LEGISLATIVE UPDATE Sensenbrenner Promotes Latest House Offer on Legislation
F. James Sensenbrenner, Jr.
Chairman, House Judiciary Committee
before the Credit Union National Association
February 27, 2002
I would like to begin by acknowledging the significant contributions that CUNA and you, its members—particularly your grassroots outreach efforts—have made to advance bankruptcy legislation through the Congress. You have played a key role in the progress this legislation has made. Credit union representatives have testified before the House and Senate and have generously given their expertise and analysis to our members and staff, for which we are very grateful.
In recent months, there have been a number of stories in the media claiming that progress on the bankruptcy bill is "stalled" or that the bankruptcy bill is "dead" or, asserting like this week's Washington Post headline, [the] "Bankruptcy Reform Bill [Is] in Trouble Again."
I feel a bit like Mark Twain who observed that reports of his death were exaggerated. Contrary to these prognostications of gloom and doom, the bankruptcy bill is alive and well, and its future has never been healthier.
Here are the facts:
- Unlike the prior administration, the Bush Administration clearly supports bankruptcy reform.
- Bankruptcy reform is needed now more than ever. In recent months, bankruptcy filings have skyrocketed. In 2001, the number of filings was the highest ever in our nation's history.
- As these filings increase, so does the cost that our economy must bear. A 1997 study, for example, estimated financial losses attributable to bankruptcy filings for that year alone would exceed $44 billion. This loss, when amortized on a daily basis, amounts to at least $110 million every day. For credit unions in particular, this is a loss that burdens every member.
- There are other studies showing that some bankruptcy debtors can, in fact, repay a significant portion, if not all of their debts. As a result, some debtors, having an unfettered ability to repay their debts, use bankruptcy to avoid their financial obligations, much to the detriment of everyone else who pays their bills.
- In the nearly five years that this legislation has been pending, the House and Senate bills have never been closer in terms of their similarity as they are now. When we began the bankruptcy conference last November, there were only three dozen or so substantive differences between the bills that required resolution. Since November, close to two-thirds of these differences have been resolved by staff.
- Just yesterday, the House staff sent to the Senate a global compromise package that resolves all of the remaining issues, including controversial issues pertaining to abortion and homestead exemptions.
- Highlights of the compromise include the following:
- A. With respect to the homestead issue, the House moves in the direction of the Senate by using a longer reachback period of two-and-a-half years instead of the two-year period in the House bill. The compromise also includes the House seven-year reachback for fraud.
- B. With respect to the abortion issue, the House compromise would make (i) debts for willful and malicious threats of serious bodily injury as well as (ii) debts for willful and malicious "crimes of violence" (which is a term defined in the criminal provisions of the United States Code) non-dischargeable.
- C. It excludes from the bill needs-based test compensation received by victims of Sept. 11.
- D. It deletes provisions in both bills that have nothing to do with bankruptcy reform. They include the so-called "Lloyd's of London" provision and provisions dealing with energy issues.
- E. It also deletes a provision at the behest of the Senate dealing with asset-backed securitizations, which some claim had some connection to the Enron case.
Although we're confident that the bankruptcy conference will be completed by next month, we need your support and assistance now, more than ever, to ensure that happens. While you are in Washington this week, you should try to knock on as many doors in Congress as possible to spread the word that the time to act is now. The message must be communicated to Congress that bankruptcy reform should not be held hostage by irrelevant and politically motivated issues.
American Bar Association Weighs in Against Lawyer Liability Provision in Legislation
The American Bar Association is among those groups critical of a proposal in the bankruptcy bill that would require lawyers representing debtors in consumer cases, including legal services and pro bono counsel, to certify the accuracy of the factual statements in the debtors' petitions and schedules. The proposal would generally hold the lawyer personally liable for any inaccuracies, which the ABAbelieves will chill representation of many debtors. Some have argued the bill's language creates strict liability on counsel, requiring sanctions against any attorney who incorrectly determines that the client is eligible for chapter 7 relief under the means test.
Bond Market Group Applauds Congress for Reform Efforts
The Bond Market Association recently commended House and Senate leaders attempting to work out an agreement on bankruptcy reform. A letter from the group particularly cited the importance of the bill's updates to the netting and payment risk reduction laws of the Code, which are designed to reduce risk in the financial markets. The provisions clarify the treatment of certain financial products in cases of bankruptcy or insolvency. Key financial regulators, such as Fed Chairman Greenspan and Treasury Secretary O'Neill, support the provisions.