American Bankruptcy Institute Update

March 1, 2005

In This Issue


Legislation Update

Senate Marches Slowly Through Amendments to Bankruptcy Bill

The Senate continued consideration of S. 256 on Wednesday, rejecting several amendments designed to reduce the reach of the legislation. Much of the debate focused on the connection between medical costs, the elderly and bankruptcies. A recent Harvard report on the relationship between high medical costs and bankruptcies (linked at ABI’s legislation summary page) was invoked throughout the debate.

The Senate rejected two amendments by Sen. Edward Kennedy (D–Mass.): one would exempt debtors from the means test in S. 256, where financial problems were caused by serious medical problems. The vote was 39 in favor and 58 opposed. The other amendment would have permitted “medically distressed debtors” to protect $150,000 in home equity in a primary residence. The vote was the same: 39–58.

On Tuesday, the Senate adopted an amendment by Sen. Jeff Sessions (R–Ala.) that would clarify that those with “serious medical conditions” (or who are in the Armed Forces) can be considered “special circumstances” under the means test. Sessions sought to counter the Harvard report with a study by the Executive Office for the U.S. Trustee showing that, of some 5,000 cases in 48 states, only 5 percent of total unsecured debt is medical-related. He said that 54 percent of the cases listed no medical debt at all and that 90 percent of case with medical debts totaled less than $5,000 per case, representing only 13 percent of the unsecured debt.

The Senate also rejected an amendment by Sen. Jon Corzine (D–N.J.) that would exempt “economically distressed caregivers” to ill or disabled family members from the bill’s means test. Care giver expenses are now subtracted from the means test income calculations under S. 256. (This provision was added during the full committee markup). The vote on the amendment was 37 in favor and 60 opposed.

The Senate today defeated (by a vote of 40–59) an amendment by Sen. Russ Feingold (D–Wisc.) to provide a $75,000 homestead exemption floor for debtors who are 62 years old or older on the date of filing. Feingold argued his amendment would better protect the elderly in states where the homestead exemption is very low or nonexistent, in effect creating a new federal floor that is higher than the current $20,000 in states that follow the federal exemption. He called it the “flip side” to the problem of wealthy debtors abusing the unlimited homestead in states such as Florida and Texas. The amendment was supported by AARP. Sen. Jeff Sessions (R-Ala.) and others opposed the amendment, arguing that the issue is one historically reserved for state law. In fact, several states such as California and Maine have recently moved to raise their exemptions for a home. He argued that states are better able to address the precise amount of the exemption and are doing so.

Credit card company practices and disclosures were also a common theme in the debate.

The Senate rejected an amendment by Sen. Daniel Akaka (D–Hawaii) that would have amended the Truth in Lending Act to require enhanced additional, personalized disclosures by credit card companies and other lenders regarding the consequences of making only minimal payments. The vote was 40 in favor and 59 opposed. The amendment would have required credit card statements to detail the length of time to repay and the full cost of credit where the particular debtor makes only minimal payments. Creditors would also have to provide a toll free number connecting the consumer with approved credit counselors, as selected by the FTC, to help consumers with financial problems. The bill was opposed on jurisdictional grounds by Sen. Richard Shelby (R–Ala.), chair of the Senate Banking Committee. It was also opposed by those who believe the bill already adequately addresses the issue. Section 1301 of the bill now gives credit card companies a choice of disclosure methods. They must provide on the monthly billing statement a “minimum payment warning”. However, these disclosures are based on a hypothetical debt and monthly minimum payment, rather than one that is personalized to the consumer.

Sen. John Cornyn (R–Texas) spoke in favor of his venue proposal to restrict business bankruptcy filings to the principal place of business, rather than the place of incorporation. It would also prohibit a parent company from filing where an affiliate is located. However, he then withdrew the bipartisan amendment, in deference to the bill managers’ desire to move a clean bill, reserving the right to offer it at a later date.

Sen. Dianne Feinstein (D–Calif.), Sen. Jon Kyl (R–Az.) and Sen. Sam Brownback (R–Neb.) offered an amendment similar to the defeated Akaka proposal, that would trigger specific personal disclosures of the consumers projected debt repayment after the consumer has paid only the monthly minimum payment on a credit card for six months. This amendment was pending a vote on Thursday.

Pending is an amendment by Sen. Mark Dayton (D–Minn.) that would cap the interest rates on so-called predatory loans.

Also pending is an amendment by Sen. Jay Rockefeller (D–W.Va.) to increase priority claims for wages and other benefits.

Also pending is an amendment by Sen. Patrick Leahy (D–Vt.), the Ranking Member of the Senate Judiciary Committee, to restrict access to certain personal identification information in bankruptcy documents.

On Thursday, the Senate will continue consideration of amendments. Votes are expected throughout the day and evening. The Majority Leader has not yet announced a schedule for Friday.