The PRESIDING OFFICER. The time between now and 5:30 is equally divided between the Senator from Utah and the Senator from New Jersey. Mr. HATCH. Mr. President, this bill is a bipartisan bill, drafted jointly by Senators Grassley and Torricelli. This legislation has been developed in a fair and inclusive manner. Excerpted from the Congressional Record, 9/21/99

Web posted September 22, 1999, American Bankruptcy Institute. U.S. Senate Roll Call Vote
Motion to Invoke Cloture on S.625

BANKRUPTCY REFORM ACT OF 1999 (Senate - September 21, 1999)

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The PRESIDING OFFICER. The time between now and 5:30 is equally divided between the Senator from Utah and the Senator from New Jersey.

Mr. HATCH. Mr. President, this bill is a bipartisan bill, drafted jointly by Senators Grassley and Torricelli. This legislation has been developed in a fair and inclusive manner.

The reforms proposed in this bill have been carefully studied and have been deliberated upon at length. Indeed, Congress has been engaged in the consideration of this issue now for several years. The National Bankruptcy Review Commission spent two years comprehensively examining the bankruptcy system. The findings and opinions of the Commission, which were reported to Congress, have proved helpful in identifying the problems in the bankruptcy system and in finding appropriate solutions.

Furthermore, the Subcommittee on Administrative Oversight and the Courts, which is chaired by Senator Grassley, has held numerous hearings on the issue of bankruptcy reform. The subcommittee heard extensive testimony on the subject from dozens of witnesses. Again, I would like to thank Senators Grassley and Torricelli for their leadership in this important consumer bankruptcy reform, and also last session's ranking member of the Administrative Oversight and the Courts Subcommittee, Senator Durbin, along with other members of the Senate, for their hard work on this issue.

Throughout the process of consideration of this bill, at both the subcommittee and full committee level, changes suggested by the minority were included in the bill. During this entire process, I have expressed my willingness to work to address any remaining concerns the minority has about the bill. It is apparent, however, that efforts are underway to defeat this important legislation by attaching irrelevant, extraneous 'political agenda' items to it, such as minimum wage, guns, abortion and tobacco, to name a few.

I am open to full debate on relevant issues. Nevertheless, some of my friends on the other side of the aisle continue to tie up consideration of this bill for what appears to be political points.

Despite the efforts of those in opposition, I remain hopeful and optimistic that we will be able to pass legislation this year that provides meaningful and much-needed reform to the bankruptcy system.

The House of Representatives passed a much more stringent bankruptcy reform bill by an overwhelming bipartisan majority earlier this spring. The time has come for us to rise above politics and to do what is right for the American people. It is time for meaningful and fair bankruptcy reform.

I urge my colleagues to vote for cloture so we may consider the substance of this important legislation and make our bankruptcy system better for all Americans.

The Bankruptcy Reform Act of 1999 closes many of the loopholes in our bankruptcy system that allow unscrupulous individuals to use bankruptcy as a financial planning tool rather than as a last resort.

Despite the White House's statement of opposition to the House's bankruptcy reform bill, H.R. 833, the House of Representatives realized that the time has come to restore personal responsibility to our nation's bankruptcy system. House Democrats and Republicans alike recognized that if we do not take the opportunity to reform our broken system, every family in my own State of Utah and throughout the country, many of whom struggle to make ends meet, will continue to bear the financial burden of those who take advantage of the system. As a result, the House bill passed by an overwhelming margin of 313 to 108. Half of the House Democratic Caucus joined with every House Republican to support the bill. And notably, the House bankruptcy reform bill is more stringent in its reforms than the Senate bill before us today.

More than three decades ago, the late Albert Gore, Sr., then a Senator, commented on the moral consequences of a lax bankruptcy system. He said:

I realize that we cannot legislate morals, but we, as responsible legislators, must bear the responsibility of writing laws which discourage immorality and encourage morality; which encourage honesty and discourage deadbeating; which make the path of the social malingerer and shirker sufficiently unpleasant to persuade him at least to investigate the way of the honest man. (Cong. Rec. 905, January 19, 1965.)

I too believe that the complete forgiveness of debt should be reserved for those who truly cannot repay their debts. S. 625 provides us with the opportunity to prevent people who can repay their debts from 'gaming the system' by using loopholes that are presently in place.

Mr. President, S. 625 provides a needs-based means test approach to bankruptcy, under which debtors who can repay some of their debts are required to do so. It contains new measures to protect against fraud in bankruptcy, such as a requirement that debtors supply income tax returns and pay stubs, audits of bankruptcy cases, and limits on repeat bankruptcy filings. It eliminates a number of loopholes, such as the one that allows debtors to transfer their interest in real property to others who then file for bankruptcy relief and invoke the automatic stay. And, the bill puts some controls on the ability of debtors to get large cash advances on their credit cards and to buy luxury goods on the eve of filing for bankruptcy.

At the same time, the Senate bill provides many unprecedented new consumer protections. It imposes penalties upon creditors who refuse to negotiate in good faith with debtors prior to declaring bankruptcy. Also, it imposes penalties on creditors who willfully fail to properly credit payments made by the debtor in a chapter 13 plan, and for creditors who threaten to file motions in order to coerce a reaffirmation without justification. Moreover, the bill imposes new measures to discourage abusive reaffirmation practices.

Mr. President, S. 625 addresses the problem of bankruptcy mills, firms that aggressively promote bankruptcy as a financial planning tool, and often end up hurting unwitting debtors by putting them in bankruptcy when it may not be in their best interest. The bill also imposes penalties on bankruptcy petition preparers who mislead debtors.

Importantly, the bill makes major strides in trying to break the cycle of indebtedness. It educates debtors with regard to the alternatives available to them, sets up a financial management education pilot program for debtors, and requires credit counseling for debtors. I must commend Senator Sessions for his leadership on these important credit counseling provisions.

I am proud that the bill also makes extensive reform to the bankruptcy laws in order to protect our children. I have authored provisions of the bill to ensure that bankruptcy cannot be used by deadbeat dads to avoid paying child support and alimony obligation. Under my provisions, the obligation to pay child support and alimony is moved to a first priority status, as opposed to its current place at seventh in line, behind attorneys fees and other special interests. My measures also ensure the collection of child support and alimony payments by, among other things, exempting state child support collection authorities from the 'automatic stay' that otherwise prevents collection of debts after a debtor files for bankruptcy, and by exempting from discharge virtually all obligations one ex-spouse owes another. A new amendment will make changes to a number of provisions in the bill to clarify that the provisions are not intended, directly or indirectly, to undermine the collection of child-support or alimony payments.

The bill includes a provision that I offered, which was accepted in the Judiciary Committee, which creates new legal protections for a large class of retirement savings in bankruptcy, a measure which is supported by groups ranging from the AARP, to the Small Business Council of America and the National Council on Teacher Retirement.

Rampant bankruptcy filings are a big problem. In 1998, 1.4 million Americans filed for bankruptcy. That was more Americans than graduated from college, were on active military duty, or worked in the post office. Indeed, more people filed for bankruptcy in 1998 than lived in the states of Alaska, Delaware, Hawaii, Idaho, Maine, Montana, New Hampshire, North Dakota, Rhode Island, South Dakota, Vermont, or Wyoming.

Last year, about $45 billion in consumer debt was erased in personal bankruptcies. Let me give this number some context. Forty-five billion dollars is enough to fund the entire U.S. Department of Transportation for a year. Losses of this magnitude are passed on the American families at an estimated cost--if we use low estimates--of $400 to every household in America every year. That $400 could buy every American family of four: five weeks worth of groceries, 20 tanks of unleaded gasoline, 10 pairs of shoes for the average grade-school child, or more than a year's supply of disposable diapers.

Under current law, families who do not file for bankruptcy are unfairly having to subsidize those who do. Currently, our bankruptcy system is devoid of personal responsibility and is spiraling out of control. This is our opportunity to do something about it.

As noted scholars Todd Zewicky of George Mason Law School and James White of the University of Michigan Law School recently wrote:

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Current law requires a case-by-case investigation that turns on little more than the personal predilections of the judge. This chaotic system mocks the rule of law, and has resulted in unfairness and inequality for debtors and creditors alike. The arbitrary nature of the process has also undermined public confidence in the fairness and efficiency of the consumer bankruptcy system.

I am proud to be proposing several enhancements to the bill that primarily are designed to protect consumers and further provide incentives for consumers to take personal responsibility in dealing with debt management.

In the area of domestic support, as I indicated earlier, Senator Torricelli and I intend to build upon the new legal protections we created, as part of the underlying bill, for ex-spouses and children who are owed child support and alimony payments. The changes will further strengthen the ability of ex-spouses and children to collect the payments they are owed, and will make changes to a number of existing provisions in the bill to clarify that they will not directly or indirectly undermine the collection of child support or alimony payments.

In the area of education, Senator Dodd and I, along with Senator Gregg, have developed an amendment that will protect from creditors contributions made for education expenses to education IRAs and qualified state tuition savings programs. This is a significant protection for those who honestly put money away for the benefit of their children and grandchildren's educational expenses. The potential that education savings accounts will be abused in bankruptcy is addressed by the amendment's requirement that only contributions made more than a year prior to bankruptcy are protected. I believe that protecting educational savings accounts is particularly important because college savings accounts encourage families to save for college, thereby increasing access to higher education. Nationwide, there are more than a million educational savings accounts, meaning there are more than a million children who would benefit from this amendment. As much as I believe that the bankruptcy laws need to be reformed to prevent abuse and to ensure debtors take personal responsibility, the ability to use dedicated funds to pay the educational costs of children should not be jeopardized by the bankruptcy of their parents or grandparents.

I have also developed a debt counseling incentive provision, which builds on the credit counseling provisions currently in S. 625. It removes any disincentive for debtors to use credit counseling services by prohibiting credit counseling services from reporting to credit reporting agencies that an individual has received debt management or credit counseling, and establishes a penalty for credit counseling services that do. Debt management education is vital to reducing the number of Americans who, because of poor financial planning skills, are forced to declare bankruptcy. Providing crediting counseling--instruction regarding personal financial management--to current and potential filers will help curb bankruptcy filing.

In addition, I intend to offer an amendment that is designed to curb fraud in filing. This amendment puts in place new procedures and provides new resources to enhance enforcement of bankruptcy fraud laws. It will require No. 1 that bankruptcy courts develop procedures for referring suspected fraud to the FBI and the U.S. attorney's office for investigation and prosecution and No. 2 that the Attorney General designate one assistant U.S. attorney and one FBI agent in each judicial district as having primary responsibility for investigating and prosecuting fraud in bankruptcy.

I also plan to offer an amendment that will allow a victim of a crime of violence or drug trafficking offense or another party in interest to petition the bankruptcy court to dismiss a petition voluntarily filed by a debtor who was convicted of the crime of violence or drug trafficking offense. In order to protect women and children who may be owed payments by such a debtor, however, the amendment would still allow the bankruptcy petition to continue if the debtor can show that the filing of the petition is necessary to ensure his ability to meet domestic support obligations. Bankruptcy is not an entitlement--it is a process by which certain qualifying individuals with substantial debts may cancel their debts and obtain a 'fresh start.' Under this amendment, violent criminals and drug traffickers--individuals who have chosen to engage in serious, criminal conduct--would be precluded from availing themselves of the benefits of bankruptcy protection.

Again, I thank Senator Grassley, the distinguished chairman of the Judiciary Committee's Subcommittee on Administrative Oversight and the Courts, for his leadership and dedication to this effort, and look forward to working with him and the subcommittee's ranking member, Senator Torricelli, in passing this legislation.

Let's look at a couple of other charts. This one is done by Penn, Schoen and Bergland Associates, Inc.: 83 percent of the American people favor an income test in bankruptcy reform. Only 10 percent oppose it and 7 percent don't know. So we should have an income test in bankruptcy reform.

Americans agree that bankruptcy should be based on need. Ten percent believe an individual who files for bankruptcy should be able to wipe out all their debt regardless of their ability to repay that debt. Only 10 percent of our society believe that, and I am surprised that many people believe that. If somebody has the ability to pay a debt, why should they stiff other people with their debts and why shouldn't they have to live up to paying off their debts?

Four percent refused to answer this. But 87 percent believe an individual who files for bankruptcy --all of this yellow--should be required to repay as much of their debt as they are able and then be allowed to wipe out the rest.

That makes sense. Otherwise, we have people who are using the bankruptcy laws as an estate planning device. We have people who every 5 years file for bankruptcy after running up all kinds of bills and enjoying the life of Riley during those intervening years. What we want to do is have people realize there are some disincentives for doing that and that they have to pay some of these bills themselves.

These particular charts show that the American people have their heads screwed on right, except for about 10 percent of them. If an individual has the ability to repay some of the debt, they ought to be able to and they ought to want to, they ought to do what is right, and 87 percent of the American people believe that is the case. Only 10 percent believe they should be able to wipe out any debts at any time by going into bankruptcy.

I hope we can get people to vote for cloture on this matter so we can proceed and so we will not have any further delay in passing what really will be one of the most important bills in this particular session of Congress.

Mr. President, I suggest the absence of a quorum.

The PRESIDING OFFICER. The clerk will call the roll.

The bill clerk proceeded to call the roll.

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Mr. HATCH. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

The PRESIDING OFFICER. Without objection, it is so ordered.

Mr. HATCH. Mr. President, I suggest the absence of a quorum and ask that the time be divided equally.

The PRESIDING OFFICER. Time will be charged to both sides. The clerk will call the roll.

The bill clerk proceeded to call the roll.

Mr. WELLSTONE. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.

The PRESIDING OFFICER (Mr. Crapo). Without objection, it is so ordered.

Mr. WELLSTONE. I thank the Chair.

Mr. President, I will speak briefly in opposition to cutting off debate on S. 625, the Bankruptcy Reform Act of 1999. I say to my colleagues, the entire concept of the bill is wrong. It addresses a 'crisis' that appears to be self-correcting. It rewards the predatory and reckless lending by banks and credit card companies which fed the crisis in the first place, and it does nothing to actually prevent bankruptcy by promoting economic security for working families.

To support, if you will, my case on the floor, I will talk about a couple of amendments I intended to offer to this bill which I think will make a huge difference. Let me give a couple of examples.

One amendment will prevent claims in bankruptcy on high-cost credit transactions in which the annual interest rate exceeds 100 percent, such as pay-day loans and car title pawns. Pay-day loans are intended to extend small amounts of credit, typically $100 to $500, for an extremely short period of time, usually 1 week or 2 weeks.

These loans are marketed as giving the borrower a little extra until pay day, hence the term 'pay-day' loan. The loans work like this:

The borrower writes a check for the loan amount plus a fee. The lender agrees to hold the check until an agreed-upon date and gives the borrower the cash. On the due date, the lender either cashes the check or allows the borrower to extend the loan by writing a new check for the loan. In any case, the annual interest rate can get as high as 391 percent.

We ought to do something about that, Mr. President. I have an amendment that will make a difference. I believe I would win if I offered this amendment to address this problem.

Another amendment I want to offer is about making sure banks offer low-cost banking services to their customers. For about 12 million Americans, having a checking account is a simple convenience which they cannot afford. Why? Because quite often there is a large minimum or you have fees that are really too high, and therefore people cannot even have these accounts. I want to make sure these banks are responsive to low-income citizens as well.

Mr. President, I was on the floor last week for several hours talking about the crisis in agriculture. I said that those of us from the farm States want an opportunity to pass legislation that would change the course of policy and prevent our family farmers from being driven off the land and prevent, really, what is right now the devastation of our rural communities.

The minority leader, Senator Daschle, has an amendment to get the loan rate up, to get prices up, which I support. I have an amendment--and Senator Dorgan will join me--which basically says we are going to--for 18 months, until we pass some antitrust action--put a moratorium on a lot of these mergers and acquisitions. We want to have some competition in the food industry.

I think I can get a lot of support from Republicans as well as Democrats. I think there will be a lot of support on the floor of the Senate for these amendments that try to do something about changing farm policy so our producers--whether they be in Minnesota, whether they be in Idaho, whether they be in the Midwest, or whether they be in the South--are able to make a living and support their families.

In all due respect--I hate to say this--bankruptcy is all too relevant to what these family farmers are going through. I have an amendment that says we ought to do some policy evaluation if we are going to be talking about bankruptcy and we are not going to do a darn thing to deal with the predatory policies of these credit companies, that we are not going to do a darn thing about the ways in which they hook people in who have precious little consumer protection, that if we are going to talk about low-income citizens, I would like to see some policy evaluation.

I would like to see us have some understanding about what is going on in welfare. Where are these mothers and children who are no longer on the rolls? What are their wage levels? Is there affordable child care? Do these families have health care coverage or do they not have health care coverage?

It is also the case that my colleague who sits right next to me, Senator Kennedy, has an amendment he wants to offer to raise the minimum wage. I find it interesting that what we have here is a piece of legislation that does nothing by way of providing consumer protection, does nothing by way of challenging these credit card companies, and does absolutely nothing to prevent the bankruptcy in the first place.

We have the evidence that shows that very few people--maybe 3 percent--have abused the law. And because of that, we are passing a draconian, harsh piece of legislation which imposes enormous difficulties on the poorest families, on working-income families. Yet when some of us say we want to bring some amendments to the floor that deal with exorbitant interest rates, to make sure that low-income people have access to banking services, and to make sure we do something about the economic security for working families--and I include family farmers who are going bankrupt--we are told by the majority leader we are going to be shut out from being able to offer amendments, and therefore the majority leader files cloture.

We will have a cloture vote. I am going to vote against cloture; I am sure many of my colleagues are going to vote against cloture, and then I am sure the majority leader is going to pull the bill. If he pulls the bill, that will be actually a plus for Americans. This is a deeply flawed piece of legislation--great for the credit companies, terrible for consumers.

But if he pulls the bill, also that is basically a message to those of us who for weeks now have been saying we want to come to the floor with substantive amendments, to fight for the people we represent, to do something about making sure they have a decent chance--and I am talking in particular about family farmers. Basically what I am hearing from the majority leader is: Anytime you say you are going to come to the floor with these amendments, I am going to pull the legislation. I am not going to give you a vehicle. We are not going to have an up-or-down vote on minimum wage.

Apparently, a lot of my colleagues on the other side do not want to be on record; we are not going to have an up-or-down vote on getting farm prices up; we are not going to have an up-or-down vote on a moratorium dealing with these mergers and acquisitions; We are not going to have an up-or-down vote on amendments that really do deal with these payday loans, with these exorbitant interest rates, making sure again that low-income people have access to banking services.

I think there will not be enough votes for cloture. I do not think there should be enough votes for cloture. I want to say today on the floor of the Senate, especially to the majority leader--not so much to my colleague from Utah--if each and every time, as a Senator from an agricultural State, I am going to be shut out from having any vehicles whereby I can bring some amendments to the floor to change farm policy so these producers do not go under in my State, then I am going to have to look for whatever leverage I have as a Senator to force some cooperation on the other side so we can have a genuine, substantive debate

about a lot of issues that are important to people's lives.

Let's talk about raising the minimum wage. Let's talk about what is happening to family farmers. Let's talk about health care policy. Let's talk about consumer protection.

This effort on the part of the majority leader--and I guess, therefore, the majority party--to shut us out from introducing substantive legislation that would make all the difference in the world to the people we represent is just simply unacceptable. I do not think this is any way for us to operate as a Senate. I urge my colleagues to vote against cloture.

I yield the floor.

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Mr. GRASSLEY addressed the Chair.

The PRESIDING OFFICER. The Senator from Iowa.

Mr. GRASSLEY. I yield 7 minutes to the Senator from Alabama.

The PRESIDING OFFICER. The Senator from Alabama is recognized for 7 minutes.

Mr. SESSIONS. I thank the Senator from Iowa and appreciate his steadfast leadership on this issue. I also thank the distinguished chairman of the Judiciary Committee, Senator Hatch, for his leadership.

We have worked over the past several years to produce a much needed piece of legislation, a reform of Federal bankruptcy law. Bankruptcy is provided for in the U.S. Constitution, and we have seen some remarkable changes in the last few years that demand that we reform the system.

Last year there were over 1.4 million bankruptcies filed in America. That comes out to almost 4,000 filings every day of the year. Since 1990, personal bankruptcies are up 94.7 percent. This dramatic increase in personal bankruptcies occurred in spite of the fact that over that same period business bankruptcies fell 31 percent and the country enjoyed a healthy and expanding economy. These statistics demonstrate there is need for reform immediately.

Bankruptcy exists to provide relief as a last resort for the most debt-ridden individuals. It is not a financial planning device. This bill was needed last year, but it did not pass due to the same kinds of partisanship and political tactics we have seen here today.

This year, I think Congress will pass this bill. I hope we will proceed to it today for a final vote. The majority leader of the Senate and the Members of this Senate have a lot of work to do this year. We have quite a number of critical appropriations bills, including the Defense appropriations that may come up later tonight. We have to consider those bills.

We cannot have a bankruptcy bill like the one that passed this Senate last year with 97 votes--a very similar bankruptcy bill which almost every single Senator voted for. That bill turned into a Christmas tree of amendments on every kind of unrelated issue that any Senator wanted to bring up, and I am afraid that the same thing might happen today.

Why is this happening? I will tell you why. Some Senators do not want this bill to pass, but they are afraid to vote against it straight up, and so they offer amendment after amendment, and they tell the majority leader: We won't have any limit. We want to offer as many amendments as we can on a number of unrelated subjects--international affairs, economics, whatever they want to bring. This means we could be here for weeks on a bill that has been debated for the last 2 years with great intensity. The Senate does not need that. The majority leader cannot allow that to happen. We will have to not proceed with it, I assume, if we cannot get cloture today.

A bankruptcy bill similar to this passed the House earlier this year 313-108. Senator Grassley's bill came out of the Judiciary Committee 14-4. So I am proud to be a key sponsor of this. I think it makes the kind of changes we need without changing the fundamental principles that if a person is over their head in debt, helplessly unable to pay their debts, they ought to be able to wipe out those debts and start over. We have no dispute with that principle. That is a fundamental, historic principle.

I know it makes a lot of people mad to think that somebody does not have to pay their debts, that they can just go to court and wipe out their duly signed contract. But this country has always adhered to the view that if your debts reach a certain level and you cannot pay them, you can start