LEXIS-NEXIS® Congressional Universe-Document

LEXIS-NEXIS® Congressional

March 17, 1999, Wednesday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 1277 words

HEADLINE: TESTIMONY March 17, 1999 THOMAS R. CARPER CHAIRMAN NATIONAL GOVERNORS' ASSOCIATION HOUSE JUDICIARY COMMERCIAL AND ADMINISTRATIVE LAW BANKRUPTCY REVISION

BODY:
Statement of Governor Thomas R. Carper Chairman, National Governors' Association before the Subcommittee on Commercial and Administrative Law House Judiciary Committee United States House of Representatives on Bankruptcy Reform on behalf of The National Governors' Association March 17, 1999 Mr. Chairman, thank you for inviting me to testify today on behalf of the National Governors' Association. I am currently the chairman of the National Governors' Association and the governor of Delaware. I know that you have already heard about the pressing need for bankruptcy reform from several witnesses during these hearings and many more during your deliberations on this issue last year, and I appreciate the opportunity to sham the governors' perspective on this important issue. The mason that you may have heard about the need for bankruptcy reform from so many different groups on so many different occasions is the sheer magnitude and the unique nature of this problem. The nation's economy has been incredibly vibrant during the past several years, enjoying one of the longest peace time expansions in the history of our country. But despite the economic health of our country, personal bankruptcy filings have exploded during that same time period. Almost 1.4 million personal bankruptcy petitions were filed last year, representing one out of every sixty-eight American households. This represents an increase of 95 percent since the beginning of this decade, when personal bankruptcy filings totaled slightly more than 700,000. Our economy has been setting the right kind of records in the 1990s in terms of real economic growth, low inflation, declining welfare rolls, and falling unemployment rates. However, during the same period, however, personal bankruptcy filings have repeatedly set the wrong kind of records, reaching new highs during each of the last three years. Our economy is enjoying overall health despite the disturbing rise in the number of bankruptcy filings and the costly burden they impose on the country, states, and hardworking American families. More than $40 billion in total debt is discharged yearly in bankruptcy proceedings, costing each U.S. household roughly $500, We need to fix the deficiencies in the existing bankruptcy system, or the high cost that bankruptcies exact may eventually play a contributing role in slowing our overall economic growth. At our recently concluded winter meeting, the National Governors' Association approved a policy to address these deficiencies. The nation's governors recognize the need to revise federal bankruptcy laws to curb the rapid increase in the number of filings and to stem abuses of the bankruptcy system. Specifically, - We support efforts to prevent the use of Chapter 7 filings by individuals with the ability to pay part or all of their debts. - We also strongly encourage you to ensure that any bankruptcy reform legislation provides the highest possible priority to domestic support obligations. - Additionally, state claims should be given parity of treatment with federal claims in bankruptcy proceedings. - Lastly, the right of states to establish their own exemptions under state bankruptcy law must be preserved. Prevent Abuse of Chapter 7 Bankruptcy Filling Chapter 7 bankruptcy provides a vital mechanism to ensure that debt-ridden individuals have a chance to gain a fresh start. However, Chapter 7 filings have also been increasingly abused by irresponsible consumers seeking to avoid paying their creditors the debts they legitimately owe. Individuals who are capable of repaying part or all of their debts should be required to file Chapter 13 instead of Chapter 7. Otherwise, creditors and responsible consumers who fulfill their moral obligation to pay their debts will continue to have to pay the bill for those who abuse the system, in the form of higher prices, higher borrowing costs, and reduced credit availability. Increase the Priority of Domestic Support Obligations Increasing the priority of domestic support obligations in bankruptcy proceedings is a critical issue for states and the intended recipients of these payments. Congress has given states the primary responsibility for ensuring that noncustodial parents pay child support and other domestic support obligations. States have simultaneously become increasingly responsible for the welfare costs that arise when these payments are not collected. Under the current system, bankruptcy proceedings substantially interfere, with states' ability to collect child support and assist the intended beneficiaries of these payments. Not only do the costs of state-operated welfare programs increase when states cannot collect child support, but more importantly our most vulnerable citizens suffer. Accordingly, the governors urge. you to ensure that any bankruptcy reform legislation requires that domestic support obligations have the highest possible repayment priority in bankruptcy proceedings. Treat State and Federal Claims Equally We also encourage you to address the current disparity in the treatment of federal and state claims in bankruptcy proceedings. Today, bankruptcy appropriately gives preferences in payment to federal claims against the bankruptcy estate, and equivalent treatment should be given to state claims. Additionally, bankruptcy proceedings make it unnecessarily difficult for states to assert valid claims. States frequently have difficulty obtaining notice of bankruptcy proceedings, adversely affecting their ability to participate in these proceedings and to collect unpaid taxes. Governors accordingly support efforts to treat state and federal claims equally and to provide better notification about bankruptcy proceedings to states. Protect the State Role: Preserve Homestead Exemptions Protecting the state role in bankruptcy proceedings is the WE issue I am going to talk about today, and it is very important to the nation's governors and the citizens of our states. We strongly oppose efforts to preempt state authority to determine exemptions under state bankruptcy law, In particular, states' rights to determine the standards for homestead exemptions must be preserved. Uniform federal regulations cannot possibly address the different needs and circumstances of individual states. Although imposing a uniform cap on the homestead exemption might have a minimal impact in some states, it would have terrible consequences in others. Retirees in Florida, for example, who bought their homes many years or even decades ago could be forced out of their homes, which may have double, quadrupled, or even increased ten-fold in value over the years. This would result in considerable turmoil and disruption to their lives at a time when they would already be increasingly vulnerable because of ongoing bankruptcy proceedings. Economic conditions, real estate markets, and other factors vary so widely from state to state that state authority to determine bankruptcy exemptions must clearly be preserved to prevent this kind of disturbing scenario. Thank you for giving me the opportunity to testify today, Mr. Chairman. The need for bankruptcy reform is clearly pressing. The magnitude of the problem is large enough now during strong economic times that it is discouraging to think how big the problem might become in a less robust economic environment. The nation's governors look forward to working with you this year on bankruptcy reform efforts to ensure that our nation has the strongest, most effective bankruptcy system possible to serve the needs of hard-working, responsible, and honest American families and individuals.

LOAD-DATE: March 19, 1999