If you look at all these filings, that 
ends up being No. 1. Consequently, in the legislation that is on the 
floor, we allow every filer to deduct 100 percent of their medical 
costs.
  We also know education is a big outlay for many families. Under 
bankruptcy reform, parents can deduct private school tuition to protect 
their children's educational opportunities.
  The bill does much more. The bankruptcy bill strengthens protections 
for child support and alimony payments. It protects patient privacy and 
care during bankruptcy proceedings that involve health care facilities. 
It protects consumers from deceptive credit practices that can lead to 
financial distress, and it protects the system that allows America to 
be one of the most generous countries when it comes to bankruptcy.
  We all know sometimes a person simply gets in over their head or they 
get socked with an unexpected setback. They are overwhelmed by the 
bills, and for every step forward there are two or three steps back. 
Most people in this difficult situation want to do the right thing. It 
is in their heart to do the right thing. They want to pay their 
debtors, they want to meet their obligations, but they cannot. What 
they need is a fresh start.
  The legislation before us is thoughtful. It is well considered. It is 
family centered. It closes unfair loopholes so that the system and the 
people it is designed to help can get that fresh start and get back on 
track.
  I look forward to the debate today, which I know will be robust. We 
will be debating amendments and voting on the amendments over the 
course of the day--indeed, over the week. I am hopeful that by working 
together in a bipartisan way on a bill we know will be to the benefit 
of the American people, we will make huge progress today, tomorrow, and 
the next day, so we can soon have a bill on the floor that will receive 
overwhelming bipartisan support.
  Mr. President, I yield the floor.
  Mr. REID. Mr. President, I suggest the absence of a quorum.
  The PRESIDING OFFICER (Mr. Cornyn). The clerk will call the roll.
  The legislative clerk proceeded to call the roll.
  Mr. REID. Mr. President, I ask unanimous consent that the order for 
the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.

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