This month's Update contains Sen. Patrick Leahy's address during ABI's Annual Spring Meeting, April 27, at the U.S. Supreme Court.
I want to thank the American Bankruptcy Institute, its members and its staff for inviting me to speak
tonight. ABI provides a real public service with its publications, research and other non-partisan materials
on bankruptcy matters.
Congress is again trying to enact a balanced bankruptcy reform bill [that] can be signed into law by
President Clinton. Earlier this year, the Senate passed by a vote of 83-14 a relatively fair reform bill. The
Senate bill was significantly improved in its bankruptcy provisions through a bipartisan amendment
For example, we added modest but essential credit industry reforms to the bill. The millions of credit
card solicitations made to American consumers the past few years have caused, in part, the rise in consumer
bankruptcies. The credit card industry should bear some responsibility for these problems.
The improvements to the Truth In Lending Act that we have been able to add to this measure provide
for more disclosure of information so that consumers may better manage their debts and avoid bankruptcy
The Senate also overwhelmingly voted to close the homestead exemption loophole in the Bankruptcy
Code. By a vote of 76 to 22, the Senate adopted a bipartisan amendment offered by Senators Kohl and
Sessions to cap any homestead exemption at $100,000.
In some states, debtors have been permitted to take an unlimited exemption from their creditors for the
value of their home. This has led wealthy debtors to abuse their state laws to protect million-dollar
mansions from creditors. This has been a real abuse of bankruptcy's fresh start protection.
We adopted another bipartisan amendment to provide bankruptcy judges with the discretion to waive
filing fees for low-income debtors. Bankruptcy is the only civil proceeding without in forma pauperis filing
status, and this amendment corrects that anomaly.
I was proud to cosponsor another amendment to provide for medical record protections for patients in
nursing homes that are forced into bankruptcy. I want to thank Keith Shapiro, the new incoming president
of the ABI, for his assistance on this amendment.
Overall, the Senate adopted 45 amendments to improve the bill during debate on the bill.
Most threatening to the prospects of this bill becoming law are the non-relevant amendments adopted
on tax cuts, minimum wage and drug control policy. Those non-relevant amendments quite properly led
to a presidential veto threat. I will work in the House-Senate conference to remove those amendments from
any final bill. If they are not removed, I have grave doubt whether any bankruptcy reform bill can become
law this year.
I look forward to working together with Senators Hatch, Grassley and Torricelli, the House conferees
and the Clinton Administration on a conference report that leads to enactment of a fair and balanced
Bankruptcy Reform Act.
I also want to note that today's Washington Post reported on a provision in the Senate bill that might
be interpreted to permit debtors to waive their legal rights regarding pension plan assets in bankruptcy
proceedings. I oppose this provision because unscrupulous creditors could try to force debtors to sign away
their retirement assets in some boilerplate consumer agreement.
This provision is opposed by members of both parties. I am confident that it will be dropped in any final
bankruptcy reform bill. Honest debtors should not be forced to sacrifice their life savings as the price of
filing for bankruptcy.
As we proceed with the congressional process, I believe we should remember the purpose bankruptcy
serves, which is as a safety net for many Americans. Those who use bankruptcy are the most vulnerable
of the American middle class.
They are older Americans who have lost their jobs or are unable to pay their medical debts. They are
women attempting to raise their families or secure alimony and child support after a divorce. They are
individuals struggling to recover from unemployment.
As we move forward with reforms that are appropriate to eliminate abuses in the system, we need to
remember the people who use the system, both the debtor and the creditor.
We need to balance the interests of creditors with those of middle-class Americans who need the
opportunity to resolve overwhelming financial burdens. As the last Congress proved, there are many
competing interests in the bankruptcy reform debate that make it difficult to enact a balanced and bipartisan
bill into law.
I am hopeful that this year, Congress will work closely with the administration to enact reforms that
ensure our bankruptcy laws better serve their intended goals and to correct the abuses by both debtors and
creditors in the bankruptcy system.