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Feature Article

Senate, House Panels Clear Reform Bill

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

he Senate and House Judiciary Committees approved separate versions of comprehensive bankruptcy reform in late April, setting the stage for further consideration of the most sweeping change in the law in more than 20 years. The House version (H.R. 833), authored by Rep. George Gekas (R-Pa.), was approved by the committee on a 22-13 vote after five days of often contentious markup. The Senate counterpart (S. 625), sponsored by Sen. Charles Grassley (R-Iowa), was approved 14-4 after panel members agreed to leave many contested issues, such as consumer disclosure requirements and means-test adjustments, to further floor amendment. Both bills have bipartisan support in Congress, though the Clinton administration has criticized a number of key provisions as too favorable to creditors.

Both bills are built on the platform of H.R. 3150 from the last Congress, and would means-test eligibility for relief under chapter 7. Though the ability-to-repay calculations differ in the two bills, both would deny some consumers the right to file in chapter 7 and shift others to chapter 13 repayment plans over five years. Both bills also contain limits on serial filings and largely forbid lienstripping in chapter 13. Other key features broaden the categories of non-dischargeable consumer debt and mandate consumer credit counseling, the filing of debtor's tax returns and audits of debtor's schedules, among other provisions.

The sponsors of both bills were able to beat back most attempts by committee Democrats to weaken the bill, but renewed efforts are likely on the House and Senate floors. One such proposal would require credit card lenders to disclose late fees and more prominently display interest rates beyond introductory "teaser rates." Also to come is more debate over the use of IRS living standards to determine reasonable expenses under the means test. One proposal from House Judiciary Chairman Henry Hyde (R-Ill.) would strike the IRS standards in favor of the current law's reliance on judicial discretion. This proposal was adopted in committee, but later reversed. A Senate proposal from Sen. Charles Schumer (D-N.Y.) would substitute Bureau of Labor Statistics data to determine reasonable living expenses.

Rep. Barney Frank (D-Mass.), who has supported the bill in the past, warned advocates and credit industry lobbyists that their opposition to the disclosure amendments jeopardizes the likelihood of the bill's ultimate success. He voted "present" in the committee this year.

Among the commercial provisions are proposed special rules for small business and single-asset real estate cases, more creditor-friendly rules for the debtor's assumption or rejection of commercial leases, and changes in preference and tax rules. The House bill contains a restriction on a corporate debtor's venue choice, creating a presumption in favor of the debtor's principal place of business, rather than the place of incorporation. This proposal is aimed at the widespread practice of many chapter 11 debtors who choose Delaware as a debtor-friendly venue. This proposal will be very controversial in the Senate; S. 625 is co-sponsored by both Delaware senators.

The House bill will likely reach the floor first, perhaps by early May. Last year's version passed with 300 votes. Any vote more than 291 signifies the bill as "veto-proof," an important consideration when negotiating with the White House.

ABI World contains several documents analyzing the bill's provisions, as well as letters to Congress explaining the Clinton administration's views.


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