American Bankruptcy Institute Update

March 3, 2005

In This Issue

Bankruptcy Reform Debate

Highlights

Legislation Update

Senate Continues Debate; Next Week Eyed for Final Passage

The Senate on Thursday continued its often painfully slow process of considering amendments to the bankruptcy bill (S. 256), voting on six provisions. Dozens more are left for consideration into early next week, including a non-germane but anticipated Kennedy (D–Mass.) amendment to raise the minimum wage. The Senate will not schedule votes tomorrow.

Majority Leader Bill Frist (R–Tenn.) will likely file for cloture sometime early next week, after the Senate deals with several amendments already filed. On Monday, the Senate is expected to continue to debate and vote on amendments, including both the Kennedy wage amendment and a GOP alternative. The cloture motion could be filed during Tuesday’s session. This motion would mature two days later. If 60 Senators vote in favor of the motion, further amendments would have to be germane to S. 256 and the total time for debate would be limited (and in no event could exceed 40 hours), clearing the way for a vote on final passage probably that same day.

Many of the issues considered today again dealt with lending industry practices. The bill’s sponsors resisted amendments by a repeated plea to keep the bill “clean” of amendments, so as to ease passage by the House of Representatives. So far, this strategy has worked.

The Senate today defeated an amendment by Sen. Mark Dayton (D–Minn.) that would cap interest rates as a matter of federal law at 30 percent, pre-empting any state laws to the contrary. It was opposed on state law/federalism grounds. The vote was 24 in favor and 74 opposed.

The Senate defeated an amendment by Sen. Bill Nelson (D–Fla.) to exempt debtors from the bill’s means test if their financial problems were “caused by identity theft.” At least $20,000 in fraudulent claims would be necessary to invoke the exception. The vote was 37–61. Nelson pointed to FTC statistics that 10 million Americans were affected by identity theft last year, and is the most common fraud on consumers today. Recent cases involving both Bank of America and ChoicePoint were cited.

The Senate defeated an amendment by Sen. Dick Durbin (D–Ill.) that would bar a claim in bankruptcy by any creditor who had materially violated the Truth in Lending Act with respect to a home mortgage. Durbin said the amendment, which was defeated by only one vote when last offered, would address predatory lending. The amendment lost today by a vote of 40–58. It was opposed by members who argued that current federal law is sufficient to address predatory lending.

Perceived bankruptcy abuse by the wealthy and corporate debtors was another theme of today’s amendments.

The Senate defeated an amendment by Sen. Charles Schumer (D–N.Y.) designed to address abuse of asset protection trusts, as described in a recent article in the New York Times. The amendment would have limited such trusts to $125,000 in assets. The vote was 39 in favor and 56 opposed.

The Senate defeated an amendment by Sen. Jay Rockefeller (D–W.Va.) that would have expanded the priority for wage claims and claims for contributions to employee benefit plans. The dollar limit, now at $4,925, would be expanded to $15,000 under the amendment, among other provisions. The amendment would have also expanded the right of employees to be paid retiree benefits in a bankruptcy. Critics argued the priority claims and expanded benefits provisions would make it much harder to get a plan of reorganization confirmed, since priority creditors must be paid in full under §1129 of the Code. The amendment was defeated by a vote of 40–54.

The Senate also defeated another Durbin amendment aimed at “corporate abuse” by insiders of bankrupt companies, allowing courts to look back four years at transactions such as loans to insiders, among other provisions. The amendment is inspired by self-dealing and fraudulent actions of executives at Enron, Worldcom and other corporate cases. Opponents argued that the issue is not a bankruptcy provision and is more appropriately considered by the Banking Committee. The vote was 40–54.

Coming amendments are expected to address issues of concern to the American Bar Association, including striking the requirement that consumer debtor counsel list themselves as “debt relief agencies” and another that would limit attorney liability for inaccurate debtor financial schedules.

Also coming is an amendment by Sen. Patrick Leahy (D–Vt.) to restrict access to certain personal information in bankruptcy documents. The amendment is supported by the Judicial Conference of the U.S. as consistent with recent changes to the Federal Rules of Bankruptcy Procedure, and may be accepted.

An amendment by Sen. Arlen Specter (R–Pa.), chairman of the Senate Judiciary Committee, was introduced but not acted upon during Thursday’s session. The amendment is necessary to waive a budget point of order against the bill’s authorization for funding 26 new bankruptcy judgeships and for other budgetary impacts. This amendment is likely to be accepted.

For complete coverage of the Senate debate and legislative process, you should periodically consult ABI’s legislative page containing real-time Senate action.

GOP Meets on Asbestos As Specter Says Deadline Nears

Senate Judiciary Chairman Arlen Specter (R–Pa.) met with panel Republicans and said he is willing to alter his bill to suit his Republican colleagues but cautioned that it would be fruitless to pass a bill through committee on a party-line vote, CongressDaily reported. “There’s no point in having a Republican bill the way partisanship is present in the Senate,” Specter said, adding that he wants a bill that can win 60 votes needed to override a potential Democratic filibuster. Specter canceled Thursday’s full committee hearing on asbestos. The bill is still slated for a floor vote by the week following the Easter recess, he said. “It’s then or never,” Specter said, although he added that the decision about timing is up to Majority Leader Bill Frist (R–Tenn.), who called the meeting yesterday and urged quick action.

Register for the New York City Bankruptcy Conference by Tomorrow and Save

Register to attend the New York City Bankruptcy Conference by tomorrow, March 4, and save $100 off the regular registration fee. The conference, to be held May 9 at the Millennium Broadway in New York, will bring together a faculty of bankruptcy judges from the Southern and Eastern Districts of New York and practitioners from the top national insolvency firms. The format is designed to appeal to both experienced and new practitioners. One of this year’s highlights is Prof. Lynn LoPucki, who will respond to critics of his controversial new book, Courting Failure: How Competition for Big Cases is Corrupting the Bankruptcy Courts.

The popular stand-alone primer course, “Bankruptcy Fundamentals: Nuts and Bolts for New and Young Practitioners,” will be offered again this year on May 6 at the U.S. Bankruptcy Court in Manhattan. At this special program an outstanding faculty of judges, academics and practitioners will explain the fundamentals of bankruptcy. Register online for the New York Bankruptcy Conference or only for the one-day Nuts&Bolts program.

RSS Feed for Bankruptcy Bill News Now Available

Stay on top of developments in the Senate debate on S. 256 with the newly added RSS feed for the ABI legislation summary page. Copy the address http://abiworld.net/bankbill/s256.xml into your news reader software and stay updated—the feed will update whenever an item is added to the summary page or whenever a major action occurs on the Senate floor.

Popular newsreaders include FeedDemon for Windows, NetNewsWire for Mac OS X, and Bloglines, a platform-neutral, web-based news reader.

RSS functions by telling you when the associated page is updated, and how. This frees you up from having to repeatedly check the site, but keeps you updated whenever there is a new development or post. Read more about RSS at about.com or mezzoblue.com.

If you have any questions or problems, email John Yuda at jyuda@abiworld.org or call the ABI offices at (703) 739-0800.

Rising Rates Crimp Spending for 20 Percent of Consumers

Interest rates are still near historic lows, but consumers say recent rate hikes have already boosted their monthly payments and interfered with their shopping plans, CBS MarketWatch reported. Twenty-one percent of consumers said they’ve had to reduce their spending because of rising interest rates, according to a new survey conducted by the polling firm Gallup Organization for Experian. Read the full article (registration required).

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