American Bankruptcy Institute
Join Renew Refer a Colleague Partners Search ABI Store Contact Us Site Map
 
American Bankruptcy Institute
 
About ABIABI MembershipMeetings & EventsOnline ResourcesPublicationsNews RoomConsumer Bankruptcy Center
             
 Print this page
 
 

Reprinted from December/January 2000 ABI Journal

Web posted and Copyright © December 1, 1999, American Bankruptcy Institute.

This month's Update provides the text of the Clinton administration's views on S. 625 as pending on the Senate floor at press time, as well as excerpts from the debates on the bill. For the full text of the bill, adopted amendments and floor debate, go to ABI World at http://www.abiworld.org. Congress is scheduled to adjourn during the week of Nov. 15 and may not reach a vote on passage of the bill before the end of the first session of the 106th Congress. If action is not completed, the bill can be considered again on the Senate floor in January.

Executive Office of the President Statement of Administration Policy


(This statement has been coordinated by OMB with the concerned agencies.)

Nov. 8, 1999 (Senate)

S. 625 - Bankruptcy Reform Act of 1999 (Grassley (R) Iowa and eight co-sponsors)

The president supports bankruptcy reform that is balanced, would reduce abuses of the bankruptcy system, and would require debtors and creditors alike to act responsibly. Last year, the Senate produced such a balanced bill with overwhelming bipartisan support. The president is disappointed that, this year, the House failed to produce legislation that he could support. S. 625 reflects some improvements over H.R. 833 as passed by the House. The administration, however, continues to have serious reservations about S. 625 and strongly opposes some of its provisions. For example, we are deeply concerned about a provision of the manager's amendment that adds an important "safe harbor" that protects low-income debtors from motions to deny them access to chapter 7 under the means test, but also eliminates an essential "safe harbor" that would protect low-income debtors from coercive creditor motions that might be brought under a vague "totality of the circumstances" test more appropriately enforced by bankruptcy trustees and courts. The latter protection eliminated by the managers' amendment was included in the reported version of the Senate bill, the House-passed bill and last year's conference report. The administration's other objections to this bill are explained in detail in the attachment.

Most of the administration's concerns would be addressed by relevant amendments that the administration understands will be offered on the Senate floor. The administration's views on the anticipated amendments are also contained in the attachment. The administration remains hopeful that bipartisan cooperation will result in responsible bankruptcy legislation that the president can enthusiastically sign.

Finally, the administration understands that certain non-relevant amendments will be offered as well. On Nov. 4, 1999, in a letter to the majority leader, the president made clear that he strongly supports an increase in the minimum wage of $1 over the next two years; however, if Congress sends him a bill delaying the increase, repealing overtime protections for certain workers, adding costly and unnecessary tax cuts that threaten fiscal discipline and direct benefits away from working families, and thwarting ongoing efforts to enforce pension law, he will veto it.

In addition, the administration strongly opposes the inclusion of an unrelated education amendment, a version of the Teacher Empowerment Act. When similar legislation passed the House this summer, the president indicated that he would veto it. The administration's position on this legislation has not changed. The amendment would eviscerate the class-size reduction program passed on a bipartisan basis last year and replace it with a block grant that fails to guarantee that any funds will be used to support the crucial work of reducing class sizes in the early grades. In addition, the block grant does not target funds toward the neediest students and does not include important provisions to improve teacher quality. If this amendment is attached to S. 625, the president will veto the bill.

The administration opposes the drug-related amendment because it would reduce the current disparity between crack and powder cocaine sentences solely by increasing powder cocaine penalties dramatically instead of addressing both crack and powder cocaine penalties. Decreasing the threshold amount of powder cocaine necessary to obtain five- and 10-year mandatory minimum sentences may be counterproductive because it could significantly redirect federal law enforcement resources from the highest-level offenders. In addition, this amendment would actually exacerbate the disproportionate impact of cocaine sentencing on minorities because, according to U.S. Sentencing Commission statistics, approximately 31percent of defendants sentenced at the federal level for powder cocaine offenses in 1998 were African American, 48 percent were Hispanic, and only 19 percent were white.

Detailed Administration Views on S. 625 and Anticipated Floor Amendments

Access to Chapter 7. Any means test used in bankruptcy proceedings should deny access to chapter 7 bankruptcy procedures only to those debtors who genuinely have the capacity to repay a portion of their debts successfully under a chapter 13 repayment plan. Debtors who may be denied a discharge of their debts must be given a meaningful opportunity to have their specific circumstances considered by bankruptcy courts with the authority to determine whether they genuinely have the capacity to repay a portion of their debts. In its current form, S. 625 would use a relatively inflexible and arbitrary means test to limit access to chapter 7. The administration strongly opposes this provision.

As reported, S. 625 would apply rough guidelines, developed by the Internal Revenue Service (IRS) for tax repayment plans, as standards for determining debtors' ability to repay, with exceptions only for expenses that are both "reasonable and necessary." While some expense standards should be used to guide the determination of ability to repay, they should be tailored for bankruptcy. We should not simply import standards that were developed for a different purpose—tax collection—and which are applied for that purpose with far more discretion than S. 625 would allow for bankruptcy. We note that the Congress has criticized the IRS for inadequate flexibility in using these standards for tax collection, yet this bill would use them far more rigidly for bankruptcy purposes. The administration believes that the IRS expense formulas can be used as a starting point for developing appropriate bankruptcy guidelines, but that each system would be best served by its own appropriate standards. As House Judiciary Committee Chairman Henry Hyde has said, the use of IRS guidelines without flexibility "depriv[es] debtors and their families of the means to pay for their basic needs." As Chairman Hyde noted on the House floor, "The cost of food in Omaha, Neb., or Boise, Idaho, is different than in downtown Manhattan. So what is realistic about an inflexible standard?"

The Senate bill creates a largely self-executing mechanism under which elaborate debtor filings will be reviewed by United States Trustees, who, based on the filings, will file a motion to deny access to chapter 7, if the debtor has the capacity to repay or her use of chapter 7 is abusive. As modified by the managers' amendment, the bill also gives creditors the ability to file motions to challenge the debtors' use of chapter 7 as abusive under a vague "totality of the circumstances" test. Creditor motions alleging abuse could be used by creditors against low- and moderate-income debtors—who have few resources for legal advice—to coerce or threaten them to forgo their rights. The bill should provide below-median-income debtors with a "safe harbor" from general abuse motions by creditors, as well as with the "means-test safe harbor" that the managers' amendment provides. Both are essential.

Finally, since the bill as amended by the managers' amendment precludes any party from filing a §707(b) motion alleging that a below-median-income debtor has the capacity to repay under the means test, there is no justification for requiring that these debtors fulfill the elaborate means-test paperwork requirements. The courts will bear unnecessary costs for collection and storage of these useless filings and they impose an unnecessary cost (and increased legal fees) on the debtor as well. These debtors should be required to provide only the information sufficient to verify their income eligibility for the "safe harbor." Similarly, a more streamlined system could screen out those with no capacity to repay before additional paperwork requirements are imposed. All parties should be able to agree that any means test should be implemented efficiently. Burdensome filing and hearing requirements that lead to little or no additional debt repayment are not in the interest of debtors, creditors, or taxpayers.

The administration understands that a series of amendments will be offered to improve the fairness and efficiency of the means test. The administration strongly supports these amendments, including:

  • An amendment by Sen. Feingold to clarify that the long-term care expenses of a debtor caring for a non-dependent parent or relative are necessary expenses under the means test [Ed. Note: This amendment was agreed to on Nov. 17.];
  • A similar amendment by Sen. Leahy to clarify that certain expenses for victims of domestic abuse are necessary expenses under the means test [Ed. Note: This amendment was passed by 94-0 on Nov. 9.];
  • A similar amendment by Sen. Schumer to clarify that retraining expenses of displaced or unemployed workers are necessary expenses under the means test;
  • An amendment by Sen. Dodd to address special concerns of children and families, which includes a provision to clarify that the expenses associated with adopting a child are necessary expenses under the means test;
  • An amendment by Sens. Schumer and Durbin to provide an appropriate safe harbor from all types of creditor motions and unnecessary paperwork requirements for below-median-income debtors;
  • An amendment by Sen. Durbin to reduce unnecessary costs and inefficiency in the reformed bankruptcy system by streamlining application of the means test and reducing costly paperwork collections without affecting debt repayment under the system;
  • An amendment by Sen. Schumer to authorize the Treasury Department, in consultation with the Executive Office for United States Trustees, to modify certain of the IRS guidelines for use in bankruptcy to account for variations in the cost of living; and
  • An amendment by Sen. Schumer to improve the accuracy of the means-test calculation by counting all required chapter 13 expenses (administrative costs, reasonable attorneys fees, and arrearages on other debt) in calculating capacity to repay under the means test. [Ed. Note: This amendment was agreed to on Nov. 17.]

Abusive Creditor Reaffirmation Practices. Much evidence shows that debtors often reaffirm unsecured debt and low-value secured debt on unfavorable terms even though they do not have the means to meet their own necessary expenses and make more important debt payments, placing such priority debts as child support and alimony obligations at risk. Such reaffirmations frequently are the result of insufficient or misleading information or threats from creditors. S. 625 as reported does little to address these abuses. If we are to provide substantial new opportunities for creditors to challenge debtors' use of the bankruptcy system under chapter 7 of the Bankruptcy Code, we must limit abusive creditor practices such as coercive reaffirmations and violations of the automatic stay against collection actions. We understand Sen. Sessions may offer an amendment to provide some protections against abusive reaffirmations. However, we believe the amendment has significant loopholes, allowing debtors to reaffirm debts they cannot afford and failing to provide creditors with all the information that bankruptcy judges deem necessary and which many are already requiring be provided in their courts. The administration strongly supports:

  • An amendment by Sen. Reed, that protects debtors by giving them adequate information for decisions about significant reaffirmations of unsecured and low-value secured debt. [Ed. Note: This amendment was agreed to on Nov. 10.]

We understand, however, that Sens. Reed and Sessions continue to discuss ways to reconcile their two amendments in a way that might address our concerns.

Credit Card Information and Protection. The administration continues to believe that reform must address the factor that is most strongly correlated with the rise in personal bankruptcy: rising levels of consumer debt. Americans now receive more than 3.5 billion credit card solicitations per year, many of which are marketed to encourage consumers to carry high balances and incur large interest charges. One of the most effective ways to reduce the number of bankruptcies in this new financial era is to give consumers the information they need to manage their credit card debts effectively, recognizing the creditors' superior information and bargaining ability. Consumers must be given clear information on the terms of their credit and the financial implications of not paying off their credit card balances. The administration supports:

  • An amendment by Sens. Grassley, Torricelli, Biden and Johnson addressing some abusive credit practices, such as failure to disclose "teaser" rates clearly, and requiring limited generic disclosure of the impact of making only the minimum payment on credit cards. While the Grassley-Torricelli amendment is an improvement over H.R. 833, much more should be done. The amendment creates a system that is unnecessarily burdensome for consumers who may be reluctant to call their credit card company if they are worried about their finances or are pressed for time. [Ed. Note: This amendment was agreed to on Nov. 17.] The administration strongly supports:
  • An amendment by Sen. Schumer to expand coverage of the teaser rate disclosures provided under the amendment by Sens. Grassley and Torricelli to apply to applications or solicitations available to the public in catalogs, magazines and restaurants; and
  • An amendment by Sen. Dodd to require additional information specific to the individual consumer to allow them to better understand the impact of making only the minimum payment.

Cramdowns. S. 625 also changes the lien-stripping or "cramdown" provisions in current law governing a chapter 13 bankruptcy, under which the lien underlying a secured debt is reduced to its value at the time of bankruptcy. The administration agrees that lien-stripping should be limited to automobile loans incurred in the period preceding bankruptcy to prevent abuses, but believes that the provisions in the Senate bill are excessive. While the administration strongly prefers the Senate provisions to the extreme prohibitions in H.R. 833, the five-year prohibition on lien-stripping on automobile debts in the current bill will do little more to deter bankruptcy abuses than a more reasonable time limit. Instead, the prohibition will significantly reduce repayment of priority, unsecured debts like child support and taxes. The administration strongly supports:

  • An amendment by Sen. Kohl that would ban cramdowns of secured goods with purchase money security interests incurred within six months of the bankruptcy filing.

Non-dischargeable Debts. The Bankruptcy Code makes debts non-dischargeable only where there is an overriding public purpose, as with debts for child support and alimony payments, educational loans, tax obligations or debts incurred by fraud. In an attempt to deal with the possibility of abuse, the bill makes non-dischargeable debt incurred on the eve of bankruptcy and certain debts incurred to pay non-dischargeable debts. Unfortunately, the amendment will catch those who innocently incur debts as well. Moreover, the additional credit card and other non-priority debts made non-dischargeable by these provisions will compete in some cases after bankruptcy with child support, alimony, taxes and other societal priorities like educational loans and taxes. The administration strongly prefers the provisions in S. 625, which offer some protection for child support and alimony, to those in H.R. 833. However, the administration also strongly supports:

  • An amendment by Sen. Moynihan that would preserve the current non-dischargeability rules for lower-income debtors, those least likely to incur debts on the eve of bankruptcy for abusive purposes [Ed. Note: This amendment was defeated 55-42 on Nov. 17.]; and
  • An amendment by Sen. Dodd to address special concerns of children and families, which includes a provision to alter the bill's non-dischargeability provisions to make it less likely that debts legitimately incurred to support a family will be made non-dischargeable [Ed. Note: This amendment was defeated 51-45 on Nov. 10]; and
  • An amendment by Sen. Schumer that would make court-ordered fines and debts resulting from abortion clinic violence non-dischargeable. As the Justice Department noted in a May 14, 1999 letter to Sen. Schumer, the administration generally opposes the expansion of non-dischargeable debt unless there is an overriding public policy objective and no other way to achieve that objective, but believes this amendment is a necessary tool in current efforts to end clinic violence and intimidation.

Loopholes for the Wealthy. The administration supports closing loopholes in bankruptcy law, such as unlimited homestead exemptions, that allow many wealthy debtors to avoid their responsibility to repay a significant portion of their debt. Bankruptcy reform should not place a greater responsibility for debt repayment on moderate- and low-income debtors than it does on high-income debtors. The administration strongly supports:

  • An amendment by Sen. Kohl to place a reasonable limit on homestead exemptions. [Ed. Note: This amendment passed by 76-22 on Nov. 10.]

Barriers to Entry to the Bankruptcy System. Finally, the bill appears to place unnecessary barriers to entry into the bankruptcy system that will not prevent abuse, but will create burdens on those with a genuine need for speedy bankruptcy protection. The administration strongly supports:

  • An amendment by Sen. Leahy to save the taxpayers an estimated $24 million over five years by eliminating the requirement that every debtor file three years of tax returns and instead permit any party in interest to demand the copies when needed to verify the debtor's assets and income, thus reducing filing and storage costs and unnecessary paperwork burdens [Ed. Note: This amendment was agreed to on Nov. 16.]; and
  • An amendment by Sen. Durbin to allow certain mandatory credit counseling to be provided over the phone. [Ed. Note: This amendment was agreed to on Nov. 17.]

Excerpts from the Senate Debate on S. 625 (Nov. 5-17, 1999)

Sen. Grassley: Every time a debt is wiped away through bankruptcy, somebody loses money. Of course, when someone who extends credit has their obligation wiped away in bankruptcy, they are forced to make a decision. Should this loss simply be swallowed as a cost of business? Or do you raise prices for other customers to make up your losses?... For this reason, Treasury Secretary Larry Summers testified at his confirmation hearing before the Senate Finance Committee that bankruptcy tends to drive up interest rates... The bankruptcy bill we're considering will discourage bankruptcies, and therefore lessen upward pressure on interest rates and higher prices by making it harder for people who can repay to wipe them away... Of course, people who can't repay can still use the bankruptcy system as they would have before. But for people with higher incomes who can repay their debts, the free ride is over.

Sen. Leahy: ...the bill before us strays from the blueprint of last year's balanced reform in the Senate. For example, today's bill requires the means testing of debtors based on expense standards that are formulated by the IRS... the means testing severely restricts a judge's discretion to take into account individual debtors' circumstances. As a result, it has the potential to cause an unforgiving and inflexible result of denying honest debtors access to a post-bankruptcy fresh start... The latest study funded by the nonpartisan American Bankruptcy Institute found that only 3 percent of chapter 7 filers could afford to repay some portion of their debt. To force the other 97 percent to submit to this arbitrary means test in trying to reach 3 percent lacks common sense and poses an additional burden on the 97 percent...

Sen. Durbin: The sad but obvious fact is that the people who declare bankruptcy are poor. The average income of a person who declares bankruptcy is $17,652. In 1981, the average income was 23,254. People in our bankruptcy system are just getting poorer. One would not believe that to be the case, listening to this debate, the suggestion that so many people are coming into the bankruptcy court who are loaded with money, who, through crafty attorneys and their own ingenuity, are able to avoid their responsibility... The people showing up in bankruptcy court are poor people, with indebtedness of roughly $25,000... When we allow credit card companies and finance companies to grab more in bankruptcy and hang on to more after bankruptcy, it lessens the likelihood that the divorced woman trying to raise a child is going to be able to have any pot of money to draw from for help. This is a pie of limited proportions after a bankruptcy. If the credit card companies can stay there, taking the money away from that former husband who filed for bankruptcy, many times it will be at the expense of his children and former wife.

Sen. Sessions: I believe we are eliminating abuses in the system. For example, I point out a landlord who leases an apartment to a tenant; that tenant's lease is for one year, that year is up, and he owes the landlord money. The landlord seeks to move him out because he is going to rent the apartment to somebody else. That tenant can file for bankruptcy and stay, or stop, any lawsuits for eviction. Months can go by. And the landlord has to hire an attorney to go to bankruptcy court to try and get the stay lifted on filing the eviction notice so they can go forward... Eventually the landlord always wins, but often it takes months to get a final hearing and will cost him a good deal of money and attorney's fees. The bill changes that.

Sen. Kennedy: The drop in filings this year is ample indication that a harsh bankruptcy bill is not needed. Without any action by Congress, the number of bankruptcy filings is decreasing... Leading economists believe the crisis is self-correcting... Lenders respond to an unexpected increase in personal bankruptcies by curtailing new lending to consumers teetering closest to bankruptcy, with or without new legislation. The high rate of default at the peak of the bankruptcy crisis began to impinge on the profitability of lending and, as a result, lenders tightened their underwriting standards. This in the non-legislative, free-market response which made the crisis abate. Despite these facts, the Senate is pursuing legislation that is a taxpayer-funded administrative nightmare for struggling debtors.

Sen. Grassley: One of the major problems with the bankruptcy system is the mindset of some of the lawyers who specialize in bankruptcy. Many lawyers today view bankruptcy simply as an opportunity to make money for themselves with a minimal effort. And this profit motive causes bankruptcy lawyers to promote bankruptcy even when a financially troubled client has the obvious ability to pay his or her debts. As one of the members of the National Bankruptcy Review Commission noted in the Commission's 1997 report, many who make their living off of the bankruptcy process have forgotten that declaring bankruptcy has a moral dimension. Bankruptcy lawyers shouldn't counsel someone to walk away from his or her debts without pointing out the moral consequences of making a promise to pay and then breaking that promise.

Sen. Leahy: We have to ask, who are the principal beneficiaries? Right now, they are the companies that make up the credit industry. I searched high and low in the bill for the provisions by which these companies are asked to pay for these mandates that benefit them or even contribute to the costs and burdens of the bill, a bill that they support. If they are getting these huge benefits, are they required to pay anything for them? They are not. I can find no provisions by which credit card companies and others who expect to receive a multibillion-dollar windfall from this bill will have to pay the added costs of this measure. Investing a couple hundred million of taxpayers' money to make several billion dollars for the credit card industry might seem to be a good business investment, but not if the taxpayers have to pick up the bill to hand over a multibillion-dollar benefit to the credit card companies. In addition to these costs to the federal government, there are the additional mandates imposed on the private sector. We keep saying how we want to keep government off the back of the private sector. In fact, CBO estimates the private sector mandates imposed by just two sections of the bill will result in annual increased costs of between $280 million and $940 million a year. Are we willing to tell the private sector that with this bill we are, in effect, putting a tax on them of $280 million to $940 million a year, which over five years will amount to between $1.4 billion and $4.7 billion to be borne by the private sector? If we vote for this bill, are we going to tell them we just gave that kind of a tax increase to them? So all in all, this amounts to a bill of an estimated cost over five years of $5 billion to be borne by taxpayers and debtors so the credit industry can pocket another $5 billion. Not a bad day's work by the credit industry lobbyists but a good result for the American people. They are going to be happy if they get the American taxpayers to give them $5 billion just like that. They ought to be awfully happy. I haven't heard or seen any answers to those basic questions. I think those who say this is going to benefit the American public ought to be more specific. CBO doesn't see it that way. They see a great transfer from the American public to one industry. For all that I can see, any savings generated by this bill will be gobbled up in windfall profits for the credit industry, without any guarantee of benefits for working people, and with a $1 billion per year out-of-pocket cost to taxpayers and those in the bankruptcy system.

Sen. Reed: Mr. President, I rise in strong support of the Reed-Sessions Amendment No. 2650 to the manager's amendment to S. 625. I urge my colleagues to support the passage of this important amendment. The Reed-Sessions amendment deals with the reaffirmation of one's debt, and it reflects a compromise that has been worked out at length between myself, Sen. Sessions, the Treasury Department and consumers. I believe it is a fair and balanced amendment that seeks to treat those who enter into reaffirmation agreements with their creditors in a fair and just manner, and to provide them—as well as the bankruptcy courts—with the greatest amount of information they need in order to make the wisest decisions possible. For those of my colleagues unfamiliar with these agreements, a reaffirmation is an agreement between a debtor and a creditor in which the debtor reaffirms his or her debt and willingness to pay the creditor back, even after many of the other debts may have been discharged during bankruptcy. The creditor must then file this reaffirmation agreement with the bankruptcy court. The court then has the opportunity to review this agreement, but in most cases, for one reason or another, does not. Recently, there have been some documented cases in which creditors have used coercive and abusive tactics with consumers in order to persuade them to reaffirm their debt, when in many of these cases there is no question that the individual can in no way afford to do so. The most visible of these cases occurred with Sears, in which the company did not even file these reaffirmation agreements with the court, therefore negating even the option of the court to review these cases. The Reed-Sessions amendment would essentially provide for clear and concise disclosures when a debtor chooses to enter into a reaffirmation agreement with a creditor. Our amendment would create a uniform disclosure form, whereby everyone who is filing a reaffirmation agreement must fill this form out. Based on the information provided on the form, certain situations will then obligate the court to review such agreements in order to determine if the reaffirmation agreement is truly in the debtor's best interests. In constructing this compromise amendment, I think we have achieved some very important goals. First and foremost, we want everyone to recognize that a reaffirmation agreement is a very weighty decision, and that the individual needs to understand—whether they are represented by counsel or not—all the ramifications of the agreement into which he or she is entering. In fact, the individual needs to understand that they in no way need to file a reaffirmation agreement. Another vital issue is to have the court review such cases in which the debtor wants to reaffirm his or her debt, but in calculating the difference between the person's income and all their monthly expenses, it remains impossible for the debtor to do so. In other words, there exists a presumption of undue hardship upon the person. It is at that point that we want the court to have the ability to step in and say to this person, that either they have the ability to repay some of this debt because of other sources of funds—such as a gift from the family—or that they do not, and therefore the reaffirmation cannot be approved by the court. Without this amendment, we are concerned that the abuses in the reaffirmation system that we have seen will continue to occur, and the courts may continue to be left in the dark with respect to the existence of these agreements, let alone have the option to review them. The amendment is not perfect, and if given the choice, I probably would have preferred to go even further than we have in our language. With that said, I think it's still important to note that with this amendment, we have given our courts and consumers the appropriate tools that will provide them with the necessary information to make decisions that are in the individual's best interests, not the creditor's. That is a crucial point that I wanted to emphasize. I appreciate all the efforts of those involved in the process that went into constructing this compromise amendment, and I am confident that it strengthens the hands of our courts, and more importantly, the minds of our consumers as they make decisions that will weigh upon them for the rest of their lives.

Sen. Moynihan: However, the bill presently before the Senate extends the time (from 60 days to 90 days for consumer debts, for instance) in which this presumption of fraudulent activity takes place, and it changes the dollar amounts. We propose to keep the law as it is for low-income persons—people below the median income level, who already live hand-to-mouth, who often find themselves in a bind, with no intent to defraud, and keep borrowing until they are in bankruptcy situations. They won't have lawyers and can't defend against presumptions. We simply keep the existing law. Deal with true fraud and important bankruptcies as the bill proposes to do but leave the small and hapless folk to their small and hapless fortunes.

Sen. Hatch: Under S. 625, limits are placed on a debtor's ability to buy luxury goods and take out large cash advances on the eve of bankruptcy. The bill accomplishes this by creating a rebuttable presumption that certain debts are not dischargeable. Specifically, the bill provides that debts of more than $250 per credit card for luxury goods that are incurred within three months of bankruptcy, and cash advances of more than $750, incurred within 70 days of bankruptcy, are presumed to be fraudulent and are non-dischargeable. These provisions, while an improvement over current law, are by no means a solution to the load-up problem. Debtors still essentially are free to take out a cash advance of $750 and buy luxury goods valued at $250 on each of their credit cards before even the presumption of non-dischargeability kicks in. It is also important to note that under the bill, luxury goods specifically exclude "goods or services reasonably necessary for the support or maintenance of the debtor or a dependent of the debtor." Many have complained that these provisions do not go far enough to close the load-up loophole. The amendment by the Senator from New York, in contrast, undermines the bill's modest anti-load-up provisions by applying them only to those with income above the national median. Simply stated, the amendment would create an unjustified double standard, with those who fall under the national median income being permitted to load up on luxury goods and cash advances before filing for bankruptcy, as permitted by current law.

List of Remaining Key Amendments to S. 625 (Nov. 17, 1999)

Wellstone Amendment No. 2537, to disallow claims of certain insured depository institutions.

Wellstone Amendment No. 2538, with respect to the disallowance of certain claims and to prohibit certain coercive collection practices.

Levin Amendment No. 2658, to make non-dischargeable debts related to gun claims.

Schumer/Durbin Amendment No. 2762, to modify the means test relating to safe harbor provisions.

Schumer Amendment No. 2763, to ensure that debts incurred as a result of clinic violence are non-dischargeable.

Schumer Amendment No. 2764, to provide for greater accuracy in certain means testing.

Dodd Amendment No. 2753, to amend the Truth in Lending Act to provide for enhanced information regarding credit card balance payment terms and conditions, and to provide for enhanced reporting of credit card solicitations to the Board of Governors of the Federal Reserve System and to Congress.

Feingold Amendment No. 2748, to provide for an exception to a limitation on an automatic stay under §362(b) of Title 11, U.S. Code, relating to evictions and similar proceedings to provide for the payment of rent that becomes due after the petition of a debtor is filed.

Schumer/Santorum Amendment No. 2761, to improve disclosure of the annual percentage rate for purchases applied to credit card accounts.


ABI Home | ABI Legislative Page | NBRC


 

© 2014 American Bankruptcy Institute, All Rights Reserved