Contact: Ari Geller
202 244-8657

Mr. Chairman, we are taking up bankruptcy legislation in this committee on an expedited schedule, including holding this markup at a most unusual day and time. I certainly do not object to this committee meeting and marking up legislation at times other than our regularly scheduled Thursday morning session, when there is good reason to do so. But I don’t support, nor do I understand, the rush to push this bill through the committee and to the floor. Furthermore, I believe that there are other matters this committee should deal with before it begins work on legislation.

Nearly two months after the 107th Congress convened, we still have not adopted committee rules or organized our subcommittees. There is an important reason why those matters should now take precedence over legislative items on our agenda, regardless of what those legislative items might be. We have a new Senate, with a 50-50 ratio. We have a 50-50 split on this committee. And we have an agreement between our party leaders that committee staff funding and space will be allocated on a 50-50 basis. March 1st is right around the corner, and that is the day that committee funds for this year would normally be made available.

Yet as I understand it, there has been little progress in implementing the leaders’ agreement in this committee. March 1 will come and go on Thursday, and still we are operating in the space and with the staff that was allocated to us in 1999, when we had a United States Senate with a far different party split.

Mr. Chairman, it is not simply a matter of pride or pique that causes me to raise this issue today. The unfair funding allocation in this committee, an allocation that does not reflect the results of the last election or the agreement reached by our leaders to implement those results, directly affects our ability to work on legislative matters. You have chosen to mark up a major piece of legislation today, yet we on the Democratic side do not yet have even the promise of the staff or resources to which we are entitled. That is not fair. Our work today is therefore inconsistent with the judgment made by American people in the November 2000 elections. It is inconsistent with the historic power sharing agreement reached by Senators Lott and Daschle at the beginning of the year. And it is inconsistent with the plea for comity and cooperation made by President Bush in his inaugural address, a plea that he will undoubtedly repeat tonight.

Now the bill that we have before us today is the same bill that President Clinton pocket vetoed at the end of the last Congress. And we have a new President, who most observers expect would sign this bill if it reaches his desk. I don’t know if that is true. I hope he and his advisors will take a fresh look at this legislation and not just sign it because President Clinton vetoed it. Nonetheless, there is the perception that all the supporters of this bill have to do is push it through the Congress as quickly as they can and it will become law.

Let me respectfully suggest, Mr. Chairman, that having a new President ought to put more pressure on this Committee to do its job in a thoughtful and balanced way, not less. In the past two Congresses, it has been my impression that the Republican majority has made decisions on the substance of this bill in order to stake out a negotiating position vis a vis the White House. Twice it has ignored the work done by the Senate on the floor and come up with a conference vehicle that was designed to provoke a veto. In 1998, for example, we passed a bill through the Senate by a vote of 97-1. That is the way bankruptcy reform should be done and has been done in the past. But the majority ignored that bill and brought what was essentially the House bill back from conference. And it failed to become law. And again last year, on issue after issue, including two crucial points – Sen. Kohl’s homestead amendment and Sen. Schumer’s clinic violence amendment, where the Senate had spoken by clear bipartisan majorities – the bill that came back from the shadow conference was tilted more to the House bill, and the bill was vetoed.

This time there is no Administration to push back in negotiations. This time, the bill will not be a product of compromise with the Administration. This time, the majority will bear responsibility for what it produces and passes. This time, Mr. Chairman, we better listen to the experts who have been telling us to slow down and be careful.

And yet we have this rush to get the bill done. First, the bill was introduced and put on the calendar so that the Majority Leader could bypass this committee altogether and bring it up on the floor. Then when Democrats protested that we should follow the normal legislative process on this bill, a quick hearing was held in this committee. And then a markup on a bill that has not even been referred to the committee was immediately scheduled. And now this meeting is held at this unusual time. All this seems to be driven by the desire to have something, anything, to consider on the floor before the budget and education and other important legislative matters are ready to be considered.

All of these efforts to speed up the process don’t make the bill any better, or more fair, or more balanced, or more worthy of this Committee or this Congress than was the one we passed last year. Amending the bankruptcy code used to be a nonpartisan exercise, where the Congress listened to experts – practitioners and law professors and judges and trustees, and made careful considered judgments about how the law should work. Now we ignore the experts and instead do what the credit industry wants us to do. And we use parliamentary tactics to avoid reasoned consideration. Those tactics harm the bill, and discredit the Senate.

Let me now turn to the substance of this legislation. I believe that as introduced, S. 220 will do terrible damage to the bankruptcy system in this country, and even more importantly, to many hard-working American families who will bear the brunt of the unfair so-called "reforms" that are included in this bill. This is a harsh and unfair measure pushed by the most powerful and wealthy lobbying forces in this country, and it will harm the most vulnerable of our citizens.

First, let me talk about what is not in this bill, which is directly related to the fact that powerful special interests have shaped it. As I have said a number of times, this bill is not a balanced piece of legislation. The interests that are the strongest supporters of this bill, the credit card companies and the big banks, succeeded in limiting the provisions that will have any effect on the way they do business. These interests gave us and our political parties millions of dollars of campaign contributions and they like the results they achieved in this bill.

Billions of credit card solicitations go out each year to consumers. Not millions, billions. Most experts agree that the rise in bankruptcy filings over the past decade, although the number is actually now on the way down, is due in significant part to credit card companies and the banks’ irresponsibly extending credit to people who have already shown that they cannot handle additional debt.

Just to give a more tangible example of the blizzard of solicitations that credit card issuers are now sending out, one member of my staff has been collecting solicitations he receives by mail since this bill was marked up in the last Congress. In the last 20 months, he has received 95 mail offers for a credit card. Now I’m sure my staffer is a very creditworthy individual. But 95 offers for a new credit card? And of course these direct mail offers don’t include the constant invitations for credit cards that people see every day on the Internet and on TV.

This is an industry whose sales techniques are out of control. The credit card companies are making bad decisions every day. People receive new cards with thousands of dollars of new credit when they have maxed out on two, five, even ten other cards. And now the credit card companies are here before the Congress asking for our help. And boy did we give it to them. This bill is a bailout for the credit card industry. It’s going to make it easier for credit card companies to collect more on the bad decisions they have made, the credit they have extended to people who are demonstrably poor credit risks. And make no mistake, giving the credit card companies more power will work to the detriment of women trying to collect alimony and child support from ex-husbands who have filed for bankruptcy.

If we’re going to pass a credit card industry bailout bill, the least we should do is to help save the industry from itself by taking some steps to make sure that consumers are made more aware of the consequences of taking on ever increasing amounts of debt. We have the chance in this bill to require credit card companies to be more open with consumers about the consequences of running a balance on a card. But so far we haven’t done it. We need more prevalent and more detailed disclosures on credit card statements and solicitations. There are limited disclosure requirements in this bill, but they don’t go nearly far enough in my opinion. And I think it’s clear that the main reason that they don’t is the power of the credit card companies.

Last December, the Wisconsin State Journal, which is a very middle of the road paper in my home state, summarized well my concern about the extent to which this bill gives the credit card industry what it wants. The Journal wrote:

"When the credit card industry came to Congress to ask for help in collecting debts from deadbeats, Congress should have said: It’s not government’s job to bail you out. Why don’t you tighten up your own lending practices? Instead, Congress let the industry turn a bankruptcy reform bill into a debt collection assistance plan."

     The editorial continues:

"The House and Senate had before them 172 recommendations from the National Bankruptcy Reform Commission, which was led by Madison attorney Brady Williamson. The commission had stressed that bankruptcy law must remain balanced: It must work for creditors and debtors.

But the congressmen also had before them lobbyists for the credit card industry and similar lenders. Quickly, bankruptcy reform legislation became a campaign fund-raising bonanza for the politicians, with the lending industry ''investing'' $ 20 million in contributions. Just as quickly, bankruptcy reform turned into the credit card industry's bill."

My colleagues on this Committee and in the Senate are well aware of my concern about the influence of campaign money on politics and policy. As I have said a number of times, the bankruptcy bill is a poster child for the need for campaign finance reform. You only have to look at what the credit card industry gets in this bill, and just as importantly, the disclosure that consumers don’t get, to understand that.

I ask unanimous consent that an article from this week’s Business Week concerning how much the credit industry will benefit financially from this bill and its political contributions be included in the record of this meeting.

Now there’s another thing missing in this bill. Remember, this bill is supposedly designed to end abuses of the bankruptcy system by people who really can afford to pay off more of their debts. But the biggest abuses, and all the experts agree on this, come when wealthy people in certain states file for bankruptcy by taking advantage of very large or even unlimited homestead exemptions that are available in their states. Some people with large debts even move to a state like Florida or Texas where there is an unlimited homestead exemption, specifically for the purpose of filing for bankruptcy.

The National Bankruptcy Review Commission and virtually all leading academics believe that homestead exemptions are being abused and a national standard is needed. And by a vote of 76-22, the Senate adopted in the last Congress an amendment from my colleague the senior Senator from Wisconsin to close the loophole. That amendment would have put a $100,000 cap on the amount of money that a debtor can shield from creditors through the homestead exemption.

But that amendment was stripped out of the bill during last year’s secret conference and replaced by a weak substitute. The bill limits the homestead exemption to $100,000, but only for property purchased within two years of filing for bankruptcy. That means that wealthy debtors can plan for bankruptcy by moving to an unlimited homestead exemption state, buying a palatial estate, and then just put off their creditors for two years before filing bankruptcy. If they do that, they can continue to shield millions of dollars in assets and throw off their debts with a bankruptcy discharge. The bill will have no effect on this abuse of the bankruptcy system. This bill does not close the homestead exemption loophole that people like Burt Reynolds and Bowie Kuhn have famously used in the past.

So once again, supporters of this bill chose to ignore reforms that would give this bill some balance. Somehow the interests of wealthy debtors who use the homestead exemption to abuse the bankruptcy system are more important than the interests of hardworking Americans who through no fault of their own – whether from a medical catastrophe, or the loss of a job, or a divorce, are forced to seek the financial fresh start that bankruptcy has made possible since the beginning of our republic. I will support Senator Kohl her in committee or if necessary on the floor to insist that his amendment concerning the homestead exemption is part of the final bankruptcy bill.

It’s interesting, and very revealing, to contrast the treatment by this bill of wealthy homeowners who abuse the bankruptcy system with how it treats poor tenants who need the protection of the bankruptcy system to keep from being thrown out on the street while they try to get their affairs in order. As I mentioned, the provision dealing with the homestead exemption is virtually meaningless. At the same time, the bill includes a draconian provision that denies the bankruptcy stay to tenants trying to hold off eviction proceedings, even if they are able to pay their rent while the bankruptcy is pending. This provision is purely punitive. It will have no impact at all on getting debtors to pay past due rent. It will result in the eviction of people who are not abusing the bankruptcy system, but who are trying to use it for exactly the purpose for which it was intended – to get a fresh start and become once again productive members of our society.

When the bankruptcy bill was before the Senate in the last Congress, I tried very hard to pass an amendment that would have made the bill less harsh on tenants while at the same time denying the protection of the automatic stay to repeat filers who are abusing the system. I modified the amendment to take account of some reasonable hypothetical situations that the Senator from Alabama came up with. But the realtors strongly opposed my amendment. And the Senate rejected it by a nearly party line vote. That was unfortunate. It confirmed my view that this bill is not balanced. It is not rational. It’s about punishing people, not just stopping the abuses that we all agree should be stopped.

Shortly before the election last year, the Senator from Alabama was on the floor once again arguing that this bill is necessary to crack down on tenants abusing the bankruptcy system to live rent-free. My amendment would have cracked down on those abusers too, but without harming good faith debtors who need the automatic stay of an eviction to avoid homelessness and be able to pay some of their debts. The failure of the majority to recognize the harshness of the bill on this point and accept a reasonable amendment that deals with the abuse just as effectively was a great disappointment. It reinforced my judgment that this bill is not balanced, it is not fair. I plan to offer my amendment again here, and if necessary on the floor, to correct the harshness and unfairness of the bill in this area.

Now let me turn to what proponents view as the central feature of this bill, the means test. After much work, I believe this feature of the bill is still flawed and unfair. The means test is the mechanism that the bill’s proponents believe will force people who can really manage to pay some portion of their debts into Chapter 13 repayment plans instead of Chapter 7 discharges. The means test requires every debtor to file detailed information on their expenses and income which is then analyzed according to a formula. Those who pass the means test can file a Chapter 7 case; those who fail would have to file under Chapter 13.

The bill includes an important "safe harbor" for debtors who are below the median income. The means test does not apply to them. That’s a good thing, since studies show that only 2 or 3 percent of debtors would be required to move from Chapter 7 to Chapter 13 under the means test. But even with that "safe harbor," the bill has significant problems. First, the bill specifies that for purposes of determining the safe harbor, the median income for each individual state should be used, rather than the higher of the state or national median income. This will unfairly disadvantage people who live in high cost areas of low median income states. Furthermore, in the Senate bill in the last Congress, we included a safe harbor from creditor motions that applied to people with income less than either the national or the median income. The people who drafted the final bill that President Clinton vetoed and that has been reintroduced ignored that standard. I doubt they really believe it will mean that more abusers of the system will be caught by the means test. But they did it anyway, giving further evidence of the arbitrary nature of this bill.

In addition, the means test still employs standards of reasonable living expenses developed by the Internal Revenue code for a wholly different purpose. These standards are too inflexible to be fair in determining what families can live on as they go through a bankruptcy. They are arbitrary. And they are also ambiguous with respect to things like car payments because they weren’t designed to be used in this context. We have pointed this out repeatedly over the past few years, but the sponsors of the legislation have insisted on using these inflexible IRS standards.

The safe harbor from the means test also inexplicably counts a separated spouse’s income as income available to a mother with children who has filed for bankruptcy, even if the spouse is not paying any child support. This can’t be fair. Mothers filing for bankruptcy because their spouses have left them are treated for purposes of the safe harbor as if the spouse’s income is still available to them. That is what this bill does. It makes no sense. It’s arbitrary and punitive.

But perhaps the thing that is most curious about the means test is that while we now have a safe harbor for lower income people, they still have to fill out all the same paperwork, doing all of means test calculations using the IRS expense standards. Why is that? If the intent is to exempt lower income debtors from the means test, why have them go through the means test anyway? The burden of the means test for these people is not the result — a tiny percentage would ever be sent to Chapter 13 because of it. No, it’s the burdensome paperwork that is the problem. In our hearing, Bankruptcy Judge Randall Newsome made this point very powerfully. He said:

"If S. 220 must contain the means test as presently drafted, then debtors whose incomes are below the applicable median should be entirely insulated not only from its application, but from its paperwork requirements as well."

Here’s an example of the problem of making people go through the means test even though they are exempt from it. This bill would deny the protection of bankruptcy to a single mother with income well below the state median income if she doesn’t present copies of income tax returns for the last three years, even if those returns are in the possession of her ex-husband. I can see no justification for this result whatsoever.

So for those supporters of the bill who trumpet the safe harbor, I ask you: Why doesn’t the bill apply the same safe harbor to creditor motions as the Senate bill did, and why doesn’t it exempt people who fall within the safe harbor from the paperwork requirements? I have yet to hear reasonable answers to those questions, which leads me to believe that there are no reasonable answers. This bill is arbitrary, and it is punitive.

This bill also includes a number of "presumptions of nondischargeability" provisions, which basically say, "these debts can’t be discharged in bankruptcy because we think they look like people are running up bills in contemplation of bankruptcy." In other words, they are abusing the system. They are accumulating debt with no intention of paying it off.

The problem is that these presumptions are unfair. So instead of being a deterrent to abuse of the system, they are simply a gift to the credit industry, and a harsh punishment to hard working people trying to do the best they can to meet their obligations to their families. One such provision creates a presumption of nondischargeability if a debtor takes $750 of cash advances within 70 days of bankruptcy. $750 in a little more than two months. That’s not much Mr. President. I think all of us can imagine a single mother with children who loses her job or has unexpected medical bills for her kids and has to use cash advances to buy food for her family or pay her rent. But if that woman files for bankruptcy, the debt to the credit card company is presumed to be fraudulent. That means that the debt from those cash advances will not be discharged by bankruptcy. It will still hang over her head as she tries to get back on her feet and support her family after the bankruptcy proceeding is over. That is not balanced reform. Once again, this bill gives special treatment to credit card companies at the expense of the most vulnerable members of our society. It is arbitrary and punitive.

This example shows how empty the proponent’s arguments are when they claim that the bill gives first priority to alimony and child support. Over 100 law professors wrote the Senate last year to contest that claim. Let me quote from their letter:

Granting "first priority" to alimony and support claims is not the magic solution the consumer credit industry claims because "priority" is relevant only for distributions made to creditors in the bankruptcy case itself. Such distributions are made in only a negligible percentage of cases. More than 95% of bankruptcy cases make NO distributions to any creditors because there are no assets to distribute. Granting women and children a first priority for bankruptcy distributions permits them to stand first in line to collect nothing.

    The law professors continued:

Women’s hard -fought battle is over reaching the ex-husband’s income after bankruptcy. Under current law, child support and alimony share a protected post-bankruptcy position with only two other recurrent collectors of debt – taxes and student loans. The credit industry asks that credit card debt and other consumer credit share that position, thereby elbowing aside the women trying to collect on their own behalf. .... As a matter of public policy, this country should not elevate credit card debt to the preferred position of taxes and child support.

What the law professors point out so convincingly is that the key issue is not how the limited assets of a debtor are distributed in bankruptcy but what debts survive bankruptcy and will compete for the debtors income when the bankruptcy is over. In a variety of ways, this bill will encourage reaffirmation agreements, and increase nondischargeability claims, which will lead to more debtors having more debt that continues after bankruptcy.

That’s what hurts women and children, not the priority of child support claims in the bankruptcy itself. The priority of claims in the bankruptcy itself is almost meaningless since in the vast majority of bankruptcy cases there are no assets to distribute. People are broke and they don’t have anything to sell to satisfy their creditors. That is why they file for bankruptcy. You can’t squeeze blood from a stone.

One of the interesting things about this bill is the almost Orwellian names of some its provisions. There are a number of them. For example, there is a title of this bill with the name: "Enhanced Consumer Protection." But many of the provisions in this title actually offer little if any protection at all. The weak credit card disclosure provisions are one example. Yes, those may be "enhanced" consumer protections, enhanced from nothing, but they aren’t considered sufficient by any organization whose primary concern is consumer protection.

There’s another section within the so-called "Enhanced Consumer Protection title called "Protection of Retirement Savings in Bankruptcy." Sounds pretty good. But what the provision does is put a cap on the amount of retirement savings that are put out of reach of creditors in a bankruptcy proceeding. You see, before this bill, there was no limit at all on the amount of retirement savings that can be protected. So this bill is not an enhanced consumer protection at all. It’s a step backward for consumers and hardworking Americans who have tried to put aside some money for their golden years.

Incidentally, this provision was nowhere to be found in either the bankruptcy bill that passed the Senate last year or the bill that passed the House in 1999. This is one of those provisions that appeared out of nowhere. In fact, before a firestorm of criticism forced him to reconsider, the Senator who proposed this provision wanted to let consumers waive the existing protection of retirement savings in boilerplate consumer credit agreements. So the $1 million cap is an improvement over what the sponsors of this bill tried to do, but it is hardly a "protection." I understand that Senator Kennedy may offer an amendment to eliminate this cap, and I will support it.

Now here’s another Orwellian title. Section 306 is called "Giving Secured Creditors Fair Treatment Under Chapter 13." It ought to be called "Giving Certain Secured Creditors Preferred Treatment Under Chapter 13," because it favors those who make car loans over other secured creditors and over unsecured creditors.

Here’s how it works: There is a concept in bankruptcy law currently called "cramdown" or "stripdown." It recognizes the fact that the collateral for some kinds of loans can lose value over time, so that it may be worth significantly less than the debt owed. Remember that in a bankruptcy proceeding, secured creditors get paid first. But the cramdown concept says to those creditors, you only get paid first up to the amount of the value of the collateral for the loan. After that, if you are still owed money, you get in line with other unsecured creditors.

To give a more tangible example, if someone owes $10,000 on a car loan, but the car which is collateral for that loan is worth only $5,000, then only $5,000 of that loan is considered secured in a bankruptcy. That makes perfect sense, since the maker of that loan has the right to repossess the car, but if it does that it can only get $5,000 when it sells the car.

What the bill does is to eliminate the cramdown for any car that is purchased within five years of bankruptcy. That means that even though the vehicle that secures the loan has lost much of its value, the entire amount of the debt must be repaid in a Chapter 13 plan. This gives special treatment to the lender, but more importantly, it will make it much more difficult for a Chapter 13 plan to work. And that will hurt people who want to pay off their debts in an organized fashion under Chapter 13.

In answer to my written question, Bankruptcy Judge Randall Newsome supplied a detailed example that shows how the elimination of the cramdown option will hurt both debtors and creditors. In his example, a debtor with a seven year old car who files under Chapter 13 under current law will be able to pay off his car loan up to the value of the car with interest and make a meaningful payment of his unsecured debts over the 3 year duration of his Chapter 13 plan. But with the elimination of the cramdown in the bill, he would, he would have no choice but to file in Chapter 7 and allow the car lender to repossess his vehicle. And his unsecured creditors would get nothing. I ask that Judge Newsome’s letter to me providing the details of this example be included in the record.

Most people file Chapter 13 cases because they want to keep their cars. The cramdown allows them to reduce their car payments to a reasonable amount, leaving enough money to pay off other secured creditors and make a repayment plan work. According the Chapter 13 trustees, who know what they are talking about since they deal with these cases day in and day out, this single provision of the bill will increase the number of unsuccessful Chapter 13 plans by 20 percent. And Judge Newsome states that if this bill becomes law, Chapter 13 will essentially be eliminated as an option for people who wish to hold on to their cars. He writes: "When § 306(b) is combined with §314(b), which eliminates the enhanced discharge presently afforded by chapter 13, only those debtors seeking to save a home from foreclosure will find chapter 13 a reasonable option."

Making it more difficult for debtors to get Chapter 13 plans confirmed will lead to more repossessions of cars, and ultimately to more Chapter 7 filings. And even where a Chapter 13 plan can be confirmed and is successful, the anti-cramdown provision will reduce the amount that a debtor can pay to unsecured creditors or for child support or alimony. In essence, under this bill, car payments on a car worth far less than the debt owed are given priority over child support. Another example of how this bill is arbitrary and punitive and how the claims of the bill proponents that the bill will help women and children are empty indeed.

The anti-cramdown provision undermines the efficacy of Chapter 13. All the experts tell us that. And I have to point out the irony here. The avowed purpose of proponents of this bill is to move people from Chapter 7 discharges to Chapter 13 repayment plans, yet the bill undermines Chapter 13. I will support an amendment to eliminate this particular provision that is really a gift to the auto industry at the expense of other secured creditors.

There’s another provision in this bill that undercuts Chapter 13. The small group of Senators who shaped this bill in a shadow conference accepted a provision from the House bill that says that for those debtors with income above their state’s median income, Chapter 13 plans must extend over 5 years, rather than three. That’s a 66% increase in payments required to complete the plan. In view of the fact that the majority of three year plans fail, the requirement that the debtor go two more years without an income interruption or unexpected expenses will inevitably lead to an even higher rate of Chapter 13 plan failures and discourage even more debtors from filing voluntarily under Chapter 13. I will support the amendment proposed by Senator Leahy to correct this problem.

I plan to offer another amendment to deal with the damage this bill does to Chapter 13. The bill makes people who voluntarily file under Chapter 13 go through what amounts to a means test using the same wooden and arbitrary IRS standards to determine how much disposable income they have available to pay off their secured creditors. Anyone who has more than the median income will have to limit their monthly expenses to those permitted under the IRS standards. That is going to discourage Chapter 13 filings. If we want to encourage debtors to use Chapter 13 rather than Chapter 7, we have to get rid of that provision.

As I have said before, this bill is at war with itself. Bankruptcy experts from around the country say it will not work. This bill will destroy Chapter 13 as an option for many debtors. If we pass it, I’m convinced that we will be back here trying to fix it once it starts to take its toll on the American people. In the meantime, how many lives will we make harder, how much more heartache are we going to inflict on hard-working Americans?

Mr. Chairman, I will offer an amendment to address another provision of the bill that is bound to inflict heartache on families and children. Section 313 of the bill includes a definition of "household goods." The effect of this definition is to limit the ability of debtors to avoid non-purchase money liens on personal property. I consider the practice engaged in by many finance companies of taking a security interest in personal property that was not purchased with the loan to be highly questionable. The FTC in the early ‘80s prohibited taking these nonpurchase money security interests in certain household property. But because the list of what constitutes household goods in the FTC regulation is outdated and limited, many finance companies put a lien on every other type of personal property that they can identify. Those liens give them leverage to try to collect on their loans, even if the property is of minimal value. And they have a leg up on getting reaffirmation in bankruptcy if the liens can be enforced.

The Bankruptcy Code of 1978 allows debtors to avoid these liens as long as the property is exempt from foreclosure under the applicable state or federal personal property exemption. But the section 313 definition of household goods would limit the liens that can be avoided to a narrow list of certain goods. The list is based on the FTC regulation from the early 1980s. So essentially, if this provision becomes law, the liens that can be avoided in bankruptcy are mostly the ones that the FTC has already said should be prohibited!! But anything else that’s not on the list can be foreclosed on – things like garden equipment, and family heirlooms or paintings of a debtor’s parents.

Now remember, the liens we are talking about here are non-purchase money liens, they aren’t loans taken out to buy a particular item. There is no evidence that the power to avoid these non-purchase money liens is being abused. It can’t be abused, because personal property exemptions are quite limited. No one can shield thousands of dollars of fancy stereo equipment in a bankruptcy. So the definition of household goods in the bill is just a gift to the finance companies who prey on people living at the edge. This bill facilitates these kinds of borderline unethical lending practices. I will have an amendment to substitute for the limited and counterproductive definition in the bill, a broad definition of household goods that many courts are already employing.

Mr. Chairman, I’ve spoken for quite awhile here about the problems with this bill. In fact, I have probably only scratched the surface. This is an immensely complicated bill about a very technical area of the law. There are provisions in this bill that I would venture to guess that no one in the Senate really understands. We are hearing every day about new problems with this bill, particularly in the business bankruptcy provisions that few people have paid much attention to.

Before I close, I have to mention one provision that was slipped into this bill in the shadow "conference" and remains in it today – section 1310 barring enforcement of certain foreign judgments. This provision is an example of lawmaking at its worst. It has nothing to do with bankruptcy law whatsoever. It is a provision designed to bail out about 200 investors in Lloyds of London who lost money in the 1980s. These individuals tried to avoid their responsibilities in the British courts and failed, and they have repeatedly failed to have the judgments against them thrown out by American courts. In fact, eight circuit courts have ruled that these investors’ disputes with Lloyds should be settled in British courts. So they have been seeking special treatment from the Congress, and if President Clinton didn’t veto the bill last year they would have got it.

Mr. Chairman, this provision is opposed by the State Department that rightfully worries about the impact of a law on international economic transactions that gives the back of the hand to respected foreign courts. It also will make it harder to enforce U.S. court orders in foreign courts. The Organization for International Investment, the National Association of Insurance Commissioners, and the Council of Insurance Agents and Brokers oppose the provision because of their concern over its impact on the international insurance market.

Worst of all, Mr. Chairman, this provision smacks of the kind of special interest giveaway that pervades this bill. But this one is worse because we have had no hearings on this provision, it did not come out of this committee, it did not come out of the Senate or the House, it was just slipped into the bill at the last minute. So I will offer an amendment, either here in committee, or on the floor, to strike the provision and I certainly look forward to seeing it removed from the bill.

To conclude, Mr. Chairman, this is the kind of bill where we need to rely on the experts to guide us. And we just haven’t done that here. Once again, we have a letter from over 100 law professors, from all across the country. They aren’t debtors lawyers, they aren’t all Democrats, they don’t have an ideological agenda, they just understand the law and care about how it operates. And they plead with us, let me quote from their letter again: "Please don’t pass a bill that will hurt vulnerable Americans, including women and children."

This is extraordinary. The experts beg us to listen to them. They don’t have a financial interest here. They don’t represent debtors. None of them is in danger of declaring bankruptcy. They just hate to see this Congress make such a big mistake in writing the laws. They don’t want us to ruin the bankruptcy system, which dates back to the earliest days of our country, by passing a bill that is so unbalanced, so arbitrary and so punitive.

Mr. Chairman, I want to assure my colleagues that I am not opposed to reform of the bankruptcy laws. I know there are abuses that need to be stopped. I voted for a bill in 1998 that passed this Senate with only a handful of votes in opposition. There are things we can do to improve the bankruptcy system. There are loopholes we can close and abuses we can address. We can do it in a bipartisan way. We can write a balanced bill that the Senate and the country can be proud of. We can rely on the advice of experts as we always have in the past. We didn’t do that here. We relied on the credit card industry, which has showered Senators and the political parties with campaign contributions, and it shows.

Before we barrel forward on a fast track to pass this bill just because it’s where the process ended last year, we have one more chance to listen to the experts. One last chance to step back from the brink of passing a very bad law, a law that I believe we will come to regret. It’s a matter of simple fairness, and simple justice.

S. 220 is an unfair bill, Mr. Chairman. The Committee and the Senate can and must do better. I look forward to the debate on amendments and I thank the Chairman and the committee for their indulgence.

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