Copyright 2002 The New York Times Company
The New
York Times
May 22, 2002, Wednesday, Late Edition - Final
SECTION: Section A; Page
25; Column 1; National Desk
LENGTH: 773 words
HEADLINE:
Law Professors Express Concern Over Pending Bankruptcy Bill
BYLINE: By PHILIP SHENON
DATELINE: WASHINGTON, May 21
BODY:
Dozens of law professors who are among the
nation's leading bankruptcy specialists have told Congress that a pending bill
to overhaul the bankruptcy system will lead to "new headlines and new scandal"
because it will continue to permit high-income debtors to shield
multimillion-dollar houses from creditors.
The bill, which has been
under debate in Congress for five years, would make it harder for people to
erase their debts if they declare bankruptcy. Lawmakers are facing a showdown on
Wednesday, when a House-Senate conference committee meets again to try to reach
a compromise on a contentious provision involving abortion rights. In a letter
to the conference committee that was made public today, 66 law school professors
addressed a separate provision in the bill that would continue to permit debtors
in Texas, Florida and four other states to shield their homes from creditors in
bankruptcy.
The loophole in the six states is known as the unlimited
homestead exemption, and celebrities like the actor Burt Reynolds and Bowie
Kuhn, the former baseball commissioner, have taken advantage of it.
The
bill includes compromise language -- prompted by the collapse of the Enron
Corporation and drafted by the House-Senate committee last month -- that would
bar anyone who has been convicted of certain types of felony or of securities
fraud from shielding more than $125,000 in home equity in bankruptcy.
Lawmakers said the compromise was intended specifically to ensure that
former Enron executives would be forced to give up their luxury houses near the
company's headquarters in Houston if they ever faced bankruptcy as a result of
criminal charges.
But in their letter, the law school professors said
the compromise might actually lead to worse abuses of the homestead exemption in
Texas, Florida and the other states: Arkansas, Iowa, Kansas and South Dakota.
"Its modest improvements are overwhelmed by the negative consequences it will
have," they wrote of the compromise language.
The professors said that
while the bill might prevent a handful of criminals from shielding their
mansions from deserving creditors, other, largely unnoticed provisions of the
bill would create new ways for high-income debtors to take advantage of the
unlimited exemption in the six states that have it.
They said they were
especially concerned by a provision that would extend the time frame -- to two
years, from six months -- in which debtors can move and still take advantage of
the unlimited exemption in the state where they used to live.
"Someone
who owned a multimillion-dollar home in Connecticut, for example, could move to
Arkansas for a few months, establish Arkansas as his domicile without selling
his Connecticut property, then move back to Connecticut, wait nearly two years
and file for bankruptcy," the professors wrote. "The proposal would require the
Connecticut court to apply the unlimited Arkansas homestead, permitting the
wealthy Connecticut homeowner to shield millions."
The professors said
they were disappointed that the bill retained what they called the basic
inequity that exists under current law.
"A wealthy investor in Texas can
keep an unencumbered home worth $10 million while a factory worker in Virginia
puts at risk anything over $10,000 in equity," they said. "It is profoundly
unfair to leave open a gaping loophole for the richest executives, doctors and
movie stars."
The professors who signed the letter are from some of the
nation's leading law schools, including Harvard, the University of California
and the University of Texas.
Senator Herb Kohl, a Wisconsin Democrat who
had originally wanted to place a nationwide cap on the homestead exemption but
accepted the compromise language, said in a statement that the concerns of the
law school professors were unfounded. He said that by placing a $125,000 limit
on the home equity felons and others involved in wrongdoing could shield from
creditors, "we have captured and stopped the worst abuses."
"Our
provision marks the first time in history that Congress has agreed to curb these
abuses," he said.
Congressional aides said they knew of no negotiations
today over the abortion provision that is proving to be the final hurdle to
passage of the overall bill.
The provision, which Democrats are
insisting be included in the bill, would block anti-abortion
protesters from filing for bankruptcy to avoid paying court
judgments and fines they owe as a result of protests at abortion clinics. Some
anti-abortion House Republicans are insisting that the provision be rewritten or
killed. http://www.nytimes.com
LOAD-DATE: May 22,
2002 
