20-436
2005
109TH CONGRESS 1ST SESSION
HOUSE OF REPRESENTATIVES
Rept. 109-31
| Union Calendar No. 14 |
APRIL 8, 2005- Committed to the Committee of the Whole House on the State of the Union and ordered to be printed
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005
20-436
2005
109TH CONGRESS 1ST SESSION
HOUSE OF REPRESENTATIVES
Rept. 109-31
| Union Calendar No. 14 |
APRIL 8, 2005- Committed to the Committee of the Whole House on the State of the Union and ordered to be printed
1st Session
Part 1
--BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005
[To accompany S. 256]
[Including cost estimate of the Congressional Budget Office]
| CONTENTS | Page | |
| Purpose and Summary | 2 | |
| Background and Need for the Legislation | 3 | |
| Hearings | 22 | |
| Committee Consideration | 22 | |
| Votes of the Committee | 22 | |
| Committee Oversight Findings | 33 | |
| New Budget Authority and Tax Expenditures | 33 | |
| Congressional Budget Office Cost Estimate | 33 | |
| Performance Goals and Objectives | 47 | |
| Constitutional Authority Statement | 47 | |
| Section-by-Section Analysis and Discussion | 47 | |
| Changes in Existing Law Made by the Bill, as Reported | 155 | |
| Committee Jurisdiction Letters | 370 | |
| Markup Transcript | 373 | |
| Dissenting Views | 537 | |
| Additional Dissenting Views | 591 | |
| Additional Minority Views | 597 |
S. 256, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,' is a comprehensive package of reform measures pertaining to both consumer and business bankruptcy cases. The purpose of the bill is to improve bankruptcy law and practice by restoring personal responsibility and integrity in the bankruptcy system and ensure that the system is fair for both debtors and creditors.
With respect to the interests of creditors, the proposed reforms respond to many of the factors contributing to the increase in consumer bankruptcy filings, such as lack of personal financial accountability, 1
[Footnote] the proliferation of serial filings, and the absence of effective oversight to eliminate abuse in the system. The heart of the bill's consumer bankruptcy reforms consists of the implementation of an income/expense screening mechanism (`needs-based bankruptcy relief' or `means testing'), which is intended to ensure that debtors repay creditors the maximum they can afford. S. 256 also establishes new eligibility standards for consumer bankruptcy relief and includes provisions intended to deter serial and abusive bankruptcy filings. It substantially augments the responsibilities of those charged with administering consumer bankruptcy cases as well as those who counsel debtors with respect to obtaining such relief. In addition, the bill caps the amount of homestead equity a debtor may shield from creditors, under certain circumstances.
[Footnote 1: As one academic explained:]
[S]hoplifting is wrong; bankruptcy is also a moral act. Bankruptcy is a moral as well as an economic act. There is a conscious decision not to keep one's promises. It is a decision not to reciprocate a benefit received, a good deed done on the promise that you will reciprocate. Promise-keeping and reciprocity are the foundation of an economy and healthy civil society.
S. 256 also includes various consumer protection reforms. The bill penalizes a creditor who unreasonably refuses to negotiate a pre-bankruptcy debt repayment plan with a debtor. It strengthens the disclosure requirements for reaffirmation agreements (agreements by which debtors obligate themselves to repay otherwise dischargeable debts) so that debtors will be better informed about their rights and responsibilities. The legislation requires certain monthly credit card billing statements to include specified explanatory statements regarding the increased amount of interest and repayment time associated with making minimum payments. The bill requires certain home equity loan and credit card solicitations to include enhanced consumer disclosures. It also prohibits a creditor from terminating an open end consumer credit plan simply because the consumer has not incurred finance charges on the account. S. 256 allows debtors to shelter from the claims of creditors certain education IRA plans and retirement pension funds. It requires debtors to receive credit counseling before they can be eligible for bankruptcy relief so that they will make an informed choice about bankruptcy, its alternatives, and consequences. The bill also requires debtors, after they have filed for bankruptcy, to participate in financial management instructional courses so they can hopefully avoid future financial distress.
With respect to business bankruptcy, S. 256 includes several significant provisions intended to heighten administrative scrutiny and judicial oversight of small business bankruptcy cases, which often are the least likely to reorganize successfully. In addition, it contains provisions designed to reduce systemic risk in the financial marketplace, the enactment of which Federal Reserve Board Chairman Alan Greenspan described as being `extremely important.' 2
[Footnote] The bill includes heightened protections for family farmers facing financial distress and allows family fishermen to qualify for a specialized form of bankruptcy relief currently available only to family farmers. The bill also includes provisions concerning transnational insolvencies, bankrupt health care providers, the treatment of tax claims, and data collection. In response to the exponential increase in bankruptcy filings, the bill authorizes the creation of 28 additional bankruptcy judgeships.
[Footnote 2: Letter from Alan Greenspan, Chairman, Federal Reserve Board, to F. James Sensenbrenner, Jr., Chairman, Committee on the Judiciary (Sept. 3, 2002) (on file with the Subcommittee on Commercial and Administrative Law).]
On February 1, 2005, Senator Charles Grassley (R-IA) (for himself and seven original cosponsors) introduced S. 256, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.' Thereafter, F. James Sensenbrenner, Jr., Chairman of the House Committee on the Judiciary, (for himself and 60 original cosponsors) introduced legislation (H.R. 685) identical to S. 256 on February 9, 2005.
S. 256, as introduced, is substantively identical to legislation that the House passed in the prior Congress on two separate occasions with overwhelming bipartisan support. 3
[Footnote] It is also substantively similar to a modified version of a bankruptcy reform conference report that the House passed in the 107th Congress by a vote of 244 to 116. 4
[Footnote]
[Footnote 3: On March 19, 2003, the House passed H.R. 975, the `Bankruptcy Abuse Prevention and Consumer Prevention Act of 2003,' by a vote of 315 to 113. 149 CONG. REC. H2099-00 (daily ed. Mar. 19, 2003). Thereafter, the House, on January 28, 2004, passed S. 1920, as amended, the text of which was substituted with the text of H.R. 975, as passed by the House, by a vote of 265 to 99. 150 CONG. REC. H218-19 (daily ed. Jan. 28, 2004).]
[Footnote 4: H.R. Rep. No. 107-617 (2002). The modifications consisted of the deletion of two provisions, one dealing with unlawful protest activities and the other authorizing additional bankruptcy judgeships. The text of the conference report, as modified, was introduced as H.R. 5545, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2003.' H.R. 5545, 107th Cong. (2002). In turn, the text of H.R. 5545 was substituted as an amendment to H.R. 333. The House, thereafter, passed H.R. 333, as amended. 148 CONG. REC. H8876-77 (daily ed. Nov. 14, 2002).]
Representing the most comprehensive set of reforms in more than 25 years, S. 256's consumer bankruptcy provisions respond to several factors. First, the recent escalation of consumer bankruptcy filings does not appear to be just a temporary event, but part of a generally consistent upward trend. 5
[Footnote] In 1998, for example, bankruptcy filings exceeded one million for the first time in our nation's history. Over the past decade, the number of bankruptcy filings has nearly doubled to more than 1.6 million cases filed in fiscal year 2004. 6
[Footnote] As a result, there is a growing perception that bankruptcy relief may be too readily available and is sometimes used as a first resort, rather than a last resort. 7
[Footnote] Despite the view of opponents of bankruptcy reform that abuse in the system is not widespread and that most bankruptcy filings result from causes beyond debtors' control, such as family illness, job loss or disruption, or divorce, 8
[Footnote] the Committee concluded that reforms were nevertheless necessary.
[Footnote 5: Press Release, Administrative Office of the U.S. Courts, Record Breaking Bankruptcy Filings Reported in Calendar Year 2002, at 1 (Feb. 14, 2003) (noting that `[b]ankruptcy filings continue to break historic records').]
[Footnote 6: See Press Release, Administrative Office of the U.S. Courts, Bankruptcy Filings Down in Fiscal Year 2004, at 1 (Dec. 3, 2004) (noting that `[d]espite the drop in filings, bankruptcies remain at historic highs, well above the 1.5 million record first set in 2002'); Becky Yerak, Bankrupt Filings in E. Mich. Skyrocket; High Debt, Slow Economy Spur 22% Increase in 2002, Biggest Jump in the United States, THE DETROIT NEWS, Feb. 24, 2003, at 1A (noting that in the Eastern District of Michigan alone, bankruptcy filings for 2002 increased by 22 percent over the prior year).]
[Footnote 7: See, e.g., Becky Yerak, Bankrupt Filings in E. Mich. Skyrocket; High Debt, Slow Economy Spur 22% Increase in 2002, Biggest Jump in the United States, THE DETROIT NEWS, Feb. 24, 2003, at 1A (noting that `[t]he stigma of filing for bankruptcy continues to abate while, at the same time, lenders impose few if any credit restrictions').]
[Footnote 8: See, e.g., Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before the Senate Comm. on the Judiciary, 109th Cong. (2005) (statement of Prof. Elizabeth Warren).]
Second, there are significant losses asserted to be associated with bankruptcy filings. As one witness explained during the Senate Judiciary Committee's hearing on S. 256 earlier this year:
[Footnote]
[Footnote 9: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before the Senate Comm. on the Judiciary, 109th Cong. (2005) (prepared statement of Prof. Todd Zywicki).]
[Footnote] a figure when amortized on a yearly basis amounts to a loss of at least $110 million every day. 11
[Footnote] These losses, according to one estimate, translate into a $400 annual `tax' on every household in our nation. 12
[Footnote] In 2003, the Nilson Report (a credit industry newsletter) announced that issuers of proprietary and general purpose credit cards `lost $18.9 billion in 2002 from consumer bankruptcy filings,' an increase of 15.1 percent over the prior year. 13
[Footnote] The Credit Union National Association (CUNA) reported that credit unions, as of 2002, lost `nearly $3 billion from bankruptcies' since Congress began its consideration of bankruptcy reform legislation in 1998. 14
[Footnote] CUNA estimates that over 40% of all credit union losses in 2004 will be bankruptcy-related, and those losses will total approximately $900 million. 15
[Footnote]
[Footnote 10: Bankruptcy Reform Act of 1998 (Pt. I): Hearings on H.R. 3150 Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary, 105th Cong. 147 (1998) (statement of Mark Lauritano, Senior Vice President, WEFA, Inc.).]
[Footnote 11: Bankruptcy Reform: Joint Hearing Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary and the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary, 106th Cong. 26 (1999) (statement of Dean Sheaffer on behalf of the National Retail Federation).]
[Footnote 12: Bankruptcy Reform Act of 1998 (Pt. I): Hearings on H.R. 3150 Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary, 105th Cong. 147 (1998) (statement of Mark Lauritano, Senior Vice President, WEFA, Inc.).]
[Footnote 13: Bankruptcy Losses on Cards, THE NILSON REPORT, Jan. 2003, at 1.]
[Footnote 14: John K. McKechnie, III, Letter to Editor, Credit Union J. 6 (June 24, 2002); see William R. Mapother, Counseling Could Overturn Losses, CREDIT UNION MAG. 34 (Dec. 2002) (quoting CUNA President Dan Mica).]
[Footnote 15: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before the Senate Comm. on the Judiciary, 109th Cong. (2005) (prepared statement of Kenneth Beine).]
A third factor motivating comprehensive reform is that the present bankruptcy system has loopholes and incentives that allow and--sometimes--even encourage opportunistic personal filings and abuse. A civil enforcement initiative undertaken in 2002 by the United States Trustee Program (a component of the Justice Department charged with administrative oversight of bankruptcy cases) has `consistently identified' such problems as `debtor misconduct and abuse, misconduct by attorneys and other professionals, problems associated with bankruptcy petition preparers, and instances where a debtor's discharge should be challenged.' 16
[Footnote] According to the United States Trustee Program, `Abuse of the system is more widespread than many would have estimated.' 17
[Footnote] Such abuse ultimately hurts consumers as well as creditors.
[Footnote 16: Antonia G. Darling & Mark A. Redmiles, Protecting the Integrity of the System: the Civil Enforcement Initiative, AM. BANKR. INSTITUTE J. 12 (Sept. 2002).]
[Footnote 17: J. Christopher Marshall, Civil Enforcement: An Early Report, JOURNAL OF THE NAT'L ASS'N OF BANKR. TRUSTEES (NABTALK) 39 (Fall 2002).]
A fourth factor relates to the fact that some bankruptcy debtors are able to repay a significant portion of their debts, according to several studies. 18
[Footnote] Current law, however, has no clear mandate requiring these debtors to repay their debts. Accordingly, `[w]hile there is a universal agreement among the courts that an individual debtor's ability to repay his or her debts from future earnings is, at the very least, a factor in determining whether substantial abuse would occur in a chapter 7 case, there are differences among the courts as to the extent to which they rely on a debtor's ability to repay.' 19
[Footnote]
[Footnote 18: See, e.g., Bankruptcy Reform Act of 1999 (Pt. II): Hearing on H.R. 833 Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary, 106th Cong. 298 (1999) (statement of Thomas S. Neubig, Ernst & Young LLP--Policy Economics and Quantitative Analysis Group, concluding that `large numbers of 1997 U.S. chapter 7 filers have the ability to repay large portions of their debts'); id. at 228-29 (statement of Michael E. Staten, Credit Research Center, concluding that `about 25 percent of chapter 7 debtors could have repaid at least 30 percent of their non-housing debts over a 5-year repayment plan, after accounting for monthly expenses and housing payments' and that `[a]bout 5 percent of chapter 7 filers appeared capable of repaying all of their non-housing debt over a 5-year plan,' although these `calculations assumed income would remain unchanged relative to expenses over the 5 years'); Marianne B. Culhane & Michaela M. White, Taking the New Consumer Bankruptcy Model for a Test Drive: Means-Testing Real Chapter 7 Debtors, 7 AM. BANKR. L. J. 27, 31 (1999) (concluding that 3.6% of sampled debtors `emerged as apparent can-pays').]
[Footnote 19: Robert C. Furr & Marc P. Barmat, 11 U.S.C. Section 707(b)--The U.S. Trustee's Weapon Against Abuse, NAT'L ASS'N BANKR. TRUSTEES (NABTALK) 11, 14 (Winter 2002-03).]
Proposed reforms to bankruptcy law and practice have been under consideration by Congress for nearly eight years 20
[Footnote] and have generally enjoyed broad support from the business community, banking and financial services industries as well as other groups such as family farmers and child support enforcement agencies. In Congress, support for bankruptcy reform legislation has likewise been overwhelming, bipartisan and bicameral.
[Footnote 20: Comprehensive bankruptcy reform legislation (H.R. 2500, the `Responsible Borrower Protection Bankruptcy Act') was first formally introduced in the House on September 18, 1997. H.R. 2500, 105th Cong. (1997).]
Since the 105th Congress, the House has passed bankruptcy reform legislation on eight separate occasions. In the 105th Congress, for example, the House passed both H.R. 3150, the `Bankruptcy Reform Act of 1998,' and the conference report on that bill by veto-proof margins. 21
[Footnote] In the 106th Congress, the House passed H.R. 833, the successor to H.R. 3150, by a veto-proof margin of 313 to 108 22
[Footnote] and agreed to the conference report 23
[Footnote] by voice vote. 24
[Footnote] Although the Senate subsequently passed this legislation by a vote of 70 to 28, 25
[Footnote] President Clinton pocket-vetoed it. In the 107th Congress, the House again registered its overwhelming support for bankruptcy reform on two more occasions. On March 1, 2001, the House passed H.R. 333, the `Bankruptcy Abuse Prevention and Consumer Protection Act,' by a vote of 306 to 108. 26
[Footnote] The House thereafter passed a modified version of the conference report on H.R. 333, as previously noted. 27
[Footnote] In the last Congress, the House passed H.R. 975, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2003,' by a vote of 315 to 113 and S. 1920, which consisted of the text of H.R. 975, as passed by the House, by a vote of 265 to 99. 28
[Footnote]
[Footnote 21: 144 CONG. REC. H4442 (daily ed. June 10, 1998) (vote on final passage of H.R. 3150 was 306 to 118); 144 CONG. REC. H10239-40 (daily ed. Oct. 9, 1998) (vote on final passage of the conference report on H.R. 3150 was 300 to 125).]
[Footnote 22: 145 CONG. REC. H2771 (daily ed. May 5, 1999).]
[Footnote 23: H.R. REP. NO. 106-970 (2000).]
[Footnote 24: 146 CONG. REC. H9840 (daily ed. Oct. 12, 2000).]
[Footnote 25: 146 CONG. REC. S11730 (daily ed. Dec. 7, 2000).]
[Footnote 26: 147 CONG. REC. H600-01 (daily ed. Mar. 1, 2001).]
[Footnote 27: See supra note 3.]
[Footnote 28: 149 CONG. REC. H2099-00 (daily ed. Mar. 19, 2003);150 Cong. Rec. H218-19 (daily ed. Jan. 28, 2004).]
Likewise, the Senate has on numerous occasions expressed strong bipartisan support for bankruptcy reform legislation. In the 105th Congress, the Senate passed bankruptcy reform legislation by a vote of 97 to 1. 29
[Footnote] In the 106th Congress, the Senate passed similar legislation by a vote of 83 to 14 30
[Footnote] and a subsequent conference report by a vote of 70 to 28. 31
[Footnote] In the 107th Congress, the Senate passed a bankruptcy reform bill by a vote of 82 to 16. 32
[Footnote] Last month, the Senate passed S. 256, as amended, by a vote of 74 to 25. 33
[Footnote]
[Footnote 29: 144 CONG. REC. S10767 (daily ed. Sept. 23, 1998).]
[Footnote 30: 146 CONG. REC. S255 (daily ed. Feb. 2, 2000).]
[Footnote 31: 146 CONG. REC. S11730 (daily ed. Dec. 7, 2000).]
[Footnote 32: 147 CONG. REC. S2379 (daily ed. Mar. 15, 2001).]
[Footnote 33: 151 CONG. REC. S2474 (daily ed. Mar. 10, 2005).]
The Committee and the Subcommittee on Commercial and Administrative Law (Subcommittee), beginning in the 105th Congress, have held a total of 18 days of hearings on the operation of the bankruptcy system and the need for reform. 34
[Footnote] Eleven of these hearings were devoted solely to consideration of S. 256's predecessors, H.R. 3150 (105th Congress), H.R. 833 (106th Congress), H.R. 333 (107th Congress), and H.R. 975 (108th Congress). Over the course of these hearings, nearly 130 witnesses, representing nearly every major constituency in the bankruptcy community, testified. With regard to H.R. 833 alone, testimony was received from 69 witnesses, representing 23 organizations, with additional material submitted by other groups.
[Footnote 34: The dates and subject matters of these hearings are as follows:]
The Senate likewise has held numerous hearings on the subject of bankruptcy reform and related issues. Since the 105th Congress, the Senate has held eleven hearings, including a hearing held earlier this year on S. 256. 35
[Footnote] In fact, the inaugural hearing on H.R. 833 during the 106th Congress was held jointly by the Subcommittee together with the Senate Subcommittee on Administrative Oversight and the Courts on March 11, 1999, 36
[Footnote] marking the first time in more than 60 years that a bicameral hearing was held on the subject of bankruptcy reform. 37
[Footnote]
[Footnote 35: The Subcommittee on Administrative Oversight and the Courts of the Senate Committee on the Judiciary conducted the following hearings:]
[Footnote 36: Representatives on behalf of the Commercial Law League of America, CUNA, MBNA America Bank, N.A., National Retail Federation, and the National Consumer Law Center also testified. Some of the nation's leading jurists and academics presented testimony as well. Bankruptcy Reform: Hearing Before the Subcomm. on Commercial and Administrative Law of the House Comm. on the Judiciary and the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary, 106th Cong. (1999).]
[Footnote 37: Senators testifying at the hearing included Charles Grassley (R-IA), Joseph Biden (D-DE) and Christopher Dodd (D-CT). House Members included Jim Moran (D-VA), Pete Sessions (R-TX) and Nick Smith (R-MI). Id.]
It is also important to note that bankruptcy reform legislation is the product of extensive bipartisan and bicameral negotiation and compromise. For example, conferees during the 106th Congress spent nearly seven months engaged in an informal conference to reconcile differences between the House and Senate passed versions of bankruptcy reform legislation. In the 107th Congress, conferees formally met on three occasions and ultimately agreed--after an 11-month period of negotiations--to a bipartisan conference report. 38
[Footnote]
[Footnote 38: H.R. REP. NO. 107-617 (2002). Signatories on behalf of the House included: F. James Sensenbrenner, Jr. (R-WI), Henry Hyde (R-IL), George Gekas (R-PA), Lamar Smith (R-TX), Steve Chabot (R-OH), Bob Barr (R-GA), Rick Boucher (D-VA), Michael Oxley (R-OH), Spencer Bachus (R-AL), Billy Tauzin (R-LA), Joe Barton (R-TX), John Boehner (R-OH), and Michael Castle (R-DE). Signatories on behalf of the Senate included: Patrick Leahy (D-VT), Joe Biden (D-DE), Charles Schumer (D-NY), Orrin Hatch (R-UT), Chuck Grassley (R-IA), Jon Kyl (R-AZ), Mike DeWine (R-OH), Jeff Sessions (R-AL), and Mitch McConnell (R-KY).]
On February 10, 2005, the Senate Committee on the Judiciary held a hearing on S. 256 that provided an opportunity to review the reasons why the current bankruptcy system needs reform and how this legislation would implement those reforms. 39
[Footnote] Testimony was received from eight witnesses, including: Kenneth Beine on behalf of CUNA; Maria Vullo, a partner with the New York law firm of Paul, Weiss, Rifkind, Wharton & Garrison LLP; Malcom Bennett on behalf of the National Multi Housing Council/National Apartment Association; Philip Strauss on behalf of the National Child Support Enforcement Association; Dave McCall on behalf of the United Steel Workers of America, AFL-CIO; R. Michael Stewart Menzies, Sr. on behalf of the Independent Community Bankers of America; Prof. Elizabeth Warren, Leo Gottlieb Professor of Law at Harvard Law School; and Prof. Todd J. Zywicki, Visiting Professor of Law at Georgetown University Law Center.
[Footnote 39: Bankruptcy Abuse Prevention and Consumer Protection Act of 2005: Hearing on S. 256 Before the Subcomm. on Administrative Oversight and the Courts of the Senate Comm. on the Judiciary, 109th Cong. (2005).]
Among the matters considered at the hearing were: (1) the adequacy of the current bankruptcy system with respect to the detection of fraud and abuse; (2) how abuse and fraud in the current bankruptcy system impact on American businesses and our nation's citizens generally; (3) whether the legislation adversely impacts individuals deserving of bankruptcy relief; (4) whether the proposed reforms would assist those who are charged with administrative oversight of bankruptcy cases and law enforcement matters; and (5) whether, given current economic circumstances, the need for comprehensive bankruptcy reform still exists.
On February 17, 2005, the Senate Judiciary Committee marked up S. 256 and ordered the bill, as amended, to be favorably reported by a vote of 12 to 5. Over the course of the markup, five amendments were passed. These amendments consisted of the following:
On March 10, 2005, the Senate passed S. 256, as amended, by a vote of 74 to 25. Nearly 130 amendments were filed. Of the amendments that were offered, 24 failed, 24 were withdrawn, eight were passed either by vote or unanimous consent. The amendments that were accepted consisted of the following:
[Footnote]
[Footnote 40: This amendment is similar to legislation considered by the House in the 108th Congress. H.R. 1529, 108th Cong. (2003). The bill was ordered favorably reported without amendment by the House Judiciary Committee, H.R. REP. NO. 108-110 (2003), and passed by voice vote by the House. 149 CONG. REC. H5104 (daily ed. June 10, 2003). The principal difference between this legislation and section 332 of the Act is that the bill would have permitted the court to expunge the case upon dismissal of the fraudulent involuntary petition.]
Consumer Creditor Bankruptcy Protections.
Needs-Based Reforms. Chapter 7 is a form of bankruptcy relief by which an individual debtor receives an immediate unconditional discharge of personal liability for certain debts in exchange for relinquishing his or her nonexempt assets to a bankruptcy trustee for liquidation and distribution to creditors. 41
[Footnote] This `unconditional discharge' in chapter 7 contrasts with the `conditional discharge' provisions of chapter 13, under which a debtor commits to repay some portion of his or her financial obligations in exchange for retaining nonexempt assets and receiving a broader discharge of debt than is available under chapter 7. Allowing consumer debtors in financial distress to choose voluntarily an `unconditional discharge' has been a part of American bankruptcy law since the enactment of the Bankruptcy Act of 1898. 42
[Footnote]
[Footnote 41: Under the Bankruptcy Code, only an individual may obtain a chapter 7 discharge. Thus, a corporation is not eligible to receive a discharge under chapter 7. 11 U.S.C. Sec. 727(a)(1).]
[Footnote 42: Bankruptcy Act of 1898, 30 Stat. 544 (1898) (repealed 1978). The rationale of an unconditional discharge was explained by Congress more than 100 years ago:]
[W]hen an honest man is hopelessly down financially, nothing is gained for the public by keeping him down, but, on the contrary, the public good will be promoted by having his assets distributed ratably as far as they will go among his creditors and letting him start anew.
The concept of needs-based bankruptcy relief has long been debated in the United States. President Herbert Hoover, for instance, recommended to Congress in 1932, `The discretion of the courts in granting or refusing discharges should be broadened, and they should be authorized to postpone discharges for a time and require bankrupts, during the period of suspension, to make some satisfaction out of after-acquired property as a condition to the granting of a full discharge.' 43
[Footnote] In 1938, chapter XIII (the predecessor to chapter 13 of the Bankruptcy Code) was enacted as a purely voluntary form of bankruptcy relief that allowed a debtor to propose a plan to repay creditors out of future earnings. 44
[Footnote]
[Footnote 43: President's Special Message to the Congress on Reform of Judicial Procedure, 69 Pub. Papers 83, 90 (Feb. 29, 1932).]
[Footnote 44: Chandler Act of 1938, 52 Stat. 840 (1938).]
Over the ensuing years, there continued to be repeated expressions of support for and opposition to means-testing bankruptcy reform. 45
[Footnote] In 1967, various organizations testifying before Congress in support of such reform included the American Bar Association, the American Bankers Association, the Chamber of Commerce of the United States, CUNA, the National Federation of Independent Businesses, and the American Industrial Bankers Association. 46
[Footnote] The Commission on the Bankruptcy Laws of the United States, while supporting the concept that repayment plans should be `fostered,' nevertheless concluded in 1973 that `forced participation by a debtor in a plan requiring contributions out of future income has so little prospect for success that it should not be adopted as a feature of the bankruptcy system.' 47
[Footnote] The Bankruptcy Reform Act of 1978 48
[Footnote] retained the principle that a debtor's decision to choose relief premised on repayment to creditors should be `completely voluntary.' 49
[Footnote]
[Footnote 45: See, e.g., REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES--JULY 1973, H.R. DOC. NO. 93 137, pt. I, at 158 (1973) (observing that `proposals have been made to Congress from time to time that a debtor able to obtain relief under chapter XIII [predecessor of chapter 13] should be denied relief in straight bankruptcy').]
[Footnote 46: Hearings on H.R. 1057 and H.R. 5771 Before the Subcomm. No. 4 of the House Comm. on the Judiciary, 90th Cong. (1967).]
[Footnote 47: See, e.g., REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES--JULY 1973, H.R. DOC. NO. 93-137, pt. I, at 159 (1973).]
[Footnote 48: Pub. L. No. 95-598, 92 Stat. 2549 (1978).]
[Footnote 49: H.R. REP. NO. 95-595, at 120 (1977) (observing that `[t]he thirteenth amendment prohibits involuntary servitude' and suggesting that `a mandatory chapter 13, by forcing an individual to work for creditors, would violate this prohibition').]
Although the Bankruptcy Code as originally enacted in 1978 provided that a chapter 7 case could only be dismissed for `cause,' the Code was amended in 1984 to permit the court to dismiss a chapter 7 case for `substantial abuse.' 50
[Footnote] This provision, codified in section 707(b) of the Bankruptcy Code, 51
[Footnote] was added `as part of a package of consumer credit amendments designed to reduce perceived abuses in the use of chapter 7.' 52
[Footnote] It was intended to respond `to concerns that some debtors who could easily pay their creditors might resort to chapter 7 to avoid their obligations.' 53
[Footnote] In 1986, section 707(b) was further amended to allow a United States trustee (a Department of Justice official) to move for dismissal. 54
[Footnote]
[Footnote 50: Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. No. 98-353, Sec. 312, 98 Stat. 333, 335 (1984).]
[Footnote 51: 11 U.S.C. Sec. 707(b).]
[Footnote 52: 6 LAWRENCE P. KING ET AL., COLLIER ON BANKRUPTCY Sec. 707.LH[2], at 707-30 (15th ed. rev. 2002).]
[Footnote 53: Id. at Sec. 707.04.]
[Footnote 54: Bankruptcy Judges, United States Trustees, and Family Farmer Bankruptcy Act of 1986, Pub. L. No. 99-554, Sec. 219, 100 Stat. 3088, 3101 (1986).]
The utility of section 707(b) is limited for several reasons. Under current law, neither the court nor the United States trustee is required to file a motion to dismiss a chapter 7 case for substantial abuse under section 707(b). In addition, other parties in interest, such as chapter 7 trustees and creditors, are prohibited from filing such motions. In fact, section 707(b) specifies that a motion under that provision may not even be made `at the request or suggestion of any party in interest.' 55
[Footnote] The standard for dismissal--substantial abuse--is inherently vague, which has lead to its disparate interpretation and application by the bankruptcy bench. 56
[Footnote] Some courts, for example, hold that a debtor's ability to repay a significant portion of his or her debts out of future income constitutes substantial abuse and therefore is cause for dismissal; 57
[Footnote] others do not. 58
[Footnote] A further reason militating against filing section 707(b) motions is that the Bankruptcy Code codifies a presumption that favors granting a debtor a discharge. 59
[Footnote]
[Footnote 55: 11 U.S.C. Sec. 707(b).]
[Footnote 56: See, e.g., David White, Disorder in the Court: Section 707(b) of the Bankruptcy Code, 1995-96 ANN. SURVEY OF BANKR. L. 333, 355 (1996) (noting that the courts `have taken divergent views in an attempt to define the term' and have resorted to `a variety of methods' in applying it to specific cases); Robert C. Furr & Marc P. Barmat, 11 U.S.C. Section 707(b)--The U.S. Trustee's Weapon Against Abuse, NAT'L ASS'N BANKR. TRUSTEES (NABTALK) 11, 14 (Winter 2002-03).]
[Footnote 57: See, e.g., Zolg v. Kelly (In re Kelly), 841 F.2d 908, 913-14 (9th Cir. 1988) (observing that the `principal factor to be considered in determining substantial abuse is the debtor's ability to repay debts for which a discharge is sought').]
[Footnote 58: See, e.g., In re Braley, 103 B.R. 758 (Bankr. E.D. Va. 1989), aff'd, 110 B.R. 211 (E.D. Va. 1990). Notwithstanding the fact that the debtors in Braley had disposable monthly income of nearly $2,700, the bankruptcy court did not dismiss the case for substantial abuse. Id. at 760. The court concluded, `Based upon this legislative history, we are persuaded that no future income tests exists [sic] in 707(b) and if it did, as a finding of fact, the Braley family has insufficient future income to merit barring the door in light of the circumstances of this Navy family.' Id. at 762.]
[Footnote 59: Section 707(b) of the Bankruptcy Code mandates that `[t]here shall be a presumption in favor of granting the relief requested by the debtor.' 11 U.S.C. Sec. 707(b).]
Over the course of its hearings since the 105th Congress, the Committee received testimony explaining that if needs-based reforms and other measures were implemented, the rate of repayment to creditors would increase as more debtors were shifted into chapter 13 (a form of bankruptcy relief where the debtor commits to repay a portion or all of his debts in exchange for receiving a broad discharge of debt) as opposed to chapter 7 (a form of bankruptcy relief where the debtor receives an immediate discharge of personal liability on certain debts in exchange for turning over his or her nonexempt assets to the bankruptcy trustee for distribution to creditors).
Needs-based reforms would amend section 707(b) of the Bankruptcy Code to permit a court, on its own motion, or on motion of the United States trustee, private trustee, bankruptcy administrator, or other party in interest (including a creditor), to dismiss a chapter 7 case for abuse if it was filed by an individual debtor whose debts are primarily consumer debts. Alternatively, the chapter 7 case could be converted to a case under chapter 11 or chapter 13 on consent of the debtor.
In addition, these reforms contemplate replacing the current law's presumption in favor of the debtor with a mandatory presumption of abuse that would arise under certain conditions. As amended, section 707(b) of the Bankruptcy Code would require a court to presume that abuse exists if the amount of the debtor's remaining income, after certain expenses and other specified amounts are deducted from the debtor's current monthly income (a defined term) 60
[Footnote] when multiplied by 60, exceeds the lower of the following: (1) 25 percent of the debtor's nonpriority unsecured claims, or $6000 (whichever is greater); or (2) $10,000. Section 102 mandates that the debtor's expenses include reasonably necessary expenditures for health insurance, disability insurance, and health savings accounts for the debtor, the debtor's spouse, and dependents of the debtor. In addition, the debtor's expenses must include those incurred to maintain the safety of the debtor and the debtor's family from family violence as identified in section 309 of the Family Violence Prevention and Services Act or other applicable law. In addition to other specified expenses, 61
[Footnote] the debtor's monthly expenses--exclusive of any payments for debts (unless otherwise permitted)--must be the applicable monthly amounts set forth in the Internal Revenue Service Financial Analysis Handbook 62
[Footnote] as Necessary Expenses 63
[Footnote] under the National 64
[Footnote] and Local Standards 65
[Footnote] categories and the debtor's actual monthly expenditures for items categorized as Other Necessary Expenses. 66
[Footnote]
[Footnote 60: Section 102(b) of the bill defines `current monthly income' as the average monthly income from all sources that the debtor receives (or, in a joint case, the debtor and the debtor's spouse receive), without regard to whether it is taxable income, in the six-month period preceding the bankruptcy filing. It includes any amount paid on a regular basis by any entity (other than the debtor or, in a joint case, the debtor and the debtor's spouse) to the household expenses of the debtor or the debtor's dependents and, in a joint case, the debtor's spouse, if not otherwise a dependent. It excludes Social Security Act benefits and payments to victims of war crimes or crimes against humanity on account of their status as victims of such crimes. It also excludes payments to victims of international terrorism or domestic terrorism (as defined in 18 U.S.C. Sec. 2331) on account of their status as victims of such terrorism.]
[Footnote 61: Under section 102(a), a debtor's monthly expenses may also include:]
[Footnote 62: INTERNAL REVENUE SERVICE, INTERNAL REVENUE MANUAL--Financial Analysis Handbook pt. 5.15.1 (rev. May 1, 2004).]
[Footnote 63: The Internal Revenue Manual defines the term `necessary expenses' as expenses:]
that are necessary to provide for a taxpayer's and his or her family's health and welfare and/or production of income. The expenses must be reasonable. The total necessary expenses establish the minimum a taxpayer and family need to live.
[Footnote 64: The Internal Revenue Manual's `National Standards' establish standards for five types of expenses: food (includes all meals, home and away), housekeeping supplies (includes laundry and cleaning supplies; other household products such as cleaning and toilet tissue, paper towels and napkins; lawn and garden supplies; postage and stationary), apparel and services (includes shoes and clothing, laundry and dry cleaning, and shoe repair), personal care products and services (includes hair care products, haircuts, oral hygiene products, electric personal care appliances), and miscellaneous (a discretionary allowance of $100 for one person and $25 for each additional person in a taxpayer's family). Except for miscellaneous expenses, these expense standards are derived from Bureau of Labor Statistics Consumer Expenditure Survey and are stratified by income and household size. Id. at pt. 5.15.1.8.]
[Footnote 65: `Local Standards,' under the Internal Revenue Manual, establish expense standards for housing (e.g., mortgage or rent, property taxes, interest, parking, necessary maintenance and repair, homeowner's or renter's insurance, and homeowner dues and condominium fees) and transportation expenditures (e.g., vehicle insurance, vehicle payment, maintenance, fuel, state and local registration, parking fees, tolls, driver's license fees, and public transportation). Utilities (e.g., gas, electricity, water, fuel, oil, bottled gas, wood and other fuels, trash and garbage collection, septic cleaning, and telephone) are included under the housing expense category. Housing standards are established for each county within a state. Transportation standards are determined on a regional basis. Id. at pt. 5.15.1.9.]
[Footnote 66: The Internal Revenue Manual does not establish monetary amounts with regard to necessary expenses that it characterizes as `Other Expenses.' Rather, it provides a non-exclusive list of these expenses, that must otherwise satisfy the `necessary expense test,' described in note 63 supra. The list includes expenditures for certain accounting and legal fees, child care, dependent care for an elderly or disabled person, health care, taxes, court-ordered payments, life insurance, involuntary deductions (e.g., union dues, uniforms, work shoes), charitable contributions, and certain education expenses. Id. at pt. 5.15.1.10.]
The means test permits the mandatory presumption of abuse to be rebutted only if: (1) the debtor demonstrates special circumstances justifying any additional expense or adjustment to the debtor's current monthly income for which there is no reasonable alternative; and (2) such additional expense or income adjustment caused the debtor's current monthly income (reduced by various amounts) when multiplied by 60 to be less than the lesser of either: (i) 25 percent of the debtor's nonpriority unsecured claims, or $6,000 (whichever is greater), or (ii) $10,000. 67
[Footnote] Special circumstances include such factors as whether the debtor has a serious medical condition or is on active duty in the Armed Services to the extent these factors justify adjustment to income or expenses.
[Footnote 67: The debtor must itemize and provide documentation of each additional expense or income adjustment as well as explain the special circumstances that make such expense or income adjustment reasonable and necessary. In addition, the debtor must attest under oath to the accuracy of any information provided to demonstrate that such additional expenses or adjustments to income are required.]
Where the mandatory presumption of abuse does not apply or has been rebutted, the court, in order to determine whether the granting of relief under chapter 7 would constitute an abuse, must consider: (1) whether the debtor filed the chapter 7 case in bad faith; or (2) whether the totality of circumstances of the debtor's financial situation (including whether the debtor seeks to reject a personal services contract and the financial need for such rejection) demonstrates abuse.
Should a court grant a section 707(b) motion made by a trustee and find that the action of the debtor's counsel in filing the chapter 7 case violated Federal Rule of Bankruptcy Procedure 9011, 68
[Footnote] S. 256 authorizes the court to order the attorney to reimburse the trustee for all reasonable costs in prosecuting the motion, including reasonable attorneys' fees. In addition, the court may assess an appropriate civil penalty. 69
[Footnote]
[Footnote 68: Fed. R. Bankr. P. 9011. This rule is the bankruptcy analog to Federal Rule of Civil Procedure 11, which authorizes a court to impose sanctions against an attorney or party who commences a frivolous actions or files other inappropriate documents in violation of this Rule's requirements.]
[Footnote 69: Section 102(a) of S. 256 specifies that the signature of an attorney on a bankruptcy petition, pleading, or written motion constitutes a certification that the attorney has: (1) performed a reasonable investigation into the circumstances giving rise to such petition, pleading or motion; and (2) determined that the document is well grounded in fact and warranted by existing law or a good faith argument for the extension, modification, or reversal of existing law; and does not constitute an abuse under section 707(b)(1) of the Bankruptcy Code. Pursuant to section 102(a), the signature of an attorney on a bankruptcy petition constitutes a certification that the attorney has no knowledge after an inquiry that the information in the schedules filed with such petition is incorrect.]
Two types of `safe harbors' apply to the means test. One provides that only a judge, United States trustee, bankruptcy administrator, or private trustee may file a motion to dismiss a chapter 7 case under section 707(b) of the Bankruptcy Code if the debtor's income (or in a joint case, the income of debtor and the debtor's spouse) does not exceed the state median family income for a family of equal or lesser size (adjusted for larger sized families), or the state median family income for one earner in the case of a one-person household. The second safe harbor provides that no motion under section 707(b)(2) (dismissal based on a chapter 7 debtor's ability to repay) may be filed by a judge, United States trustee, bankruptcy administrator, private trustee, or other party in interest if the debtor (including the circumstance where the debtor is a veteran) and the debtor's spouse combined have income that does not exceed the state median family income for a family of equal or lesser size (adjusted for larger sized families), or the state median family income for one earner in the case of a one-person household. 70
[Footnote] In addition, the bill includes a safe harbor from the bill's needs-based test for a disabled veteran whose indebtedness occurred primarily during a period when the individual was on active duty (as defined in 10 U.S.C. Sec. 101(d)(1)) or performing a homeland defense activity (as defined in 32 U.S.C. 901(1)).
[Footnote 70: In a case that is not a joint case, current monthly income of the debtor's spouse is not considered if the debtor and the debtor's spouse are separated under applicable nonbankruptcy law or the debtor and the debtor's spouse are living separate and apart (other than for the purpose of evading this provision) and the debtor files a statement under penalty of perjury containing certain specified information.]
Other Reforms Dealing with Abuse. S. 256 contains various reforms tailored to remedy certain types of fraud and abuse within the present bankruptcy system. For example, the bill substantially limits a debtor's ability to file successive bankruptcy cases. It also addresses abusive practices by consumer debtors who, for example, knowingly load up with credit card purchases or recklessly obtain cash advances and then file for bankruptcy relief. In addition, S. 256 prevents the discharge of debts based on fraud, embezzlement, and malicious injury in a chapter 13 case. Other abuse reforms include a provision authorizing the court to dismiss a chapter 7 case filed by an individual debtor convicted of a crime of violence or a drug trafficking crime on motion of the victim, under certain circumstances. And, the court, as a condition of confirming a chapter 13 plan, must find that the debtor filed the chapter 13 case in good faith.
The bill also restricts the so-called `mansion loophole.' Under current bankruptcy law, debtors living in certain states can shield from their creditors virtually all of the equity in their homes. In light of this, some debtors actually relocate to these states just to take advantage of their `mansion loophole' laws. S. 256 closes this loophole for abuse by requiring a debtor to be a domiciliary in the state for at least two years before he or she can claim that state's homestead exemption; the current requirement can be as little as 91 days. 71
[Footnote] The bill further reduces the opportunity for abuse by requiring a debtor to own the homestead for at least 40 months before he or she can use state exemption law; current law imposes no such requirement. 72
[Footnote] S. 256 prevents securities law violators and others who have engaged in criminal conduct from shielding their homestead assets from those whom they have defrauded or injured. If a debtor was convicted of a felony, violated a securities law, or committed a criminal act, intentional tort, or engaged in reckless misconduct that caused serious physical injury or death, the bill overrides state homestead exemption law and caps the debtor's homestead exemption at $125,000. To the extent a debtor's homestead exemption was obtained through the fraudulent conversion of nonexempt assets (e.g., cash) during the ten-year period preceding the filing of the bankruptcy case, S. 256 requires such exemption to be reduced by the amount attributable to the debtor's fraud.
[Footnote 71: See 11 U.S.C. Sec. 522(b)(2)(2)(A).]
[Footnote 72: If the debtor owns the homestead for less than 40 months, the provision imposes a $125,000 homestead cap. In effect, this provision overrides state exemption law authorizing a homestead exemption in excess of this amount and allows such law to control if it authorizes a homestead exemption in a lesser amount.]
S. 256 also authorizes a trustee to avoid any transfer of property that a debtor made to a self-settled trust (of which the debtor is a beneficiary) within the ten-year period preceding the filing of the debtor's bankruptcy case if the debtor made the transfer with actual intent to hinder, delay, or defraud a creditor of the debtor.
Protections for Creditors--In General. S. 256 includes provisions intended to provide greater protections for creditors, while ensuring that the claims of those creditors entitled to priority treatment, such as spousal and child support claimants, are not adversely impacted. These include provisions: (1) ensuring that creditors receive proper and timely notice of important events and proceedings in a bankruptcy case; (2) prohibiting abusive serial filings and extending the period between successive discharges; and (3) implementing various provisions designed to improve the accuracy of the information contained in debtors' schedules, statements of financial affairs. They also clarify that creditors holding consumer debts may participate without counsel at the section 341 meeting of creditors (which provides an opportunity for creditors to examine the debtor under oath).
Enforcement of Family Support Obligations. S. 256 accords domestic and child support claimants a broad spectrum of special protections. The legislation creates a uniform and expanded definition of domestic support obligations to include debts that accrue both before or after a bankruptcy case is filed. It gives the highest payment priority for these debts (current law only accords them a seventh-level priority), 73
[Footnote] with allowance for the payment of trustee administrative expenses, under certain conditions. In addition, the bill mandates that a debtor must be current on postpetition domestic support obligations to confirm a chapter 11, chapter 12 (family farmer) or chapter 13 plan of reorganization. To facilitate the domestic support collection efforts by governmental units, the legislation creates various exceptions to automatic stay provisions of the Bankruptcy Code (which enjoin many forms of creditor collection activities). It also broadens the categories of nondischargeable family support obligations with the result that these debts will not be extinguished at the end of the bankruptcy process. The legislation, in addition, mandates that spousal and child support claimants as well as state child support agencies receive specified information and notices relevant to pending bankruptcy cases.
[Footnote 73: 11 U.S.C. Sec. 507(a)(7).]
Protections for Secured Creditors. S. 256's protections for secured creditors include a prohibition against bifurcating a secured debt incurred within the 910-day period preceding the filing of a bankruptcy case if the debt is secured by a purchase money security interest in a motor vehicle acquired for the debtor's personal use. Where the collateral consists of any other type of property having value, S. 256 prohibits bifurcation of specified secured debts if incurred during the one-year period preceding the filing of the bankruptcy case. The bill clarifies current law to specify that the value of a claim secured by personal property is the replacement value of such property without deduction for the secured creditor's costs of sale or marketing. In addition, the bill terminates the automatic stay with respect to personal property if the debtor does not timely reaffirm the underlying obligation or redeem the property. 74
[Footnote] S. 256 also specifies that a secured claimant retains its lien in a chapter 13 case until the underlying debt is paid or the debtor receives a discharge.
[Footnote 74: Redemption is a method by which a chapter 7 debtor can retain certain types of personal property by paying the holder of a lien on such property the allowed amount of the holder's secured lien. 11 U.S.C. Sec. 722.]
Protections for Lessors. With respect to the interests of lessors, S. 256 requires chapter 13 debtors to remain current on their personal property leases and to provide proof of adequate insurance. The bill specifies that a lessor may condition assumption of a personal property lease on cure of any outstanding default and it provides that a lessor is not required to permit such assumption. The bill also addresses a problem faced by thousands of large and small residential landlords across the nation whose tenants file for bankruptcy relief solely for the purpose of staying pending eviction proceedings so that they can live `rent free.'
Consumer Debtor Bankruptcy Protections. The bill's consumer protections include provisions strengthening professionalism standards for attorneys and others who assist consumer debtors with their bankruptcy cases. S. 256 mandates that certain services and specified notices be given to consumers by professionals and others who provide bankruptcy assistance. To ensure compliance with these provisions, the bill institutes various enforcement mechanisms.
In addition, S. 256 amends the Truth in Lending Act to require certain credit card solicitations, monthly billing statements, and related materials to include important disclosures and explanatory statements regarding introductory interest rates and minimum payments, among other matters. These additional disclosures are intended to give debtors important information to enable them to better manage their financial affairs.
S. 256 contains provisions to help debtors better understand their rights and obligations with respect to reaffirmation agreements. To enforce these protections, the bill requires the Attorney General to designate a United States Attorney for each judicial district and a FBI agent for each field office to have primary law enforcement responsibility regarding abusive reaffirmation practices, among other matters.
The legislation also expands a debtor's ability to exempt certain tax-qualified retirement accounts and pensions. It creates a new provision that allows a consumer debtor to exempt certain education IRAs and state tuition plans for his or her child's postsecondary education from the claims of creditors.
Most importantly, S. 256 requires debtors to participate in credit counseling programs before filing for bankruptcy relief (unless special circumstances do not permit such participation). The legislation's credit counseling provisions are intended to give consumers in financial distress an opportunity to learn about the consequences of bankruptcy--such as the potentially devastating effect it can have on their credit rating 75
[Footnote] --before they decide to file for bankruptcy relief. The bill also requires debtors, after they file for bankruptcy relief, to receive financial management training that will provide them with guidance about how to manage their finances, so that they can avoid future financial difficulties. The mandatory credit counseling and financial management training requirements do not apply if the debtor is unable to complete these requirements because of incapacity or disability, or because he or she is on active duty in a military combat zone.
[Footnote 75: Under current law, for example, a bankruptcy filing may be reported on a consumer's credit report for ten years. 15 U.S.C. Sec. 1681c (2002).]
Other debtor protections include expanded notice requirements for consumers. Under the bill, individuals with primarily consumer debts must receive notice of alternatives to bankruptcy relief before they file for bankruptcy and it requires them to be informed of other matters pertaining to the integrity of the bankruptcy system. The legislation also permits certain filing fees and related charges to be waived, in appropriate cases, for individuals who lack the ability to pay these costs.
Highlights of Business Bankruptcy Reforms.
S. 256 contains a comprehensive set of reforms pertinent to business bankruptcies. They include provisions addressing the special problems presented by small business bankruptcies and single asset real estate debtors as well as provisions dealing with business bankruptcy cases in general. S. 256 establishes a new form of bankruptcy relief for transnational insolvencies intended to promote international comity and greater certainty. It also includes provisions concerning the treatment of certain financial contracts under the banking laws as well as under the Bankruptcy Code. S. 256 responds to the special needs of family farmers by making chapter 12 of the Bankruptcy Code (a form of bankruptcy relief available only to eligible family farmers) permanent. For the first time, it also allows certain family fishermen to qualify for chapter 12 relief.
Protections Against Excessive Payments To a Debtor's Insiders and Fraud by a Debtor's Management. S. 256 significantly restricts a corporate debtor's ability to pay bonuses, severance payments, and other payments to insiders of the debtor after the bankruptcy case is filed and requires the court to approve any such payment. In addition, it requires the United States trustee to apply for the appointment of a trustee if there are reasonable grounds to suspect that current members of a chapter 11 debtor's governing body, chief executive officer, chief financial officer, or members of the debtor's governing body who selected the debtor's chief executive officer or chief financial officer participated in actual fraud, dishonesty, or criminal conduct in the management of the debtor or the debtor's public financial reporting.
Protections for Employees. S. 256 provides heightened protections for employees. It requires certain back pay awards granted as a result of a debtor's violation of Federal or state law to receive one of the highest payment priorities in a bankruptcy case. In addition, the bill streamlines the appointment of an ERISA administrator for an employee benefit plan, under certain circumstances, to minimize the disruption that results when an employer files for bankruptcy relief. S. 256 also increases the monetary cap on wage and employee benefit claims entitled to priority under the Bankruptcy Code from $4,650 to $10,000 and lengthens the reachback period for wage claims from 90 days to 180 days. The bill amends the Bankruptcy Code to facilitate the recovery of avoidable transfers and excessive pre- and post-petition compensation, such as bonuses, paid to insiders of a debtor. In addition, S. 256 limits the ability of chapter 11 debtors to unilaterally terminate retiree benefit plans on the eve of bankruptcy.
Small Business/Single Asset Real Estate Debtors. S. 256 includes provisions with respect to small business and single asset real estate debtors largely derived from recommendations of the National Bankruptcy Review Commission. 76
[Footnote]
[Footnote 76: See generally REPORT OF THE NATIONAL BANKRUPTCY REVIEW COMMISSION, at 303-706 (Oct. 20, 1997).]
Most chapter 11 cases are filed by small business debtors. Although the Bankruptcy Code envisions that creditors should play a major role in the oversight of chapter 11 cases, this often does not occur with respect to small business debtors. The main reason is that creditors in these smaller cases do not have claims large enough to warrant the time and money to participate actively in these cases. The resulting lack of creditor oversight creates a greater need for the United States trustee to monitor these cases closely. Nevertheless, the monitoring of these debtors by United States trustees varies throughout the nation. S. 256 addresses the special problems presented by small business cases by instituting a variety of time frames and enforcement mechanisms designed to weed out small business debtors who are not likely to reorganize. It also requires these cases to be more actively monitored by United States trustees and the bankruptcy courts.
With regard to the Bankruptcy Code's treatment of single asset real estate debtors, S. 256 makes several amendments. First, it eliminates the monetary cap from the single asset real estate debtor definition. Second, it makes these debtors subject to the bill's small business reforms. Third, S. 256 amends the automatic stay provisions by permitting a single asset real estate debtor to make requisite interest payments out of rents or other proceeds generated by the real property.
Financial Contracts. S. 256 contains a series of provisions pertaining to the treatment of certain financial transactions under the Bankruptcy Code and relevant banking laws. 77
[Footnote] These provisions are intended to reduce `systemic risk' in the banking system and financial marketplace. 78
[Footnote] To minimize the risk of disruption when parties to these transactions become bankrupt or insolvent, the bill amends provisions of the banking and investment laws, as well as the Bankruptcy Code, to allow the expeditious termination or netting of certain types of financial transactions. Many of these provisions are derived from recommendations issued by the President's Working Group on Financial Markets 79
[Footnote] and revisions espoused by the financial industry.
[Footnote 77: In addition to the Bankruptcy Code, the bill amends the Federal Deposit Insurance Act, the Financial Institutions Reform, Recovery and Enforcement Act of 1989, the Federal Deposit Insurance Corporation Improvement Act of 1991, the Federal Reserve Act, and the Securities Investor Protection Act of 1971.]
[Footnote 78: The report on H.R. 4393, a bill substantially similar to title IX of S. 256 that was introduced in the 105th Congress, explained as follows:]
Systemic risk is the risk that the failure of a firm or disruption of a market or settlement system will cause widespread difficulties at other firms, in other market segments or in the financial system as a whole. If participants in certain financial activities are unable to enforce their rights to terminate financial contracts with an insolvent entity in a timely manner, or to offset or net their various contractual obligations, the resulting uncertainty and potential lack of liquidity could increase the risk of an inter-market disruption.
[Footnote 79: The Working Group's members included representatives from the Commodity Futures Trading Commission, the Federal Deposit Insurance Corporation, the Board of Governors of the Federal Reserve System, the Federal Reserve Bank of New York, the Securities and Exchange Commission, and the Department of the Treasury, including the Office of the Comptroller of the Currency. Id. at 1.]
Family Farmers and Family Fishermen. S. 256 helps small family farmers facing financial distress. While current bankruptcy law has a specialized form of bankruptcy relief--chapter 12--that is specifically designed for family farmers, its benefits for farmers are limited because of its restrictive eligibility requirements. S. 256 responds to this problem in several key respects: it more than doubles the debt eligibility limit and requires it to be periodically adjusted for inflation; it lowers the requisite percentage of a farmer's income that must be derived from farming operations; and it gives farmers more flexibility with respect to how certain creditors can be repaid. As a result, many more deserving family farmers facing financial hard times will be able to avail themselves of chapter 12. In addition, S. 256 makes chapter 12 a permanent component of the bankruptcy laws and extends the benefits of this form of bankruptcy relief to family fishermen.
Transnational Insolvencies. In response to the increasing globalization of business enterprises and operations, S. 256 establishes a separate chapter under the Bankruptcy Code devoted to transnational insolvencies. These provisions are intended to provide greater legal certainty for trade and investment as well as to provide for the fair and efficient administration of these cases. They reflect consensus recommendations of the National Bankruptcy Review Commission. 80
[Footnote]
[Footnote 80: REPORT OF THE NATIONAL BANKRUPTCY REVIEW COMMISSION, at 351-70 (Oct. 20, 1997).]
Protections for Small Business Owners. Under current bankruptcy law, a business can be sued by a bankruptcy trustee and forced to pay back--as a preferential transfer--monies previously paid to it by a firm that later files for bankruptcy protection. S. 256 contains provisions making it easier--particularly for small businesses--to defend against these suits. These provisions largely reflect recommendations of the National Bankruptcy Review Commission. 81
[Footnote]
[Footnote 81: Id. at 793-803.]
Health Care Providers. S. 256 adds a provision to the Bankruptcy Code intended to give patients of bankrupt health care providers various protections. These include provisions specifying requirements for the disposal of patient records so that a patient's privacy and the confidentiality of such records when they are in the custody of a health care business in bankruptcy are protected. In addition, the bill includes a provision according administrative expense priority to the actual, necessary costs and expenses of closing a health care business (including the disposal of patient records or transferral of patients) incurred by a trustee, Federal agency, or a department or state agency. If warranted, it also authorizes the court to order the appointment of an ombudsman to monitor the quality of patient care and to represent the interests of the patients. Other provisions include the requirement that a bankruptcy trustee use all reasonable and best efforts to transfer patients from a health care business that is being closed to an appropriate alternative facility that meets certain specified criteria.
Other Provisions Having General Impact.
Privacy Protections. Under current law, nearly every item of information filed in a bankruptcy case is made available to the public. S. 256 restricts public access to certain personal information pertaining to an individual contained a bankruptcy case file to the extent the court finds that disclosure of such information would create undue risk of identity theft or other unlawful injury to the individual or the individual's property. In addition, the bill prohibits the disclosure of the names of the debtor's minor children and requires such information to be kept in a nonpublic record, which can be made available for inspection only by the court and certain other designated entities. Further, S. 256 prohibits the sale of customers' personally identifiable information by a business debtor unless certain conditions are satisfied.
Additional Bankruptcy Judgeships. S. 256 authorizes 28 additional bankruptcy judgeships on a temporary basis and extends three currently existing temporary judgeships. 82
[Footnote] This provision responds to the 59 percent increase in the caseload of bankruptcy judges since 1992, reported by the Administrative Office of the United States Courts. 83
[Footnote]
[Footnote 82: Districts authorized additional bankruptcy judgeships under S. 256 include the following: Eastern District of California (one), Central District of California (three), Delaware (four), Southern District of Florida (two), Southern District of Georgia (one), Maryland (three), Eastern District of Michigan (one), Southern District of Mississippi (one), New Jersey (one), Nevada (one), Eastern District of New York (one), Northern District of New York (one), Southern District of New York (one), Eastern District of North Carolina (one), Eastern District of Pennsylvania (one), Middle District of Pennsylvania (one), Puerto Rico (one), South Carolina (one), Western District of Tennessee (one), Eastern District of Virginia (one).]
[Footnote 83: Press Release, Administrative Office of the U.S. Courts, Record Breaking Bankruptcy Filings Reported in Calendar Year 2002 (Feb. 14, 2003) (noting that `no new bankruptcy judgeships have been created since 1992').]
Miscellaneous Provisions. Under current law, an appeal from a bankruptcy court decision must be heard by a Federal district court or bankruptcy appellate panel before it may be heard by a Federal court of appeals. S. 256 authorizes a direct appeal from a bankruptcy court decision to the court of appeals, under certain circumstances. Other general provisions include allowing attorneys to share compensation with bona fide public service attorney referral programs, and mandating that a bankruptcy court conduct scheduling conferences in a bankruptcy case if necessary to further its expeditious and economical resolution. In addition, the bill requires the United States Trustee Program to compile various statistics regarding chapter 7, 11 and 13 cases and to make these data available to the public. S. 256 also permits a court to seal all public records pertaining to a fraudulent involuntary bankruptcy petition, under certain circumstances, and to prohibit a consumer reporting agency from issuing a consumer report containing any reference to such petition.
The Committee on the Judiciary held no hearings on S. 256.
On March 16, 2005, the Committee met in open session and ordered favorably reported the bill S. 256 without an amendment by a recorded vote of 22 to 13, a quorum being present.
In compliance with clause 3(b) of rule XIII of the Rules of the House of Representatives, the Committee notes that the following roll call votes occurred during the Committee's consideration of S. 256.
1. An amendment by Mr. Conyers disallowing: (a) claims resulting from an assignment of a debtor's right to receive military pay, or military pension or disability benefits; (b) certain claims owed by a servicemember or a dependent of a servicemember that are either secured or conditioned upon a personal check held for future deposit or electronic access to a bank account; or (3) claims owed by a servicemember or dependent of a servicemember requiring the payment of interest and other charges in excess of 36 percent. The amendment also allows the discharge of certain debts based on the debtor's right to receive military pay, or military pension or disability benefits. Defeated 15 to 20.
ROLLCALL NO. 1
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Ayes Nays Present
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Mr. Hyde
Mr. Coble X
Mr. Smith (Texas) X
Mr. Gallegly X
Mr. Goodlatte
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus X
Mr. Inglis X
Mr. Hostettler X
Mr. Green
Mr. Keller X
Mr. Issa X
Mr. Flake X
Mr. Pence X
Mr. Forbes X
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert X
Mr. Conyers X
Mr. Berman X
Mr. Boucher
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren X
Ms. Jackson Lee X
Ms. Waters X
Mr. Meehan X
Mr. Delahunt X
Mr. Wexler
Mr. Weiner X
Mr. Schiff X
Ms. Sanchez X
Mr. Smith X
Mr. Van Hollen X
Mr. Sensenbrenner, Chairman X
Total 15 20
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2. An amendment by Mr. Watt and Mr. Delahunt disallowing a claim for a debt based on an extension of credit on which the annual rate of interest in excess of 50 percent was imposed or in excess of a limit on allowable interest under applicable nonbankruptcy law. Defeated 9 to 15.
ROLLCALL NO. 2
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Ayes Nays Present
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Mr. Hyde
Mr. Coble X
Mr. Smith (Texas) X
Mr. Gallegly X
Mr. Goodlatte
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus
Mr. Inglis
Mr. Hostettler X
Mr. Green X
Mr. Keller
Mr. Issa X
Mr. Flake
Mr. Pence
Mr. Forbes
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert X
Mr. Conyers X
Mr. Berman
Mr. Boucher
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee X
Ms. Waters
Mr. Meehan X
Mr. Delahunt X
Mr. Wexler
Mr. Weiner
Mr. Schiff X
Ms. Sanchez X
Mr. Smith (Washington)
Mr. Van Hollen
Mr. Sensenbrenner, Chairman X
Total 9 15
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3. An amendment by Mr. Watt amending section 102 of the bill to permit a debtor to claim as an expense, in addition to elementary and secondary school educational expenses, the actual tuition costs per each child (exclusive of room and board) to attend a postsecondary education institution, and certain other educational programs. Defeated 10 to 17.
ROLLCALL NO. 3
----------------------------------------------
Ayes Nays Present
----------------------------------------------
Mr. Hyde
Mr. Coble X
Mr. Smith (Texas)
Mr. Gallegly X
Mr. Goodlatte
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus X
Mr. Inglis
Mr. Hostettler X
Mr. Green X
Mr. Keller X
Mr. Issa X
Mr. Flake
Mr. Pence
Mr. Forbes
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert X
Mr. Conyers X
Mr. Berman
Mr. Boucher X
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee X
Ms. Waters
Mr. Meehan X
Mr. Delahunt X
Mr. Wexler
Mr. Weiner X
Mr. Schiff X
Ms. Sanchez X
Mr. Smith (Washington)
Mr. Van Hollen
Mr. Sensenbrenner, Chairman X
Total 10 17
----------------------------------------------
4. An amendment by Mr. Nadler amending sections 404, 411, 417, 436, 437, and 438 of the bill to permit the court, under specified circumstances, to extend certain time periods specified therein. Defeated 13 to 18.
ROLLCALL NO. 4
----------------------------------------------
Ayes Nays Present
----------------------------------------------
Mr. Hyde
Mr. Coble X
Mr. Smith (Texas) X
Mr. Gallegly X
Mr. Goodlatte
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus X
Mr. Inglis X
Mr. Hostettler X
Mr. Green X
Mr. Keller X
Mr. Issa X
Mr. Flake
Mr. Pence
Mr. Forbes
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert X
Mr. Conyers X
Mr. Berman X
Mr. Boucher
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee
Ms. Waters X
Mr. Meehan X
Mr. Delahunt X
Mr. Wexler X
Mr. Weiner X
Mr. Schiff X
Ms. Sanchez X
Mr. Smith (Washington) X
Mr. Van Hollen
Mr. Sensenbrenner, Chairman X
Total 13 18
----------------------------------------------
5. An amendment by Mr. Schiff amending section 102 of the bill to prohibit a judge, United States trustee, trustee, or other party in interest from dismissing a chapter 7 case on the basis of the debtor's ability to repay if the debtor is an identity theft victim, under certain circumstances. Defeated 13 to 15.
ROLLCALL NO. 5
----------------------------------------------
Ayes Nays Present
----------------------------------------------
Mr. Hyde
Mr. Coble X
Mr. Smith (Texas) X
Mr. Gallegly X
Mr. Goodlatte
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus X
Mr. Inglis X
Mr. Hostettler
Mr. Green X
Mr. Keller
Mr. Issa
Mr. Flake
Mr. Pence
Mr. Forbes
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert X
Mr. Conyers X
Mr. Berman X
Mr. Boucher
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee
Ms. Waters X
Mr. Meehan X
Mr. Delahunt X
Mr. Wexler
Mr. Weiner X
Mr. Schiff X
Ms. Sanchez X
Mr. Smith (Washington) X
Mr. Van Hollen X
Mr. Sensenbrenner, Chairman X
Total 13 15
----------------------------------------------
6. An amendment by Mr. Delahunt amending Bankruptcy Code section 548 to authorize a trustee to avoid a transfer of an interest of a debtor made within the ten-year period preceding the bankruptcy filing to an asset protection trust if the amount of the transfer or aggregate amount of all transfers during such period exceeds $125,000, with certain exceptions. Defeated 10 to 15.
ROLLCALL NO. 6
----------------------------------------------
Ayes Nays Present
----------------------------------------------
Mr. Hyde
Mr. Coble X
Mr. Smith (Texas)
Mr. Gallegly X
Mr. Goodlatte
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus
Mr. Inglis
Mr. Hostettler X
Mr. Green
Mr. Keller X
Mr. Issa
Mr. Flake X
Mr. Pence
Mr. Forbes X
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert
Mr. Conyers X
Mr. Berman X
Mr. Boucher X
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee X
Ms. Waters X
Mr. Meehan
Mr. Delahunt X
Mr. Wexler
Mr. Weiner X
Mr. Schiff X
Ms. Sanchez
Mr. Smith (Washington)
Mr. Van Hollen
Mr. Sensenbrenner, Chairman X
Total 10 15
----------------------------------------------
7. An amendment by Mr. Berman and Mr. Meehan amending Bankruptcy Code section 522 to create a uniform Federal homestead exemption floor in the amount of $150,000 for a medically distressed debtor. Defeated 13 to 18.
ROLLCALL NO. 7
----------------------------------------------
Ayes Nays Present
----------------------------------------------
Mr. Hyde
Mr. Coble X
Mr. Smith (Texas)
Mr. Gallegly X
Mr. Goodlatte
Mr. Chabot
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus X
Mr. Inglis X
Mr. Hostettler X
Mr. Green X
Mr. Keller X
Mr. Issa X
Mr. Flake X
Mr. Pence
Mr. Forbes X
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert
Mr. Conyers X
Mr. Berman X
Mr. Boucher X
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee X
Ms. Waters X
Mr. Meehan X
Mr. Delahunt X
Mr. Wexler X
Mr. Weiner X
Mr. Schiff X
Ms. Sanchez
Mr. Smith (Washington)
Mr. Van Hollen X
Mr. Sensenbrenner, Chairman X
Total 13 18
----------------------------------------------
8. An amendment by Mr. Nadler amending Bankruptcy Code section 523(a) to provide that a debt that results from any judgment, order, consent order, or decree entered in any Federal or state court or contained in any settlement agreement entered into by the debtor that arises from: (a) the violation of certain specified offenses under title 18 of the United States Code; (b) an offense under state law that would be a civil rights crime (as described in the preceding clause); (c) a violation under 42 U.S.C. Sec. 1983; or (d) the intentional actions of a debtor that violate a valid court order enforcing a civil rights law described in (a) or (b). It also amends Bankruptcy Code section 523(a)(13) to include an order of restitution under the criminal law of a state. Defeated 11 to 17.
ROLLCALL NO. 8
----------------------------------------------
Ayes Nays Present
----------------------------------------------
Mr. Hyde
Mr. Coble X
Mr. Smith (Texas) X
Mr. Gallegly X
Mr. Goodlatte
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus X
Mr. Inglis
Mr. Hostettler X
Mr. Green X
Mr. Keller
Mr. Issa
Mr. Flake
Mr. Pence
Mr. Forbes X
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert X
Mr. Conyers X
Mr. Berman X
Mr. Boucher X
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee
Ms. Waters X
Mr. Meehan X
Mr. Delahunt X
Mr. Wexler X
Mr. Weiner X
Mr. Schiff X
Ms. Sanchez
Mr. Smith (Washington)
Mr. Van Hollen
Mr. Sensenbrenner, Chairman X
Total 11 17
----------------------------------------------
9. An amendment by Mr. Meehan amending section 102 of the bill to provide that the needs-based requirements under Bankruptcy Code section 707(b)(2)(A) through (C) (as amended by section 102) shall not apply to, and the court may not dismiss or convert a chapter 7 case filed by, a debtor who is a disabled veteran based on any form of means testing, under certain specified circumstances. Defeated 12 to 19.
ROLLCALL NO. 9
----------------------------------------------
Ayes Nays Present
----------------------------------------------
Mr. Hyde
Mr. Coble X
Mr. Smith (Texas) X
Mr. Gallegly X
Mr. Goodlatte
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus X
Mr. Inglis X
Mr. Hostettler X
Mr. Green
Mr. Keller X
Mr. Issa X
Mr. Flake
Mr. Pence
Mr. Forbes X
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert X
Mr. Conyers X
Mr. Berman X
Mr. Boucher X
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee X
Ms. Waters X
Mr. Meehan X
Mr. Delahunt
Mr. Wexler
Mr. Weiner X
Mr. Schiff X
Ms. Sanchez X
Mr. Smith (Washington)
Mr. Van Hollen X
Mr. Sensenbrenner, Chairman X
Total 12 19
----------------------------------------------
10. An amendment by Ms. Jackson Lee amending section 102 of the bill to increase the amount of actual expenses a chapter 7 debtor may claim under the provision's needs-based test for certain educational costs for a debtor's dependent child from $1,500 to $3,000. Defeated 12 to 21.
ROLLCALL NO. 10
----------------------------------------------
Ayes Nays Present
----------------------------------------------
Mr. Hyde
Mr. Coble X
Mr. Smith (Texas) X
Mr. Gallegly X
Mr. Goodlatte X
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus X
Mr. Inglis X
Mr. Hostettler
Mr. Green X
Mr. Keller X
Mr. Issa X
Mr. Flake
Mr. Pence X
Mr. Forbes X
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert X
Mr. Conyers X
Mr. Berman X
Mr. Boucher X
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee X
Ms. Waters X
Mr. Meehan
Mr. Delahunt
Mr. Wexler
Mr. Weiner X
Mr. Schiff X
Ms. Sanchez X
Mr. Smith (Was1hington) X
Mr. Van Hollen X
Mr. Sensenbrenner, Chairman X
Total 12 21
----------------------------------------------
11. Three en bloc amendments by Ms. Jackson Lee as follows: (a) amending Bankruptcy Code section 523(a) to provide that a debt arising from certain sex offenses in which the victim was an individual who had not attained the age of 17 years is nondischargeable; (b) amending Bankruptcy Code section 523(a) to provide that a debt arising from a judicial, administrative, or other action related to the consumption or consumer purchase of a tobacco product that is based in whole or in part on false pretenses, a false representation, or actual fraud is nondischargeable; and (c) amending section 708 of the bill to provide that the confirmation of a chapter 11 plan under Bankruptcy Code section 1141 does not discharge a debtor that is corporation from a debt specified in Bankruptcy Code section 523(a)(9). Defeated 9 to 20.
ROLLCALL NO. 11
----------------------------------------------
Ayes Nays Present
----------------------------------------------
Mr. Hyde
Mr. Coble X
Mr. Smith (Texas) X
Mr. Gallegly X
Mr. Goodlatte X
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus X
Mr. Inglis X
Mr. Hostettler
Mr. Green
Mr. Keller X
Mr. Issa X
Mr. Flake
Mr. Pence X
Mr. Forbes X
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert X
Mr. Conyers X
Mr. Berman X
Mr. Boucher X
Mr. Nadler
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee X
Ms. Waters X
Mr. Meehan X
Mr. Delahunt
Mr. Wexler
Mr. Weiner X
Mr. Schiff
Ms. Sanchez
Mr. Smith (Washington)
Mr. Van Hollen X
Mr. Sensenbrenner, Chairman X
Total 9 20
----------------------------------------------
12. Motion to report S. 256 favorably. Passed 22 to 13.
ROLLCALL NO. 12
----------------------------------------------
Ayes Nays Present
----------------------------------------------
Mr. Hyde
Mr. Coble X
Mr. Smith (Texas) X
Mr. Gallegly X
Mr. Goodlatte X
Mr. Chabot X
Mr. Lungren X
Mr. Jenkins X
Mr. Cannon X
Mr. Bachus X
Mr. Inglis X
Mr. Hostettler
Mr. Green X
Mr. Keller X
Mr. Issa X
Mr. Flake X
Mr. Pence X
Mr. Forbes X
Mr. King X
Mr. Feeney X
Mr. Franks X
Mr. Gohmert X
Mr. Conyers X
Mr. Berman X
Mr. Boucher X
Mr. Nadler X
Mr. Scott X
Mr. Watt X
Ms. Lofgren
Ms. Jackson Lee X
Ms. Waters X
Mr. Meehan X
Mr. Delahunt X
Mr. Wexler
Mr. Weiner X
Mr. Schiff X
Ms. Sanchez X
Mr. Smith (Washington)
Mr. Van Hollen X
Mr. Sensenbrenner, Chairman X
Total 22 13
----------------------------------------------
In compliance with clause 3(c)(1) of Rule XIII of the Rules of the House of Representatives, the Committee reports that the findings and recommendations of the Committee, based on oversight activities under clause 2(b)(1) of Rule X of the Rules of the House of Representatives, are incorporated in the descriptive portions of this report.
In compliance with clause 3(c)(2) of Rule XIII of the Rules of the House of Representatives, the Committee adopts as its own the estimate of budget authority, or tax expenditures or revenues contained in the cost estimate prepared by the Director of the Congressional Budget Office pursuant to section 402 of the Congressional Budget Act of 1974.
In compliance with clause 3(c)(3) of Rule XIII of the Rules of the House of Representatives, the Committee sets forth, with respect to the bill, S. 256, the following estimate and comparison prepared by the Director of the Congressional Budget Office under section 402 of the Congressional Budget Act of 1974:
Hon. F. JAMES SENSENBRENNER, Jr., Chairman,
Committee on the
Judiciary,
House of Representatives, Washington, DC.
DEAR MR. CHAIRMAN: The Congressional Budget Office has prepared the enclosed cost estimate for S. 256, the `Bankruptcy Abuse Prevention and Consumer Protection Act of 2005,' as reported by the House Committee on the Judiciary. This version of S. 256 is identical to the legislation as passed by the Senate on March 10, 2005.
If you wish further details on this estimate, we will be pleased to provide them. The CBO staff contacts are Gregory Waring (for Federal spending), who can be reached at 226-2860, Annabelle Bartsch (for Federal revenues), who can be reached at 226-2720, Melissa Merrell (for the State and local impact), who can be reached at 225-3220, and Paige Piper/Bach (for the private-sector impact), who can be reached at 226-2940.
Sincerely,
Douglas Holtz-Eakin.
S. 256--Bankruptcy Abuse Prevention and Consumer Protection Act of 2005.
CBO estimates that implementing S. 256 would result in gross discretionary costs of $392 million over the 2006-2010 period, primarily to pay for increased responsibilities of the United States Trustees (U.S. Trustees), assuming appropriation of the necessary amounts. At the same time, the act would increase the fees charged for filing certain bankruptcy cases and would change how some of these fees are currently recorded in the budget during the first 5 years after enactment. We estimate that implementing the act would increase the amount of bankruptcy fees that are treated as an offset to appropriations by $75 million over the 5-year period, resulting in an estimated net increase in discretionary spending of approximately $318 million over this period.
In addition, CBO estimates that enacting S. 256 would increase revenues by about $60 million over the 2006-2010 period and by about $140 million over the 2006-2015 period primarily because of provisions that temporarily amend the Treasury's allocation of filing fees. Finally, enactment of S. 256 would authorize additional judgeships, and we estimate that the mandatory pay and benefits for those positions would cost $26 million over the next 5 years and $45 million over the 2006-2015 period.
On balance and assuming appropriation of the necessary amounts to implement the act, CBO estimates that its enactment would increase budget deficits by about $280 million over the 2006-2010 period.
S. 256 contains two intergovernmental mandates as defined in the U