LEXIS-NEXIS® Congressional Universe-Document

LEXIS-NEXIS® Congressional

March 16, 1999

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 1664 words

HEADLINE: TESTIMONY March 16, 1999 SHEILA JACKSON LEE REPRESENTATIVE HOUSE JUDICIARY COMMERCIAL AND ADMINISTRATIVE LAW BANKRUPTCY REVISION

BODY:
STATEMENT BY THE HONORABLE SHEILA JACKSON LEE BEFORE THE SUBCOMMITTEE ON COMMERICAL AND ADMINISTRATIVE LAW H.R. 833 -- THE BANKRUPTCY REFORM ACT OF 1999 TUESDAY, MARCH 16,1999 Thank you Chairman Gekas and Ranking Member Nadler for giving me this opportunity to come before this committee and express my concerns about HR. 833, the Bankruptcy Reform Act of 1999. During the 105th Congress, I served as a member of this distinguished committee and as a conferee on the Bankruptcy Reform Act of 1998. 1 come before you today, not as a Democrat but as an individual concerned about the potential impact this legislation will have on America's families - most importantly, children. I come not to divide the committee but asking for temperance and deliberateness in the development of legislation aimed at refori-ning the bankruptcy system. I am ' ded of time-tested adage, that "haste makes waste." Th's committee must exercise remin its authority to enact legislation in a cautious manner to do otherwise is improvident and irresponsible. Individuals with the financial ability to pay their financial obligations should be required to pay. Certainly, no one is suggesting that the bankruptcy code should provide a shield for individuals interested in defrauding creditors. Unfortunately, H.R. 833 and its draconian provisions will create a modem day debtor's prison through the use of reaffin-nation agreements. Simply put, honest debtors will be coerced into signing away future earnings in an attempt to satisfy previous debt obligations. Proponents of H.R. 833 claimed that the bill's intent is to restore personal responsibility. However, one of the bill's thrusts is actually about the redirection of the money of bankruptcy filers, particularly Chapter 7 filers, to banks, credit card companies and other credit lending institutions by making Chapter 13 almost mandatory. The facts are that over 60% of all bankruptcy filers were unemployed at sometime within the two-year period prior to their filing. But instead of helping people, HA 833 redirects a significant portion of debtors income to banks and credit companies, and in turn, hurt a lot of women and children who are dependent on child and spousal support. It is ironic that the consumer lending industry actively solicits unsuspecting consumers through the mail with terms of easy credit, buy now - pay later jargon. And then after addicting debtors to this "financial crack" lenders are advocating for refori-n. Of course, debtors are responsible for financial obligations that they incur; however, lenders must assume responsibility for their actions in creating the precarious financial crisis we are discussing. Several commentators have suggested that consumer lenders have begun to relax their underwriting guidelines to increase market share because of the profitability of credit cards. Bankruptcy Reform must call for responsibility from everyone with an interest at stake. Congress must end the "financial entr4pine " of debtors who lack financial sophistication. I am for bankruptcy legislation that s fair - legislation that recognizes the importance of a debtor's financial obligation to his family while balancing the debtor's obligations to his creditors. Debt relief must be available for debtors whose debts exceed their ability to repay their financial obligations. In 1997, the average bankruptcy filer had a debt to income ratio of 1.25 to 1 (125% of their income) as opposed to just .74 to 1 (74% of their income) a few short years ago. According to Bankruptcy Law Professor Elizabeth Warren of the Harvard Law School, the debtors that enter bankruptcy are usually experiencing turbulent times. 60% of bankruptcy filers have been unemployed within a two year span prior to their filing. 20% of filers have had to cope within an uninsurable medical expense. Approximately 1.5individuals out of every three bankruptcy filers, are recently divorced. We must protect women and children. According to the Consumer Bankruptcy Project, an estimated 300,000 bankruptcy cases involved child support and alimony orders. In Chapter 7 alimony and child support payments survive; consequently, women and children are benefited when the debtor can discharge other financial obligations in order to make payments on non- dischargeable debts. H.R. 833, creates a broader category of non-dischargeable debt; thus, lowering the potential for women and children to receive necessary support payments for their existence. Mr. Chair-man, woman and children would be in direct competition for the limited resources of the discharged debtor. We must protect women and children. Imagine women and children standing in line with credit card issuers, retail stores, installment stores and other unsecured creditors waiting for alimony and child support payments from a post-discharged debtor. H.R. 833- places women and children on equal footing with other creditors. Women and children do not have the ability to charge an interest of 23% or request late fees from a debtor but credit card companies and other unsecured creditors can and do. This bill is a catastrophic threat to our families who rely on support payments. The "means test" is an artificial formula that has its genesis in a discretionary living expenses equation as determined by the Internal Revenue Service collection standards. This mathematical formula will ignore in many cases or understate the real expenses, financial and personal circumstances of the debtor. H.R. 833 is unacceptable because it will force bankruptcy filers into Chapter 13 pursuant to an arbitrary and capricious formula that is harsh and extreme. The damage of trying to accomplish this goal through a "means test" might be irreparable. The National Bankruptcy Review Commission rejected the means test formula. Simply stated, the "means test" is a mean test because it will hurt women, children and honest debtors who are looking for a fresh start. If we deny access to Chapter 7 to the wrong debtors, and those debtors fail to complete required repayment plans, they will return to Chapter 7 with a diminished capacity to repay their non-dischargeable debt--including child support and alimony. The 6 4means test" advocates a cookie-cutter mentality to an individualized problem. Bankruptcy legislation must take into account the specific needs of the debtor, his financial obligations and the ability to repay financial obligations. Bankruptcy courts must have the plenary authority to consider the specific circumstances of the debtors that come under their jurisdiction. Congress must provide adequate safeguards to prevent debtors from being pushed into" Chapter 13 - because the bright-line test has been satisfied without a thoroughly reviewing the individual's ability to pay. H.R. 833 - would severely restrict the availability of debtors to seek protection utilizing State exemption laws. Texas law provides debtors with unlimited homestead exemption protection. H.R. 833 - fails to protect the interest of women and children! This draconian bill subrogates the alimony of former spouses and child support payments to the debtor's unsecured debt interest. Bankruptcy reform must ensure that a debtor's domestic obligations have the highest priority. Unfortunately, H.R. 833 - falls short of protecting America's most vulnerable citizens - women and children. It is essential that bankruptcy reform protect post- bankruptcy domestic support payments. Forced participation by a debtor in a plan requiring contributions from future income sources has little probability for success. It is critical that we have additional time to consider the long-terin consequences of bankruptcy reforin. This committee can not offer legislation that is a mirror image of last year's conference report. Bankruptcy legislation must protect the rights of families, as well as guarantee a fresh start for honest debtors. The days of debtors' prison have faded into America's history but there appears to be a movement afoot to attach financial obligations to a debtor for an indefinite period of time regardless of the ability to pay. H.R. 833 would force a debtor to carry his debt responsibility as an eternal albatross. The President, I IO federal bankruptcy judges and a coalition of bankruptcy law professors opposed this approach to bankruptcy reforrii. We must protect women and children. I have reservations about creating nondischargeable debts that could set in opposition post- bankruptcy, credit card debt against child support, alimony payments, educational loans, and taxes. We must protect women and children. Although, H.R. 833 suggests that alimony and child support payments are priority obligations, women and children are in competition with secured creditors for the debtor's financial resources. We must protect women and children. H.R. 833 creates a hierarchy system the gives secured creditors the highest priority while familiar obligations are secondary interests to be paid - after secured creditors. The greatest challenge before us in the bankruptcy reform efforts of the 106th Congress is solving the widely recognized inadequacies of the law in the area of consumer bankruptcy. As it has always been in the Congress, the key to this process, is, of course, successfully balancing the priorities of creditors, who desire a general reduction in the amount of debtor filing fraud, and debtors, who desire fair and simple access to bankruptcy protections when they need them. I also want to thank Congressman Jerrold Nadler, the distinguished gentleman from New York and the Ranking Member on the Subcommittee on Commercial and Administrative Law. He has been a leader and a strong advocate these past two years for the consumer. He has been in the forefront of the discussion to insure that women and children are not locked out, that debtors receive equal and balanced treatment, and that there is true bankruptcy reform. Thank you.

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