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Web posted and Copyright © March 1, 2004, American Bankruptcy Institute.

This month's update features excerpts from the House debate on passage of the bankruptcy bill (S. 1920) on Jan. 28, 2004. The House attached the text of H.R. 975, as previously passed, to the six-month extension of chapter 12, and appointed conferees for a conference with the Senate on bankruptcy reform.

Mr. Sessions (R-Texas): Mr. Speaker, I am pleased today that this House will have the opportunity to once again during the 108th Congress consider and send to the Senate much-needed bankruptcy reform legislation under this fair rule. Congress has the opportunity to once again end, once and for all, the loophole to debtors who are able to repay some portion of their debts to game the system and increase the cost of credit, goods and services for other law-abiding citizens. Between 2002 and 2003, the federal court system reported that there was a 9.6 percent increase in bankruptcy filings to over 1.650 million filings, and these filings have a real cost not only to every consumer but also to simple, everyday Americans. In 1998, debtors who filed for bankruptcy relief discharged more than $44 billion of debt. When amortizing on a daily basis, this amounts to a loss of at least $110 million every day, or put more simply, bankruptcies cost each American family that pays their bills on time $450 a year in the form of higher costs for credit, goods and services. As the other body continues to stall on this legislation to protect the system from further abuse, these numbers and totals only continue to mount. It has been estimated that if current practices continue, one out of every seven households will have filed for bankruptcy by the end of this decade, with many of these losses as a result of the misuse of the law by irresponsible high-income filers. The Credit Union National Association, known as CUNA, reported last year that credit unions have lost nearly $3 billion from bankruptcies since Congress began considering bankruptcy reform legislation in 1998. Bankruptcy should not be a convenience or just another financial planning tool, and this legislation will ensure that it will remain a safety net for those who genuinely need it while trying to prevent bad actors from imposing their costs on everyone else.

Congress has spoken on this issue many times before. As is widely known, Mr. Speaker, the 105th, 106th and 107th Congresses passed legislation addressing bankruptcy reform. In the 105th Congress, the conference passed the House, but time expired before the Senate voted on final passage. In the 106th Congress, a conference report received overwhelming bipartisan support in both chambers. However, President Clinton chose to pocket veto the bill. In the 107th Congress, and again earlier this last year, we came extremely close again to the final passage of a conference report, but in the end, it was not accomplished.

Mr. McGovern (D-Mass.): The Senate has sent us a simple one-page bill, a bipartisan, noncontroversial bill that would extend bankruptcy protections for America's struggling family farmers. We could pass S. 1920 as it is, and tonight it could be on the president's desk to be signed into law. That would restore the chapter 12 bankruptcy protections for family farmers that expired at the end of last year. Instead, we have before us an election-year dog-and-pony show. House Republicans have replaced this simple bill to extend a helping hand to family farms with a controversial 500-page bankruptcy overhaul bill, the same legislation that this body passed in March of 2003. They have transformed a bill to help family farmers into a symbolic protest against the other body for not taking up the bankruptcy bill.


[T]he current bankruptcy system is broken, and it gets worse every day that we fail to act.
—Rep. Sensenbrenner.

I am also very disappointed that the substituted language does not include provisions to hold perpetrators of violence against women's health care clinics accountable for their actions (Schumer amendment). As part of a coordinated strategy, perpetrators of clinic violence have filed for bankruptcy to avoid paying judgments against them for violating federal law. This bill would allow them to discharge these judgments and get away with breaking federal law and trampling the constitutional rights of women.

Ms. Lofgren (D-Calif.): Since the Republican leadership does not have the vote to defeat the Schumer amendment, they want to use procedural tactics to prevent it from being considered at all. Today, I delivered a letter to the Speaker, signed by every Democratic woman member of the House, 41 in all, stating our unity in opposing these tactics. It is wrong to hold family farmers hostage so the majority can push through a controversial bankruptcy bill that helps big banks and credit card companies. It is wrong to use procedural tactics to prevent an honest and open debate on language that would provide greater protections for women.

Ms. Baldwin (D-Wis.): Since I have been in Congress, the family farm protections in the Bankruptcy Code have expired six times, and we have acted to extend these provisions eight times. We should stop using family farmers as leverage to pass larger bankruptcy protections.

Mr. Watt (D-N.C.): Mr. Speaker, I guess I continue to be amazed at the extent to which the majority in this House will go to try to serve the interests of their particular favorite constituencies, even to the point of doing substantial harm to people who are struggling in this country. And that is certainly the case with respect to farmers.

Mr. Sessions: I appreciate what the gentleman is saying. I appreciate that he wants to know what the agreements are between the bodies as they work together. I respect that, but I would say to the gentleman that I respect more the 315 votes from this body that chose to speak on the subject the last time we voted. Perhaps it is true there are some frustrations that come about as a result of the business which we engage in. Certainly there are frustrations that 315 people, time after time after time, vote for this important bill.

Mr. Sensenbrenner (R-Wis.): Mr. Chairman, the amendment in the nature of a substitute to S. 1920 made in order by the rule replaces the text of that bill with the text of H.R. 975, the bankruptcy bill passed by the House by an overwhelming bipartisan vote of 315-113 on March 19, 2003. The administration has without qualification endorsed this legislation. Nevertheless, this bill has languished in the other body now for almost a year. The question that has been asked is, why are we engaged in what admittedly may appear to be a redundant undertaking? While the other body is often described as the saucer in which the coffee cools, H.R. 975 has become nearly frozen in that proverbial saucer. Some of my colleagues may also ask, "Why now? What's the rush?" There are many answers. A major reason is that the current bankruptcy system is broken, and it gets worse every day that we fail to act. Bankruptcy filings continue to break record after record, straining the system's resources. The proliferation of bankruptcy filings is not just a temporary event, but part of a consistent upward trend. In four years, the number of bankruptcy filings has jumped by 150 percent to nearly 1.7 million cases as of fiscal year 2003. Another reason has to do with the growing extent of fraud and abuse in the current bankruptcy system. Bankruptcy relief should be available to honest debtors, but current law allows, if not encourages, dishonest debtors to file abusive bankruptcies that overburden the system. According to the Justice Department, bankruptcy fraud and abuse is "serious and far-reaching." While some debtors fraudulently conceal assets, others try to discharge debt despite their ability to repay their obligations. The current system is overburdened and ill-equipped to aggressively detect and deter identity theft and other basic forms of bankruptcy fraud, let alone more creative schemes such as the so-called "credit card bust-outs." The Justice Department reports that debtors are obtaining credit cards despite having little or no income, incurring huge debts, paying those debts with worthless checks, and then filing for bankruptcy relief to discharge their massive liabilities. We need to give our law enforcement agencies and the judiciary the tools necessary to fight fraud and abuse in the bankruptcy system.

Mr. Bachus (R-Ala.): I rise in strong support of this bill and would urge this body to adopt it. It is with some hesitancy that I rise simply to point out one provision that I share with Judge Jones when she says, however, "§414, in removing investment bankers from a rigorous standard of disinterestedness, is out of character with the rest of this important legislation and should be eliminated." Section 414 of the present legislation, I think, is a large snake. It is the proverbial fox in the henhouse. And what §414 does is it eliminates the disinterested rule. That rule has existed in bankruptcy law for 66 years. Under current law, a person that advises the trustee must be "disinterested" in order to avoid conflicts of interest. Section 414 eliminates that exclusion. Consequently, §414 would allow the same entities that may be engaged in negligence or even fraud prior to bankruptcy to advise the trustee during the bankruptcy process. Our experience alone with the recent wave of corporate scandals means that we need to carefully examine any provision that would weaken the conflict-of-interest standards. Weakening those standards in the Bankruptcy Code promotes conflicts of interest rather than corporate reform. Let me quote the Wall Street Journal addressing this §414: "Relaxing the disinterestedness rules will serve to reward firms that had some part of the company's demise... By allowing firms that helped the company into bankruptcy continue to stay on the payroll, the firms are being rewarded for essentially failing at the task for which they were hired." Eliot Spitzer has testified against §414. He says, "the inherent conflict of interest created by §414 and the perverse incentives created by such a section ought to be clear to all," and I would agree with him. And here we have the Attorney General of New York and we have the very conservative Judge Jones agreeing on this point, as did almost all the bankruptcy commissioners.

Mr. Sensenbrenner: Fines and forfeitures from offenses, both criminal and civil, have never been dischargeable in bankruptcy, irrespective of the offense that gave rise to the fine and forfeiture being imposed. So to say that the omission of language relating to abortion clinic protesters is a way of shielding criminal activity is a complete red herring. Fines and forfeitures that are imposed on abortion clinic protestors in a court of law are not dischargeable in bankruptcy today under the existing law nor, should this bill be enacted, under the provisions of this bill. Now, having said that, I feel very strongly that abortion really should not become an issue in the debate on a bankruptcy bill. The position of this House has always been that abortion is not a part of the bankruptcy debate. There is a time and place to debate issues relating to abortion, but this is not it.

Mr. Watt: It is interesting that the chairman thinks that the abortion issue should not be part of the bankruptcy bill. Seemingly, everybody who abuses the bankruptcy process other than people who have had judgments against them for destroying or damaging abortion clinics would be an appropriate subject for this. I thought this whole thing was to try to get to people who are abusing the system. If that is not an abuse, then I am not sure I understand what it is. Second, in response to the gentleman's comments about this bill preserving criminal discharges, this is about people who have gotten judgments against abortion clinic bombers or damagers, civil judgments, and had those defendants thumb their noses at those judgments by saying, "I am not just going to declare bankruptcy so I do not have to pay this judgment."



 

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