LEXIS-NEXIS® Congressional Universe-Document

Search Terms: Abortion AND Bankruptcy Reform, House or Senate or Joint

Document 4 of 18.

February 8, 2001, Thursday

SECTION: CAPITOL HILL HEARING

LENGTH: 24929 words

HEADLINE: HEARING OF THE SENATE JUDICIARY COMMITTEE

SUBJECT: THE BANKRUPTCY REFORM ACT OF 2001

CHAIRED BY: SENATOR ORRIN HATCH (R-UT)

LOCATION: 226 DIRKSEN SENATE OFFICE BUILDING, WASHINGTON, D.C.

WITNESSES:

JUDGE EDWARD R. BECKER, CHIEF JUDGE OF THE THIRD CIRCUIT UNITED STATES COURTS OF APPEALS, PHILADELPHIA, PA;

BRADY C. WILLIAMSON, LAFOLLETT, GODFREY & KAHN, FORMER CHAIR OF THE NATIONAL BANKRUPTCY REVIEW COMMISSION;

KEN BEINE, PRESIDENT, SHORELINE CREDIT UNION, TWO RIVERS, WI;

ROBERT MANNING, SENIOR RESEARCH FELLOW, INSTITUTE FOR HIGHER EDUCATION, LAW AND GOVERNANCE, UNIVERSITY OF HOUSTON LAW CENTER;

JUDGE RANDALL J. NEWSOME, UNITED STATES BANKRUPTCY COURT, NORTHERN DISTRICT OF CALIFORNIA, SAN FRANCISCO, CA;

DEAN SHEAFFER, VICE PRESIDENT AND DIRECTOR OF CREDIT, BOSCOVS DEPARTMENT STORE, LAURELDALE, PA;

PHILLIP STRAUSS, PRINCIPAL ATTORNEY, SAN FRANCISCO DEPARTMENT OF CHILD SUPPORT SERVICES;

MARIA T. VULLO, PAUL, WEISS, RIFKIND, WHARTON & GARRISON, NEW YORK, NY;

TODD J. ZYWICKI, ASSISTANT PROFESSOR OF LAW, GEORGE MASON UNIVERSITY SCHOOL OF LAW, ARLINGTON, VA;

BODY:
SEN. ORRIN HATCH (R-UT): We're happy to welcome you all out to the committee this morning. I'll give my remarks immediately after Senator Specter who wants to introduce Judge Becker from the Third Circuit Court of Appeals, and then we'll move on from there with the ranking member and then to Judge Becker.

SEN. ARLEN SPECTER (R-PA): Thank you very much, Mr. Chairman, for your courtesy in permitting me to start. I have another commitment which I have to attend to, but it's a great pleasure for me to present Chief Judge Edward Roy Becker of the Court of Appeals for the Third Circuit to this committee. I haven't known Judge Becker very long, only 51 years. So we rode the elevator train from northeast Philadelphia to the University of Pennsylvania. I'm substantially older than Judge Becker. He was a freshman when I was a senior. He started at the University of Pennsylvania in the fall of 1950. And I had the opportunity to coach the University of Pennsylvania debating team when Judge Becker was a senior, and we went to Boston to debate the Norfolk State Prisoners, Senator Kennedy. And the subject was, Resolved: That the Communist Party Should be Outlawed. And the five chief editors from the newspapers, Irwin Cannon (sp) was one of the judges of that debate, and I'm not pleased to tell you that Judged Becker and I lost to the Norfolk State Prisoners. (Laughter.)

We had a very large audience, about 1,000 inmates.

SEN. EDWARD KENNEDY (D-MA): Which side were you on, Senator?

(Laughter.)

SEN. SPECTER: They had to take the side of law and order, urge outlawing the Communist Party, and we had a thousand people. That's what you call a real captive audience, the quintessential. Judge Becker graduated phi beta kappa from the University of Pennsylvania and the Yale Law School where again we were together in the law school. He graduated in the class of 1957, and he had a very unusual career as an active lawyer, a business lawyer, trial lawyer, and a Republican committeeman. I say that Judge Becker is one of the few if not the only federal judges to have earned his judgeship both ways -- by merit and by politics.

It was a confluence of factors. He was on the United States District Court for the Eastern District of Pennsylvania at the age of 37, and he was elevated to the Third Circuit in 1970, and he's now the chief judge bringing an enormous number of innovative ideas, one of the real leaders of the American Bar and the American judiciary. And if there should ever be another vacancy on the Supreme Court of the United States, we could start the confirmation hearing this morning. But as you can tell, Mr. Chairman, it's a long, a very intimate friendship with the chief judge, Becker. And I know that he has some words of wisdom for the committee. Thank you very much, Senator Hatch, for letting me go out of order.

SEN. HATCH: Thank you for your kind introduction, Senator Specter. That's high praise I think of Judge Becker, and of course I'm very familiar with you and aware of you as well and have equally high esteem for you.

I will just say good morning to everybody. Welcome to today's hearing on bankruptcy reform. We'd first like to thank all of our witnesses for their time and cooperation, and I hope that this hearing will serve to reinforce for all of us, especially the new members the committee, the pressing need for bankruptcy reform. Of course bankruptcy reform is by no means a new issue to this committee or to the Congress. In fact, the Senate literally has been engaged in the process of deliberating on this issue for years with numerous hearings, mark-ups and votes, and we should have these real reforms, needed reforms and compromises that we've made to this product, one that has been supported by both houses of Congress with overwhelming bipartisan and veto-proof margins.

Following extensive studies by the National Bankruptcy Review Commission, the Comprehensive Bankruptcy Reform Bill was developed by Senators Grassley and Durbin in the Subcommittee on Administrative Oversight in the Courts in 1997. We marked up and reported that bill out of committee in May of 1998. In September of 1998 the Senate passed bankruptcy reform by a vote of 97 to 1. This overwhelming Senate vote in favor of bankruptcy reform was followed by the appointment of conferees, negotiations with the House, and in October of 1998 a 300 to 125 House vote for the conference report. Although the motion to proceed to consideration of the conference report was agreed to in the Senate by a strong vote of 94 to 2, the Senate ran out of time for a vote on final passage before the end of that Congress.

So in February of 1999, Representative George Gekas in the House introduced bankruptcy reform again; it was passed out of the House in May of 1999 by another overwhelming vote of 313 to 108. Meanwhile, in the Senate, Senator Grassley worked together with Senator Torricelli, and in March of 1999 once again introduced bankruptcy reform legislation which was again referred to the Judiciary Committee. The Judiciary Committee again marked up the bill, and in May of 1999 favorably reported it out of the committee to the floor. In February of last year, the reform legislation passed the Senate by another impressive margin of 83 to 14. The Senate requested a conference, but the objection of a single member from the other side of the aisle blocked the appointment of conferees. As a result, we had to turn to an informal conference process with the House of Representatives, but fortunately this process was bipartisan.

With a great deal of dedication of members on both sides of the aisle, we reached a compromise agreement on well over 400 pages of bankruptcy reform legislation and on all but two issues among the informal conferees.

In October of 2000, the House passed the Bankruptcy Reform Conference Report, and in December the Senate passed it by yet another overwhelming vote of 70 to 28. Later that month the president pocket vetoed the Bankruptcy Reform Legislation.

I provide this elaborate procedural history to make two points. First, the issue of bankruptcy reform is not a new one. It is quite familiar to all of us. Many of our witnesses today have testified before Congress on this issue. We studied it, held hearings on it, compromised on it, and come to resolution on it with veto-proof margins in both houses, time and time again. An elaborate record sets out the issues, the documents, the debate, and makes a compelling case for reform that is available to anyone who has an interest in giving it their attention.

Now this leads me to my second point. Eventually the process of deliberation needs to come to a close, and the will of the Congress needs to be exercised. As history has demonstrated repeatedly, bankruptcy reform is clearly the will of the Congress and much needed for all American consumers.

I would like to take a moment to thank Senator Grassley and Sessions for their hard work and dedication to this important reform legislation over the past years. Also, I'd like to thank the committee's ranking Democrat member, Senator Leahy, along with Senators Biden and Durbin, Senator Torricelli, for their leadership in the area of consumer bankruptcy reform, as well as other members of the committee both current and former who have worked so hard on this very important set of issues.

I'm sounding somewhat like a broken record, but I feel compelled to state once again that we cannot afford to continue down the harmful path provided by current law because abuse of bankruptcy filings are harmful to all of us. Bankruptcy ends up costing all Americans in an amount that has been conservatively estimated at anywhere from $400 to $550 per household per year. And contrary to what critics of reform would like us to believe, when someone files for bankruptcy the negative repercussions go far beyond the credit card companies and big businesses to whom money is owed but is not paid. The costs are passed on to all honest consumers who honor their commitment and who pay their bills.

Now this is an issue that profoundly impacts the average American. Bankruptcies end up hurting people who own or work in small businesses, who are members of credit unions and spouses and children who are entitled to child support. We should preserve bankruptcy to provide a fresh start, but only for those who truly don't have the means to pay some of their debts as promised.

I look forward to the testimony today because I believe it will highlight some of the abuses that the current system allows to take place and will address one more time the pressing need for this consumer bankruptcy reform which more importantly provides many new consumer protections. We are fortunate to be hearing testimony from Judge Edward Becker, chief judge of the United States Court of Appeals for the Third Circuit, who has some concerns about the bill and suggestions for us and who we decided to put on at the last minute at the request of other members of the federal judiciary and Judge Becker, and we're happy to welcome you here, Judge.

Judge Randall Newsome of the United States Bankruptcy Court for the Northern District of California, Philip Strauss, principal attorney from the San Francisco Department of Child Support Services, and Brady Williamson the former chair of the National Bankruptcy Review Commission. We're also fortunate to be hearing from Ken Beine, president of Shoreline Credit Union in Two Rivers, Wisconsin; Dr. Robert Manning, a senior research fellow from the University of Houston Law Center; Dean Sheaffer, vice president and director of Credit for Boscov's Department Stores in Pennsylvania; Maria Vullo, an attorney with the firm of Paul Weiss and Todd Zywicki, assistant professor of law at George Mason University.

So we appreciate all of you appearing today, and we look forward to your testimony.

I'll now turn to our ranking member, Senator Leahy, for his opening statement.

SEN. PATRICK LEAHY (D-VT): Thank you, Mr. Chairman. I know others perhaps have things to say, but I am pleased that we're having this. There's so many competing public policy interests between debtors and creditors and among competing creditors. Judge Becker has seen those competing interests probably more than any one of us around this panel. But we also have a number of senators on this committee who have developed expertise in this area. And I do want to hear from them too because they're going to have to help us develop a consensus. We tried for four years to pass bankruptcy reform legislation. We all agreed that we need some changes in bankruptcy laws, but it's failed I think each time the last two congresses when we went from bipartisanship to partisanship. The last two congresses, the final decision were made by the Republican majority behind closed doors. We did not get too much of a say in it.

But there are complex and competing interests in this that they say we have to work in a bipartisan fashion throughout this process. I would think that what we should do is look at some of the mistakes in the past and why we didn't get legislation through. I think we could avoid those mistakes, Mr. Chairman. I think you and I can work very closely together with other members of the committee to have both sides heard. And I think the last two times we saw that there was a great deal of bipartisan consensus that we can follow up on that. So I hope we do this and craft a balanced and fair bankruptcy reform law, one that addresses and corrects the abuses by both debtors and creditors.

For example, we should provide for more disclosure of information so that consumers may better manage their debts and avoid bankruptcy altogether. I know that Senator Grassley and Senator Durbin who's unable to be here today because of a death in the family, but Senator Schumer and others share a commitment to include credit industry reforms in a fair and balanced bankruptcy bill.

The millions of credit card solicitations made to American consumers the past few years have contributed to the rise in consumer debt and bankruptcies. When we see people work here when their three- year-old and four-year-old children get credit card solicitations you know that something is wrong. In addition, many of the most controversial proposals for change are to benefit the credit card industry and to use taxpayer supported bankruptcy court and the authority of federal law to augment and support the credit card industry's debt collection. Well, if we're going to have the taxpayers help with their debt collection, it's only fair that the credit card industry be involved in bankruptcy reform and that they be asked to show how those changes they seek are going to benefit consumers through lower interest rates or lower fees. If we're going to help them collect their debt, if we're going to have the taxpayers going to pay to help them collect their debts, what are they going to do to help the users of their card?

And President Bush underlined the importance of examining credit industry practices. He said this week to quote President Bush, "The debt I'm most concerned about, however, is the consumer debt, credit card debt, the debt that burdens thousands of Americans. And we'd better be really careful about not recognizing the combination of an economic slow-down, high energy prices and debt overhang, what that means to working people."

As usual, I agree with President Bush.

(Laughter.)

I am pleased that Professor Robert Manning is here today to discuss his recent research and analysis of credit industry practices and consumer debt. We should also talk about wealthy debtors who use overly broad homestead exemption to shield assets from their creditors. Senator Kohl has been a leader in this issue in closing this loophole. In some states, you know wealthy debtors have used their state laws to protect million dollar mansions -- million dollar mansions from creditors. And it's been a major problem. The last Congress, by a vote of 76 to 22, the Senate adopted a bipartisan amendment offered by Senator Sessions and Senator Kohl to cap any homestead exemption at $100,000 -- 76 to 22. But of course, in the final bill that was gutted. Brady Williamson the former chair of the National Bankruptcy Reform Commission is here to tell us about this consensus reform and others like it, and the Bankruptcy Reform Commission recommended to Congress.

Now a year ago the Senate passed the Schumer-Leahy Amendment to prevent the abuse of the bankruptcy system whereby you could discharge penalties for violence against family planning clinics. I recall Senator Schumer, there was a vote of 80 to 17, overwhelming. It was given support during this past month by Senator Ashcroft who voted in favor of the amendment. He said he supported this. Yet even though it was an overwhelmingly bipartisan endorsement, in the so-called conference report at the end of the year there wasn't a single word of it. As a result, perpetrators of clinic violence can continue to seek shelter in the nation's bankruptcy court. That would be wrong.

Attorney General Ashcroft pledged his support for the Schumer- Leahy Amendment during his confirmation hearing. As usual, I agreed with Attorney General Ashcroft. I want you to know this -- my close agreement with President Bush and Attorney General Ashcroft in these matters, Senator Hatch. I think I hope that you, I hope you will follow the example of the leaders of your party.

Now, Maria Vullo, a top-rate attorney, will testify about the need to amend the bankruptcy court code to stop wasteful litigation and abusive bankruptcy filings used to avoid the legal consequences of violence and vandalism and harassment to deny access to legal health services. We should remember those things we passed in the past and look back at them. We should also remember that those who use bankruptcy are usually the most vulnerable of the American middle class. They are older Americans who have lost their jobs, who are unable to pay their medical debt. They are women attempting to raise their families -- their secure alimony and child support after divorce. They are individuals struggling to recover from unemployment.

We need to remember that people use the system, both the debtor and the creditor. Judge Becker and Judge Newsome are here today to testify about how reform legislation will impact on the real people who use our courts each day, and I think that's very helpful to us. We need to balance the interest of creditors with those of middle class Americans who need the opportunity to resolve overwhelming financial burdens.

Even though this was put together on very, very short notice, the minimum part of notice, I am glad that witnesses were able to come here today. I know the House is going to hold two days of meetings and amendments. I hope that we will work as hard as they do, but I would also hope that we would look at those things that were developed with bipartisan consensus in the last couple years and go back to those things as a beginning point.

Thank you, Mr. Chairman.

SEN. HATCH: Senator Leahy.

SEN. JOSEPH BIDEN (D-DE): Mr. Chairman, nothing on the merits, may I also welcome --

SEN. HATCH: Sure.

SEN. BIDEN: -- Chief Judge Becker. I consider him a friend, and I just want to associate myself with the remarks of Senator Specter. The Third Circuit is a circuit in which Delaware resides, and I want to thank the judge for all he's done for the circuit and accommodating the movement of some judges on to that circuit from the state of Delaware. And again, I'd like to associate myself with the remarks of Senator Specter. I won't take any more time.

SEN. LEAHY: As do I. I think we're fortunate to have Judge Becker even though he has to sit here and listen to all these speeches. I think we're darned lucky to have him here.

SEN. HATCH: Judge, we are happy to have you here. I will turn the time over to you. We appreciate and respect the work you do on the Third Circuit as chief judge, and we'll turn the time to you, and we want to listen very carefully to what you have to say.

JUDGE BECKER: Thank you, Mr. Chairman. For the record, my name is Edward Becker. I am the chief judge of the United States Court of Appeals for the Third Circuit and a member of the Executive Committee of the Judicial Conference of the United States on whose behalf I appear here today. And let me state, Mr. Chairman, I am, we are very grateful for your making this spot available to us and the other members of the committee.

Let me state at the outset that I am here not to discuss general matters of debtor and creditor but about some other real people in our society, federal judges and the institutions of federal judiciary and the impact of one provision of this legislation. I'm here to talk only about Section 1235 of that dealing with bankruptcy appellate procedure. That provision would affect a radical change in bankruptcy appellate procedure by ruling virtually all bankruptcy appeals which now go to the district courts directly to the courts of appeal. Now if there's one thing I know a little about after 20 years on the courts of appeal then actually 30 years on the federal bench is about the work-load of the courts of appeals. We are stretched, we are strained, we work all the time, we are at our limit, and we simply cannot absorb this new load of all of these bankruptcy appeals.

It's maybe quite unusual, but I am here not just on behalf of the Executive Committee, but I have spoken to every chief circuit judge that is the chief circuit judge of all of the regional circuits who hear bankruptcy appeals, and each and every chief circuit judge -- and they are the ones responsible for management of litigation in the courts of appeals and as you know we are basically the court of last resort in this nation because the Supreme Court doesn't hear very many cases -- each and every chief judge opposes this provision and has authorized me to speak on their behalf.

Now we're not sure of the exact numbers. Our best estimate is probably 3,000 more appeals a year. The heaviest impact would be on a number of circuits. Frankly, it would be on the First Circuit, Senator Kennedy's circuit; the Second Circuit, Senator Leahy and Senator Schumer's circuit; the Third Circuit, Senator Biden's and my circuit; the Sixth Circuit; the Tenth Circuit, Senator Hatch's circuit; and the Ninth Circuit, Senator Feinstein's circuit -- in terms of the numbers we estimate in increasing case-load between 10 and 20 percent. And having mentioned the Ninth Circuit, I spoke to Chief Judge Shroeder (sp) yesterday who's especially concerned about the impact of this legislation on the bankruptcy appellate panels which they have so carefully honed because essentially if there's the option to go right to the court of appeals, she's fearful that the BAPS (ph) as they call them will be simply bypassed and that that structure will fall into disuse.

Some say, well give us more judges to take up these additional cases. Well, this committee knows better than anybody the history of more judges. The First Circuit hasn't had a new judge since 1984, and they have a sizable increase. The Second Circuit would have a 40 percent increase. But I don't want to go into all those details.

Let me get down to the matter that this body is concerned about. You're a policy-making body, and you deal with costs and benefits. Now I've talked about the cost. In our view, the cost would be incalculable in terms of the burden on the courts of appeals, the need for more judges which we're not going to get and we shouldn't get for this purpose.

Let me talk about the benefits. Now this proposal which was sponsored, endorsed by the National Bankruptcy Review Commission, is offered as a simple, neat solution. We say we have a two-tiered appeal. We have one appeal to the district court or the bankruptcy appellate panel and another to the courts of appeal. And this is a simple, neat solution. I hope the committee will not feel I am irreverent when I say that to every human problem there is a solution that is simple, neat and wrong. And this one is wrong.

First of all, there are legal problems with it. The Department of Justice -- I take no position on this as an Article III judge, but the Department of Justice has long taken the position that this has constitutional problems. They believe that meaningful review in the district court is necessary for it to be constitutional and query whether the 30 days is meaningful review.

Secondly, this is offered that we need more precedent. Bankruptcy opinions are all over the lot. Give it to the Court of Appeals, there will be more precedent. That's the theory, and the theory is that if we have more precedent we'll have less litigation.

I can tell you after 30 years on the federal bench, more precedent only means more litigation, that being the nature of the beast in terms of lawyers, and precedent isn't the kind of precedent you make in terms of broad rule. All precedent is is fact-bound. The decisions are fact-bound. It's very narrow. All you do is deal with particularly the facts of the case. And the facts of the case generally are pretty fact-bound, and they don't help anybody.

And additionally, the courts of appeal are so burdened that when we decide cases most of them we decide as nonprecedential. So you don't get precedent when you get to the court of appeals these days because we're so busy.

I can run through my other points very quickly with your permission, Mr. Chairman. With respect to cost, it said that this would be a cheaper way if you have a unitary appeal process, but the fact of the business is, that it's much more expensive to take a case to the court of appeals because of our briefing and all of the requirements. The district court procedures are much simpler, much cheaper, and 80 percent of the cases fall out. We talk about two tiers, but 80 percent of them are gone at the district court level. The district courts are doing a good job, so you're making it more expensive if you do this in terms of time. It's certainly not easier for the 80 percent because you lengthen the period with the additional 30 days that's in the statute.

The complex cases I can see that in some complex cases that two tiers will take longer; they are basically adversary proceedings and Chapter 11. They're traditional complex litigation. We don't deny that's a problem, and we offered a solution. What we say instead of this broad-based solution which is an over-broad solution, we offer a targeted solution. We say what you should do, and we don't want to stop this bill. The Congress wants to pass a bill. All we say is, substitute for that bankruptcy appellate provision a simple provision which says that if the district court of the bankruptcy appellate panel certifies to the court of appeals that this is a time-sensitive problem -- we've got a reorganization that's going to stand or fall; we need a decision; or if there is a precedent that has to be established, let it be certified to the court of appeals.

Our proposed bill says that acceptance of the certification is up to the court of appeals. We think that's sounder, but I am authorized by the Executive Committee to say that the committee feels that we are bound by the certification. If the district court of the bankruptcy appellate panel says in the interest of justice we require you to take this case, well then we will take it, and then we will establish precedent.

So we think that that is by far the -- it's a targeted solution, and we think that's by far the best solution. And we urge the committee and the Congress to jettison 1235 as written and adopt this alternative proposal which is, as I say, sponsored and approved by the Judicial Conference, and we think will really solve the problem. My statement talks about filing fees, data collection, income tax returns, bankruptcy rules. We think there are some other burdens imposed on the court, but I don't want to take the time of the committee. I will leave that to my statement. We also urge additional bankruptcy judges. I know that's a matter Senator Biden is concerned about, and we are because of the huge bankruptcy load in Delaware. We need more bankruptcy judges, but they need them a lot of places.

And I will leave those matters to the state, and I thank you so much, Mr. Chairman, and of course if anybody has any questions I'd be pleased to answer.

SEN. HATCH: Well, thank you, Judge. This senator is sympathetic to what you're saying, and your statement I think covers this very, very well. Unless there are any questions, I think -- certainly. We appreciate your coming very much.

JUDGE BECKER: Thank you so much.

SEN. HATCH: And we appreciate you taking time out of we know a very busy schedule. Thank you for being here.

SEN. LEAHY: Mr. Chairman, I just note I think a couple may have some short questions in writing for Judge Becker.

SEN. HATCH: We'll keep the record open.

SEN. LEAHY: We like having your expertise available to us, so thank you very much.

SEN. HATCH: All right. We're grateful to have Judge Becker with us today and that we can accommodate his schedule.

Our panel will be Judge Randall J. Newsome, United States Bankruptcy Court of the Northern District of California in Oakland, California. If you'll just take your seats. Phillip Strauss, principal attorney of San Francisco Department of Child Support Services in San Francisco, California. Brady C. Williamson, Esquire, of LaFollett, Godfrey and Kahn, former chair of the National Bankruptcy Review Commission in Madison, Wisconsin. Dean Sheaffer, vice president and direct of Credit Boscov's Department Stores in Laureldale, Pennsylvania. Maria T. Vullo, Esquire, Paul Weiss Rifkind, Wharton and Garrison out of New York City. Ken Beine, president of Shoreline Credit Union of Two Rivers, Wisconsin. And Dr. Robert Manning, senior research fellow, Institute for Higher Education, Law and Government, University of Houston Law Center in Houston. And Todd J. Zywicki, Esquire, George Mason University, assistant professor of law.

We're sorry to have such tight quarters -- you know, seating arrangements. They are left over from yesterday's hearing. We had the CEOs of all the major airlines appearing before us, and apparently the coach seating kind of upset them just a little bit. So it's been left over for you today. So we hope it doesn't upset you as much as it did them.

We'll begin with Judge Newsome and go on from there.

JUDGE NEWSOME: Good morning, Mr. Chairman and distinguished members of the committee. My name is Randall Newsome, and I'm a bankruptcy judge from the Northern District of California. I should note at the outset that I am here representing only myself, no other person or organization.

My intention this morning is not to make policy pronouncements or value judgments about bankruptcy reform. That's the role of Congress, not the courts. But I think my position as a bankruptcy judge puts me in a unique position to provide observations about how S220 will work as drafted.

My first observation is that the means test in this bill will move very, very few people from Chapter 7 to Chapter 13. The data in my written testimony indicates that only about 15 percent of filers, if that, are above the median income and probably no more than 3 percent will actually be forced into Chapter 13 or dismissed.

SEN. BIDEN: What was that percentage, Judge? I'm sorry.

JUDGE NEWSOME: 3 percent.

SEN. BIDEN: 3 percent will be forced into 13.

JUDGE NEWSOME: Or dismissed.

SEN. BIDEN: Or dismissed.

JUDGE NEWSOME: The problem for 97 percent of those who file will not be passing the test; it will be taking the test. By my count, the means test will require at least another five forms on top of what's already required. It will require the production of tax returns and a credit counseling certificate just to get in the courthouse door. So even if you're like the 65-year-old single woman from Monticello, Illinois, I discuss in my written testimony, making $657 a month in Social Security; or the cook from Decatur, Alabama making $850 a month; or the single mother who draws Social Security and makes $1,070 a month as a temporary worker supporting three kids -- you'll have to get the credit counseling, file 16 or more forms -- it might be 14 -- dig out your tax returns for at least one year or more before you can file or perfect a filing in bankruptcy court.

The means test form alone will probably be several pages long. In any event, if you don't submit all the forms on time your case will get dismissed automatically no matter what the circumstances. And once you get dismissed, the bill makes it very hard to get back in and stay in. Thus, the overall effect of the bill is not to promote repayment of debts in bankruptcy. It's to try to keep people out of the system altogether.

By adding all of these forms and requirements to a simple Chapter 7 case and by imposing new requirements on bankruptcy attorneys themselves, the bill will make legal services too expensive for most consumer debtors to afford. They will be left trying to represent themselves or will turn to bankruptcy petition preparers who frankly have become the bane of the bankruptcy system. One thing it will not is keep people from filing. If your income is about $21,500 a year which is the median income of the bulk of the households in our case surveys, and your unsecured nonpriority debts are about $23,400 a year, the median debt in our surveys, then bankruptcy is just about your only option.

Not only will the bill move virtually no one from Chapter 7 to 13, it largely destroys any incentive for debtors to file a voluntary Chapter 13 with the exception of those seeking to prevent foreclosure. At present, all Chapter 13 cases are voluntary. They comprise approximately 30 percent of all cases filed nationwide. And in some districts, especially in the South, they amount to over 50 percent of the court's docket. Chapter 13 trustees pay out millions of dollars on unsecured debt every year. Much of that recovery for creditors may be lost under S220.

If these were the results intended by the drafters of the bill, so be it. The bankruptcy judge's job is to uphold the law as it's written, and we will, or at least we'll try. But these results are not what I understood bankruptcy reform to be all about when the process began several years ago.

Thank you for having me today.

SEN. JEFF SESSIONS (R-AL): Mr. Strauss.

MR. STRAUSS: Thank you.

SEN. SESSIONS: Senator Hatch has stepped out. He'll be back in a minute, and he asked me to keep the panel moving.

MR. STRAUSS: Well, I'm happy to move. Mr. Chairman and members of the Judiciary Committee, good morning. My name is Phil Strauss. I am the principal attorney of the Department of Child Support Services in San Francisco. I am authorized today to speak on behalf of the National Child Support Enforcement Association, the California District Attorneys Association, and the California Family Support Council.

Basically, my background is for the last 28 years I have been an employee of the Office of the District Attorney of the City and County of San Francisco, and for the last 25 years I've been with the Department of -- rather, as it was known at that time, the Family Support Bureau. That division is now an independent agency in San Francisco known as the Department of Child Support Services, and for the last 13 years I've been specializing in the enforcement of support during bankruptcy. I have litigated, I have practiced in this field, litigated numerous cases, handled numerous appeals. I write and teach on the issue. And I am here for the limited purpose of discussing the effect S220 will have on the ability of custodial parents to survive after the noncustodial parent has filed for bankruptcy protection.

I am very happy that this committee has invited me to speak today because it's important for you to understand the despair I see every day when a bankruptcy petition stops child support debt in its tracks. I see far too many custodial parents, 95 percent or more of whom are women in very difficult circumstances with little or nothing to cushion their fall when their child support or spousal support suddenly ceases.

I am the one who has to look them in the face and say there is just nothing I can do to get you the support which you need and are entitled to, at least in a timely fashion, after a parent has filed for bankruptcy protection. Much is needed to be done to protect this most vulnerable population, and these are basically moms who have custody of children.

Based upon my experience, I have proposed nine changes in the code to ensure that support obligations would be paid during bankruptcy and that they would be given significant preferential treatment. These proposals were originally introduced in the 105th Congress. They were polished and enhanced by other child support enforcement attorneys like myself in consultation with the National Association of Attorneys General. The culmination of that work is the child support provisions of the 106th Congress which are now in S220, Section 211 through 217. Additional refinements were added in Sections 218 and 219.

The principles in drafting these provisions were six-fold. The provisions were intended to be largely self-executing; and the resulting benefit would be a reduction in the cost of litigation, better and more efficient use of court time and public resources, and the protection of custodial parents who would otherwise simply lose their support rights or sacrifice them by having to pay large attorneys fees which would in essence eat up whatever they could recover.

The provisions were intended to ensure that support payments would not be interrupted by the bankruptcy process, and as members of the child support community we wish to eliminate or at least minimize the statutory conflicts between the bankruptcy code and the child support program.

The next principle is, we wanted a clear recognition of the primacy of child support debts and that all generally recognized support debts would be entitled to special treatment under the code.

The fifth principle was, the bankruptcy process should be structured so that the debtor would be able to liquidate nondischargable debt to the greatest extent possible within the context of the bankruptcy case and allow the debtor to emerge from the process with as fresh a start as possible. And finally, that the code would assure that all support owing to a family would be paid first to the family before the government would receive any payments due to them for child support.

Under current law, when a bankruptcy petition is filed support frequently ceases. Debtors can emerge from the bankruptcy process with a discharge without paying their ongoing child support, and liens securing the support debt can be lost, and this loss may well doom any prospects for payment of the debt.

With that in mind, I drafted the provisions. I am here to answer any questions about the provisions. You should know that really my expertise is in the field of viewing the bankruptcy code from the point of view of support creditors.

SEN. SESSIONS: Thank you, Mr. Strauss. And Mr. Williamson, an attorney in Madison, Wisconsin, and former chair of the Bankruptcy Review Commission. Mr. Williamson.

MR. WILLIAMSON: Thank you, Mr. Chairman. ong other things, I am an appellate lawyer, and I don't make it a practice to disagree with court of appeals judges, at least publicly. But I think it's necessary here, and if I might start with a few seconds responding to Judge Becker.

The National Bankruptcy Review Commission unanimously recommended the elimination of the two-tiered bankruptcy appellate system. And that recommendation is embodied in Section 1215 of the pending legislation. Section 1215 will save time, it will save an extraordinary amount of money in legal fees and costs, and it will improve the development of the law because right now a bankruptcy court has no precedential influence beyond its own courtroom. A district court has no precedential influence beyond its own courtroom. So we have literally thousands and thousands of bankruptcy appeals that only matter to the parties, that do not help develop the law. And while this provision would have a short-term impact on the case- load in the court of appeals, it would have a salutary impact on the case-load in the district courts which are dealing every day with drug cases and major civil litigation.

This is a provision in the bill that should be adopted, has been adopted by the Congress, and I can't recommend this more forcefully.

Judge Becker did make a point I want to agree with, and that is that an appeal to the U.S. Court of Appeals, at least for a practicing lawyer, is a little bit more formidable than an appeal to a district court judge. It does take more time; it does take more effort. And because of that, I think we'll see fewer appeals. Litigants in bankruptcy cases will be less likely to appeal directly to the U.S. Court of Appeals than they will be to the district court.

The single most important reason for this change is that it will improve the jurisprudential chaos that now rules in the bankruptcy court.

Now, on a broader point, this will be the fourth time in 100 years that this Congress has undertaken major bankruptcy legislation -- 1898, 1938 in the wake of the Depression, and of course 1978. Yet this legislation may have a more comprehensive effect, a more dramatic effect on consumer bankruptcy and on business bankruptcy, which is the focus of my testimony this morning, than on those previous congressional efforts to improve the bankruptcy system.

There is relatively little doubt that bankruptcy legislation will be adopted by both houses and that it will be signed into law. And it is that likelihood that leads me to urge this committee to review very carefully the changes that are being proposed -- not to stop the bill but to ensure that it reflects economic reality and that it actually accomplishes the goals its proponents espoused.

SEN. BIDEN: Brady, have you forgotten about Senator Kennedy?

MR. WILLIAMSON: I have not forgotten about Senator Kennedy. In fact, I spoke about this very matter with Senator Kennedy --

SEN. BIDEN : I'm sure you did. (laughs)

MR. WILLIAMSON: In Eau Claire, Wisconsin not long ago.

But it's precisely, Senator Biden, because this legislation may well be headed for enactment that it really is not ready for the floor, and it's not ready for two overarching reasons.

One is the economy is literally changing around us. This morning's Washington Post, "Verizon Lays off 10,000 People." Saturday's Milwaukee Journal Sentinel, "Record Layoffs Hit State." In December alone, more than 140 businesses in Wisconsin laid off 50 or more employees. That's the fifth highest in the country.

Whatever the theoretical economists may tell us about what's happening in the economy, these layoffs are harsh financial reality for American families and for many they will be a disaster. But there is also grave concern about the effect of the economy and this legislation on small business layoffs and the small business bankruptcies that may follow.

We all know about the major bankruptcies that have occurred just in the last 30 days -- a major airline, healthcare insolvencies are increasing rapidly. In Senator Feinstein's state we have had utilities threatened to file for bankruptcy. And all of this makes a critical point. The legislation about which Senator Hatch spoke at the outset, how it passed the Congress in 1998 and last session, that happened at a time when we were hitting our economic prosperity. But times have changed, and that requires this committee to look more carefully as President Bush has suggested at this legislation.

Let me focus very quickly, Mr. Chairman, since I began with a --

SEN. SESSIONS: This is not the Court of Appeals. You don't disappear into a pit if you go over the light. We do try to be, follow the light as much as possible.

MR. WILLIAMSON: Thank you. They do tell the story about the chief justice of the United States cutting off a lawyer in the middle of the word "is" when his time was up.

SEN. BIDEN: Wasn't there another guy who had trouble with that word?

(Laughter.)

SEN. BIDEN: That seems to be a complicated word.

MR. WILLIAMSON: You know, Senator Biden, as that anecdote escaped my lips I did suspect somebody might make a reference to it.

SEN. BIDEN: I just wondered.

MR. WILLIAMSON: The bill covers more than 300 pages. It has almost 200 sections. And with respect to its impact on small business and business generally, I want to point out three particular provisions that have not gotten a great deal of attention and should. Section 912 dealing with asset-based securitization, Section 708 which gives creditors the ability to argue that a corporation's obligations to them are not dischargeable.

Now this notion of nondischargability is common in consumer bankruptcy, but it introduces a major new element into business bankruptcy that will permit a single creditor -- we're talking about corporate bankruptcy -- a single creditor to allege that the debtor corporation has issued false and misleading financial statements and thereby in effect to stop the bankruptcy, to stop the reorganization. So this concept of nondischargability in corporate bankruptcies ought to receive serious examination by the committee.

Now you can imagine what impact this would have on a small plastics company that employed 50 people in Mobile, Alabama. But imagine what this provision might do to a major reorganization, especially in an industry who produces a product or a service that's not quite so mundane as plastics -- tobacco, firearms, HMOs and in California -

SEN. SESSIONS: I appreciate your comments, and I know serving on the commission you have a lot of insight. We will make that a part of the record. And if you would wrap up if you have any other things you'd like to add to it. We'd be glad to hear it.

MR. WILLIAMSON: I do, Mr. Chairman, and I'll do it on an issue that I know that you agree with me on, and that is the need for this legislation to contain the original Sessions-Kohl Amendment. That amendment, of course, eliminates one of the grossest abuses in bankruptcy law which is the Unlimited Homestead Exemption. It passed this body 76-22, bipartisan support. It's been widely reported in the media. Another example, a citizen of the state of Florida using the Unlimited Homestead Exemption to cheat his creditors.

Bankruptcy law of this country in many ways represents our values, and it cannot be one of our values that people who are able to use $3 million homes are able to cheat their creditors. Thank you, Mr. Chairman.

SEN. SESSIONS: Thank you very much. And I share that view. It's not far from Mobile to Pensacola. Simply sell your house in Mobile and buy one in Pensacola, and you don't have to give it up.

MR. WILLIAMSON: Although I don't know why, Mr. Chairman, anyone would want to move from Mobile to Pensacola.

SEN. SESSIONS: I do not either.

SEN. DIANE FEINSTEIN (D-CA): Mr. Chairman, he said three sections but he only named two -- 912, 708. What's the third one?

MR. WILLIAMSON: Senator, the third would be the sections dealing with small business bankruptcies. There are a package of proposals to accelerate the process for small business bankruptcies. The difficulty with it I think is that the definition of a small business bankruptcy is that a corporation that has less than $3 million in liabilities, and in some states -- Alabama, probably not Delaware or California but Wisconsin for certain -- that would be 90 percent of all bankruptcies. So it's not that we're doing a special provision for smaller bankruptcies. In most states we're doing a provision that are going to affect all bankruptcies.

SEN. SESSIONS: As you know, on the Homestead, we did make progress with legislation, and we were up against a number of states whose constitutional provisions were being overridden by this legislation and that senators were quite tenacious in protecting their state law. But we did make some progress.

Mr. Beine, you're with the Shoreline Credit Union and have a prospective to share with us.

MR. BEINE: Thank you. Good morning, Chairman Hatch and other members.

SEN. SESSIONS: President of that, Credit, I see.

MR. BEINE: Thank you. Good morning, Chairman Hatch and other members of the committee. I am Kenneth Beine, president of Shoreline Credit Union in Two Rivers, Wisconsin, a $50 million state-chartered, federal insured credit union. I appreciate the opportunity to be here to tell you about our concerns with bankruptcies and how they are impacting credit unions, and my credit union in particular. I am speaking on behalf of the Credit Union National Association, CUNA, which represents over 90 percent of the 10,500 state and federal credit unions nationwide.

We are very pleased that the committee is holding today's hearing on bankruptcy abuse prevention legislation S220. Credit unions have consistently had three top priorities for bankruptcy reform legislation -- a needs-base formula, mandatory financial education, and maintenance of the ability of credit union members to voluntarily reaffirm their debts. Last year's conference report, while a product of compromise, did a good job of balancing these issues. We strongly urge the 107th Congress to pass this compromise bill as soon as possible. Any further dilutions may result in this bill not addressing the real bankruptcy problems facing America's consumers.

CUNA strongly supports the provisions in S220 that require a person contemplating bankruptcy to receive a briefing about available credit counseling and assistance in performing a budget analysis and prohibits Chapter 7 or 13 debtor from receiving a discharge if the debtor does not complete a course in personal financial management. Any sensible bankruptcy reform should include education requirements to give debtors the tools they need to make wise decisions about filing for bankruptcy and, more importantly, to succeed financially after bankruptcy.

I am confident that early financial education would have helped some young adult members of Shoreline Credit Union to make different decisions than they did. In one case, a couple in their mid-20s decided they wanted a clean slate prior to getting married. They ran up credit card purchases. One prepaid on an auto loan with us to have a cosigner released, the father. Both were employed full-time. They both had filed Chapter 7. My credit union's share of their version of planning was the write off of approximately $3,000 in credit card debt plus another couple hundred dollars in disposal of the auto. Credit unions strongly believe that reaffirmations are a benefit both to the credit union which would avoid a loss and to the member debtor who by reaffirming with the credit union continues to have access to financial services and to reasonably priced credit.

As not for profit financial cooperatives, losses to the credit union have a direct impact on the entire membership due to a potential increase of loan rates or decrease in interest on savings accounts. CUNA is pleased that S220 preserves the ability of its members to voluntarily reaffirm their loans. CUNA could not support bankruptcy for legislation that undermined the ability of credit unions and their members to work out reaffirmation agreements.

Perhaps the best demonstration of the credit union movement's position that reaffirmation benefits again both the member and the credit union comes from another real life example. We had a middle aged couple file for a Chapter 7 in 1989 due to several medical problems and loss of employment. They reaffirmed their automobile loans with Shoreline. Although not required to repay their credit card loans, they were adamant about doing so and did so quite voluntarily after discharge. Needless to say, today they are members in good standing and need only to ask to be granted future loans.

Credit unions are very anxious to see Congress enact meaningful bankruptcy reform and believe that needs-based bankruptcy presents the best opportunity to achieve this important public policy goal. Credit unions believe that consumers who have the ability to repay all or some of their debts should be required to file a Chapter 13 rather than have all their debts erased in Chapter 7.

Therefore, CUNA supports the needs-based provision that is contained in S220. This provision was a compromise developed out of the bankruptcy reform bills that received overwhelming support in the 106th Congress. The 106th Congress strongly supported needs based bankruptcy. CUNA supported these efforts. Today's hearing shows that the 107th Congress is continuing to move toward passage of bankruptcy abuse reform legislation, and we hope that bankruptcy reform will become law in the coming months.

Thank you. I'll be happy to answer any questions.

SEN. SESSIONS: Thank you very much. Dr. Manning, you're the senior research fellow that the Institute of Higher Education Law and Governance at the University of Houston Law Center. We'd be glad to hear from you.

DR. MANNING: Thank you, Mr. Chairman and members of the committee. I'd like to share a somewhat different perspective as an economic sociologist and some of my research of the last 15 years of studying the impact of U.S. industrial restructuring on the standard of living of various groups in American society.

Over the last 10 years I've been particularly interested in the role of consumer credit in shaping the consumption decisions of Americans as well as the role of retail banking in influencing the profound transformation of the financial services industry. I had studied the rise of the credit card industry in general and the emergence of financial services conglomerates such as CitiGroup during the deregulation of the banking industry in 1980, and the results of my research are summarized in my new book, Credit Card Nation.

I think if we take from a global perspective I'd like to use the analogy of the American economy as an athlete who uses steroids to temporarily exaggerate muscle mass and to boost physical strength. The U.S. economy I believe has been perilously inflated to the enormous increase of debt over the last two decades. Across all sectors of U.S. society whether it's household, government or corporate, access to easy credit has led to pervasive dependence on debt, and like the myriad of medical maladies that eventually afflicts steroid abusers, the negative, long-term consequences of societal debt have been neglected during the past decade of unprecedented economic growth.

Indeed, what we've seen is a tremendous shift in emphasis from savings to debt, the emergence of products such as the CitiSony credit card, the currency of fun, the emergence of young adults that refer to their credit cards as "yuppie food stamps." The economic expansion of the last decade I do not believe was as strong as described by leading economic indicators due to bank lending policies that promoted inflated consumer expectations through easy access to high cost consumer loans whose interest rates far exceed the pace of household income growth.

I think the point that I want to make very clear is, it's not just debt but it's the cost of this debt that's going to have such a profound impact on whether this economic slow-down will progress to a consumer-led recession. Indeed, similarly the economic indicators do not necessarily imply a consumer-led recession if leading financial services conglomerates like CitiGroup and Bank of America, J.P. Morgan Chase do not over-react to the abrupt decline in national economic growth. The concern is that these financial service corporations may tighten their lending policies for small businesses, the primary generator of U.S. jobs, and the heavily-indebted families that previously were considered acceptable credit risk. I can't underestimate what I think is the importance of this issue today.

This may not only limit future levels of business investment and household consumption which could exacerbate a downward spiral in macroeconomic growth, but it could also force tens of thousands of financially distressed households into personal bankruptcy due to unforeseen events. As the most comprehensive analysis of bankruptcy in the early 1980s shows, most bankruptcy filings are attributed to unforeseen events such as job loss, health medical expenses and divorce rather than simply excessive consumer spending patterns.

Surprisingly, the consumer financial services industry has responded by reducing the fair share contributions to nonprofit consumer credit counseling organizations, the need for financial education, at the same time that the demand for these services are rapidly escalating. Like replacing small business loans with high interest credit cards, the question is whether the financial service industry is truly committed to reducing the national rate of consumer bankruptcies by supporting institutionally responsible policies that balance the elephant unrealistic consumption desires of American households.

The renewed efforts of the financial service industry to enact more stringent personal bankruptcy laws could lead bankers to exacerbate a national economic slow-down by forcing financially insolvent households to continue paying off a portion of their consumer debt years after filing for personal bankruptcy. This is not a propitious time for enacting such a painful and often devastating policy on some of America's most vulnerable households. The present legislative proposals tend to reflect a societal context of rapid economic growth rather than current realities of an unexpected economic slow-down. The U.S. economy needs greater stimulation to increase consumer demand rather than curtailing future buying power of a large segment of the U.S. population.

The industry's call for greater individual responsibility belies its disregard for owned traditional underwriting criteria. For the record, I provided excerpts of the hundreds of interviews that I've conducted in terms of perceptions of easy access to credit. Indeed, what's striking about the credit card nation is that grandparents with stellar past job histories are often rejected for credit cards while their grandchildren who have never had a full-time job are inundated with solicitations while in college. Similarly, the recent college graduates may be rejected for credit cards after graduation, but as soon as they do graduate their low salaries lead them to a rejection for their credit card debt.

A striking finding of my study of credit cards among students and their debt levels is that recent graduates of the late 1980s and the early 1990s were more likely to assume most of their credit card debt while seeking gainful employment while enrolled rather than when they were enrolled in college. Today college students are routinely graduating with credit card debt of $5,000 to $15,000 before they even have a full-time job, plus their students before they enter the job market. With a specter of a tight job market in the near future and the continued corporate promotion of inflated consumer expectations, it can be expected that the bankruptcy rate of recent college graduates will continue to soar with potentially disastrous long-term consequences. Indeed, the fastest growing group of bankruptcy filers last year were individuals under 25 years old.

The recent assumption of tremendous levels of consumer debt provided by financial service institutions that have routinely ignored their traditional underwriting criteria -- and I especially refer to the marketing of credit cards to college students -- requires accountability and financial responsibility from both sides, borrowers as well as lenders. Lending policies that routinely require the poor and heavily indebted to subsidize the low and even free cost of credit card loans to the affluent through escalating interest rates and penalty fees does not reflect an appropriate policy of shared individual as well as institutional responsibility. In fact, the increasing financial obligations of filers to their creditors after bankruptcy could encourage banks to continue extending easy credit to those least able to assume their financial responsibilities during a period of economic uncertainty and distress.

SEN. SESSIONS: Dr. Manning, you will -- time is expired. If you'll wrap up?

DR. MANNING: Banks and other financial institutions should share the pain as well as the gain associated with liberal extension of high cost consumer credit. Otherwise, consumer lending policies of financial institutions may continue to discourage the promulgation of prudent and responsible underwriting policies. It is my hope that the final form of this legislation will promote personal responsibility as well as corporate accountability.

SEN. SESSIONS: Thank you.

Mr. Dean Sheaffer, the vice president and director of Credit for Boscov's Department Stores in Laureldale, Pennsylvania.

Mr. Sheaffer.

MR. DEAN SHEAFFER: Thank you very much. Good morning. My name is Dean Sheaffer. I'm vice president and director of Credit for Boscov's Department Stores. Boscov is a family-owned MidAtlantic chain with stores in Maryland, New Jersey, two stores in Delaware, three stores in New York, and more than two dozen stores in our home state of Pennsylvania. I'm testifying today on behalf of the National Retail Federation. I'd like to thank the chairman for providing me with the opportunity to testify before this distinguished committee.

Between 1995 and 1999, national bankruptcy filings rose more than 60 percent. Last year there were nearly 1.25 million bankruptcy filings. At Boscov's we have significantly tightened our credit standards. Between 1996 and 2000, we closed, reduced the credit limit or took other preemptive action on nearly 41,000 accounts in direct response to increased bankruptcies. Despite these actions, Boscov's combined January and February 2001 bankruptcy write-off will be more than 40 percent higher than January and February of last year. Part of the problem is that higher income people who do not really need Chapter 7 relief are using that chapter to wipe out all of their debts. These people are not on the margin. Our response, tightening credit, is a very blunt instrument. It does hurt the people who are on the margin -- the young, the old, the low-to-moderate income. It limits their access to credit, but it does not get at the higher income individuals who are filing bankruptcies of convenience.

Mr. Chairman, I'd like to put these numbers in perspective. If the current rate of filings holds, within the next decade one in every seven American households will have filed for bankruptcy. The system is seriously flawed. It is estimated that over $40 billion was written off in bankruptcy losses last year which amounts to the discharge of at least $110 million every single day. This money does not simply disappear. Last year to make up for these losses it cost each of our households several hundred dollars. Estimates suggest this year's numbers will be 10 percent higher, and next year's filings yet another 20 percent higher.

We cannot eliminate all of these losses. Some of them are unavoidable. Bankruptcy must remain an option for those who have experienced serious financial setbacks such as catastrophic accident, illness, divorce or job loss from which they cannot otherwise recover.

Finally, most people who file for bankruptcy do need relief. We must be very careful to distinguish the average filer who uses the system properly from the smaller but significant group of others who misuse the system for their benefit. For many years we tracked the payment history of those of our customers who used the Boscov's card. The vast majority of our customers pay as agreed. In the past however, we could occasionally see a customer who might fall behind a few months, make payments to catch up, fall behind again, attempt to recover, and so forth. We monitored these accounts and intervened as necessary, perhaps by suggesting consumer credit counseling or by limiting their credit to minimize the damage.

Today however, we see a very different picture. Often the first indication we receive that an individual is experiencing financial difficulty is when we receive their notice of bankruptcy petition. In a '98, '99 study of Boscov's almost half of the bankruptcy petitions we received were from customers who were not seriously delinquent at the time they made the decision to file bankruptcy. It appears the bankruptcy is increasingly becoming a first step rather than a last resort.

Today's law --

SEN. BIDEN: Would you repeat that again? I'm sorry. I'm not sure I understood what you just said about those who file were not --

MR. SHAEFFER: Okay. When they made the decision to file bankruptcy, their account at Boscov was not seriously delinquent, past due.

SEN. BIDEN: In other words, they were not in trouble yet at Boscov's.

MR. SHAEFFER: Right. In today's law, individuals have a choice as to whether to file in Chapter 7 which generally wipes out all their unsecured debts or to file in Chapter 13. Instead of wiping out everything, a Chapter 13 filer attempts to pay as much as he or she can afford, and then the court discharges the rest. Not surprisingly, most people file in Chapter 7. But many people who are filing in Chapter 7 do have the ability to pay some or all of what they owe. I understand that various studies have pegged this number at anywhere from 30,000 filers per year to nearly a quarter of a million. Why are so many persons asking the court to make others pay for their debts? Part of it is lawyer advertising. We have all seen the ads on TV by lawyers promising to make individuals' debts disappear. Some do not even mention bankruptcy. They talk about restructuring of finances.

I question whether these aggressive advertisers inform their clients about the serious downsides about filing bankruptcy. I also believe part of the problem is the declining social stigma associated with filing for bankruptcy.

Finally, these changes have revealed a flaw in the system itself. Our bankruptcy code allows individuals to choose the chapter they wish to file in regardless of need. If shame will not keep the subgroup of filers who could pay from either filing or from filing in the wrong chapter, Congress must establish a mechanism that will and that is simple, fair and efficient.

In 1998, we strongly supported the bill introduced by Mr. Gekas, Mr. Moran, HR-3150. It provided a very simple, up-front, needs-based formula that allowed the overwhelming majority of those who needed bankruptcy relief in Chapter 7 to have it. But for that subgroup of filers, for those higher income individuals who would abuse Chapter 7, the needs-based test would have said no, pay what you can afford, then society will wipe out the rest.

Last year we supported the conference report that passed both the Senate and the House but died while Congress was out of session. We continue to support both S220 and HR-333 which are identical to last year's conference report; however, we are deeply concerned that if these heavily negotiated bills are further watered down the intended benefits will be lost. We are also deeply concerned that some wish to attach amendments regarding essentially unrelated issues. While these issues may be important, they should stand on their own merit. In the context of bankruptcy, their primary effect is to derail the critical, needed changes to bankruptcy law.

In closing, I want to say that we offer credit to help our customers purchase merchandise. In Fiscal Year 2000 we received thousands of bankruptcy petitions amounting to $3.5 million. For a retailer our size, that cannot continue. On behalf of the National Retail Federation we urge members of Congress to swiftly pass legislation to address the problems confronting the nation's bankruptcy system in the form of S-220 without amendment. If we are not careful the costs of the rising tide of discretionary filings may tax society's compassion for those in genuine need. We must not allow that to happen.

Thank you very much.

SEN. HATCH: Thank you. Ms. Vullo.

MS. VULLO: Yes. Thank you, Mr. Chairman and Senators Leahy and Senator Schumer for inviting me to appear before this committee today. My name is Maria Vullo, and I am a partner with the law firm of Paul Weiss, Rifkind, Wharton and Garrison. I was the lead counsel for the plaintiffs in the case in Portland, Oregon, in which a jury rendered a $100 million verdict against anti-choice extremists who had threatened my clients' lives. I am here in support of the Schumer-Leahy amendment to the bankruptcy code which would make violence and threats of violence against family planning clinics non-dischargeable in bankruptcy.

This amendment is needed to prevent further abuse of the bankruptcy system. Senator Sessions mentioned before Mobile, Alabama and Pensacola, Florida on a different issue, but what is significant in my view about those two locations is that an abortion doctor was killed in Mobile, Alabama and two were killed in Pensacola, Florida in 1993 and 1994. Those who perpetuate that type of violence and who threaten similar violence should not have the benefit of this nation's bankruptcy laws.

I speak to this issue from extensive personal experience as a lawyer involved in litigating this precise issue for more than a year. Although I certainly did not seek out this honor, I suspect I might be the legal expert on the current, willful, and malicious injury exception to discharge under the current bankruptcy code and why the existence of that exception simply is not a sufficient answer to the problem that the Leahy-Schumer Amendment seeks to remedy. I have litigated this issue in six different bankruptcy courts resulting from the judgment that my clients obtained in Portland, Oregon in February 1999. I filed that case on behalf of those clients in October of 1995. After three and a half years of delays and other tactics, the jury in February 1999 awarded over $100 million in damages under the FACE statute which Congress passed and the president enacted in 1994.

My clients were two reproductive health care clinics and four individual physicians. They have faced constant attack by anti-choice extremists who have threatened their lives and who believe that they are not required to follow the laws of this country. As a result, my clients had to spend hundreds of thousands of dollars for security devices to protect themselves from violent attack. That included bullet-proof vests, bullet-proof windows, wigs, disguises, motion detection devices at their homes.

The jury's damages award included full compensation for those out-of-pocket losses as well as significant punitive damages to deter future violations. However, my clients have not collected a single cent of that award, and the tactics continued after trial by an abuse of the bankruptcy system. There were 12 individual defendants in the case, and six of them filed for bankruptcy after the verdict in six different places across the country. I have litigated in Baltimore, Maryland; Greenbelt, Maryland; Norfolk, Virginia; Jackson, Mississippi; Chattanooga, Tennessee; and the last one is escaping me at the moment. But I have litigated in six different bankruptcy courts the exact same issue that I tried in a jury trial that lasted a month and that I tried after three and a half years of pretrial proceedings in that court.

The proposed amendment in my view would do a lot to prevent further abuse of the bankruptcy code. Unfortunately, the current code however allowed the defendants the opportunity to abuse the system. The actions of these defendants are totally inconsistent with the objectives of the bankruptcy code to give honest debtors a fresh start. There was no question in my case that every one of the defendants who filed for bankruptcy did so precisely to avoid my client's collection efforts. Five of them filed on the eve of their depositions. One of them filed on the day of his deposition, and he was Michael Bray who has also served time in federal prison for bombing abortion clinics, seven of them.

These defendants have vowed never to pay any award obtained by an abortion provider. They claim not to be subject to the laws of this nation. Unlike the honest debtor whom the bankruptcy code is intended to protect, these defendants never sought to work out a payment plan to pay any part of the judgment. They simply sought a discharge in bankruptcy so that the jury's verdict would be a complete nullity and they would be able to thumb their noses at the system. This is an abuse of the bankruptcy laws.

I litigated it in six different bankruptcy courts. Fortunately, I have been successful. We have won in four of those bankruptcy courts on the dischargeability question, on the willful and malicious injury concept. We have won that, however, over a year of litigation where I had to relitigate and relitigate over and over again the exact same issues that were tried in the Oregon case. This is standing the doctrines of res judicata and collateral estoppel on their heads.

My firm did all of this for free. We volunteered our time, over 3,000 lawyer hours, just in these bankruptcy cases over a course of a year, not to mention the out-of-pocket expenses. However, it is unfortunate that few private lawyers would be willing to undertake this task. And my clients who are individual physicians cannot do this themselves. It simply costs too much.

I expect that critics of the amendment will ask why it's needed given that I have won in four of the bankruptcy cases. To this I have two brief responses. First, an amendment that will make clear what the law already provides should not be controversial. Secondly, the amendment is needed so that people will not be able to abuse the bankruptcy code again by filing, by invoking the automatic stay, by causing the relitigation and relitigation over and over again. This is sanctionable conduct and it should not be permitted to happen again.

The FACE statute was passed overwhelmingly by Congress in 1994 to protect women and their physicians from violence and intimidation. The statute has been effective in reducing clinic violence. My clients have further protection because of that statute, and the judgments and the injunction that they obtained under the FACE statute has gone a long way to ensure their personal safety. The Senate passed the Schumer-Leahy Amendment just last year with 80 votes in favor of its passage.

My personal experience both before and since that vote only confirms that the Senate was absolutely correct then in voting in favor of this amendment and it should do so again now.

Those who commit acts of violence should be permitted to perpetuate their illegal conduct by abusing the bankruptcy system. Abortion clinic bombers should not be able to even argue the willful and malicious injury issue. Like those convicted of driving while intoxicated or failure to pay child support, sound public policy compels that those who commit violence against abortion clinics must be held accountable without recourse to bankruptcy. The amendment will also reinforce the utmost importance of protecting women's reproductive health.

I ask that my full written statement be made a part of the record, and I thank you, Mr. Chairman.

SEN. HATCH: Without objection we'll put it in the record.

Mr. Zywicki, we'll take your testimony.

MR. ZYWICKI: Thank you, Mr. Chairman and distinguished senators. I want to thank you for moving this legislation so quickly this term and placing it with such a high priority because I think it really is an important piece of legislation, and I'm pleased it's moving forward.

I have attached to my statement a time series that really sort of blows the mind when you look at it, the upward spiral in bankruptcy filing rates just since 1980 is really quite striking. We've seen a brief respite in recent years, but I haven't talked to anybody who thinks that that really means anything but a brief respite, and nobody seriously expects that the upward trend is going to end unless we do something to address the upward trend. And in fact, all the data indicates that the upward trend has started again already.

Moreover, few believe that even a small part of the fraud and abuse that's current in the system is caught. There's some very poor mechanisms in place currently to try to ferret out fraud and abuse. But it's simply impossible under the current system of 1.4 million people a year are filing bankruptcy. It's simply impossible for judges to try to locate the fraud and abuse that's going on in the system without some sort of procedural mechanisms of the type that are provided for in this bill.

And as a result, the efforts that have been attempted to try to hit fraud and abuse are really, they're haphazard, they're applied unequally, unfairly. They really mock the rule of law, and there's really no sense in which the bankruptcy code is being applied consistently, fairly or equally throughout the country. And moreover, the fact that there really is abuse going on has created a widespread perception in the public that the bankruptcy system is really just a place where you go to scheme your creditors that the public really thinks the bankruptcy system as a big game these days. And I think in the long run, that's really detrimental in that it will undermine faith in the bankruptcy system generally. So I think it's important to get ahold of the fraud and abuse both to ferret out fraud and abuse but also to reinstill faith in the public that the bankruptcy system is working the way that it's supposed to.

This bill does that. This bill is an incremental, common sense, experienced-based attempt to come to grips with the fraud and abuse that's in the system and to rebalance the bankruptcy system to try to get a rein on some of the things that have really manifested themselves increasingly in recent years. It preserves the fresh start, doesn't deny anybody the right to file bankruptcy, but it targets the abuses we see in the system, whether it's high income people shirking debts they can repay, whether it's this scheme of fractional interests that are used to prevent banks from exercising legitimate foreclosure rights, whether it's hiding assets -- all the different sorts of things that are going on. This is really -- I think the bill shows a striking amount of common sense and grounding and experience of what's going on every day in the bankruptcy courts while at the same time preserving the integrity of the bankruptcy system for those who need it.

I think it's important to recognize that being pro-debtor in bankruptcy is not the same thing as being pro-consumer. Most consumers pay their bills. So that purely taking it easy on debtors who don't pay their bills, for instance, doesn't help consumers who do pay their bills. Being pro-debtor is not the same thing as being pro- consumer. Bankruptcy losses for business are business expense. The same thing is paying the electrical bill, paying salaries, paying rent, paying taxes, to the extent that they have bills that they can't collect that is a cost of business and just like rental payments, electricity payments, all these other expenses get passed on to consumers it's inevitable that some bankruptcy losses get passed on to consumers.

And they get passed on in a variety of ways whether it's not just interest rates -- it's also higher down payments, say, on a car because creditors are unwilling to extend as much credit and risk it. There was a story on bankruptcy in Fortune Magazine, "Bankruptcy in Memphis, Tennessee," which is the bankruptcy capital of America. The story reports that in Memphis where the bankruptcy filing rate is 4.5 percent of the families every year file bankruptcy in Memphis, the down payment on a used car in Memphis is the wholesale price of the car. Why? Because nobody's willing to extend any credit that they could be left hanging out on, so the down payment forces you, allows them to recover what they have to pay.

Creditors suffer and in particular small creditors suffer. What's been striking about this bill is that from the very beginning it's small businesses, it's credit unions like we heard from today. It's small departments stores like Boscov's who are trying to run credit operations. It's small furniture companies who are trying to sell furniture on credit. Throughout the entire process, these small creditors are the ones that supported it. Why? Because they have the most difficulty passing these losses on to other consumers because they simply don't have the revenue base to spread it in the way that other people might.

Finally, I think this sends an important moral message that people should pay their debts if they can pay their debts, and it doesn't expect the impossible. It doesn't expect people to pay what they can't pay. It says, if you can pay 50 percent or 60 percent or 70 percent of your debt, if you can do that and you can pay a substantial portion of your debts and you make above the median income, you should do that as a condition for discharge. You will not be denied the right to file bankruptcy. It simply places a condition on your ability to file bankruptcy to keep your promises to the extent that you can.

I've identified about 7 to 10 percent of filers who would be affected by the means test. There's one study that purports to find otherwise but it's methodologically flawed. I could talk about that more. It claims you only find 3 percent, but it's a fundamentally flawed study. We're talking about recovering $3 billion roughly that would otherwise be discharged.

I see that I'm out of time. I'd be happy to address some of the other things that have come out in the testimony, but I want to add one last message which is this is been going on for a few years, and when the Bankruptcy Bar starts attacking the Bankruptcy Bill and that sort of thing it seems like they get you in a Catch 22, right? When the economy is good and filings are falling off a little bit, they say, look, we don't need bankruptcy reform, right? Filings are tapering off on their own. When there's a recession on the horizon, they say, well, bankruptcies are going to rise, and now is not the time to tighten up the bankruptcy laws. Is there ever a time? If you can't tighten them in good times and you can't tighten them in bad times, when is the time to think about reforming the bankruptcy system? I think now is the time to do it, and it's the time to do it in a balanced, common sense, experience-based kind of situation like we have here which is, it does not deny people the right to file bankruptcy but targets the fraud and abuse in the system.

Thank you.

SEN. HATCH: Well, thank you, Mr. Zywicki. Let me just -- we each have five minutes. Let me turn to you, Mr. Strauss. What does bankruptcy today do to women heading single parent families who rely on regular support payments, and does the proposed legislation improve that situation? If so, how?

MR. STRAUSS: Well, the first thing that happens frequently -- well, inevitably when somebody files a Chapter 13 bankruptcy case, one of the most useful means of collecting support is a wage assignment or earnings withholding order. It's called many things. And that stops. And all the debtor has to do is serve that on the employer, and mom who may be depending on that next check for rent or Christmas presents or shoes, or whatever, doesn't get the money.

When that's passed through our office because we collect on cases in which women are not receiving public assistance; they just are struggling, and we're enforcing their divorce order, we have to sit and tell them it's stopped, and we will go do our best to start it again.

I'm in a wonderful district. The judges are very supportive of child support. But I talk to people all over the country who judges are not the same, and they say, look, you want to get the support started again? Seek relief from the automatic stay. It's expensive if you don't have a public agency helping you out, and it's time- consuming.

SEN. BIDEN: It is an automatic stay?

MR. STRAUSS: Pardon me?

SEN. BIDEN: Now it's an automatic stay?

MR. STRAUSS: Well, the automatic stay goes into effect in all bankruptcies --

SEN. BIDEN: That's what I'm trying to find out, make sure I understand it.

MR. STRAUSS: Yeah. One of things that stops is debt collection. Another thing that happens is, that's fine for people who have wages, but what about the people who are self-employed individuals? This bankruptcy bill, whereas it doesn't have the immediacy of the last provision, will tell anybody who's filing a Chapter 13 that if you want to stay in there and you want to succeed in Chapter 13, we have set up checkpoints. One of them is, you are not going to get your plan confirmed unless you have paid all of your post-petition, ongoing support obligations. And another thing, another checkpoint is, you're not going to get your discharge unless you've done that. And then last year there was I think an amendment added by Senator Torricelli which I thought complemented both of those, and that is during the period if you're not paying it between confirmation and discharge, if you stop paying it we can dismiss your case. So these are the kind of remedies, among many others, that women who really -- and I say mostly women because there are men who are custodial parents who are in the same financial difficulty. These are the kind of things that would help them out of it, I think immensely.

SEN. HATCH: Overall, could you indicate your view on how well this bill protects women and children, particularly those who are dependent upon regular child support payments?

MR. STRAUSS: Well, this bill would, first of all, create exceptions to the automatic stay for many things, but the most important one is it would stop, it would put in an exception which means that the automatic stay would not stop a wage assignment -- which is, incidentally, what Congress has mandated us to do anyway. You know, every single support order that's issued in any state in the United States is supposed to have a wage assignment.

SEN. SESSIONS: The wage assignment means that the employer must send the money directly to the mother or the child.

MR. STRAUSS: Or to an agency like ours. You know, we've done it. And it's a system by which we collect about 56 percent of the child support. And that's how important this is to make sure that it's not stopped.

SEN. HATCH: Well, thank you.

Mr. Zywicki, I only have a few more minutes left but let me just ask you this. Will means testing mitigate the problem of bankruptcy abuse by high income filers?

MR. ZYWICKI: Mr. Chairman, I believe it does, and in particularly what it does is, it shifts the presumption in cases involving high income filers. Under the current system you have to actually kind of go out and find these people, bring motions to dismiss their case and that sort of thing. What this does here is gives a nice gate-keeping approach for those who make less than the median income. But above that, what it does is it just identifies those who make above the median income that have substantial repayment capacity without significant hardship and it gives a presumption that they would have to repay some of their debts.

The court would still have the discretion to look at every single case to determine whether or not there's some significant hardship present in that case that means they should not repay their debts. But by creating predictability and fairness, it will mitigate the problem of high income filers.

SEN. HATCH: Thank you.

Mr. Newsome, just a question for you. Do you believe that there are cases in the system which would qualify as, quote, "substantial abuse," unqoute, of the bankruptcy code? I understand you've been a bankruptcy judge now for, what, 15 years?

JUDGE NEWSOME: It's going to be 19 in October.

SEN. HATCH: 19 years. In all those years, how many cases have you dismissed for substantial abuse?

JUDGE NEWSOME: I'd say I'm probably running, of the motions that are filed I'm probably running about 50 to 60 percent.

SEN. HATCH: About 50 percent you dismiss for substantial abuse?

JUDGE NEWSOME: That's right.

SEN. HATCH: Okay. Now, how can you blame Congress for wanting to bring more accountability to the system?

JUDGE NEWSOME: I don't blame Congress at all, Senator, for wanting to bring more accountability to the system. Nobody hates bankruptcy abuse more than the judges that see it all the time. All I'm saying is, I think the unintended effects of your bill are going to be very, very harmful to people that don't deserve this kind of treatment.

SEN. HATCH: My time is up. Senator Biden.

SEN. BIDEN: Thank you very much. You know there's an irony here. The bill has been stopped from passage basically based on four arguments against the bill. And by the way, I want to thank all of you, every one of you for your testimony because you've been all very helpful. But let me try to narrow this down as I see it.

There's been four basic reasons why the bankruptcy bill has not been able to be passed. One is the argument by my friends on my side of the aisle that women receiving support and alimony will be damaged by this legislation. They will be put at a disadvantage which you've put to rest here. I want anybody to tell me how that would be the case here. Number two, we're told that the second argument is that the Homestead provision is not fair that's in here, not sufficiently strong. The third thing we're told is that the poor generally will be disadvantaged by this bill. And the fourth thing is that those who engage in clinic violence will be able to get out from under their obligations somehow.

Now the irony I find here is two of those four provisions that the critics have are positions held by those who support the bill including the creditors. I don't know a single creditor who wants someone to be able to get out of paying a debt because they buy a $2 million home. I don't know a single creditor that's come forward who's suggested that anyone who bombs an abortion clinic violates a stay-away order at a clinic, et cetera, should be able to discharge in bankruptcy. There's a real irony here. The creditors support the two provisions that some of us want to change. I think we should have the stronger language of the FACE legislation in the bill. I support that. I also think that we should have a flat limit nationwide on how you can discharge in bankruptcy based upon how much you can protect your home -- put it another way. I think the limit should be around $100,000, maybe $250,000, I don't know, but not where it is now -- although as the senator said, we've tightened this up a lot. He and I both think we would go much further. So there's an irony here.

I'm going to focus on the two things where creditors and debtors disagree or at least those purporting to represent debtors disagree. And the first one is, the argument that the poor and disadvantaged or the women receiving alimony or support payments are disadvantaged. Now the only legitimate criticism I've heard based on any facts is what you've put forward, Judge Newsome.

And that is, that the real problem is the burdensomness of getting out from under this legislation, making safe harbor work. Does anyone on this panel think that any truly poor person is on the face of the legislation subject to a more onerous test than they are now? Anyone? I don't mean burdensome. I mean just on the face of legislation.

JUDGE NEWSOME: Not burdensome. But the fact that you've eliminated the ability to get rid of debts under certain provisions of 523, you've eliminated the ability to do that in Chapter 13 -- yes, I think that that could impact very negatively upon people of very modest means.

SEN. BIDEN: Well, how about people --

JUDGE NEWSOME: That's also, Senator if I could just interrupt you for a second, that's also the argument about child support. What you have done by way of the amendment to Chapter 13 is that you have made it possible for credit card companies and others who might allegedly hold, not necessarily but allegedly hold a nondischargeable debt based upon 523A2 --

SEN. BIDEN: Explain what 523A2 is.

JUDGE NEWSOME: Well, 523A2 deals with fraud, and it requires at this point at least a creditor to bring a complaint against the debtor alleging that he committed fraud when he ran up his credit cards. Or it's not just credit cards. It's any kind of unsecured debt.

SEN. BIDEN: If there is fraud proven, your point is that creditor goes to the head of the line -- above alimony?

JUDGE NEWSOME: No. What it does is, it does two things. By making it impossible to wipe out credit card debts unless you pay 100 percent in a Chapter 13, the debtor comes to the other end of the line, comes out of bankruptcy still owing those credit card debts to the extent he didn't pay them in the 13. That's going to compete with child support.

SEN. BIDEN: But under the law, the child support has to be paid.

JUDGE NEWSOME: That's right. But you can't get blood out of a turnip. If a guy gets garnished too much or if he gets too many payroll orders, his employer is going to fire him. It's very easy to do that in some states -- Georgia for example I understand from my friends in Georgia.

SEN. BIDEN: Mr. Strauss, you look like you wanted to comment.

MR. STRAUSS: Well, you know, on the surface -- I hate to disagree with a judge before whom I may have to appear sometime -- but the bottom line is that if it was an even playing field and the credit card companies and the child support creditors had the same remedies, I would say yeah the child support creditors may have a problem because of the resources of these credit card agencies. But the playing field is not level at all. For example, if you're collecting from wages and you -- we've discussed these wage assignments -- all it has to be is served on the employer, and it takes precedence no matter when served. And it collects the debt first. Also, the Consumer Credit Protection Law says that when you are collecting from a person's wages, 25 percent of it only can go to non-child support stuff. But if it's a child support thing you can take as much as 50 to 65 percent, wiping out the ability of the other people to collect at all.

SEN. BIDEN: That's right. Now, the point being the judge -- really what you're saying, isn't it, Judge? that it may cost them their job, it may cost other things, but it's not going to get in front of collecting the child support if they're a wage earner.

JUDGE NEWSOME: No, but then the possibility is, nobody gets anything.

SEN. BIDEN: Whoa, whoa, whoa, whoa, whoa. Not true. If the wage is garnished, the child support gets it first. You're saying if it causes them to end up being fired then no one gets anything.

JUDGE NEWSOME: Or if they just give up and run away.

SEN. BIDEN: Right, which happens all the time now.

JUDGE NEWSOME: All the time now. And you wouldn't want to encourage that.

SEN. BIDEN: No, you wouldn't want to encourage that, but I find it a real stretch to figure out how this increases the very mentality that already exists in there. But at any rate since my time is up, the one thing --

By the way, Ms. Vullo, I compliment you on your work.

MS. VULLO: Thank you.

SEN. BIDEN: One question. How would the new amendment prevent the abuse of process that exists now? Because you're not, there's not a single court in America that's ruled that a violation of any order relating to a bankruptcy that relates to doing anything at an abortion clinic is dischargeable -- not one has ever done that. Correct?

MS. VULLO: To my knowledge, that's correct. There are just five cases. Four --

SEN. BIDEN: I understand that, but there's not one that's done that yet notwithstanding what my friend from New York tells me every once in awhile. There's not one that's done it yet. Now, you make a very valid point. You say the ability to abuse the existing law as to contesting what "willful" means allows this process to go on. It's costly and thereby it delays your clients and people who should be recompensed from being paid, and it costs them to stay in the game. Right? Now, how would the new legislation -- I'm not arguing with you; it's a serious question -- how would that prevent the same abuse of process?

MS. VULLO: The new legislation focuses on the existence of an action or a judgment under a particular type of statute. So for example in my case I have a judgment under the FACE statute. The new legislation says, that judgement is nondischargeable. We don't get into the question of what "willful" means, what "malicious" means. It's an automatic, nondischargeable, and I would submit that a bankruptcy lawyer would have a very, very difficult time signing on to any document in bankruptcy court with that statute; whereas, now because of the case law that is out there under the willful and malicious injury exception -- I mean, there are hundreds of cases going different ways with a lot of different nuances. And with that as I have seen in my case lawyers are arguing what those words mean. And despite the fact that they are cases out there on our side on the willful and malicious injury question does not mean that the risk of inconsistent results is not real. It is real. And I think --

SEN. BIDEN: The likelihood the way things are going is, the likelihood is you are building case law. I support what you want to do. But the likelihood is, the cases, for example the very cases you've taken in the various district courts and now circuit courts probably. Have you gotten there yet?

MS. VULLO: I haven't gotten there. I'm still in bankruptcy court. I've gotten through several levels of appeal.

SEN. BIDEN: Well, you may. It may. They are at a minimum building the case law to suggest that these do not fall under that exception. In other words, I'm suggesting it shouldn't be cauterized now. I'm not suggesting. I agree with you. I just want to make sure we stop -- not we stop -- we don't put ourselves in the position of hyping this beyond what is real. What is real is, it's a costly process to have to appeal, to fight an appeal against a judgement that was warranted in the first instance. That's really the problem. Right?

MS. VULLO: There's more than that, Senator, with all due -- there's much more than that because my case, I had specific findings from a trial judge that said specific intent and malice. And even then I was in court because I didn't have a statute that simply said, judgment under FACE, nondischargeable. So they litigated the issue. In many, many other cases which will happen in the future -- the FACE statute is not very old and in many cases that will happen in the future I suspect all there will be will be a judgement without specific findings, and you're going to have judges all across the country interpreting what the elements of the statute are against willful and malicious injury. And they interpret it differently, Senator.

SEN. BIDEN: My time is up. Maybe I can come back to you later or personally talk to you about this. But I find it hard -- I'm not sure, I'm not suggesting you're wrong.

I don't know. I find it hard to see how a judgment under the FACE act, not in bankruptcy now, you litigate under the FACE act. I find it hard to figure how a court would render a judgment on behalf of the client without specifying what in fact was the conduct. I mean, I don't know how you get there. But --

MS. VULLO: It happens -- it will happen, and I can give an example. The current law says, willful and malicious injury requires intention to commit the injury -- not simply intention to do the act. If I bomb an abortion clinic and as a result of that bombing someone dies, the intention was to do the act of the bombing not to commit the killing, and I would submit and I think this would be absurd, but the current law logically would say that that debt to the victim, the dead person as opposed to the bombed building, would be dischargeable in bankruptcy. And I don't think we should debate over whether or not --

SEN. BIDEN: That is an absurd reading, and it would take absurd judges. We don't have that many absurd judges except the ones that the other guys appoint. But I don't -- I'm only -- that's a joke. That's a joke. It was a bad joke. I'd like to ask unanimous consent to strike that from the record because I'll have 731 judges calling me and wondering if I'm talking about them.

I thank my colleagues for their indulgence.

SEN. SESSIONS: Thank you, Senator Biden.

Well, under the Leahy -- I really want to get off this subject and you've had a good day in the sun. If the Schumer Amendment is made law, someone still would be able to file bankruptcy and delay paying your debt until such time as you went to that bankruptcy court and overcame their objection still even though it would be easier to overcome the objection. Am I wrong about that?

MS. VULLO: An abuser will again abuse the system --

SEN. SESSIONS: The ultimate remedy for a court is a sanctions or for contempt or things of that nature seems to me.

SEN. SCHUMER: For a frivolous suit and subject them to sanction and would be dismissed right away, which happened in none of these cases as I understand it.

MS. VULLO: That's correct. A lawyer would be hard-pressed to sign that bankruptcy petition if this amendment were in the code.

SEN. SESSIONS: Well, I would just say this about this subject, which has never been lost and is not a critical matter in the world of commercial bankruptcy. I would just say simply this. If there are other similar problems such as extreme environmental violence that results in spikes being put in trees or union attacks on small businesses, I think we ought to consider the same type rule. That's all I'm saying, and it does strike me that you represent abortion clinics, and you want to protect those clinics from violence, but others may sue people who roll back odometers and they'd like to have their cases received too. So there's a lot of different issues here, and I think equality of treatment across the board is what I would favor and not just targeting one issue.

SEN. LEAHY: Mr. Chairman, can I say something?

SEN. SESSIONS: No.

SEN. LEAHY: Okay.

SEN. SESSIONS: You'll have your turn.

MS. VULLO: May I respond, sir?

SEN. SESSIONS: I'm using my time up right now. You and I have talked about it, Senator Schumer, and I respect your concern over this issue, and there are a lot of abuses in the bankruptcy court and abusing the bankruptcy to file to delay a just adjudication and to frustrate payment of debt is what we're all about. This is just one example of what's going on daily in bankruptcy court.

SEN. SCHUMER: But I would state --

SEN. SESSIONS: My time. I'm claiming my time.

MS. VULLO: Senator, may I respond to --

SEN. SESSIONS: No. I've just had my say. You've had more time --

SEN. SCHUMER: Oh, give her the courtesy of a response, Mr. --

SEN. SESSIONS: She's going to get, she's had a chance to respond.

(Laughter.)

SEN. SCHUMER: I would ask unanimous consent it not be taken from my good friend from Alabama's time and let Ms. Vullo respond.

SEN. SESSIONS: On what subject?

MS. VULLO: Can I grant that consent?

SEN. SCHUMER: No. Unfortunately you can't. It's up to him. (laughs)

SEN. SESSIONS: I will not object, and if it doesn't lose my time I'd be glad to hear you --

MS. VULLO: All I would want to say, Senator, is that there is documented abuse here in a particular area. All pieces of legislation deal with particular items when this committee determines and learns of some element of abuse.

SEN. SESSIONS: I understand that's your view.

MS. VULLO: The fact that there might be other abuse does not mean that documented abuse should go unremedied, and that's all we're asking with respect to this piece of legislation. It's documented and it's a group of people who do not believe they have to follow the laws of this country. People who don't believe they have to follow the laws of this country should not have the benefits of the bankruptcy code when they have demonstrated that abuse.

SEN. SCHUMER: And I would say to my friend, just to have an analogous example, some animal rights people started shooting scientists who were experimenting on animals and then somehow claimed bankruptcy as a shield, I would support an amendment to do that.

SEN. SESSIONS: Well, I think there are other problems that we might can deal with, and I certainly do not object -- and I think you make the best point which is if you've got a documented case of abuse you're more justified in asking for relief.

Judge Newsome, you mentioned that you granted discharges in bankruptcy for abuse.

JUDGE NEWSOME: No, no. No, no. I didn't grant discharges in bankruptcy for abuse.

SEN. SESSIONS: Excuse me. Dismissals of bankruptcies.

JUDGE NEWSOME: Right.

SEN. SESSIONS: How many in actual numbers in your career have you granted?

JUDGE NEWSOME: Senator, I don't know.

SEN. SESSIONS: You said if they presented a motion --

JUDGE NEWSOME: I can't tell you.

SEN. SESSIONS: Less than 10?

JUDGE NEWSOME: Oh, no. It's been more than that.

SEN. SESSIONS: Less than 100?

JUDGE NEWSOME: Less than 100.

SEN. SESSIONS: It's not many. It's probably less than 1 percent of the cases you've presided over?

JUDGE NEWSOME: Oh, much less.

SEN. SESSIONS: So I would suggest that -- I think the abuse procedure has failed in my view.

JUDGE NEWSOME: I agree.

SEN. SESSIONS: It is not an effective mechanism.

JUDGE NEWSOME: Not as written.

SEN. SESSIONS: And that's why we think instead of having it filed in every court with having judges determining from their own feelings what ought to be granted and what not, to have a fair, objective statutory scheme that would have a fairly bright line rule based on size of family and what a median income would be would be the approach to that.

JUDGE NEWSOME: May I respond?

SEN. SESSIONS: Yes, sir.

JUDGE NEWSOME: The rule you propose is anything but bright line. There are as many ways of interpreting the means test as there are people looking at it, and if you think that there's been inconsistency interpreting "substantial abuse," wait until the judges get ahold of this one.

SEN. SESSIONS: Well, let me ask you --

JUDGE NEWSOME: And let me just also say that the problem with the test that's in the statute right now is that the only two people, or the only person that can file a motion is the U.S. trustee. The creditors can't even bring it to the trustees' attention. So if you open this up, if you open the test, you've got rid of the word "substantial" and just say if you commit an abuse of the bankruptcy code and a creditor can bring a motion to have the case dismissed for an abuse. And contrary I think to popular belief, there is an objective set of standards under the substantial abuse test for when you should dismiss a case for substantial abuse. It's been developed in the case law and it basically is, can a debtor afford to pay something in Chapter 13?

SEN. SESSIONS: Well, it strikes me that it's not very difficult since the family of four's median income is $50,000 about a year and a family of four seeks to file for bankruptcy and their income is $40,000 a year -- I mean, they get to go in Chapter 7. That's not a very difficult task for a judge in my view to understand.

Now let me ask Mr. Strauss, if a person is moved because they have income above median income and have been found to be capable of paying some of their debt, if they are moved into Chapter 13 and they pay their debts there, it can be over a five-year period. Is that right? And during that five-year period, you've got a federal bankruptcy judge basically ensuring that they pay the child support first out of every single debt that's paid?

MR. STRAUSS: Exactly.

SEN. SESSIONS: Isn't that a great protection for a lady, a mother with children?

MR. STRAUSS: We obviously prefer debtors in Chapter 13 for those reasons especially if these other provisions are enacted.

SEN. SESSIONS: Senator Feingold.

SEN. FEINGOLD: Thank you, Mr. Chairman. I am pleased that we're having a hearing in committee this year. We didn't do that at the beginning of the 106th Congress in 1999, and I thought that was a mistake, and I certainly want to thank all the panelists. In fact, the process we've followed in the last congress and in the congress before that led to a bill that the president wouldn't sign and that a majority of the Democratic Caucus wouldn't support. I'm afraid we're heading down that exact same road again this year. Of course, we have a new president, and most observers expect he would sign the bill as the chairman and Senators Grassley and of course Senator Sessions have introduced if it gets to his desk.

My colleagues, that doesn't make the bill any better or more fair or more balanced or worthy of this committee or this Congress than the one we passed last year. Amending the bankruptcy code, as my friend Brady Williamson indicated, used to be a nonpartisan exercise where the Congress listened to experts, practitioners and law professors and judges and trustees and made careful, considered judgements about how the law would work. Now it seems we ignore the experts and instead do what the credit industry wants us to do, and we use parliamentary tactics to avoid reasoned consideration that harm the bill and I think actually discredit the Senate.

We all know how the procedures of the Senate were abused to pass the bankruptcy bill last year. This year the bill has been sent right to the calendar for floor action. We have a new Judiciary Committee this year with four new members and a 50/50 split in party affiliation. I strongly believe this committee should have the opportunity to fully consider and amend the bill.

I just want to say for the record that our leaders' agreement to have evenly divided committees is really pretty much meaningless if major legislation like bankruptcy reform doesn't really go through committee. And so there is agreement to have equal budget for staffs if major legislation is marked up in this committee before that agreement is implemented. This is a new Senate with an unprecedented power-sharing arrangement, and I think this committee should start operating on that basis in fact, not some day but now.

Mr. Chairman, I have a longer statement for the record that spells out my concerns about S220. I'd like to note here that this committee should be cognizant of the extent to which bankruptcy reform has come to be seen across the country as a gift to special interests. In that regard, I'd like to ask unanimous consent that recent studies by Common Cause and the Center for Responsive Politics concerning the campaign contributions made by supporters of bankruptcy reform legislation be included in the record of this hearing.

Mr. Chairman, I'm asking unanimous consent.

SEN. SESSIONS: Without objection.

F: In light of the appearance that these free-spending industries have created, we bear a burden to make sure that we are serving the public interests with this kind of far-reaching legislation. We cannot meet that burden unless we slow down and open our minds to the kinds of criticisms expressed by witnesses at this hearing and by nonpartisan experts in this field. For two straight congresses, we have ignored the experts. We need to step back and take another look. Mr. Chairman, I want to welcome in particular the two witnesses from Wisconsin Brady Williamson, Mr. Beine who hailed from my state, Senator Kohl very much wanted to be here and extends his apologies. He is doing what we in Wisconsin consider the Lord's work. He is with Agriculture Secretary Veneman talking about the dairy industry.

We are glad you are here to provide a little Wisconsin common sense to this debate.

I will hopefully be able to ask more questions in another round, but let me just use the time here remaining in my round to ask Mr. Williamson to comment briefly on whether the efforts of the National Bankruptcy Reform Commission that he chaired are reflected in the bill that passed the Senate last year and that is before the Senate again, and Brady if you could start by recounting how the commission went about its work and attempted to study and accommodate all the competing views and tried to come up with a balanced bill with regard to this law.

MR. WILLIAMSON: Thank you, Senator.

The commission was created by the Congress of 1994. It had nine members, three appointed by the president, four appointed by Congress, the House and the Senate, and two by the Supreme Court. It conducted hearings across the country, more than 25 hearings heard from more than 300 witnesses, received more than 3,000 submissions, and attempted to come up with a balanced set of recommendations.

The commission submitted its report to the Congress and the Supreme Court on October 20, 1997. It had 172 recommendations and a 1,300-age analysis of the bankruptcy law which remains available today on the Net and I still think is the single most comprehensive assessment as of 1997 of American bankruptcy law. This legislation includes some of the commission's recommendations. I would single out the Sessions-Kohl provision on homestead as an example of that. I would also single out direct appeals as an example of that. I would note that the commission found no need for a needs test as such. The commission addressed the question of abuse in a variety of ways -- we think with a little more precision and sophistication than the legislation does.

The commission endorsed the notion of flexibility for judges. We've heard a discussion this morning about a family -- I believe, Senator Sessions, you mentioned a family of four with $50,000 of income and shouldn't it be easy to tell whether they get to go in Chapter 7 or Chapter 13? And the answer is, yes, it should be if it were a normal family, but if the family had an autistic child, if the family had economic consequences, circumstances that didn't fit readily into IRS guidelines then you have a different story and then I think you need the flexibility and the discretion that the code today affords bankruptcy judges.

If I, Senator, could just take a minute to respond to the Senator from Delaware's friendly challenge, it's four issues. First, Senator Biden, I would note that the people in the credit industry who support this legislation have been remarkably silent on the importance of the Sessions-Kohl amendment. Secondly --

SEN. BIDEN: That's not true, by the way. That's simply not true.

MR. WILLIAMSON: Well, then I'd like to see the evidence.

SEN. BIDEN: I will give you the evidence.

MR. WILLIAMSON: Thank you.

SEN. BIDEN: It's simply not true.

MR. WILLIAMSON: Secondly, with respect to the question of the impact of this legislation --

SEN. BIDEN: You mean homesteading, right?

MR. WILLIAMSON: Yes, sir.

SEN. BIDEN: Okay.

MR. WILLIAMSON: With respect to the Senator's comments about women and children, bankruptcy law is fundamentally about values. And this country and this Congress long ago decided that taxes, that child support, that student loan obligations should be nondischargable. And the reason was because we as a society place a value on that. One of the disturbing things about the bill in the aggregate, Senator, is that it increases the amount, the categories of nondischargeable debt. And by doing that, it places that new nondischargeable debt in competition inevitably with the other nondischargeable debt.

SEN. BIDEN: You're good, Brady. I forgot how much I liked working with you over the years. You are so -- anyway. You're so good.

(Laughter.)

MR. WILLIAMSON: Senator, Chapter 7s only last a brief amount of time, and during that period of course a bankruptcy judge can insist that child support be paid. Chapter 13s may last three years or four years, but one thing we haven't talked about, a dark secret here is that three out of ever four Chapter 13s fail. And when they fail and when the debtor is sent out of the courtroom into the world, each of that debtor's creditors with a nondischargeable debt passed through bankruptcy, whether it's 7 or 13, is on the same footing. And they can go to the single mother, single father with children, and say, we want you to pass. And during the bankruptcy process they can go to that same single mother and say, look, we'll let you keep your credit card; you just have to reaffirm the debt.

Now we haven't talked about reaffirmations here. And I think we're all aware of the instances in the last three years where major credit institutions have abused the reaffirmation system. This legislation needs to pay more attention to that issue. The system is about balance, Senator, and has to be balanced. It has to prevent abuse. Bankruptcy judges can provide balance if they have the discretion, and I know I associate myself with Judge Newsome's remarks because we need to give bankruptcy judges flexibility, not put them in straightjacket. And that applies as well to the means test.

SEN. SESSIONS: (laughs) Senator Schumer.

SEN. SCHUMER: Thank you, Mr. Chairman. I thank everyone here. I think this is an excellent hearing no matter what side of the issue you're on because we're really discussing the issues. This is our committee I think at its best, and I appreciate everybody being here. I'm going to, we were not allowed to make opening statements, and I'm going to make part of my opening statement now and then ask that the rest be put in the record, and then I'll ask a few questions if I have time. Otherwise, I'll wait for the second round.

So first I want to thank everybody, all the witnesses, for being here and especially Maria Vullo who was an attorney from New York. As we know now she litigated the Nuremberg file cases. Ms. Vullo, I can say to you that in the anteroom there, two of colleagues were talking and one said to the other, I wouldn't want to be litigating against here. Ultimate compliment to a litigator.

Mr. Chairman, bankruptcy law and bankruptcy legislation is complicated. It's sometimes archaic, and I can safely say that when I walk into, say, O'Halloran's Pub on Quinton Road (sp) and see my constituents, they're not saying, what's new with the Homestead Exemption, the Means Test and Safe Harbors, Charlie? But the fundamental idea behind bankruptcy law and bankruptcy reform is actually a fundamental and very simple one -- good bankruptcy reform means strengthening the protections for the neediest debtors by giving them a safety valve to deal with misfortunes that may befall them while at the same time shoring up the system to prevent abusive filings by debtors who do not need bankruptcy's protections. That's simple, Mr. Chairman. Balance the need to protect vulnerable Americans with the need to prevent abuses.

Last year I opposed the bill that ended up emerging from the shadow conference because I think the bill got the wrong balance. I'm hopeful that this year we'll work to achieve a truly balanced bankruptcy reform, something that is going to cure abuses but doesn't throw out the baby with the bath water. And I hope we're not going to try to jam the same bill through that came out of the shadow conference. That bill which had been unilaterally stripped of the FACE amendments, the so-called now Schumer-Leahy Amendment, had passed 80 to 17. By now I think everyone involved in bankruptcy knows that the FACE amendment prevents those who engage in violence and intimidation at abortion clinics from hiding behind the bankruptcy code to escape their court-imposed death -- debt, sorry. This provision makes clear to those who would harm women and doctors that bankruptcy is no escape from accountability for their heinous acts. They have tried to use the bankruptcy courts for that.

Now what could be wrong with that purpose? As my good colleague and friend from Delaware said, probably everyone on this panel agrees with that. And the issue frankly is not pro-choice or pro-life. It's pro-law. That's why Harry Reid who is pro-life joined as a cosponsor immediately.

That's why when I first passed the FACE law in the House we had a coalition of pro-choice and pro-life Congressmembers supporting it.

That's why last year Senators Jeffords and Snowe and Collins and Specter made this a wholly bipartisan effort, and that's why when they heard bankruptcy was being brought up again this year Senators Reid and Jeffords quickly approached me to stress their support and desire to cosponsor the amendment. And that's why our new attorney general was so outspoken, both publicly and privately at his confirmation hearings about his support for the FACE amendment.

In the last Congress, the Justice Department was a strong supporter of FACE. And in fact I'd like to ask unanimous consent that the DOJ letter I received last year showing DOJ's position which outlines why this law is so important be placed in the record.

SEN. SESSIONS: Without objection.

SEN. SCHUMER: Thank you, Mr. Chairman. Given Attorney General Ashcroft's pledge to enforce FACE and his explicit support of the FACE amendment, I hope that this year it will be included in the bankruptcy bill. Let's not kid ourselves. Attacks on clinics and clinic workers are often planned by sophisticated individuals and organizations. Violent activists who hide their assets to avoid financial repercussions are quite capable of working bankruptcy into their schemes to commit violence without accountability if they believe it will work.

Ms. Vullo testified about the Nuremberg Files case. It's not fiction. Your testimony was riveting. What happened there was appalling and offensive. What's happening now in the bankruptcy courts is equally appalling and offensive. We need to shut it down. If we don't, there's a substantial risk that others will pervert the bankruptcy code and will become a widespread tactic used by those who believe that their message is more important than our American law. And the bankruptcy code will be perverted.

Can any of us really doubt that the groups that Ms. Vullo has litigated against if given the chance will continue to force clinics and doctors and relitigate and relitigate and relitigate. That's my dispute with my good colleague from Delaware. He is right that if these little clinics had free lawyers, they don't even have to be as good as Ms. Vullo, they'd win. But they don't, and the opponents have huge amounts of money and go to court after court after court after court. And we all know in a practical effect what the consequence will be. It will be that bankruptcy will be a shield from judgment.

Now, some have argued -- we hear this argument a lot -- about the willful and malicious standard. They say FACE debts would be covered. First, I've never argued that FACE debts would never be covered. Certainly some would be if they were proven to fall under the willful and malicious injury exception. But this in no way means that all FACE debts are covered by that exception. In the Nuremberg case, the judge made explicit findings of maliciousness and intentionality that made it easier in the bankruptcy cases to argue that the willful and malicious injury exception applies. But even in these cases which should be slam-dunks, Ms. Vullo and the plaintiffs have spent more than a year litigating in bankruptcy court.

What about cases where there are settlements? And part of the stipulation of the settlement is, we're not going to find willful and malicious. And there's a judgment. Then what do we do? Many, many, many cases end in settlement, probably more than actually end in judgment. And so it's vital that we make perfectly clear that FACE debts that are nonchargeable. If we don't, the individuals and organizations seeking to shut down clinics will continue to force clinics doctors and other victims, clinic violence into a world of perpetual litigation and by doing so they may well deter many victims of clinic violence from ever bringing a case in the first instance.

Mr. Chairman, I have a lot more to say on the subject, but I'm going to ask unanimous consent that my entire statement be put into the records.

SEN. SESSIONS: We'd be glad to. Once again, ably delivered.

Mr. Zywicki, would you respond to Judge Newsome's suggestion or statement that judges would find it difficult to interpret the means test language in this bill? How hard and complex would that be?

MR. ZYWICKI: It's much less complex than under current law. Basically what happens under current law is, judges just kind of make it up as they go along, just sort of an open-ended inquiry. If you read the cases, you'd see cases all over the place. He says it's being refined by case law. That's simply not the case. The cases are all over the place. And what this does is brings order --

SEN. SESSIONS: Cases on abuse.

MR. ZYWICKI: Yeah, cases on abuse. There's no consistency. There's a case law --

SEN. SESSIONS: But under proposed language of this bill is to what extent is that ambiguous or unclear?

MR. ZYWICKI: This is much less ambiguous or unclear. It provides -- it identifies things very clearly and most importantly it provides a list of expenses and that sort of thing. And then what it does is, (cabins?) (sp) at the end, the judge's discretion, and says, look, here's your discretion. Here's a simple list to follow and here's your discretion; apply your discretion but subject to guidance, not just according to just sort of willy nilly preferences. So I don't think there's any problem with applying the means test as it's drafted.

SEN. SESSIONS: And with regard to the legislation, I think it's been noted but this bill passed the House in June of '98 306 to 118, essentially this bill with this means test in it. And the Senate had passed in 98 and 97 to 1, and the House had passed again in May of '99 313 to 108. And the Senate had passed February 2, 2000, 83 to 14. The House had passed again by a voice vote virtually unanimously I suppose without even a roll call vote. It passed 70 to 28 in the Senate. There have been six different times this bill has been up and passed by overwhelming majorities. We don't want to not have hearings and let everybody talk, but sometimes it's time to stand up and vote. I think we are about at that point now.

Senator Biden, I'll let you go now, and if I have any follow-ups I'll follow you.

SEN. BIDEN: Okay. One of the reasons I think this hearing is important is that there's been so much misinformation that's been out there across the board. I would argue initially that misinformation was on the part of the creditors four years ago. Now I would argue the misinformation is on the part of those opposing this legislation. I start off with sort just a common sense notion here. Why are there so many more bankruptcies? Why has that happened? Part of what our ethic was is that bankruptcy was something that was an absolute last resort and was something that your really tried to avoid because there was a social stigma related to it beyond the financial stigma related to it. That ain't the case no more. It doesn't work in that way anymore -- not with everybody. Still people need bankruptcy protection. That's why we got rid of debtor prisons. That's why the irony here is I've been for my 28 years in the Senate characterized by the business community as too much of a pro-consumer senator. I find it kind of ironic that one of the things was been argued here today, and I might add Mr. Manning without any data to support -- I see no hard data. I read your entire report. I have no hard data where you connect the, where you support the idea that you state that you have a direct connection between bankruptcy and credit card debt. I've not seen that data that you supported here.

But one of the things I heard today was, the autistic child. What about the person with an autistic child? Doesn't the judge need discretion for that? Well, that's a medical expense. Under this legislation, that's set aside. Where the hell, heck does that come in? I don't get that. The autistic child. Obviously I don't want to hurt people who have autistic children, but you all make it so the autistic child's in trouble. You know, the parent with an autistic child. Well, I see nowhere in this legislation --

Brady, you and I have -- I don't think we've ever been on the opposite side of an issue except this one. I can't think of it. How long have we known each other, 25 years?

MR. WILLIAMSON: 28 years.

SEN. BIDEN: Matter of fact, I tried very hard to hire you to be my main guy. You were making too much money to come work for me.

MR. WILLIAMSON: Senator, it was your first date in the Senate that we met.

SEN. BIDEN: Well, there it is. It's 28 years. And, you know, I really have overwhelming respect for you, and you know that. We've been old friends. We've been -- you've supported me. This reaffirmation, are you alleging that reaffirmation is easier under for a creditor to insist on reaffirmation is easier under the new proposal we're making than it is under the old?

MR. WILLIAMSON: I would not suggest, Senator, that the legislation you're holding in your right hand is a model of good draftsmanship.

SEN. BIDEN: I didn't say that. I said -- now, Brady. Stop playing games with me. Is reaffirmation, as poorly drafted as your brilliant drafting capability may discern, is it tighter or looser than the existing bankruptcy law?

Remember, your legal reputation is part of this.

MR. WILLIAMSON: (laughs)

SEN. SCHUMER: But if he demolishes it you can always get a job with him.

SEN. BIDEN: I want him any time he's willing to come.

MR. WILLIAMSON: Senator, I would say that the intent --

SEN. BIDEN: Not intent. Does it make it tougher, Brady, or not?

MR. WILLIAMSON: Senator, I don't think so.

SEN. BIDEN: Okay. I'll get back to you on that. Second thing I want to ask you about is, what new nondischargeable category of debt do we have in this legislation?

MR. WILLIAMSON: The category of unsecured debt that can be nondischargeable is increased significantly.

SEN. BIDEN: How?

MR. WILLIAMSON: The time limits.

SEN. BIDEN: Right, but no new category, right? Because that's what you said. You said no new category of debt.

MR. WILLIAMSON: If you expand the category of nondischargeable, unsecured debt from --

SEN. BIDEN: When we were in grade school, you know, file them, these varied categories. Do you mean category in that if you put more of a debt within a category subjected to a nondischargeability, if you increase or lower the number that that's a new category -- is that what you're saying?

MR. WILLIAMSON: Certainly an expanded category.

SEN. BIDEN: Okay. That may be more accurate then, wouldn't it be? Because there's no new category.

MR. WILLIAMSON: Actually there are.

SEN. BIDEN: Name me one.

MR. WILLIAMSON: I believe the drunk driving penalty exception is a new category of nondischargable debts.

SEN. BIDEN: You're right. That's a good one. You agree with that, don't you?

SEN. SESSIONS: Abortion clinics. How about that?

SEN. BIDEN: By the way, we want to make abortion clinics nondischargeable too. But there's no new category of debt that the debtors or the creditors are seeking, is there that you're aware of?

MR. WILLIAMSON: Senator, I don't want to be involved in semantics with you because of your caution about games, but if you expand from 30 days to 90 days --

SEN. BIDEN: Okay, but it's not a new category. It's a time limit. You argued that that makes somebody more susceptible, but it's not a new category. I mean, that's the part I'm trying to get at. I wish you'd all be a little straightforward with this. You're opposing this flat-out.

MR. WILLIAMSON: That's not correct, sir.

SEN. BIDEN: Oh, give me a break. (laughs)

MR. WILLIAMSON: Senator, whether it's a category or not it's a whale of a lot of new debt.

SEN. BIDEN: Okay. That I buy. Just try to be straight with me. If you were stopping me and you did that to me, then I would fire you because you would not be telling me the straight stuff. Just give me the straight scoop. That's all I want to know. That's all I'm trying to figure out. I really mean this. That's all I'm trying to figure out because a lot of games are being played here -- not by you but by everybody out here is playing games with this stuff. I mean, and what gets communicated to the press -- and there was a Time Magazine article that was riddled with absolute, total complete fabrications -- not because I think the guy writing the article was in fact somebody who tried to fabricate it but because he heard things like new categories, he heard things like the autistic child, he heard things like be able to escape from debt on the abortion thing. No one's escaped yet. It's more costly because Mrs. Vullo makes an incredible case I think. I hope the devil the people -- I hope the credit card industry, I hope the creditors out there are listening because she's making a very strong point. Now's the time to put pressure on my conservative friends to accept her position. Accept her position.

SEN. SCHUMER: Hear. Hear.

SEN. BIDEN: But the point is, she said it straight. She said it straight. It may be some day that there's somebody will be discharged in bankruptcy. It may be that someone is convicted under FACE and in fact gets discharged, but none of that's happened yet. But what has happened is, it's costly. I'm just trying to get my arms around this a little bit here.

Now the idea that -- and your statement, Brady, you know, the implication, any reasonable person listening to what you said earlier would walk away thinking that reaffirmation is easier to do under this legislation than it exists today. I doubt any honest person would conclude that that wouldn't be the conclusion. Maybe that's not what you intended, but the way it's stated it makes it sound that way.

Look, creditors are not people I'm crazy about because I am listed as -- I'm not -- but I'm listed as the poorest member of Congress, literally. I mean, I'm not.

SEN. SCHUMER: Wait a minute.

SEN. BIDEN: No, no. Seriously. Washington Post four or five years ago listed me as the poorest member of Congress because I refinanced my home to pay for Yale, Penn and Georgetown. For real; that's what happened. And I'm not because the guy who does my financial disclosure didn't list the equity in my home because under our stupid rules in order to list the equity in your home you have to have a current assessment. It costs $300 or $500 to get one done. I didn't want to spend $500. I'd rather pay it to Georgetown than to do that.

And to make a long story short, I'm not the poorest. But you know, I'm not a debt-free guy. You know what I mean? I'm not like a lot of our colleagues here who the last thing they've ever seen is having to take that lazy susan, spin it around and decide who gets paid this month.

Some of us still do that who have this job.

So I don't come at this like, you know, wow, we're going to go out there and rip every penny out of, squeeze ever penny out of folks out there. But I start off with a proposition, something's rotten in Denmark as the old expression used to be, an awful lot of people are discharging debt that shouldn't. These voluminous increase in filings. It is expediential that's happened. Something's up. Something's up. And that happened when the economy was booming. Absolutely booming. Now I ain't a real smart fellow maybe, but there's something wrong. Something's going on here.

And it says to me this has got to be tightened. It's got to be tightened for a simple reason and a gentleman on the end made the comment as did, is it Sheaffer?

MR. SHAEFFER: Sheaffer, right.

D: As Mr. Sheaffer said, guess what, people who come from my economic class where I grew up pay more now. They pay more. They pay more in the cost of the product at Boscov's and other places where we shop, not where a lot of the people who were getting out of the big bankruptcy -- nobody you have a big bankruptcy shops at Boscov's.

(Laughter.)

I'm not joking. I mean, I'm not trying to be funny here. This is serious. This is serious. So what happened? You know. Try to think -- ask my colleagues. Try to think back to the time when you were just starting; you just got out of law school, just got out of college, and you're trying to buy the car. You're trying to get the first bit of credit. All that's going on here, the people it's hurting is not the wealthy people. As bankruptcies increase astronomically like this and in geometric proportion, it's hurting people where I come from. People where I come from. And so I'm so sick of this, you know, this self-righteous (sheem ?) put on anybody who wants to tighten up bankruptcy is really, you know, anti-debtor. I mean, you know, people are getting hurt. People are getting hurt. And, again, I very much want to work out the two big provisions relating to Chuck's initiative, and I give him great credit for that, and also on your initiative which is homesteading. We ought to be able to force this issue.

And so my message to the creditors out there who want this tightened up, get on the team. Join the bandwagon. Put as much pressure on the folks who won't do that as you put on people who you think shouldn't who are opposed to any change. I hope that message goes out clearly.

The second piece of this is, there's got to be a way -- Brady, if you're right and if you're right, Judge, that on the extreme at the end of the day, even though we put women and children first like in sinking ships, even if they're first there ought to be a way where we can make them the first among equals. So maybe it is. Maybe there's a way we can provide, and we're not putting any new categories of debt in here, but maybe as we expand categories -- and marginally I might add, marginally -- as we expand those categories maybe we can still come up with a provision that says, women and children cannot even after they fail in 13 be subject to, or even after they lose their job.

I find that one the hard one, Judge. I used to do, I was a family court lawyer. I did these things. I was the guy that, I wasn't the big time lawyer. I was just a plain old trial lawyer. And I spent a lot of time as a public defender and a lot of time in family court going after those support payments and going after that stuff. And I didn't know anybody I ever ran across in my experience who would discharge and who would quit their job because of this legislation exists in order to spite what their circumstances -- then would do it now. I mean, I find that a real leap. But I hope there's a good faith way we can try to figure out to fine-tune this if you still think you got to fine-tune it. But something's wrong with the system that allows guys like me getting out of law school discharging our law school debt front-end. Guys like me getting out of medical school discharging their medical school debt.

JUDGE NEWSOME: You'll never be able to do that.

SEN. BIDEN: Like hell you can't.

JUDGE NEWSOME: Not under this system you can't, not the one we got right now. You can't get out of a medical debt. It's a heels (ph) loan most of the time and you can't get out of those for love or money.

SEN. BIDEN: By the way, that's not the only debt people acquire.

JUDGE NEWSOME: And as to the law school debt, if those are educational loans those are not --

SEN. BIDEN: No, no, no. They're not educational loans. When I graduated $100,000 in debt they were commercial loans. I didn't get one of those. I didn't qualify. My sons still have $120,000 bucks they're paying off. You're full of malarkey, Judge.

JUDGE NEWSOME: It probably still would be under the statute.

SEN. BIDEN: Well, then I better let my sons know that. Maybe they can get moving before this gets changed. Anyway. I just think this is --

JUDGE NEWSOME: By the way, there is a new category of debt. It's 523A19 and it deals with loans that you take from your pension plan.

SEN. BIDEN: Protected.

JUDGE NEWSOME: No, nondischargeable.

SEN. BIDEN: Nondischargeable, that's what I mean. Okay. And that wasn't pushed by creditors by the way.

JUDGE NEWSOME: I think it's a good provision.

SEN. BIDEN: Yeah, I do too. And the other one, drunk driving is too and this one is too. Anyway. I just hope we get a little bit of sanity into this debate here and stop the games.

SEN. SESSIONS: I thank the senator.

SEN. BIDEN: Thank you.

SEN. SESSIONS: Senator from New York.

SEN. SCHUMER: Thank you, Mr. Chairman. First I want to thank my colleague from Delaware, not only for the passion with which he brings as we disagree on some of the issues but particularly for his understanding of why the amendment I'm proposing is so important which you brought out, Ms. Vullo. And I certainly would hope that we could get people to accept at this time and his call for the creditor community to put some, to use their suasion with people who have opposed this amendment would be very helpful because we do have a majority support. It's simply that we couldn't get it through because a few people didn't want it to be part of it.

Coming from New York, of course I get lots of calls from people who want this bill -- heads of big financial institutions, and I'd always say -- and they'd say, can't you withdraw your amendment? I'd say, well, if you get your wife to call me I might consider that. Not a single wife has called me because they know that our amendment is the right amendment. And I just wanted to clarify a couple of things with Ms. Vullo.

Just how long -- let's just go over the sense of time that it's taken you to do this. First, how long did it take you to litigate the Nuremberg Files case start to finish?

MS. VULLO: From October 1995. The jury verdict was February 2, 1999. So three and a half years before trial and verdict.

SEN. SCHUMER: Okay, and now how many more years has it taken with bankruptcy?

MS. VULLO: It's now two years last week.

SEN. SCHUMER: Have your plaintiffs collected a nickel?

MS. VULLO: A little bit more than that. But a couple of thousand dollars via a garnishment of a corporate entity, not from any of the individuals because the individuals filed for bankruptcy when the --

SEN. SCHUMER: So in none of the individual cases have they gotten any money yet?

MS. VULLO: That's correct.

SEN. SCHUMER: And if this group who you represented, if the plaintiffs didn't have a top-notch pro bono lawyer, what do you think would have happened?

MS. VULLO: I don't think the case would have been brought in the first instance which is another reason, Senator, for why the amendment to the bankruptcy code relates very directly to the importance of the FACE statute itself.

SEN. SCHUMER: Right.

MS. VULLO: Because you won't bring the FACE claim if you know that they're just going to ask for the --

SEN. SCHUMER: Go into bankruptcy. Right. And the amount of money in most of the settlements and judgments so far, yours is a particularly notorious case, would not compensate a lawyer even on contingency fee basis in general. Is that right?

MS. VULLO: That's correct.

SEN. SCHUMER: Thank you, Mr. Chairman.

SEN. SESSIONS: On the question of reaffirmation, I was asked to meet, Mr. Williamson, with I believe Senator Reed and the White House and Department of Justice and we hammered out an reaffirmation language that did have some political give and take in it so it's not perhaps your style. But it satisfied the Department of Justice and the Clinton White House and it provided more protections as Senator Biden said clearly than was in existence before the law.

SEN. BIDEN: Wasn't it a fact the White House pushed this?

SEN. SESSIONS: Yes. They pushed this kind of language, and we agreed to it.

SEN. BIDEN: Brady's always been to the left of Clinton anyway.

SEN. SESSIONS: But more than that, reaffirmation is nothing but one of these arguments in my view that has nothing to do with it of importance here fundamentally. A person can go out and buy a set of furniture or a washing machine, and he or she signs a note at whatever interest rate they say and there's no lawyer present, and they sign it, and that's it. But under bankruptcy law, there is a -- they do have lawyers, and the lawyer signs off on the reaffirmation. So at least they've had legal counsel.

But that's not enough. They want to have the judge approve it. So we provided a method in which the information is provided to the judge and some standards that would say that if it was unfair or abusive to the debtor who's reaffirming the debt so they could keep the washing machine or what else, there would be less problems there. I think we made a good step without creating a hearing for every doggone reaffirmation that goes on in the case.

Mr. Williamson, the Bankruptcy Commission never formally voted on means test; is that correct?

MR. WILLIAMSON: That's correct, Senator.

SEN. SESSIONS: And didn't take a formal position on it one way or the other?

MR. WILLIAMSON: That's correct, Senator.

SEN. SESSIONS: And with regard to homestead, it is an area of abuse in my view. And I believe that bankruptcy law is federal law. It's provided for in the U.S. Constitution, and bankruptcy courts are federal judges. Now I'm a states-righter, and sometimes Senator Biden has a fierce states-righter, but this is a federal law that's in federal court. But somewhere along the line I am certain having been here just four years that the Congress couldn't reach an agreement on what the homestead limitations ought to be so they punted it to the states, and they let the states decide what homestead limits would be. And some said, none.

And as a result, people have the capability of abusing the system. I don't think it violates states rights to do so, but our senators from Kansas and Texas and Florida and some other states, these laws override their laws, even their constitutions, and they are were the position to block the bill of it. So we made substantial progress in eliminating abuses. If somebody ran from Mobile to Pensacola, if they did it within two years, if they filed bankruptcy within two years they could not protect but $100,000 of equity in their home.

SEN. BIDEN: That's the big deal.

SEN. SESSIONS: Also, we provided that you could go back seven years if you could establish -- and it's not always impossible to establish an abusive scheme. You could go back seven years and set aside, take the equity except for $100,000.

SEN. BIDEN: Mr. Chairman, I wonder how many people planned two years ahead of time they're going to declare bankruptcy before they declare it, and that's why they buy the home. I mean, that's a lot of foresight. That's pretty good.

SEN. SESSIONS: But if they did it by calculation and deviousness and delayed it for two years, then you could still go back under the fraud exception. I think we made real progress in homestead.

I think the child benefits for children and alimony is clearly superior, and I believe that justice in America must hold that a person who's making an average income in America and can pay at least a part of his or her debts, they ought to pay them. And some say, well, we don't want to pay medical debts. Well, hospitals are people too. They serve people. They have needs. Why should somebody who is capable of paying a part of their hospital bill pay zero? Why should they? Other people work very hard to pay their hospital bills, and they sacrifice to maintain good insurance, and oftentimes it's an irresponsible person who wants to ride on the responsible person.

And I think bankruptcy at its core has the potential to be unfair to the responsible American citizen. That's who we most should affirm, the one who does right. And we do allow, however, historically and there will be no problem in this quarter, to maintain the right of a person in need who cannot pay his or her debt to wipe them out completely. That is not being changed. And the needs base issue is important for justice, basic morality and fairness. If a person can pay, they should pay.

SEN. BIDEN: Mr. Chairman, would you yield me 60 seconds?

SEN. SESSIONS: Yes.

SEN. BIDEN: I want to make two points. With regard to the safe harbor provisions in here, just to set the record straight, when it was called I didn't draft this bill. I wasn't -- this is not my subcommittee. I did not get involved in this. But when it was pointed out to me that over a year ago that there was concern about poor people being subject and women and children being at the end of the line, I asked for a meeting with some of the largest creditors out there, and I told them that I wouldn't support this legislation unless there was a safe harbor provision put in and women and children went to the head of the line expecting to be an argument. Immediately, not one single bit of opposition. Total, immediate support, zero opposition, none.

And one of them representing a large non-Delaware credit card company made the following comment. "We don't want to be put in the position where we're going after so little money for so high a public relations cost. We don't want any part of that."

So I just hope -- and people understand that piece. Second piece is, I want to make a point is, I was for states rights in Bush versus Gore, and I don't know what happened. But, thank you.

(Laughter.)

SEN. SESSIONS: Let me say this. Thank you all. It was an excellent discussion. As you can tell, we have discussed many of these issues before. They have been wrestled with. And sometime in the sausage-making process of laws being passed, certain compromises get made. And I must say finally that, Dr. Manning, on credit cards, that is really is a banking issue. What kind of regulations should be placed on a credit card company offering credit to a poor person is really I think not part of creating a federal court system for bankruptcy. And I think we should be cautious about what we do in that regard. And in fact, the chairman of the Banking Committee has asserted aggressively his belief that this is outside of our jurisdiction. So I think fundamentally concerns about credit cards should be made to that committee.

But I would not want to pass a law that made it more difficult for a poor person to able to get a credit card because if they don't have ready cash and they are on the margin and they have a flat tire and they can't fix their car or an immediate bill that they need to pay, credit cards are not evil things. They're great advantages in many circumstances for poor people.

All right. Thank you so much. We are adjourned.

END

LOAD-DATE: February 10, 2001

Document 4 of 18.


Search Terms: Abortion AND Bankruptcy Reform, House or Senate or Joint
To narrow your search, please enter a word or phrase: