Mr. Chairman, let me thank you for convening this hearing today. The dramatic rise in bankruptcies is very troubling, regardless of whether the blame lies with credit card companies that are all-too-eager to lend to potential deadbeats, a culture that disparages personal responsibility, an allegedly outdated bankruptcy code or, most probably, with all of the above.

While none of us wants to return to the era of “debtors’ prison,” we need to do something to reverse this trend. Today we will primarily hear about the Grassley/Durbin reform bill in the Senate and the Gekas proposal in the House. Mr. Chairman, you and Senator Durbin should be commended for crafting a bipartisan measure to stem this growing problem. And, while much has been made of the differences between these two approaches, let me take a step back and make a few points.

First, while both reform bills can make a difference, they are only partial solutions. Under either approach, most bankrupt debtors are so far over their heads that they will still get full discharges, and most debtors forced into repayment plans will still only pay a fraction of what they owe. If we want an effective solution, we also need better consumer education, more credit counseling as an alternative to bankruptcy, and reform of risky creditor practices.

Second, for all the technical differences, both bills establish that if you can afford to pay back some of what you owe, you should. This makes perfect sense. But, as always, the devil is in the details. In the Senate bill, there is a real question whether the unprecedented and one-sided “loser pays” provision will deprive debtors of fair representation. Risking substantial fines even for arguments made in good faith, debtors’ attorneys may not even try to do justice for their clients. And challenges to the House bill’s rigid formula could result in overloading the courts, more fees for debtors’ attorneys, and less money in the pockets of deserving creditors.

Third, neither bill eliminates the most flagrant abuse of the bankruptcy code -- misuse of the homestead exemption. Originally the homestead exemption was supposed to protect a debtor’s most basic need -- a roof over his head -- from being sacrificed to satisfy his debts. However, although few would question that debtors deserve a home, this exemption has been repeatedly abused. While the vast majority of states responsibly cap the exemption at $40,000 or less, millionaire debtors often move to one of the five states that allow unlimited exemptions. In places like Florida and Texas, they declare bankruptcy yet continue to live like kings, while their creditors get little or nothing. If we want to restore the stigma to declaring bankruptcy, this is the best place to start. That’s why Senator Sessions and I have proposed that we cap the homestead exemption at $100,000. In my view, this cap must be part of any bankruptcy reform. I am pleased, Mr. Chairman, that you are willing to accept my measure as an amendment, with minor tinkering.

Mr. Chairman, these are not easy issues, of course, but they deserve our attention. I look forward to hearing the testimony from these witnesses, including Stan Bluestone, an old friend from my retailer days in Wisconsin. Thank you.