S.256 Bankruptcy Reform Bill

Senate Committee on the Judiciary, mark-up of the S.256 Bankruptcy Reform Bill

PREPARED STATEMENT OF SEN. CHUCK GRASSLEY: I'm glad we're marking up S. 256, the bankruptcy reform bill, which I believe we all consider to be unfinished business. We've debated bankruptcy reform at great length and in excruciating detail over the past four Congresses. Both the House and Senate have held numerous hearings on all aspects of bankruptcy. In the 106th Congress, the Senate passed a bipartisan bankruptcy bill by a vote of 70 to 28. Unfortunately, President Clinton pocket-vetoed that bill, and the Senate didn't have the opportunity to override it, even though we had the votes to do so.

Then we took up the same bankruptcy bill in the 107th Congress. The Senate passed a bipartisan, compromise bankruptcy reform bill by a vote of 85 to 13, and we went to conference with the House. Unfortunately, the Schumer abortion provision contained in the conference committee report derailed passage of the bill because the House wouldn't take it.

In the 108th Congress, the House passed a bill which contained the exact same language of the 107th Congress bankruptcy conference committee report without the abortion language. In fact, the House passed that bill twice in the 108th Congress - the first time it passed the H.R. bill, but the Senate never took it up; and then it passed the bill a second time by amending a Senate bill with it and requesting a conference, but the Senate was denied going to conference by the Democrats.

I'm hopeful that we'll be able to move swiftly in this Congress and finally get the bankruptcy bill done. That's why Senators Hatch, Sessions, Shelby, Carper and Ben Nelson joined me in reintroducing S. 256, the exact same bankruptcy conference report that was approved by both the House and Senate with overwhelming bipartisan support, but without the poison pill abortion provision.

I repeat, this bill is unfinished business. We aren't covering any new ground. In fact, we don't even need to be in Committee. But in the interest of addressing procedural concerns, we're holding this markup today. I'd like to keep this markup short and sweet because I don't think that the bill should be changed at all. We already have a good bill that contains many provisions that have been negotiated meticulously on the floor and in conference. We had a lot of give and take on both sides of the aisle. So this language before us is a carefully crafted compromise that shouldn't be upset. That's why I'd like to keep the bill as clean as possible, and not reopen any matters that have been compromised on. I'm urging my colleagues to reject any amendments that will disrupt the negotiated compromise language reached in conference committee - the language that received bipartisan support, including that of the Judiciary Committee ranking member.

Let me say a few words about the bill before us today. The current bankruptcy system needs to be reformed. Presently, when individuals file for bankruptcy under Chapter 7, a court proceeding takes place, and their debts are simply erased. Every time a debt is wiped away through bankruptcy, someone loses money. When someone loses money in this way, he or she has to decide either to assume the loss as a cost of business, or raise prices for other customers to make up that loss.

When bankruptcy losses are infrequent, lenders can just swallow the loss. But when they are frequent, lenders need to raise prices to other consumers to offset their losses.

The result of the bankruptcy crisis is that hardworking, law abiding Americans have to pay higher prices for goods and services. S. 256 would make it harder for individuals who can repay their debts from filing bankruptcy under Chapter 7. It's only fair to require people who can repay their debts to pull their own weight. But under current bankruptcy law, one can get full debt cancellation in Chapter 7 with no questions asked. The bill asks the question of whether repayment is possible by an individual, and if it is, then he or she will be channeled into Chapter 13 of the Bankruptcy Code, which requires people to repay a portion of their debt as a pre-condition for limited debt cancellation.

So I'm clear, S. 256 specifically provides that people of limited income can still use the bankruptcy system under Chapter 7. S. 256 contains a very flexible means test that will consider special circumstances for each debtor, and as such, keeps the safety net in place for those individuals who truly need to have a fresh start because of unexpected downturns in their lives. But the free ride is over for people who have higher incomes and who can repay their debts. We want to keep the bankruptcy safety net, but we want to fight the abuses with the current system. Bankruptcy shouldn't be accepted as a convenient financial planning tool for deadbeats, while honest Americans have to foot the bill.

The bankruptcy bill also contains tough new consumer protections, like new procedures to prevent companies from using threats to coerce debtors into paying debts which could be wiped away once they are in bankruptcy. The bill requires the Justice Department to concentrate law enforcement resources on enforcing consumer protection laws against abusive debt collection practices. It contains new disclosures for consumers by mandating that credit card companies provide key information about how much they owe and how long it will take to pay off their credit card debt by only making a minimum payment. Consumers will also be given a toll-free number to call where they can get information about how long it will take to pay off their own credit card balances if they make only the minimum payments. This will educate consumers and improve consumers' understanding of their financial situation.

Moreover, our bill makes changes to help particularly vulnerable segments of our society. For example, child support claimants are given a higher priority when the assets of a bankruptcy estate are distributed to creditors. Bankruptcy trustees and creditors of bankrupts will be required to give information about the location of deadbeat parents who owe child support.

S. 256 also makes Chapter 12 of the Bankruptcy Code permanent. This means that America's family farms are guaranteed the ability to reorganize. But the bill goes further. It makes improvements to Chapter 12 so it will be more accessible and helpful for farmers.

I look forward to moving forward with this bill and enacting meaningful bankruptcy reform. -30-