The U.S. Senate approved a historic bankruptcy reform bill (S. 1301) on September 23, sending it to a conference with the House of Representatives. The legislation would make the most significant changes in the Bankruptcy Code in 20 years. The full text of the bill is available at ABI World.

Before final passage, the Senate approved a number of floor amendments designed to limit some lender and creditor practices and to make other changes to the bill. The legislation, sponsored by Sens. Charles E. Grassley (R-IA) and Richard J. Durbin (D-IL), was approved by the Senate Judiciary Committee by a 16-2 vote in May.

Despite its widespread support, the bill faces an uncertain future. There are only about two weeks of the session left to reach agreement on the differences with the House bill (H.R. 3150), and to then re-pass the conference report in both chambers. A list of the key differences is found in the Legislative Update of this issue of the Journal. The 105th Congress is set to adjourn on October 9. While supportive of the Senate bill as amended, the Clinton administration is threatening a veto of the legislation, should the conference product follow the consumer bankruptcy means test standard found in the House bill. Excerpts of the Statement of Administration Position, of September 17, is on p. 50.

Since the legislation will pass, if at all, a the very end of the second session of the 105th Congress, the President may have the option of a pocket veto, not subject to an override vote.

The Senate adopted a Grassley-Durbin amendment that would make a host of changes to S. 1301 as passed by the Judiciary Committee, including:

• (a) modifying the means test threshold to now require that the debtor be able to pay 30 percent to general unsecured creditors rather than 20 percent before the debtor can be converted to chapter 13;
• (b) requiring credit card lenders to disclose, in a clear and conspicuous manner, the length of time it will take to pay a balance in full, when making only the minimum monthly payment, and the total cost to the consumer for the credit;
• (c) lenders would also have to provide, with each new credit offer, an understandable worksheet for consumers to determine their ability to assume more debt;
• (d) requiring that high LTV home mortgage loans (and all advertisements for these products) disclose in a clear and conspicuous way that the interest on the portion of the credit extension that is greater than the fair market value of the dwelling is not tax deductible (to be effective one year after the date of enactment);
• (e) preventing coercive reaffirmations by requiring more disclosures to the debtor and requiring court approval for reaffirmations where the creditor asserts a purchase money security interest;
• (f) prohibiting threats by creditors to repossess collateral or to bring a non-dischargeability action during the case; (g) treating dual use debit cards like credit cards in terms of limited liability for unauthorized use;
• (h) requiring the debtor to provide photo identification to the trustee or U.S. Trustee on request, as a way to limit identity fraud;
• (i) forbidding the transfer of fractional shares of real estate as part of a scheme to delay, hinder or defraud creditors, and limits the automatic stay in such cases;
• (j) requiring a study by the Small Business Administration (to be completed within two years) on the factors that cause small businesses to file and how the law can be made more effective for small businesses;
• (k) indexing for inflation the debt eligibility limits now in chapter 12 (currently $1.5 million) and to provide more flexibility in the consummation of a chapter 12 plan, and
• (l) modifying the audit procedures in §317 to eliminate the CPA requirement and otherwise relax the nature and extent of information to be disclosed in an audit.

The Senate also approved an amendment to provide enhanced protection for retirement savings in bankruptcy. All tax-favored qualified pension plans would be covered, including Roth IRAs as well as retirement assets that are in the process of being rolled over into a qualified plan.

During the course of consideration of S. 1301, the Senate also adopted an amendment by Sen. Jack Reed (D-RI) that would prohibit credit card lenders from terminating or refusing to renew an extension of credit because the consumer did not incur finance charges. Reed said some companies terminate such accounts because they are not profitable. "Should the most responsible people who pay off their balances right away be penalized?" Opponents of Reed's amendment said it was inappropriate to dictate the cost of providing access to credit and to force lending institutions to make credit available in ways that will not generate profits. An effort to table Reed's amendment was rejected 47-52.

The Senate also approved an amendment by Sen. Russ Feingold (D-WI) to permit in forma pauperis filings.

The Senate rejected an amendment by Sen. Christopher Dodd (D-CT) that would prohibit the issuance of a credit card to those under the age of 21 unless the recipient could demonstrate either the means to repay or the signature of a parent establishing co-liability. The Senate also rejected an amendment by Sen. Alfonse D'Amato (R-NY) that would prohibit the practice of surcharges by financial institutions for the use of ATMs. D'Amato asserted that the average family pays more than $200 per year in surcharges and the banking industry receives about $3 billion from surcharges annually.

The Senate was forced to drop an unrelated amendment to modernize the patent laws ("Omnibus Patent Act of 1998") due to some objections from the innovation community. This provision was supported by the Administration and could have helped make the bill more attractive when it reached the White House.