S. 586 INTRODUCTORY REMARKS (Sen. Kohl)
S. 586 INTRODUCTORY REMARKS (Sen. Kohl)
Posted by the Amerian Bankruptcy Institute
By Mr. KOHL (for himself, and Mr. Sessions):
S. 586. A bill to amend title 11, United States Code, to limit the value of certain real property that a debtor may elect to exempt under State or local law, and for other purposes to the Committee on the Judiciary.
BANKRUPTCY ABUSE REFORM ACT OF 1999
Mr. KOHL. Mr. President, I rise today, with Senator Sessions, to introduce the bipartisan Bankruptcy Abuse Reform Act of 1999, legislation which addresses a serious problem that threatens Americans' confidence in our bankruptcy laws. The measure would cap at $100,000 the State homestead exemption that an individual filing for personal bankruptcy can claim. It passed the Senate last year when it was included in the Consumer Bankruptcy Reform Act of 1998 (H.R. 3150), and I hope that we can all support this measure again this year. The goal of our measure is simple but vitally important: to make sure that our Bankruptcy Code is more than just a beachball for crooked millionaires who want to hide their assets.
Let me tell you why this legislation is critically needed. In chapter 7 Federal personal bankruptcy proceedings, the debtor is allowed to exempt certain possessions and interests from being used to satisfy his outstanding debts. One of the chief things that a debtor seeks to protect is his home, and I agree with that in principle. Few question that debtors should be able to keep a roof over their heads. But, in practice, this homestead exemption has become a source of great abuse.
Under section 522 of the Code, a debtor may opt to exempt his home according to local, State, or Federal bankruptcy provisions. The Federal exemption allows the debtor to shield up to $15,000 of value in his house. The State exemptions vary tremendously: some States do not allow the debtor to exempt any of his home's value, while a handful of states set no ceiling and allow an unlimited exemption. The vast majority of states have exemptions under $40,000.
Our proposal would amend Section 522 to cap State exemptions so that no debtor could ever exempt more than $100,000 of the value of his home.
Mr. President, in the past few years, the ability of debtors to use State homestead exemptions has led to flagrant abuses of the Bankruptcy Code. Multimillionaire debtors have moved to one of the states with unlimited exemptions--most often Florida or Texas--bought multi-million-dollar houses, and continued to live like kings even after declaring bankruptcy. This shameless manipulation of the Bankruptcy Code cheats honest creditors out of compensation and rewards only those who can `game' the system. Oftentimes, the creditor who is robbed is the American taxpayer. In recent years, S&L swindlers, convicted insider trader convicts, and others have managed to protect their ill-gotten gains through this loophole.
The owner of a failed Ohio S&L, who was convicted of securities fraud, wrote off most of $300 million in bankruptcy claims, but still held on to the multimillion dollar ranch he bought in Florida. A convicted Wall Street financier filed bankruptcy while owing at least $50 million in debts and fines, but still kept his $5 million Florida mansion with 11 bedrooms and 21 bathrooms. And just last year, movie star Burt Reynolds wrote off over $8 million in debt through bankruptcy, but still held onto his $2.5 million Florida estate. These deadbeats stay wealthy while legitimate creditors--including the U.S. Government--get the short end of the stick.
Simply put, the current practice is grossly unfair and contravenes the intent of our laws: People are supposed to get a fresh start, not a head start, under the Bankruptcy Code.
Mr. President, the legislation that I have introduced today is simple, effective and straightforward. It caps the homestead exemption at $100,000, which is far more than estimated median home equity of people in bankruptcy. It is endorsed by the National Bankruptcy Review Commission. And it will protect middle class Americans while preventing the abuses that are making the middle class question the integrity of our laws--the abuses the average American taxpayer is paying for out of pocket.
Indeed, it is even generous to debtors. Less than ten states have a homestead exemption that exceeds $100,000. More than two-thirds of states cap the exemption at $40,000 or less. My own home state of Wisconsin has a $40,000 exemption and that, in my opinion, is more than sufficient.
Mr. President, this proposal is an effort to make our bankruptcy laws more equitable. I urge my colleagues to support this important measure.