DISSENTING VIEWS

Although we could support a responsible and balanced bankruptcy reform effort that remedies debtor and creditor abuses in a balanced manner, we believe the legislation the Committee reported is far too extreme. Indeed, the bill is so one-sided and anti-consumer that its central element - the use of IRS expense standards to determine eligibility for bankruptcy - is opposed strongly by such conservative Republicans as Chairman Hyde (R-IL) and Rep. Bachus (R-AL).

H.R. 833 is an omnibus bankruptcy bill that includes titles concerning consumer bankruptcy, business bankruptcy, municipal bankruptcy, tax, and bankruptcy administration. Although some of the bill's titles and provisions are non-controversial and stem from recommendations of the congressionally-created National Bankruptcy Review Commission (which completed its two-year review of the bankruptcy laws in October 1997), the titles relating to consumer and business bankruptcies and tax matters constitute a significant departure from historical bankruptcy procedures and would harm low- and middle-income Americans, single mothers and children dependent upon domestic support, minorities, seniors, and small businesses.

In its present form, the legislation is strongly opposed by the Administration, and surely will be vetoed.⁽¹⁾ Moreover, a number of groups oppose, or have expressed serious concerns with, H.R. 833, including:

(1) Executive branch departments (such as the Justice Department);⁽²⁾

(2) groups concerned about the rights of workers (such as the AFL-CIO; the American Federation of State, County, and Municipal Employees ("AFSCME"); the United Auto Workers ("UAW"); and the Union of Needletrades, Industrial and Textile Employees ("UNITE"));⁽³⁾

(3) groups of non-partisan bankruptcy lawyers, judges, and academics (such as the National Bankruptcy Conference ("NBC"), the American Bankruptcy Institute ("ABI"), the National Conference of Bankruptcy Judges ("NCBJ"), the National Association of Chapter 13 Trustees ("NACTT"), the National Association of Bankruptcy Trustees ("NABT"), the Commercial Law League of America, the American College of Bankruptcy, and the National Association of Consumer Bankruptcy Attorneys ("NACBA"));⁽⁴⁾

(4) groups concerned about the rights of women, children, and victims of crimes and torts (such as the National Women's Law Center, the National Partnership for Women and Families, the National Organization for Women ("NOW"), the Association for Children for Enforcement of Support ("ACES"), the California Women's Law Center, Mothers Against Drunk Driving ("MADD"), the National Organization for Victim Assistance ("NOVA"), and the National Victim Center);⁽⁵⁾ and

(5) consumer and civil rights organizations (such as the Leadership Conference on Civil Rights ("LCCR"), National Consumer Law Center, Consumers Union, the Consumer Federation of America, U.S. Public Interest Research Group ("U.S. PIRG"), Public Citizen, the Alliance for Justice, and the National Council of Senior Citizens).⁽⁶⁾

In certain respects, H.R. 833 is, relative to last Congress's Conference Report, even more anti-consumer, and the justifications for its provisions even weaker. For example, the means test in the bill does not allow a debtor to count as expenses the expenses of a legally-separated spouse receiving support for the debtor, even if that spouse is a dependent of the debtor.⁽⁷⁾ Also, the bill imports into chapter 13 the rigid Internal Revenue Service Collection Standards,⁽⁸⁾ which chapter 13 trustees have said would be a disaster for the administration of voluntary chapter 13 cases.

Moreover, new information has become available since the vote on the Conference Report that contradicts the basic premises of the bill. The nonpartisan American Bankruptcy Institute, which includes many creditors and attorneys for creditors, released a study showing that, while the credit industry estimates it could recover $4 billion under the rigid standards of the means test, at most $450 million might be recovered.⁽⁹⁾ The Executive Office of United States Trustees in the Justice Department conducted a study that reached similar results, estimating that passage of the Conference Report probably would have netted creditors no more than 3% of the $400 per household they claim to be losing. This calls into question the hundreds of millions of dollars in bureaucratic expenses the means test would require of both government and private citizens. Finally, Sears Roebuck has pleaded guilty to criminal charges in connection with its illegal reaffirmation practices;⁽¹⁰⁾ making the anti-class action provisions of this bill, which would deprive consumers of the most effective remedy they have against abusive creditors like Sears, even less defensible.

Section I of the Dissenting Views points out the general concerns we have with the bill. Section II describes concerns with the consumer provisions, including, most notably, the means test. Section III discusses flaws in the small business and single-asset real estate provisions, and Section IV turns to the tax sections of H.R. 833. The following is a table of contents summarizing our views:

I. GENERAL CONCERNS

A. The Process has Been Hurried and Partisan

B. The Quantitative Evidence Does not Justify Radical Changes in Bankruptcy Law

II. THE CONSUMER PROVISIONS ARE ARBITRARY AND COSTLY AND WILL HARM VULNERABLE SEGMENTS OF SOCIETY

A. Current Law and Proposed Changes

1. Means Testing

2. Exceptions to Discharge & Loan Bifurcations

3. Domestic Support

4. Other Anti-Debtor Provisions

B. Principal Problems with Proposed Changes

1. Means Testing is Arbitrary and Unworkable in Practice

2. Means Testing Will be Costly and Bureaucratic

a. Costs to Private Parties

b. Costs to the Federal Government

3. Means Testing and the Other Consumer Provisions Will Harm Low- and Middle-Income People

a. Concerns Regarding the Means Test

b. Other Concerns

4. The Consumer Provisions Will Have a Significant, Adverse Impact on Women, Children, Minorities, and Seniors, as well as Victims of Crimes and Severe Torts

a. Women and Children

b. Minorities, Seniors, and Victims of Crimes and Severe Torts

5. The Bill Does not Address Abuses of the Bankruptcy System by Creditors

III. SMALL BUSINESS AND SINGLE-ASSET REAL ESTATE PROVISIONS

A. Small Business Provisions

B. Single-Asset Real Estate Provisions

C. Other Business Concerns

IV. TAX PROVISIONS

V. CONCLUSION

I. GENERAL CONCERNS

A. The Process has Been Hurried and Partisan

Up until last year, Congress consistently has addressed bankruptcy legislation in a deliberate and bipartisan manner. The last major overhaul of the bankruptcy laws - the 1978 Bankruptcy Code - was enacted a full five years and scores of hearings after the 1973 Bankruptcy Commission issued its report.⁽¹¹⁾ In addition, the House developed in close bipartisan cooperation and approved, on a consensus basis - typically on the suspension calendar - all of the recent bankruptcy law changes (enacted in 1978, 1984, and 1994). Such careful deliberation is important given the wide-ranging impact of the bankruptcy laws and the fact that more Americans come into contact with the bankruptcy courts - whether as debtors or as creditors - than all other Federal courts combined.

Unfortunately, the Committee abandoned this historic approach with respect to H.R. 833 and elected a rushed and partisan process. For H.R. 833, the Majority began four days of Subcommittee hearings on March 11, 1999, the day the Committee referred the bill to the Subcommittee,⁽¹²⁾ with three of the hearings taking place in the same week.⁽¹³⁾ The two-day Subcommittee markup of the bill started on March 24, 1999 - the week immediately following the fourth hearing. Moreover, the Majority delivered to the Minority a copy of Chairman Gekas's substitute amendment at approximately 11:00 P.M. the night before the Subcommittee markup - barely fifteen hours before debate on the bill was to begin.

In its further rush to judgment, the Majority has scheduled the bill to go through the Rules Committee and to the floor less than one week after leaving the Committee. This effectively cuts off the Banking Committee, which has joint jurisdiction over portions of H.R. 833, from proper consideration of the bill; as a result, the House is being deprived of that Committee's expertise on issues relating to credit card abuse and disclosure of credit card terms. Furthermore, this constrained process is hardly sufficient time to make technical and conforming amendments and prepare a report and dissenting views to this more than 300-page legislation, let alone allow Members outside the Committee to understand the legislation's implications. This abbreviated period also will deny the House the benefit of any CBO cost estimate or estimate of the costs of unfunded mandates in this legislation.

B. The Quantitative Evidence Does not Justify Radical Changes in Bankruptcy Law

One of the major reasons accounting for the differing views regarding H.R. 833 relates to differing understandings of the quantitative evidence of the causes, costs, and effects of bankruptcy. H.R. 833's proponents point to (1) the fact that the United States is experiencing a record number of bankruptcy filings (1.4 million filings during the most recent calendar year),⁽¹⁴⁾ and (2) credit industry-funded studies by Professor Michael Staten of Georgetown University's Credit Research Center,⁽¹⁵⁾ Ernst & Young,⁽¹⁶⁾ and the WEFA⁽¹⁷⁾ group that purport to demonstrate that the bankruptcy laws allow many relatively high income individuals to avoid debts they could otherwise pay and that this avoidance imposes substantial costs on the economy. Proponents of bankruptcy "reform," in general, and H.R. 833, in particular, point to the "easy" availability of filing for bankruptcy and the declining stigma associated with doing so to explain the increase in filings.⁽¹⁸⁾

Despite the earlier trend in higher numbers of bankruptcy filings, the vast weight of studies have contradicted the proponents' rationales and have shown that the increasing filing rate is a symptom, not a root cause, of financial difficulties. Analysts with the Congressional Budget Office,⁽¹⁹⁾ the General Accounting Office,⁽²⁰⁾ and the Federal Deposit Insurance Corporation all have called into question the conclusions of those studies. These critiques focus on a number of grounds, including numerous flaws in the analysis and the assumptions underlying the studies. Moreover, other analyses indicate that the rise in bankruptcies is more properly attributable to a number of changes unrelated to the bankruptcy laws, such as unexpected medical costs, family crises like divorce, loss of high paying full time jobs, and most notably, the deregulation of credit card interest rates and the dramatic increase in credit card solicitations and overall consumer debt.⁽²¹⁾ Even a credit card industry official found that "[t]he majority of bankruptcies in [its] file are on customers who have been on the books for more than three years and have had some significant change in their financial condition."⁽²²⁾ It also has been shown that the average income of persons filing for bankruptcy has declined from the 1980's, further contradicting assertions of widespread abuse by high-income individuals.⁽²³⁾

The most recent study, however, is the most telling. The non-partisan American Bankruptcy Institute commissioned Professors Marianne B. Culhane and Michaela M. White of the Creighton University School of Law to conduct a study independent of the credit industry.⁽²⁴⁾ Professors Culhane and White used for their study a database of chapter 7 cases; the National Conference of Bankruptcy Judges funded the compilation of the database. The study estimated that 3.6% of the debtors in their sample had sufficient income, after deducting allowable living expenses, to pay all of their non-housing secured debts, all of their unsecured priority debts, and at least 20% of their unsecured nonpriority debts. Moreover, in making their calculations, Professors Culhane and White assumed that 100% of the debtors in chapter 13 would complete a five-year repayment plan even though more than 60% of voluntary chapter 13 plans currently do not complete. These figures are significantly lower than those of the Credit Research Center and VISA - two entities that had financial stakes in their own bankruptcy studies - and show that the credit industry may have overstated the "problem" by as much as 500%.

Finally, we have never received any evidence that the credit card industry likely would pass on any of the "savings" from bankruptcy law changes to individual debtors. Instead the evidence shows that credit card companies, which represent by far the most profitable sector of the commercial banking business,⁽²⁵⁾ tend to maintain high interest rates, even when their own cost of credit declines.⁽²⁶⁾ The lack of competition in this industry has caught even the Justice Department's attention, which has brought an antitrust suit against VISA and MasterCard in the Southern District of New York.⁽²⁷⁾

II. THE CONSUMER PROVISIONS ARE ARBITRARY AND COSTLY AND WILL HARM VULNERABLE SEGMENTS OF SOCIETY

A. Current Law and Proposed Changes

Under current law, individuals facing financial difficulty may seek a variety of forms of relief under the bankruptcy laws, with chapter 7 (liquidation) being by far the most common form of relief sought. Under this chapter, debtors are required to forfeit all of their property other than their "exempt" assets (i.e., deemed necessary for the debtor's maintenance, as determined under federal or state law, at the state's option) in exchange for receiving a discharge of their unsecured debts. Creditors are entitled to receive any net proceeds from the sale of the debtor's nonexempt property, subject to the statutory priority schedule.⁽²⁸⁾ The Bankruptcy Code does not permit the discharge of certain debts whose payments are considered to be important to society. Some of this debt is of the same nature as priority debt (e.g., family support obligations and taxes), but the law also excepts from discharge debts incurred through the debtor's misconduct, such as debts arising from fraud and intentional injuries.⁽²⁹⁾

While there are no specific financial criteria for determining who seeks chapter 7 relief, § 707(b) of the Bankruptcy Code grants the court the discretion to deny relief where the filing is found to be a "substantial abuse."⁽³⁰⁾ Under § 707(b), however, there is a presumption in favor of granting relief to the debtor. This stems in part from the costs and potential hardships associated with developing specific criteria for chapter 7 eligibility, the belief that all honest, hard-working individuals are entitled to a "fresh start," and the importance of encouraging risk-taking and entrepreneurship, and avoiding situations where it is impossible for individuals to escape aggressive creditor collection tactics.⁽³¹⁾ Section 707(b) is not the only provision in the Bankruptcy Code that prevents individuals from misusing chapter 7. For example, creditors may request that certain debts be held nondischargeable under § 523(a) or that the debtor be denied a discharge altogether under § 727.

A separate bankruptcy alternative available to individual debtors is chapter 13, which was formerly known as a wage earner's plan.⁽³²⁾ Under chapter 13, a debtor is permitted to retain his or her property, but is required to pay to creditors over a 3-5 year period out of future income at least as much as the creditors would have received under a chapter 7 liquidation, and is also required to pay all priority debts in full. To accomplish this, the debtor must propose a plan, administered by a trustee, that pays creditors in full or that devotes the debtor's "disposable income" after accounting for necessary support of the debtor, his or her family, or a business. In order to encourage the use of chapter 13 plans, which are currently voluntary to the debtor, Congress determined that persons who meet their chapter 13 obligations are entitled to a broader discharge of their unpaid debts than is available under chapter 7. This "superdischarge" results in the discharge of several types of debt that chapter 7 does not discharge. In addition, debtors are permitted to retain property whether or not the property is encumbered by liens and the debtor committed a prepetition default, so long as the chapter 13 plan cures any arrearages. In this manner, debtors can use chapter 13 to save their homes from foreclosure. In addition, in chapter 13 a debtor is permitted to bifurcate a loan on personal property, such as an automobile, into secured and unsecured portions based on its present value, and treat only the secured portion as a priority debt.⁽³³⁾ Also, chapter 13 plans can provide for the payment of priority debts, such as taxes and family support obligations, before payment on general unsecured debts.

H.R. 833 would institute a number of major changes to consumer bankruptcy, in general, and chapter 7 and 13, in particular, that may reduce the number of bankruptcy filings (but will not reduce the number of cases of financial hardship) and that are designed to increase pay-outs to non-priority unsecured creditors, particularly credit card companies.

1. Means Testing

The most far-reaching change, set forth in section 102 of the bill, would institute a so-called "means testing" approach to consumer bankruptcy. This new standard would create a presumption of abuse of the bankruptcy system and deny chapter 7 relief to debtors who fail a "means test." The means test applies to debtors with income above their regional median income levels who are able to pay out $6,000 to their unsecured non-priority creditors over 60 months (instead of 36 months),⁽³⁴⁾ after allowing for deductions for pro-rated portions of their secured and priority debts and projected living expenses, based on Internal Revenue Service collection standards, and other administrative expenses, reasonable attorneys' fees, and private elementary or secondary education costs not exceeding $10,000 per year.⁽³⁵⁾ Debtors fitting this profile would be forced to utilize chapter 13 or the expensive chapter 11 of the Bankruptcy Code if they wished to obtain bankruptcy relief and would be subject to mandatory repayment plans incorporating the same means test.⁽³⁶⁾

The only way a debtor can rebut the presumption of abuse under the means test is to show that "extraordinary circumstances that require additional expenses or adjustment of current monthly total income."⁽³⁷⁾ The debtor must swear to the extraordinary circumstances statement, which includes detailed itemizations and explanations. To be successful in this rebuttal, a debtor must show that extraordinary expenses reduce the debtor's monthly income under the proposed formula to an extent that renders the debtor unable to pay $6,000 over 5 years.⁽³⁸⁾ The bill further mandates that private trustees file and litigate a motion to convert a case to chapter 13 in any case where the debtor has income greater than the debtor's regional household semiannual income for a family of equal or lesser size, regardless of any other extenuating circumstances.⁽³⁹⁾

Even if a debtor is not barred from chapter 7 by virtue of having sufficient debts or expenses such that he or she cannot meet the means testing payment requirements, H.R. 833 provides another, independent ground for dismissal for debtors earning income above the regional median income. Under the bill, a court can dismiss or convert a case based upon (1) whether the debtor filed for chapter 7 in bad faith or (2) the "totality of the circumstances" (including whether the debtor sought to reject a personal service contract) indicates that "the debtor's financial situation demonstrates abuse."⁽⁴⁰⁾ Unlike current law, the bill requires that the court consider these factors when determining whether to dismiss or convert a case.⁽⁴¹⁾ To implement this test, motions to dismiss or convert may be brought by creditors, rather than only the court or the U.S. Trustee (as under current law).⁽⁴²⁾ The court may award a debtor reasonable costs and attorneys' fees if a creditor's motion was not "substantially justified" or if the creditor brought the motion solely for the purpose of coercing the debtor to waive a right guaranteed under the Bankruptcy Code.⁽⁴³⁾

The bill also converts chapter 13 into a mandatory approach based upon IRS expense standards rather than a flexible approach based upon disposable income. Accordingly, under section 130 of the bill, debtors would be required to dedicate all of their available income to unsecured debt, again after allowing deductions for secured and priority debts and living expenses per the means test and its IRS collection standards, even if the debtor's actual expenses are reasonable but exceed the IRS permitted, but arbitrarily-created, expenses.⁽⁴⁴⁾ Section 130 of the bill also varies from current law by failing to allow the debtor to make up arrears on secured debts and leases. Although the provisions clarifying the means test allow for adjustments for "extraordinary circumstances that require additional expenses or adjustments of current monthly total income," this requires the debtor to file a motion with the court, which may be challenged by the trustee or any creditor, with the burden of proof lying with the debtor.⁽⁴⁵⁾

The bill also goes on to calculate the means test using expenses over 5 years rather than 3 years. That guarantees that, if the means test pushes a debtor into chapter 13, the repayment capacity assumptions would force the debtor into a five-year repayment plan. Although the bill does say debtors will not be forced into a five-year plan unless they are above the median income, once in chapter 13 based upon assumptions drawn from a five-year calculation, debtors will have little choice but to follow a five-year plan. This legislation also eliminates the broader discharge requirements currently applicable to chapter 13, eliminating any inducement for voluntary debtor participation in chapter 13.⁽⁴⁶⁾

2. Exceptions to Discharge & Loan Bifurcations

H.R. 833 would make two significant additions to the types of debts that a debtor may not discharge under chapters 7 or 13 and proscribe a debtor's ability to bifurcate a loan into secured and unsecured portions based upon the value of the collateral. Section 133 grants nondischargeable status to debts of $250 in the aggregate (as opposed to $1,075 under current law) or more owed to a single creditor for cash advances or luxury goods or services incurred within 90 days prior to the bankruptcy filing (as opposed to 60 days under current law).⁽⁴⁷⁾ Section 143 adds another exception to discharge when the "debtor incurred the debt to pay such a nondischargeable debt with the intent to discharge in bankruptcy the newly-created debt."⁽⁴⁸⁾ Moreover, regardless of the debtor's intent, any debts incurred within 90 days to pay nondischargeable debts would be nondischargeable.⁽⁴⁹⁾

The legislation would also largely eliminate the possibility of loan bifurcations in chapter 13 cases. As noted above, under current law a debtor is permitted to bifurcate a loan between the secured and unsecured portions, and to treat only the secured portion as a priority debt. Section 122 of the legislation prevents such bifurcations (including with regard to interest and penalty provisions) with respect to any personal property acquired within 5 years of the bankruptcy.

3. Domestic Support

Sections 138-144 of the bill make a number of changes to current law purportedly intended to enhance the status of child support and alimony payments in bankruptcy. These changes are presumably being made in an effort to offset the considerable criticism the legislation has received from child and spouse support advocates.

Section 138 creates a new definition of "domestic support obligation."⁽⁵⁰⁾ In addition to applying to debts owed on account of child support and alimony, which are largely covered by current law, the new definition includes alimony and child support debts owed or recoverable to a governmental unit.⁽⁵¹⁾ This definition is in turn relevant to new sections of the bankruptcy code that give certain enhanced rights to the holders of domestic support obligations in terms of priorities, payments, automatic stay, preferences, and foreclosure.⁽⁵²⁾

In particular, section 139 grants alimony and child care creditors a first priority in bankruptcy (they are currently seventh, although most of the higher priority debts are seen rarely in consumer bankruptcy cases).⁽⁵³⁾ Section 140 prevents the confirmation of a reorganization plan unless the debtor has paid all domestic support obligations.⁽⁵⁴⁾ Section 141 provides that the automatic stay does not prevent legal actions enforcing wage orders for domestic support obligations and similar actions.⁽⁵⁵⁾ Section 142 makes nondischargeable all domestic support obligations, including obligations owed to government support agencies.⁽⁵⁶⁾ Section 143 permits nondischargeable domestic support obligations to be collected from property - notwithstanding state laws making that property exempt from collection or attachment - after bankruptcy.⁽⁵⁷⁾ Lastly, section 144 makes clear that a transfer that was a bona fide payment for a domestic support obligation will not be considered a fraudulent prepetition transfer.⁽⁵⁸⁾

Finally, a few provisions concerning domestic support were added at the initiative of Democratic Members. Section 149 of the bill, added by an amendment of Representative Jackson Lee (D-TX), requires chapter 7 and chapter 13 trustees to send written notice to recipients of alimony and child support payments, and to the local and state child support agencies, notifying them that a debtor of such payments has filed for bankruptcy.⁽⁵⁹⁾ An amendment offered by Representative Nadler (D-NY), provisions of which were struck at markup by Representative Gekas (R-PA) creates exceptions to the automatic stay for: (1) wage garnishment to satisfy family claims for current payments and arrears, and for post-petition debts to the government,⁽⁶⁰⁾ and (2) child custody and visitation proceedings, proceedings to dissolve a marriage (except to the extent it involves property of the estate), and proceedings alleging domestic violence.⁽⁶¹⁾

4. Other Anti-Debtor Provisions

The legislation makes a host of additional changes to the consumer provisions of the bankruptcy laws. The majority of the provisions are designed to increase creditor pay outs and would greatly harm low- and middle-class debtors. As Harvard Law Professor Elizabeth Warren writes, the bill "has more than 120 pages of amendments affecting consumer cases, and they all head in the same direction: They give a few creditor interests more opportunities to try to recover from their debtors while they reduce the protection for other creditors and debtors."⁽⁶²⁾ Chairman Hyde himself noted that the bill contains at least 25 provisions detrimental to debtors and favorable to creditors. Among other things, the bill extends the period permitted between chapter 7 filings from six years (under current law) to eight years;⁽⁶³⁾ expands the ability of residential landlords to evict tenants without seeking permission from the court;⁽⁶⁴⁾ eliminates the right of debtors to bring class action lawsuits and seek punitive damages against creditors for abusive reaffirmation agreements;⁽⁶⁵⁾ requires debtors to make "adequate protection payments," or double payments, to retain property obtained on secured credit.⁽⁶⁶⁾

B. Principal Problems with Proposed Changes

1. H.R. 833's Means Testing is Arbitrary and Unworkable in Practice

The National Bankruptcy Review Commission's majority specifically rejected the so-called "means testing" approach,⁽⁶⁷⁾ observing:

The credit industry has sought means testing consistently for at least 30 years, but Congress has consistently refused to change the basic structure of the consumer bankruptcy laws. . . . Access to chapter 7 and to chapter 13, the central feature of the consumer bankruptcy system for nearly 60 years, should be preserved.⁽⁶⁸⁾

The 1973 Commission on Bankruptcy Laws similarly considered and rejected industry calls for mandatory chapter 13's, noting that Congress had itself rejected similar proposals in 1967, and observed:

[B]usiness debtors are not subject to any limitation on the availability of straight bankruptcy relief, including discharge from debts, and it was pointed out that, quite apart from bankruptcy, business debtors are able to incorporate and to limit their liability to their investments in corporate assets. To force unwilling wage earners to devote their future earnings to payment of past debts smacked to some of debt peonage, particularly when business debtors could not be subjected to the same kind of regimen under the Bankruptcy Act. . . . The Commission concluded that forced participation by a debtor in a plan requiring contributions out of future income has so little prospect for success that it should not be adopted as a feature of the bankruptcy system.⁽⁶⁹⁾

The principal problem with the means that is that the rigid one-size-fits-all test used in determining eligibility for chapter 7 and the operation of chapter 13 will often operate in an arbitrary fashion. Many of these flaws were highlighted by Chairman Hyde when he unsuccessfully sought to delete the use of the rigid IRS standards and instead substitute a more fact specific test based on the court's assessment of the facts and circumstances.⁽⁷⁰⁾ First, the bill relies upon IRS collection standards, which lay out no comprehensive or specific standards for the deduction of living expenses. Unless it is clear which of these expenses can be deducted from monthly income, it will be very difficult to determine if the individuals that are being denied access to chapter 7 actually would be able to meet their payment obligations in chapter 13. Part of the problem arises from the fact that the IRS standards referenced by the bill are not automatic in many cases. Although the IRS does set forth national standards for some expenses, such as food and clothing,⁽⁷¹⁾ and local standards for expenses such as housing and transportation,⁽⁷²⁾ it leaves the determination of "other necessary expenses" to the discretion of the relevant IRS employee.⁽⁷³⁾ This means that the bill fails to provide specific guidance concerning the appropriateness of deducting part or all of the funds a debtor may expend for items such as health care (both medical expenses and health insurance), taxes, and accounting and legal fees, among other items. Even more dangerously, the IRS collection standards specify that it is generally inappropriate to allow expense allowances for such important items as school tuition,⁽⁷⁴⁾ and generally discourage payment for expenses relating to care for the elderly, invalid, or handicapped.⁽⁷⁵⁾ As a result, the means test will have the effect of requiring the payment of unsecured debt before allowing for payment of certain necessities such as health care.

Moreover, where the IRS has specific local expense standards, those standards do not provide adequately for normal expenses. For example, the permitted automobile expense in the San Francisco Bay area for two cars is only $373 per month, even though most families could barely cover the cost of automobile insurance, let alone car payments, gasoline, tolls, and insurance under this amount.⁽⁷⁶⁾ Ironically, Congress itself has recognized the inadequacy of such collection standards. The Internal Revenue Service Restructuring and Reform Act of 1998 directs the IRS to "determine, on the basis of the facts and circumstances of each taxpayer, whether the use of the schedules . . . is appropriate" and to ensure that they not be used "to result in the taxpayer not having adequate means to provide for basic living expenses."⁽⁷⁷⁾ However, neither that law nor H.R. 833 grants this safeguard in the bankruptcy context.

The seemingly arbitrary allowances for such expenses points to another problem with the means test under H.R. 833 - its bias against debtors without secured debts. This is because the bill allows all secured debt payments to be deducted from monthly income, but limits rental and lease payments to the amount permitted by the IRS standards. This means that persons renting apartments and leasing cars may not be able to deduct the full amount of their housing and transportation costs in bankruptcy, while persons with mortgages and automobile debt will be able to do so. There is no legitimate policy rationale for this discrepancy, which appears to punish personally-responsible individuals who tightened their belts and tried to live modestly within their means and nonetheless had to resort to bankruptcy.

Also, it is important to note that the IRS collection standards can change the manner in which the bankruptcy laws are applied. The collection standards serve as internal guidelines for the IRS; they are not regulations that are subject to the Administrative Procedures Act. As such, the IRS does not need to provide notice and comment when introducing new standards or when changing the existing ones. If the bankruptcy law was amended to incorporate the collection standards, as H.R. 833 proposes, and IRS were to change the collection standards in the future, the alteration in the standards would completely change how the Bankruptcy Code is applied. In effect, H.R. 833 would delegate authority to the IRS to change the Bankruptcy Code.

It is no answer to assert, as the legislation's proponents have done, that the "glitches" in the collection standards can be resolved through the bill's allowance for "extraordinary circumstances." Establishing that a particular expense is "extraordinary" is not simple or cost or risk-free. Extraordinary circumstances may be established only upon a debtor's motion to the court.⁽⁷⁸⁾ The motion must be heavily detailed and documented; the "debtor must itemize each additional expense or adjustment of income and provide documentation for such expenses or adjustment of income and a detailed explanation of the extraordinary circumstances which make such expenses or adjustment of income necessary and reasonable."⁽⁷⁹⁾ Moreover, the burden of proof lies with the debtor in establishing extraordinary circumstances, and, if the debtor's motion fails, he or she is subject to paying the creditor's fees and costs.⁽⁸⁰⁾ This risk provides a tremendous disincentive for debtors to claim extraordinary circumstances, let alone incur the legal costs the debtor himself is required to pay to bring the motion.

Finally, making chapter 13 the only avenue for bankruptcy relief for some individuals and imposing the bill's strict income and expense tests will undoubtedly result in an even smaller proportion of successful chapter 13 plans. It is also somewhat unrealistic to expect many chapter 13 cases to result in successful completion of repayment plans. The current completion rate is less than one-third,⁽⁸¹⁾ and this is at a time when chapter 13 is voluntary and the disposable income tests are less rigid than this bill's proposal.

2. Means Testing Will be Costly and Bureaucratic

The bill's attempt to impose rigid financial criteria on debtors' eligibility for chapter 7 and the operation of chapter 13 will impose substantial new costs on the bankruptcy system - both the portions paid for by private parties (through payment for private chapter 7 and chapter 13 trustees and higher attorneys' fees) and the federal government (through the bankruptcy courts and the U.S. Trustees Program).

a. Costs to Private Parties

Some of these costs would be borne by debtors through increased opportunities for creditor-initiated litigation by allowing (and, in some cases, mandating) trustees and creditors to bring motions for dismissal or conversion based on "bad faith" or the "totality of the circumstances," and new opportunities for creditors to challenge the dischargeability of certain consumer debts.⁽⁸²⁾

Additional costs on debtors will be manifested through the many provisions providing for fee shifting against the debtor and his lawyer if a chapter 7 case is dismissed or converted. This could place debtor's attorneys in the position of choosing between their clients' best interests and their own - a clear conflict of interest. The bill provides no similar provisions for fee-shifting with respect to creditor motions. While the bill does allow a court to award a debtor all reasonable costs, including reasonable attorneys' fees, if a creditor brings an unsuccessful and unjustified motion to dismiss or convert, the bill does not require creditors' attorneys to vouch for their clients' filings.

The CBO has also noted that "the direct costs to the private sector of complying with mandates in [the predecessor legislation] would exceed the [$100 million] statutory threshold in [the Unfunded Mandates Reform Act] in each of the first five years that the new mandates were effective. The lion's share of the costs would be imposed on private trustees who administer bankruptcy estates, providers of debt relief counseling services, and attorneys."⁽⁸³⁾ In particular, with regard to private trustees, the National Association of Bankruptcy Trustees has complained:

[U]nder the bill, trustees must (1) review the debtor's income and expenses prior to five days before the § 341 hearing, (2) file a 'certification' that the debtor is qualified to be a chapter 7 debtor at least five days before the § 341 hearing, (3) filed motions to dismiss under § 707(b) where the debtor's disposable income would yield [specified payments] to a chapter 13 trustee over a five-year plan. This is a great deal of work for trustees who only receive $60 in the typical chapter 7 case. In addition, the plight of the trustee is multiplied when, even if he is successful, he cannot count on any compensation.⁽⁸⁴⁾

b. Costs to the Federal Government

Increased administrative duties imposed on panel and standing trustees would also raise the overall cost of this legislation. Henry E. Hildebrand, Chair of the Legislative Committee of the National Association of Chapter Thirteen Trustees estimated that:

[i]f the investigation by a [chapter 7] trustee required about an hour and the preparation of the report required on half hour, then the time required would total about 1.5 million hours of time (assuming a bankruptcy filing rate of one million petitions filed in a year which would be a reduction of about 25%). If the value of that time were calculated at $150 per hour, the costs would be $225 million in time. . . . Assuming that one out of nine cases filing for chapter 7 relief would be contested and further assuming that the contest would require about two hours of pretrial preparation and one hour of court time, the litigation would require 276,000 additional hours, about 90,000 of which would occupy the court.⁽⁸⁵⁾

Another likely source of higher costs for the government is the requirement that one in every 250 cases be randomly audited, presumably at taxpayer expense under generally-accepted auditing standards.⁽⁸⁶⁾ There are approximately 1.4 million bankruptcy filings per year; an audit of one in every 250 would result in a total of 5,600 audits. In his testimony in the 105th Congress, Kevyn Orr of the Executive Office for U.S. Trustees, stated that each audit, conducted under generally-accepted auditing standards by Certified Public Accountants, would cost approximately $2,000.⁽⁸⁷⁾ At this rate, the total annual cost for auditing 5,600 filings would be $11.2 million. The Honorable William Houston Brown, a U.S. Bankruptcy Judge in the Western District of Tennessee, testified on behalf of the ABI that the audits required "are likely to be very expensive, and such formal audits are likely unnecessary to determine significant misstatements in debtors' petitions and schedules."⁽⁸⁸⁾

According to a CBO estimate of the costs to the government, means testing would require "between 15 and 30 additional bankruptcy judges . . . to meet the increased workload requirements that would be imposed on the courts. Costs for the salaries and benefits of judges would be between $2 million and $4 million annually, and costs for support personnel and other administrative expenses would be between $9 million and $12 million annually."⁽⁸⁹⁾ In the absence of creating new judgeships, the CBO estimated that the courts would suffer from a backlog of work because of the means-testing provisions.⁽⁹⁰⁾ An additional $5 million annually would be required by the U.S. Trustees for increased litigation.⁽⁹¹⁾ Overall, CBO estimates that to implement the means testing provisions, exclusive of the audit costs, "would most likely cost $16 million to $20 million annually."⁽⁹²⁾

In addition, provisions in the legislation mandating that all debtors file three years of tax returns with their bankruptcy petitions, even if no party in interest requests them,⁽⁹³⁾ would have required appropriations of $33 million over the next five years . . . to store and provide access to over 20 million tax returns."⁽⁹⁴⁾

Another concern is the many, many new opportunities for litigation and confusion created by the bill. Judge Randall Newsome testified on behalf of the National Conference of Bankruptcy Judges that at least 16 potential sources of litigation are contained in the means testing provisions alone, and that another 42 litigation points have been identified in the other consumer provisions, noting that "[t]his is probably only the tip of the iceberg."⁽⁹⁵⁾

3. Means Testing and the Other Consumer Provisions Will Harm Low- and Middle-Income People

a. Concerns Regarding the Means Test

It is incorrect to assume that the effect of H.R. 833's harmful provisions would be limited to individuals seeking bankruptcy relief who earn more than the regional median income. First, there are numerous, significant flaws in the manner in which median income is calculated. For example, the median income figure required under H.R. 833 will be outdated and understated. This is because the bill states that household income is to be based on the most recent Census Bureau figures available as of January 1. But as of January 1, the Census has information available for only the second year prior to the date. Accordingly, during this year, 1999, census figures are available for only 1997, not 1998. At times of inflation, this two-year lag could result in a significant increase in the number of individuals who are the subject of motions to dismiss or convert and who may earn more than the outdated median income figure being used. In addition, the starting point for the calculation of median income may be overstated.

Another flaw in the median income formula is that the test measures a debtor's income based upon how much the debtor earned in the six months prior to bankruptcy. If the debtor lost a good job in month three and has been working at a low-wage job ever since, the income from that good job, and help from family members, would be counted as if that is what his future income would be. The debtor would be expected to pay out of income that may no longer exist. Also, the means test will pickup a variety of revenue sources - such as Social Security Disability receipts, disaster assistance, and Veterans' benefits - which will result in lower- and middle-income individuals being cast as bankruptcy "abusers" with income above the median.

In addition, due to the fact that H.R. 833, unlike current law, will permit creditors and other parties-in-interest to bring motions to dismiss or convert, more aggressive and well-funded creditors will have extremely wide latitude to use such motions as a tool for making bankruptcy an expensive, protracted, and contentious process for honest debtors, their families, and other creditors. Creditors could use such motions as leverage to obtain reaffirmation agreements so that their unsecured debts survive bankruptcy.

Collectively, provisions forcing large number of individuals from chapter 7 into forced repayment plans under chapter 13 will have the effect of relegating large numbers of otherwise middle-income families into poverty level subsistence. This is because they will have no way of avoiding their crushing debt load, whether it was derived from a medical emergency or irresponsible credit card borrowing aggravated by high interest and penalty rates. Such individuals will actually be much worse off than other impoverished families because their nominal income is higher than the median income level and they cannot qualify for programs such as the earned income tax credit, school lunch programs, food stamps, or other subsistence provided to families with income below the poverty level.

Another problem with the new means test and its associated use of IRS expense standards in chapter 13 is that it will apply to low-income debtors with income far below the median income.⁽⁹⁶⁾ Previously, such individuals could have voluntarily elected chapter 13 over chapter 7 to attempt to catch up on their mortgages and save their homes; now, it is less likely this will occur. If the bill's authors chose to exempt such low-income individuals from the chapter 7 means test, its unclear why they would ensnare them in the chapter 13 means test.

b. Other Concerns

As noted above, the bill grants nondischargeable status to a wider range of cash advances and debts incurred for so-called luxury goods and debts incurred to pay a nondischargeable debt.⁽⁹⁷⁾ These new exceptions from discharge obviate many of the benefits that debtors may realize from filing for bankruptcy, under chapter 7 or 13 and increase the opportunity for creditor abuse. The provisions are opposed by the White House also, which has written that it is "generally inappropriate to make post-bankruptcy credit card debt a new category of nondischargeable debt. . . . We remain skeptical that the current protections against fraud and debt run-up prior to bankruptcy are ineffective and that the additional debts made nondischargeable by [H.R. 833] meet the standard of an overriding public purpose."⁽⁹⁸⁾

Consumer bankruptcy expert Henry Sommer also has explained that such provisions:

increase the opportunity for creditors to file the types of abusive fraud complaints which have been found by many courts to be baseless and unjustified attempts to coerce reaffirmations by debtors who cannot afford to defend them. The new presumptions of nondischargeability will fall mainly on low income debtors who are unsophisticated, do not have the time, budget flexibility, or attorney advice to plan their bankruptcy cases carefully, have to file on short notice to prevent utility shutoffs or other impending creditor actions and will not have the funds to defend dischargeability complaints."⁽⁹⁹⁾

The new ban on loan bifurcations for loans less than 5 years old will further obviate the possibility of obtaining a fresh start through bankruptcy.⁽¹⁰⁰⁾ The ban will be most pernicious in the case of automobile loans, very few of which exceed 5 years. Since an automobile depreciates rapidly when it leaves the showroom, it typically declines below its value and secured debt by several thousand dollars the day after it is bought. Such a prohibition on automobile bifurcation is likely to render many chapter 13 plans unfeasible because a debtor may be able to repay the entire secured value, but not the entire purchase price of the car along with penalties. The provision also permits the lender to come out of the bankruptcy in a superior position than if it had foreclosed on the loan, the usual rule that applies in bankruptcy cases.

Several other consumer provisions also will exact significant hardships on all debtors, regardless of income level or degree of culpability. For example, by allowing landlords to continue eviction or unlawful detainer actions even after debtors have obtained an automatic stay, the bill will force many battered women and families with children and seniors out on to the streets, without ever having an opportunity to use bankruptcy to catch up on their rent.⁽¹⁰¹⁾ Extending the permitted period between bankruptcy filings to eight years⁽¹⁰²⁾ exceeds the period between filings set forth in the Bible,⁽¹⁰³⁾ and could prove a substantial hardship to families in already unstable economic situations.

4. The Consumer Provisions Will Have a Significant, Adverse Impact on Women, Children, Minorities, and Seniors, as well as Victims of Crimes and Severe Torts

a. Women and Children

H.R. 833 will have a devastating impact upon single mothers and their children, both as debtors and as creditors. On the debtor side, the means test will make it far more difficult for women to access the bankruptcy system. For example, women whose average income was at the median during the last 180 days, before the support checks stopped - or women whose child care expenses exceed IRS standards - may be denied access to chapter 7 and forced into restrictive chapter 13 repayment plans. Second, the bill does not exempt child support or foster care payments from the means test definition of disposable income, and does not exclude alimony and child support payments received within six months after filing for bankruptcy from the property of the estate.⁽¹⁰⁴⁾ In addition, the bill will also make it more difficult for women to hold onto the car they need to get to work, or the refrigerator or washing machine they need to care for their families if they were purchased on credit in the last five years.⁽¹⁰⁵⁾ The new nondischargeability categories also are problematic - even if a single mother filing for bankruptcy believes they do not apply, it will be more difficult for her to litigate a credit card company's claim of nondischargeability.⁽¹⁰⁶⁾

On the creditor side, the bill will have a particularly adverse impact on the payment of domestic support to women and children. The basic problem arises from the fact that bankruptcy and insolvency are by definition a zero-sum game. There is only so much money available to be divided among the creditors. By design, H.R. 833 will increase the amount of funds being paid to unsecured creditors, and it therefore should come as no surprise that such payments will often come at the expense of other, less-aggressive creditors, such as women and children owed alimony and child support. This problem is by no means insignificant given that an estimated 243,000-325,000 bankruptcy cases involved child support and alimony orders during the most recent years.⁽¹⁰⁷⁾

Moreover, under current law, alimony and child support are treated as priority debt and are not subject to discharge.⁽¹⁰⁸⁾ This preferential treatment dates from as early as 1903 and is based on Congress's determination that the payment of these debts is so important to society that it should come ahead of most general creditors. Although H.R. 833 does not revoke this special treatment, viewed as a whole, the legislation will have the effect of diminishing the likelihood of full payment of alimony and child support. This arises as a result of several features of the bill: its creation of significant new categories of nondischargeable debt, the extension of the length and onerousness of chapter 13 plans, and the bill's general limitations on the availability of chapter 7 relief.

Each one of these changes will make it less likely that a former spouse will be able to make his required alimony and child support payments. First, by making significant amounts of credit card debt nondischargeable, more of these debts will survive bankruptcy. Since most chapter 7 and 13 debtors do not have the ability to repay most of their unsecured debts, financial pressure on the debtor will continue after bankruptcy, decreasing his ability to handle important support obligations.

Collectively considered, these changes will help foster an environment where unsecured and credit card debt is far more likely to compete against alimony and child support obligations in the state law collection process. As a Congressional Research Service Memorandum analyzing predecessor legislation concluded last year, under the bill "child support and credit card obligations could be 'pitted against' one another. . . . Both the domestic creditor and the commercial credit card creditor could pursue the debtor and attempt to collect from post-petition assets, but not in the bankruptcy court."⁽¹⁰⁹⁾

Of course, outside of the bankruptcy court is precisely the arena where sophisticated credit card companies have the greatest advantages. While federal bankruptcy court provides a strict set of priority and payment rules and generally seeks to provide equal treatment of creditors with similar legal rights, state law collection is far more akin to "survival of the fittest." Whichever creditor engages in the most aggressive tactic - be it through repeated collection demands and letters, cutting off access to future credit, garnishment wages or foreclose on assets - is most likely to be repaid. As Marshall Wolf has written on behalf of the Governing Counsel of the Family Law Section of the American Bar Association, "if credit card debt is added to the current list of items that are now not dischargeable after a bankruptcy of a support payer, the alimony and child support recipient will be forced to compete with the well organized, well financed, and obscenely profitable credit card companies to receive payments form the limited income of the poor guy who just went through a bankruptcy. It is not a fair fight and it is one that women and children who rely on support will lose."⁽¹¹⁰⁾

It is for these reasons that groups concerned about the payment of alimony and child support have expressed their strong opposition to the bill. Professor Karen Gross of New York Law School stated succinctly that "the proposed legislation does not live up to its billing; it fails to protect women and children adequately."⁽¹¹¹⁾ Joan Entmacher, on behalf of the National Women's Law Center, testified that "the child support provisions of the bill fail to ensure that the increased rights the bill would give to commercial creditors do not come at the expense of families owed support."⁽¹¹²⁾ Last year, First Lady Hillary Rodham Clinton highlighted the predecessor legislation's impact on women and children, writing, "I do quarrel with aspects of the legislation that would force single parents to compete for their child support payments with bank banks trying to collect credit card debt."⁽¹¹³⁾

Assertions by the legislation's supporters that any disadvantages to women and children under H.R. 833 are offset by supposedly pro-child support provisions (sections 138-144) are not persuasive. It is useful to recall the context in which these provisions were added. First, last Congress, the bill's proponents adamantly denied that the bill created any problems with regard to alimony and child support.⁽¹¹⁴⁾ Although the proponents have now changed course, the child support and alimony provisions included do not respond to the provisions in the bill causing the problem - namely the provisions limiting the ability of struggling, single mothers to file for bankruptcy; enhancing the bankruptcy and post-bankruptcy status of credit card debt; and making it more difficult for debtors to eliminate debts and focus on domestic support obligations. In some instances, the new sections are counterproductive in furthering the goal of payment of support obligations to ex-spouses and children.

For example, section 138 provides a definition of "domestic support obligation" that includes funds owed to government units.⁽¹¹⁵⁾ If the government is acting as the debt collector for a woman or child, this is appropriate; the benefits of this inure to women and children directly. However, if the government is collecting for its own benefit (say, for example, the woman recipient is on welfare and the government is collecting arrearages to reduce a state or Federal deficit), then the result is inappropriate and will put the government collection agency in direct competition with single mothers and children, particularly in chapter 13.⁽¹¹⁶⁾

Section 139 purportedly increases to first priority from seventh priority obligations for domestic support, including debts owed to the government. It is misleading to suggest that moving up to "first priority" to "seventh priority" makes a significant difference: the debts that have second through sixth priorities almost never appear in consumer cases.⁽¹¹⁷⁾ However, knocking out the first priority for administrative expenses incurred by the trustee could thwart the original purpose of the provision. Putting support claims ahead of administrative expenses in priority may prevent trustees from liquidating assets because trustees need to use estate funds to liquidate property. If the trustee is not assured that the estate can cover the expenses of liquidating property, the trustee may have to abandon the property back to the debtor, resulting in the domestic support obligations receiving no distribution - the opposite of bill's intent.

Section 140, which requires that domestic support obligations be paid in full before the debtor receives any bankruptcy discharge, may reduce the likelihood that a feasible plan can be confirmed. This is because current law gives a woman owed support the option to agree to allow the Chapter 13 discharge to proceed, even if her arrears have not been fully paid. That might be in her best interest: her claim for arrears is nondischargeable, and allowing other debts to be discharged may make it easier for her to collect both current support and arrears in the future. Moreover, when combined with the other increased payments that must be made to secured creditors under Chapter 13, the requirement that state arrears as well as family arrears must be paid in full would make it more difficult for a debtor to get a Chapter 13 plan confirmed and successfully completed, and could, therefore, adversely affect the family.

Section 141 creates additional exceptions to the automatic stay⁽¹¹⁸⁾ that, like other provisions in the bill, have the potential of placing women and children at a disadvantage. First, these provisions apply only to income withholding orders issued by government agencies under the Social Security Act, even though an estimated 40-50% of all child support cases, and all alimony-only cases, are enforced privately, not by government child support agencies. Second, income withholding is helpful only if such orders are placed against debtors with regular income. Yet, in 1997, more than four out of ten cases in state child support systems across the country lacked a support order.⁽¹¹⁹⁾

Section 142, which makes all property settlement obligations nondischargeable, also could have unintended consequences in practice. For example, under this provision, a financially-troubled ex-spouse who is owed alimony and child support could be forced to compete with another ex-spouse who is not in need of support but had a settlement agreement dealing with business debts. Alternatively, a financially-needy ex-spouse who files for bankruptcy may be left with nondischargeable debt owed to her wealthier ex-spouse because of a property settlement. Again, the result is the needy spouse and child could be placed at a disadvantage by these changes.

Section 143, which allows domestic support creditors to levy otherwise exempt homesteads and other exempt property, also does not go far enough. Like the other provisions, it is effective only if a single mother goes to the time and expense of hiring an attorney to enforce her new rights. It also grants state and local governments the right to pursue claims in possible competition with the single mother.

Finally, section 144's insulation of payments to the government from preference actions also may hurt an ex-spouse and child of the debtor. This is because those funds, which were preferentially paid to the government, otherwise may have been available for ongoing support payments.

The Majority's legislation also totally ignores another very serious problem facing women as a result of the Bankruptcy Code - the fear that violent and reckless individuals will be able to bomb abortion clinics and eliminate their liability from that action through the bankruptcy process. Although the current bankruptcy laws prevent discharge for "willful and malicious injuries,"⁽¹²⁰⁾ Supreme Court precedent has raised doubt whether this standard applies to a clinic bombing where a particular victim was not targeted.⁽¹²¹⁾ It is also unclear whether the law applies to damages resulting for barricading clinic entrances. At the same time, notorious clinic bomber and "Operation Rescue" found Randall Terry has specifically filed for bankruptcy in order to void a $1.6 million judgment he owed to the National Organization for Women and Planned Parenthood.⁽¹²²⁾

In our view, it is totally irresponsible to allow the Bankruptcy Code to be used to void debts of this nature committed by violent individuals in violation of federal law. As the National Abortion and Reproductive Rights Actions League has written, "[d]ebtors whose debts arise from their own clinic violence are not honest debtors and should not be able to escape the financial liabilities incurred by their illegal conduct."⁽¹²³⁾ Unfortunately, the Majority rejected along a party line vote an amendment offered by Mr. Nadler that would have made nondischargeable debts arising out of violations of the Freedom of Access to Clinic Entrances Act.

b. Minorities, Seniors, and Victims of Crimes and Severe Torts

H.R. 833 will have a disparate impact upon minorities and victims of crimes and torts, also. The Leadership Conference on Civil Rights has warned that, under the legislation, "African American and Hispanic American families, suffering from discrimination in home mortgage lending and in housing purchases and facing inequality in hiring opportunities, wages, and health insurance coverage [will be less able to] turn to bankruptcy to stabilize their economic circumstances."⁽¹²⁴⁾ We know this because the economic struggle for Hispanic American and African American homeowners is harder than for any other group. While 68% of whites own their own homes, only 44% of African Americans and Hispanic Americans own their homes. Both African American and Hispanic American families are likely to commit a larger fraction of their take-home pay for their mortgages, and their homes represent virtually all their family wealth. It is no surprise, then, that African American and Hispanic American homeowners are six hundred percent more likely to seek bankruptcy protection when a period of unemployment or uninsured medical loss puts them at risk for losing their homes.⁽¹²⁵⁾

Similar concerns have been raised on behalf of seniors, who could lose their retirement savings if forced into chapter 13 plans.⁽¹²⁶⁾ The National Council of Senior Citizens has warned that legislation of this nature:

would have a harsh impact on a group of people who are often subject to job loss or catastrophic health costs; instead of ameliorating these problems, this bill will only exacerbate them. . . . Since 1992, more than a million people over the age of 50 have filed for bankruptcy; in 1997, an estimated 280,000 older Americans filed. For them it is particularly hard. If they are forced into prolonged repayment schedules, they may not be able to maintain or accumulate savings for retirement. As you know, approximately two third of voluntary, Chapter 13 workout plans fail, and we believe that retirement savings must be protected for that purpose.⁽¹²⁷⁾

With regard to the concerns of victims' groups, it is important to note that current law reserves the nondischargeability of debts for obligations arising out of willful or malicious injury, death or personal injury caused by the operation of a motor vehicle, or criminal restitution payments.⁽¹²⁸⁾ However, making more credit card debt nondischargeable, encouraging more reaffirmations of general unsecured debt, and discouraging more financially-troubled individuals from seeking debt relief will place these individual creditors at a relative disadvantage. As the National Organization for Victim Assistance has written, "more exempted creditors with rights to the same finite amount of resources means lower payments to all. Inevitably, for victim-creditors, that means either a smaller return on the restitution owed, or a longer period of repayment, or both."⁽¹²⁹⁾ The National Center for Victims of Crime has similarly observed, "to equate contractual losses of a commercial creditor with . . . personal obligations [for victim claims as the legislation does] is to belittle their importance and to directly reduce the likelihood that crime victims will ever be financially restored, despite obtaining an order of restitution or a civil judgment."⁽¹³⁰⁾ Mothers Against Drunk Driving ("MADD") has also complained that if "individuals [whose lives] have been shattered financially and emotionally by the death or serious injury of their family members . . . have to compete with credit card debt holders for the limited post-discharge income of debtors available [as the predecessor legislation requires], they may themselves end up in bankruptcy."⁽¹³¹⁾ MADD also noted that in contrast to crash victims, "lending institutions have the ability to provide some degree of protection to themselves when they issue credit cards to individuals and they are in a better financial position to absorb losses, which to them is a cost of doing business."⁽¹³²⁾

5. The Bill Does not Address Abuses of the Bankruptcy System by Creditors

Perhaps the bill's most glaring omission is its failure to address the problem of abusive lending practices. At the same time the legislation responds to every conceivable debtor excess - whether real or imagined - it gives a complete pass to the transgressions of the credit industry.

As noted at the outset, the overwhelming weight of authority establishes that it is the massive increase in consumer debt, not any change in bankruptcy laws, which has brought about the increases in consumer filings. Indeed, there is an almost perfect correlation between the increasing amount of consumer debt and the number of consumer bankruptcy filings. For example, between 1993 and 1998, bank credit card loans in the United States more than doubled from $223 billion to nearly $500 billion, and personal bankruptcy filings increased accordingly.⁽¹³³⁾ The same basic correlation holds from 1946 through 1998, as the below chart indicates:

Review of this data indicates that the primary factor that led to the increase in bankruptcy filings after 1978 was not the enactment of the revised bankruptcy laws, but the deregulation of credit. The deregulation resulted from the Supreme Court decision in Marquette National Bank of Minneapolis v. First Omaha Service Corp.,⁽¹³⁴⁾ which held that out-of-state banks were not subject to the usury laws of the state where the consumer was located. This decision led credit card concerns to relocate to states with lax usury laws that gave banks the ability to charge exorbitant interest rates in all 50 states. Subsequently, other legal changes permitted a broad range of new entities to get into the ever-growing, and lucrative, credit card business.⁽¹³⁵⁾ Among other things, we know that it was this unprecedented increase in high-cost credit, not the changed bankruptcy laws, that led to the change by virtue of Canada's experience. In Canada, bankruptcy filings began to explode in the late 1960's, simultaneous with the entry of VISA and MasterCard into that nation and the growth in credit card lending. There was no change in Canada's laws that could account for the increase.⁽¹³⁶⁾

This deregulation of credit and the accompanying explosion in credit availability - the number of credit card solicitations in 1998 reached 3.5 billion, an increase of 15 percent from the prior year⁽¹³⁷⁾ - and consumer debt, have been accompanied by a wide variety of credit card abuses. For example, solicitations of minors and college students are a particular problem. Credit card companies purposefully solicit students and other minors who have little ability to pay their debts. Illustrative of the seriousness with which credit card companies target students is the following topic from the 1998 Card Marketing Conference:

Targeting Teens: "You Never Forget Your First Card!" Most teens never forget their first love. Nor do they forget the issuer who dares to accept their application. Their brand loyalty and propensity to spend make consumers in their mid- to late-teens priced prospects for many card issuers.⁽¹³⁸⁾

The credit card tactics are myriad, including offering gifts such as mugs, Slinkees, T-shirts, and Frisbees.⁽¹³⁹⁾ Campus groups managing credit card tables receive large cash payments from credit card companies.⁽¹⁴⁰⁾ Such tactics apparently work, as 61% of students responsible for their own bills have indicated that they received credit cards at college.⁽¹⁴¹⁾ Some colleges have become so fed up with card marketing practices that they banned the credit card companies from their campus⁽¹⁴²⁾ - although they cannot stop mail solicitations.

Credit card companies even go so far as to solicit business from the developmentally disabled.⁽¹⁴³⁾ One developmentally-disabled man, aged 35, has the reading and mathematic skills of a second-grader and an annual income of $7,000 from Social Security disability benefits; nevertheless, he has thirteen credit cards, generating a debt of $11,745.⁽¹⁴⁴⁾ When his counselor asked the bank to lower his credit limit to $500, his limit was instead raised to $4,900.⁽¹⁴⁵⁾ Credit card companies have no answer for how this occurs other than to say that they screen all applicants to ensure they can handle the risk;⁽¹⁴⁶⁾ clearly, however, credit card companies have not been doing a sufficient job of screening their applicants. Unfortunately, H.R. 833 does nothing to discourage any of these practices.

The bill also ignores the problem of credit card companies lending to individuals with already substantial debts and little prospect of repayment. Gary Klein of the National Consumer Law Center noted "offering additional credit . . . to families already struggling to pay their debts hurts not only borrowers, but also the borrowers' honest creditors if the new credit pushes the family over the edge. Similarly, failure by one creditor to seriously consider payment arrangements outside bankruptcy for families facing hardship may lead to a bankruptcy filing which affects all creditors."⁽¹⁴⁷⁾ One credit card company goes so far as to solicit debt counselors and offers them $10 for each chapter 7 client who requests a VISA card.⁽¹⁴⁸⁾

A particularly pernicious credit card practice occurs in the so-called "subprime" market, where lenders seek out riskier borrowers and offer home equity financing at loan to value ratios in excess of 100%. Another lending abuse targets low income and minority neighborhoods with "serial" refinancing loans that carry high interest rates and other onerous terms.⁽¹⁴⁹⁾ In essence this causes poor individuals to place their homes at risk in order to finance their credit card purchases.

These problems are compounded by the fact that credit card companies fail to disclose clearly on their account statements the total amount and total time it would take to pay off balances if only the minimum amount due was paid each month.⁽¹⁵⁰⁾ Unlike mortgage loans and car loans, credit card loans do not disclose the amortization rates or the total interest that will be paid if the cardholder makes only the minimum monthly payment. As a result, using a typical minimum monthly payment rate on a credit card, it could take 34 years to pay off a $2,500 loan, and total payments would exceed 300 percent of the original principle. This is why many lenders encourage minimum payments that do not pay down the loan.⁽¹⁵¹⁾ Nevertheless, the Majority defeated an amendment offered by Representative Watt (D-NC) that would have required credit card companies to disclose on each customer account statement how long it would take, and what the total cost would be, if the customer paid only the minimum amount due.

Finally, the legislation does nothing to address the problem of abuse in the area of reaffirmation agreements, by for example, banning their use with respect to unsecured and dischargeable loans.⁽¹⁵²⁾

Instead the bill actually weakens current law by preventing courts from awarding punitive damages to debtors in cases where creditor's actions have been particularly abusive, and by prohibiting civil lawsuits against such creditors from being brought as class actions.⁽¹⁵³⁾ This bans the primary mechanism that consumers use for challenging abusive practices on the part of creditors,⁽¹⁵⁴⁾ and the one which in March of this year caused Sears Bankruptcy Recovery Management Services to pay a $60 million fines for failing to file reaffirmation agreements with bankruptcy courts.⁽¹⁵⁵⁾

III. SMALL BUSINESS AND SINGLE-ASSET REAL ESTATE PROVISIONS

Under current law, businesses may use chapter 11 of the Bankruptcy Code in an effort to obtain relief from the creditors while they seek to develop a plan to reorder their affairs and pay as much of their debts as their operations will allow. Under this chapter, businesses obtain an "automatic stay," which forestalls creditor collection efforts. During this time period, debtors have an opportunity to examine their contracts and leases and determine which ones to assume and which ones to reject (with rejection leading to a claim for damages). Debtors are subject to a number of requirements during this period, such as the formation of creditor committees and various ongoing financial disclosures.

The goal of chapter 11 is to determine whether there is any ongoing business value that can be preserved to pay off creditors while maintaining as many jobs and contractual relationships as possible. To this end, the debtor is given an exclusive 120-day period (unless lengthened or shortened for cause) in which to develop a reorganization plan that satisfies a host of statutory requirements and convince a majority of the creditors that the plan is in their best interests and is preferable to a liquidation "fire sale."

In 1994, Congress enacted two modest exceptions to the general rules of chapter 11. The first related to "small businesses," defined as entities engaged in commercial or business activities whose aggregate debts do not exceed $2 million. Debtors that elect to be treated as small businesses are permitted to dispense with creditor committees, receive only a 100-day plan exclusivity period, and are entitled to more flexible provisions for disclosure and solicitation for acceptances of their proposed reorganization plan. In 1994, Congress also developed a special set of rules applicable to "single asset real estate," generally defined as cases in which the principal asset is a single piece of real estate subject to debt of no more than $4 million. In cases falling within this definition, secured creditors are permitted to foreclose on their collateral unless the debtor files a reorganization plan which is likely to be confirmed or commences payment on the secured loan within a 90-day period. This exception to chapter 11 procedures was justified on the grounds that single asset real estate cases were seen as essentially private two-party loan disputes, which did not implicate ongoing businesses or jobs.

A. Small Business Provisions

The business provisions of the bill would effectuate a number of changes in the manner in which corporations, partnerships and other business entities are permitted to reorganize their financial affairs. With respect to small business, H.R. 833 would expand the definition of covered small business to those companies having debts of less than $4 million,⁽¹⁵⁶⁾ covering approximately 85% of all chapter 11 cases.⁽¹⁵⁷⁾ It would also make the small business requirements mandatory (rather than optional) and mandate the operation of numerous additional requirements on debtors.⁽¹⁵⁸⁾ For example, under H.R. 833, small business debtors would be required to provide balance sheets, statements of operations, cash-flow statements, and income tax returns within three days after filing a bankruptcy petition, the time period the debtor has the exclusive right to file a plan of reorganization would be further shortened (to 90 days), and the standards for being able to seek an extension of this time period would be substantially narrowed.⁽¹⁵⁹⁾

It is for these reasons that both the AFL-CIO, the Small Business Administration's Office of Advocacy, and a number of other organizations representing both debtor and creditor interests are opposed to, or have serious concerns with, the small business provisions of the bill. The AFL-CIO has warned that the small business provisions in the bill will "threaten jobs by placing substantial procedural and substantive barriers in the way of small businesses' access to the protections of Chapter 11; . . . threaten jobs by requiring commercial debtors to assume or reject commercial leases within a rigid timetable, which would force debtors to favor one class of creditors over others, and threaten their overall ability to successfully reorganize."⁽¹⁶⁰⁾ Similarly, Jere W. Glover of the Office of Advocacy has written that under H.R. 833, "[u]nder the proposals, small business owners who are legitimately using Chapter 11 proceedings to reorganize their businesses may be forced into a premature dismissal or conversion or may have to expend vital resources to fend off challenges by any creditor for relatively minor procedural infractions."⁽¹⁶¹⁾

This new bankruptcy mandate, particularly sections 407 through 409, would impose substantial new costs on small businesses, both in terms of document production and legal fees, and limit the time frame that the business has to develop a reasonable reorganization plan.⁽¹⁶²⁾ Section 407 provides an absolute limit on the period the business debtor has the exclusive right to file a plan of reorganization. Congress has previously enacted laws that have made it far more difficult for debtors to unduly delay filing a plan of reorganization, and these appear to have had a salutary effect. The proposed rigid deadline goes much farther and could work to detriment of debtors involved in complex reorganizations and force unnecessary liquidations and job losses. In turn, these changes will lead to the premature liquidation of small businesses with the attendant loss of jobs. The provisions are particularly unnecessary at a time when business bankruptcies have declined by one-third over the most recent ten-year period.⁽¹⁶³⁾

The SBA's Office of Advocacy summed up the situation as follows: "the proposals in H.R. 833 go too far in addressing the relatively small number of problem cases."⁽¹⁶⁴⁾ Even more dangerously, it has been noted than many - if not most - of the business cases in the average district would fall prey to these harsh new rules.⁽¹⁶⁵⁾

B. Single-Asset Real Estate Provisions

A similar concern relates specifically to single-asset real estate ("SARE") debtors. While H.R. 833, in section 402, no longer specifically includes SARE in the definition of "Small Business," it would significantly expand the definition of SARE by eliminating the $4 million debt cap. Small business are defined under current law as having aggregate non-contingent, liquidated secured and unsecured debts in an amount not more that $4 million. The definition would take in SARE bankruptcies below that cap and treat them as small businesses.

As a result of these changes, a much wider range of real estate operations would be required to conform with the SARE requirements when they seek to reorganize, not withstanding the fact that those requirements were drafted with a much smaller and simpler entity in mind. Large operating entities such as Rockefeller Center, as well as hotels and nursing homes, could be considered SARE and put back on the track set forth in § 362(d)(3) of the Bankruptcy Code. It would create also new incentives for lenders to require that all of their real estate borrowers place their holdings in the single asset form in order to avoid ordinary bankruptcy rules in the future. The AFL-CIO noted, "the significant limiting factor in the application of these rules has been the $4 million cap. [Eliminating] the cap would place a wide variety of properties . . . at risk of foreclosure and threaten jobs at these properties. Absent rules that specifically exclude properties housing significant business enterprises, there should be no expansion in the definition of single asset real estate debtor."⁽¹⁶⁶⁾

By design, the SARE changes will "broaden[] the scope of single asset real estate debtors subject to rules which increase the threat of disruptive summary foreclosures of commercial property."⁽¹⁶⁷⁾ This, in turn, would likely lead to significant job losses.⁽¹⁶⁸⁾ Even if a hotel or nursing home remains in existence, the new owner would not necessarily be required to honor any previously negotiated collective-bargaining agreements applicable to employees at the facility. In the case of a large real estate operation, premature foreclosure could also allow the new owner to terminate many leases, leading to further job losses to the extent the business is relying on these leases.

C. Other Business Concerns

A host of additional concerns have been raised by groups such as the AFL-CIO and the National Bankruptcy Conference regarding the business titles of the legislation. These include concerns about the expansion of remedies available to secured creditors in the transportation industry;⁽¹⁶⁹⁾ the imposition of mandatory deadlines for extensions of "exclusivity;"⁽¹⁷⁰⁾ amendments regarding asset securitization limiting the assets available to a debtor during a bankruptcy case;⁽¹⁷¹⁾ extending the period for reclamation of goods by trade creditors;⁽¹⁷²⁾ and limits on repeat filings for troubled businesses (which was extended at markup to all businesses and not just "small businesses").⁽¹⁷³⁾ In general, the AFL-CIO has warned that "the real danger posed by H.R. 833 is the threat is poses to our economy's ability to weather downturns. The bill aims to make access to the bankruptcy process more difficult for our economy's most vulnerable links - small businesses and consumers. This will likely result in increased business closures, job loss and home foreclosure, increasing the severity and length of any future economic downturn."⁽¹⁷⁴⁾

Similar concerns relate to the power of creditors who lease retail property. Section 205 unfairly grants lessors of commercial property the ability to coerce debtor-tenants into deciding prematurely whether to assume or reject a lease. In a retail insolvency, a debtor may need to wait beyond the 240-day period until the holiday season is complete to determine which locations have a realistic chance to succeed; a trustee or debtor in possession may decide to assume and reject some of the leases based upon this practical experience.⁽¹⁷⁵⁾ If the trustee or debtor in possession assumes a nonresidential lease in chapter 11, and the case subsequently converts to chapter 7, under the bill, the rent due for a one-year period following rejection of the lease becomes an administrative expense for compensation, gaining priority over all other unsecured claims and limiting the opportunity for other unsecured creditors to receive compensation.⁽¹⁷⁶⁾ By giving the lessor veto power at the end of 240 days, as the bill now does, the legislation would have the effect of giving a single creditor inordinate bargaining power among creditors and with the debtor.

IV. TAX PROVISIONS

The Bankruptcy Code seeks to effectuate a delicate balance between the rights of the Internal Revenue Service and state tax agencies to the repayment of any taxes, interest and penalties owed them, and the rights of other creditors and the ability of individuals and corporations to be financially rehabilitated for the benefit of all parties. Title VIII of the bill, on balance, manifests a strong preference for the IRS and other taxing authorities to the detriment of other participants in the bankruptcy system. Concerns have been expressed that, not only does H.R. 833 generally enhance the rights and position of the IRS and state authorities in bankruptcy, but the bill grants the IRS certain rights in bankruptcy cases that it does not enjoy outside of bankruptcy, and vests the IRS with new enforcement powers that ordinary creditors do not posses.⁽¹⁷⁷⁾ We are particularly concerned that the Majority chose to vary in many significant respects from the nonpartisan, and often unanimous, recommendations of the Bankruptcy Commission and its Tax Advisory Committee.

Title VIII of the bill deals with the treatment of tax debts owed to the government by a debtor. It is ironic that the Majority, which has normally taken such an anti-tax posture on most issues, not only is using the IRS collection standards for the means test but also is pressing for changes to the Bankruptcy Code that favor governmental collections over the rights of debtors and private sector creditors. In his testimony on behalf of the American Bar Association's Section on Taxation, Paul Asofsky, who served as the Chair of the Task Force on the Tax Recommendations of the National Bankruptcy Review Commission of the American Bar Association's Tax Section, observed that [T]here are many provisions in this legislation with which we agree as a matter of principle, but the specific provisions are either ambiguously drafted or cut against the grain of the principal proposal, causing us to oppose what should be noncontroversial proposals."⁽¹⁷⁸⁾

Mr. Asofsky provided a somewhat more detailed discussion of his concerns in a letter to the Subcommittee's Ranking Member.⁽¹⁷⁹⁾ Section 802 of the provides new rules for debtors to provide notice to a governmental entity. Notice is important in a bankruptcy case, because if the debtor is found not to have provided adequate notice to a creditor, the debtor will not be entitled to a discharge of the debt. Section 802 "sets forth detailed rules requiring the debtor, in providing notice to a governmental creditor , to identify the department or agency or instrumentality of a government al unit through which the debtor is indebted and describe the underlying basis s for the governmental unit's claim. It also requires the debtor to identify certain instances in which he may be derivatively liable to such governmental agency for a claim against a non-debtor. It also imposes certain burdens on debtors in identifying the particular governmental official to whom notice must be sent."⁽¹⁸⁰⁾ Forcing the debtor to divine the correct person or location for notice would place too high a burden on many individual debtors who would then be required to demonstrate "by clear and convincing evidence" that timely notice was given to the appropriate official. Instead of providing a fair means of providing notice to governmental units, it sets a trap of the unsophisticated and unwary debtor, and places governments in the enviable position of having their tax debts made non-dischargeable. The second part of the provision, which requires a debtor to determine whether she might have a derivative tax liability, for example for a trust fund tax penalty, places the onus on the debtor to identify and pursue claims rightly left to the taxing authority.

Section 804 provides for a significantly higher uniform interest rate to be applied to tax claims in a bankruptcy case. The Tax Advisory Committee, which included governmental representatives, concluded that the rate for all types of tax claims should be the regular tax deficiency rate for federal income tax purposes. The bill, however, provides that the rate shall be at least the original issue discount rate of § 1274(d) of the Internal Revenue Code, plus three points. Of greater concern, local governments can set their own interest rates, many of which are substantially higher than either of the IRS rates.⁽¹⁸¹⁾

Section 807 severely limits the "superdischarge" available to debtors in chapter 13. It would prevent a debtor from discharging tax debts, which is now permitted in chapter 13, but not in chapter 7. Eliminating the benefit of the superdischarge also eliminates the single greatest incentive for an individual debtor to choose chapter 13. As Mr. Asofsky observed,

[T]he problem faced by many taxpayers who are delinquent in their obligations is that the IRS standard allowances for installment payment agreements⁽¹⁸²⁾ clearly do not leave many taxpayers with the minimum amounts necessary to provide for basic necessities, and so called "offers in compromise" are very difficult to obtain. Thus, for the most desperate of taxpayers, the chapter 13 superdischarge affords a safety net which is the only thing that provides them with the possibility of living somewhat of a normal life in dignity ... elimination of the chapter 13 superdischarge would be devastating to large numbers of unfortunate individual debtors.⁽¹⁸³⁾

Section 817 requires disclosure of the tax consequences of a chapter 11 plan of reorganization. Although originally an uncontroversial idea, the bill adds extra requirements which will likely cause confusion and may be impossible for debtors to comply with fully. The section now requires "a full disclosure of the potential material federal, state, and local tax consequences of the plan to the debtor, any successor to the debtor and a hypothetical investor domiciled in the state in which the debtor resides or has its principle place of business typical of the holders of claims or interest in the case." The use of the term "full disclosure" will likely lead to extensive litigation as these statements are scrutinized. In some instances, the precise tax consequences of a plan at all levels of government, and for a "typical" holder of claim, may be difficult to produce with great precision.⁽¹⁸⁴⁾

Finally, section 818 requires that a debtor actually have commenced an action against the taxing authority to determine the amount of a disputed tax before a setoff can be prevented. Absent such an action by the debtor, a governmental entity is free to "setoff" any prepetition refund with a liability. The Advisory Committee had recommended that such setoff should only be permitted in cases where the liability was undisputed. The bill goes much further and to the disadvantage of the debtor and other, non-governmental creditors.

V. CONCLUSION

For nearly 100 years, Congress has carefully considered the bankruptcy laws and legislated on a deliberate and bipartisan basis. In the past, Congress has elected also to preserve carefully an insolvency system that provides a fresh start for honest, hard-working debtors, protects on-going businesses and jobs, and balances the rights of and between debtors and creditors. Because H.R. 833 departs from these principles, we respectfully dissent.

1. Letter from Jacob J. Lew, Director, Office of Management and Budget, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law (Mar. 23, 1999).

2. Letter from Dennis K. Burke, Office of Legislative Affairs, U.S. Department of Justice, to the Honorable George W. Gekas, Chair, House Subcomm. on Commercial and Admin. Law (Mar. 24, 1999).

3. Letter from Peggy Taylor, Director of Legislation, AFL-CIO, to the Honorable Henry J. Hyde, Chair, House Comm. on the Judiciary (Apr. 20, 1999); Letter from Charles M. Loveless, Director of Legislation, AFSCME, to Members of Congress (Apr. 19, 1999); Letter from Alan Reuther, Legislative Director, UAW, to Members of Congress (Apr. 26, 1999); Letter from Ann Hoffman, Legislative Director, UNITE, to the Honorable John Conyers, Jr., Ranking Member, House Comm. on the Judiciary (May 4, 1998).

4. Letter from Douglas G. Baird, Vice Chair, NBC, to the Honorable Henry J. Hyde, Chair, House Comm. on the Judiciary (Apr. 19, 1999); Hearing on H.R. 833, the "Bankruptcy Reform Act of 1999," Before the House Subcomm. on Commercial and Admin. Law, 106th Cong., 1st Sess. (Mar. 17, 1999) [hereinafter March 17, 1999 Hearing] (written statement of the Honorable William Houston Brown, ABI); Id. (written statement of the Honorable Randall J. Newsome, NCBJ; Id. (written statement of Henry E. Hildebrand, III, NACTT); Id. (written statement of Robert H. Waldschmidt, NABT); Commercial Law League of America, Position Paper on the Bankruptcy Reform Act of 1999, H.R. 833, Submitted to the U.S. House of Representatives and the U.S. Senate (Mar. 9, 1999); Letter from Raymond L. Shapiro, Chair, American College of Bankruptcy, to Members of Congress (Apr. 26, 1999); Letter from Norma Hammes, President, NACBA, to Members of Congress (Apr. 26, 1999).

5. Letter from the National Women's Law Center & the National Partnership for Women and Families to the Honorable John Conyers, Jr., Ranking Member, House Comm. on the Judiciary (Apr. 19, 1999); Letter from Patricia Ireland, President, NOW, to the Honorable John Conyers, Jr., Ranking Member, House Comm. on the Judiciary (May 15, 1998); Letter from Geraldine Jensen, President, ACES, to the Honorable George W. Gekas, Chair, House Subcomm. on Commercial and Admin. Law (Mar. 17, 1999); Letter from Abby J. Leibman, Executive Director, California Women's Law Center, to the Honorable Dianne Feinstein, Senate Comm. on the Judiciary (Apr. 27, 1998); Letter from Karolyn V. Nunnallee, National President, MADD, to Members of Congress (Apr. 26, 1999); Letter from Marlene A. Young, Executive Director, NOVA, to the Honorable Henry J. Hyde, Chair, House Comm. on the Judiciary (Apr. 26, 1999); Letter from David Beatty, Director of Public Policy, The National Center for Victims of Crime, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law (Apr. 28, 1999).

6. Letter from the Leadership Conference on Civil Rights to Members of Congress (Apr. 21, 1999); Letter from Gary Klein, Senior Attorney, National Consumer Law Center, to Members of Congress (Apr. 23, 1999); Press Release of National Consumer Law Center, Consumer Federation of America, Consumers Union, and U.S. PIRG (Apr. 19, 1999); Letter from Frank Clemente, Legislative Director, Public Citizen, to House Comm. on the Judiciary (May 11, 1998); Letter from Nan Aron, President, Alliance for Justice, to Members of the Senate Comm. on the Judiciary (Apr. 23, 1998); Letter from Dan Schulder, Director Legislation, National Council of Senior Citizens, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law (June 9, 1998).

7. H.R. 833, § 102 (proposed amendment to 11 U.S.C. § 707(b)(2)(A)(v)).

8. H.R. 833, § 130.

9. Culhane and White, "Means Testing for Chapter 7 Debtors: Repayment Capacity

Untapped?" (American Bankruptcy Institute, 1998).

10. Leslie Kaufman, Sears to Pay Fine of $60 Million in Bankruptcy Fraud Lawsuit, N.Y. Times, Feb. 10, 1999, at C2.

11. The 1971 Commission conducted four hearings and deliberated for 44 days before filing their two-part report with Congress; the second part of the report was a draft statute. Between May of 1975 and May 1976, the House Judiciary Committee's Subcommittee on Civil and Constitutional Rights held 35 days of hearings on bankruptcy reform producing more than 2,700 pages of testimony from over 100 witnesses. Kenneth N. Klee, Legislative History of the New Bankruptcy Law, 28 DePaul L. Rev. 941, 943-44, 946 (1979). Three more days of hearings were held on the House side in December 1977. On the Senate side, between February and November 1975, the Senate Judiciary Committee's Subcommittee on Improvements in Judicial Machinery held 21 days of hearings. The Senate held three more hearings in November and December of 1977. Id. at 944, 950. Once developing the Bankruptcy Reform Act of 1978 specifically, the House Subcommittee on Civil and Constitutional Rights spent 42 hours debating the legislation in 22 separate markup sessions, during which the legislation was reviewed line-by-line. Over 120 amendments were offered and over 100 were adopted. Id. at 946. A 700-page briefing book was prepared for the full Judiciary Committee. Id. at 947. Full Committee markup took 3 days, and 6 amendments were adopted on the unanimous, bipartisan Subcommittee bill. The Senate held additional hearings as well.

12. Hearings on H.R. 833, the "Bankruptcy Reform Act of 1999," Before the House Subcomm. on Commercial and Admin. Law, 106th Cong., 1st Sess. (1999). Hearings were held on March 18, 1999; March 17, 1999; March 16, 1999; and March 11, 1999. The March 11, 1999 hearing was a joint hearing between the House Subcommittee on Commercial and Administrative Law and the Senate Subcommittee on Administrative Oversight and the Courts.

13. Id.

14. According to the American Bankruptcy Institute, there were 1,007,922 personal chapter 7 filings (72.1%), 862 personal chapter 11 filings, and 389,398 personal chapter 13 filings in 1998. Press Release of the American Bankruptcy Institute, Bankruptcies Break Another Record in 1998 (Mar. 1, 1999). Personal bankruptcy filings represented 96.9% of all filings in 1998; they were 91.7% of all 1990 filings. Id.

15. Professor Michael E. Staten of Georgetown University's Credit Research Center ("CRC"), which has many credit industry officials on its board, conducted what is perhaps the most-discussed study. John M. Barron & Michael E. Staten, Purdue University Credit Research Center, Personal Bankruptcy: A Report on Petitioners' Ability to Pay (Oct. 1997); see also March 17, 1999 Hearing (written statement of Michael E. Staten). Staten concluded that 5% of chapter 7 debtors could repay all of their non-priority, non-housing debt over 5 years, 10% could repay at least 78% of such debt, and 25% could repay 30% of their debt.

16. An Ernst & Young study, funded by VISA USA and MasterCard International, purports to corroborate the CRC findings. Policy Economics and Quantitative Analysis Group, Chapter 7 Bankruptcy Petitioner's Ability to Repay: Additional Evidence from bankruptcy Petition Files, Ernst & Young LLP (Feb. 1998).

17. Wharton Econometric Forecasting Associates ("WEFA") examined the financial cost of personal bankruptcy cases filed in 1997, which it defined as "the amount of credit dollars (outstanding loans) lost due to bankruptcy filings . . . [and] the costs of the U.S. court system . . . and other creditor's expenses relating to bankruptcy." WEFA Group Resource Planning Service, The Financial Costs of Personal Bankruptcy 4 (Feb. 1998). The WEFA study calculated that "financial losses due to 1997 personal bankruptcies totaled more than $44 billion. . . . Unsecured nonpriority losses totaled almost $35 billion in 1997 . . . [and] passing such financial losses on to consumers in terms of higher prices would cost the average household over $400 annually." Id. at 1. The WEFA study also concluded that the needs based proposal in H.R. 3150 "should decrease financial costs due to bankruptcy . . . from 8% to 17% annually." Id. at 2.

18. Hearing on H.R. 833, the "Bankruptcy Reform Act of 1999," Before the House Subcomm. on Commercial and Admin. Law, 106th Cong., 1st Sess. (Mar. 17, 1999) (written statement of Michael E. Staten); Joint Hearing Before the House Subcomm. on Commercial and Admin. Law and the Senate Subcomm. on Admin. Oversight and the Courts, 106th Cong., 1st Sess. (Mar. 11, 1999) (written statements of (1) Bruce L. Hammonds, Senior Vice Chairman of MBNA Corporation; (2) Judge Edith H. Jones, U.S. Court of Appeals for the Fifth Circuit; (3) Professor Todd J. Zywicki, George Mason University School of Law; and (4) Dean Sheaffer, National Retail Federation).

19. Kim Kowalewski of the Congressional Budget Office ("CBO"), at the request of the National Bankruptcy Review Commission, conducted a review of three economic analyses of this question. Kowalewski concluded that a 1996 VISA study did not support such a conclusion and, in fact, "because the social trends variable is flat during 1995 and early 1996, VISA believes that their social factors played no role behind the increase in personal bankruptcies in that period." Kim J. Kowalewski, Evaluations of Three Studies Submitted to the National Bankruptcy Review Commission 4 (Oct.6, 1997). At the request of Subcommittee Democrats, Mr. Kowalewski reviewed the economic issues affecting the rate and nature of bankruptcy in the United States. The Democratic Members made their original request on January 14, 1998; the response from CBO, in draft form only, was delivered April 16, 1999, over one year later. Mr. Kowalewski has still not been made available to testify before the Subcommittee; the Minority has reserved its right under House rules for one day of hearings to hear his testimony.

20. At the request of Senators Charles Grassley and Richard Durbin, the General Accounting Office ("GAO") examined the CRC study and found five areas of concern: (1) data supplied by the debtors regarding their income expenses, and debts and the stability of their income and expenses over a 5-year period were not validated, (2) the report did not define the universe of debts for which it estimated debtors' ability to pay, (3) payments on non-housing debts that debtors stated they intended to reaffirm were not included in debtor expenses in determining the net income debtors had, (4) the CRC did not account for the considerable variation among the 13 locations used in the analysis, and (5) a scientific random sampling methodology was not used to select the 13 bankruptcy locations or the bankruptcy petitions used in the analysis. General Accounting Office, Personal Bankruptcy: The Credit Research Center Report on Debtors' Ability to Pay, GAO/GGD-98-47 (Feb. 1998).

21. The Federal Deposit Insurance Corporation ("FDIC") contested many of assertions made in the above-noted studies. Federal Deposit Insurance Corp., Bank Trends (Mar. 1998); Lawrence M. Ausubel, Credit Card Defaults, Credit Card Profits, and Bankruptcy, 71 American Bankruptcy L.J. 249 (1997). The FDIC observed a strong correlation between credit card default rates and personal bankruptcies, both of which increased in the 1990's. The FDIC found that, because of and following interest rate deregulation in 1978, credit card companies became more profitable and credit card lenders were able to extend more unsecured credit to less creditworthy borrowers.

22. March 11, 1999 Hearing (written statement of Bruce L. Hammonds, Senior Vice Chairman, MBNA Corporation).

23. Both the American Bankruptcy Institute and Professor Ausubel pointed out, however, that the recent rise in personal bankruptcy rates, which were used to manufacture fear of a so-called bankruptcy crisis, in fact ended in 1998. American Bankruptcy Institute, 18 ABI Journal 1 (Apr. 1999); Lawrence M. Ausubel, University College London, A Self-Correcting "Crisis": The Status of Personal Bankruptcy in 1999 1 (Mar. 10, 1999). In fact, the ABI found that "consumer bankruptcy filings have dropped dramatically nationwide in January and February [1999], after three consecutive years of record filings." American Bankruptcy Institute, supra, at 1. Specifically, "[t]he personal bankruptcy filing rate per thousand population grew at an annual rate of only 1.5% in the last year, and at a (seasonally-adjusted) annual rate of only 1.0% in the last quarter." Lawrence M. Ausubel, supra, at 1. The crisis corrected itself because lenders, as they normally would, tightened their lending practices when defaults became more common and infringed upon profits, thereby limiting the number of people going into debt and filing for bankruptcy. See id. at 3.

24. March 17, 1999 Hearing (written statement of Marianne B. Culhane); Marianne B. Culhane & Michaela M. White, Taking the New Consumer Bankruptcy Model for a Test Drive: Means-Testing Real Chapter 7 Debtors (Mar. 8, 1999).

25. In 1993, credit card banks were nearly four times as profitable as all commercial banks. Despite the slight decrease in the average credit card interest rate, credit card banks remain twice as profitable as commercial banks. March 16, 1999 Hearing (written statement of the Honorable Joe Lee) (citing Federal Reserve Board, The Profitability of Credit Card Operations of Depository Institutions (Aug. 1997)).

26. In 1996, Professor James Medoff, the Meyer Kestnbaum Professor of Labor and Industry at Harvard University, pointed out that, between 1980 and 1992, when the federal funds rate (the interest that banks charge for overnight loans) fell from 13.4% to 3.5%, a drop of nearly 10 percentage points, the average credit card interest rate rose from 17.3% to 17.8%. Professor Medoff suggests that during the 1980s, when interest rates were high, lenders learned a valuable lesson; consumer debtors in general pay very little attention to interest rates. March 16, 1999 Hearing (written statement of the Honorable Joe Lee at 1) (citations omitted).

27. Kenneth N. Gilpin, "Antitrust Suit Filed Against VISA and MasterCard," N.Y. Times, Oct. 8, 1998, at C1.

28. For example, the costs of administering the estate are entitled to the first priority, and payments of alimony, child support, and taxes are entitled to later priorities, with general unsecured debt entitled to any residual assets left over. 11 U.S.C. § 507(a).

29. 11 U.S.C. § 523(a).

30. The Code does not define the term "substantial abuse," which is used in § 707(b), although, some courts have found that the ability to pay an appreciable proportion of one's debts over three years, using future income, could constitute "substantial abuse." See, e.g., Fonder v. United States, 974 F.2d 996 (8th Cir. 1992) (debtor could pay 89% of unsecured debts in three years); In re Krohn, 886 F.2d 123 (6th Cir. 1989) (ability to pay portion of debts from "ample income" in excess of $80,000 per year); In re Walton, 866 F.2d 981 (8th Cir. 1989) (ability to pay two thirds of debts in three years).

31. There are a number of disincentives to filing for bankruptcy, such as the fact that a person filed for a chapter 7 bankruptcy will be disclosed on a debtor's credit report, and the law's prohibitions on repeat chapter 7 filings for six years.

32. The eligibility requirements for chapter 13 may be found in 11 U.S.C. § 109(e). To be eligible for chapter 13, an individual must have regular income and unsecured debts of less than $269,250 and secured debts of less than $807,750. These numbers were indexed for inflation in April of 1998. Individuals also may reorganize their affairs under chapter 11.

33. This is known as a "stripdown." Specifically, except for certain home mortgages, a debtor in chapter 13 may be able to bifurcate a debt to a secured creditor, treating only the current value of the collateral as secured, even if it is less than the full amount of the loan, and treating the remaining debt as unsecured.

34. H.R. 833, § 102 (proposed amendment to 11 U.S.C. § 707(b)(2)(A)).

35. H.R. 833, § 102 (proposed amendment to 11 U.S.C. § 707). The consumer provisions were considered so one-sided, that the principal sponsor of a predecessor version setting forth these changes (H.R. 2500) received a "Golden Leash" special interest "award" from Public Campaign. The banking and credit industry spent approximately $40 million to lobby Congress in favor of the anti-debtor provisions of H.R. 3150, the 105th Congress version of H.R. 833. Sam Loewenberg, Mad Dash as the Curtain Closes, Legal Times, Oct. 5, 1998, at 4; Katharine Q. Seelye, House to Vote Today on Legislation for Bankruptcy Overhaul, N.Y. Times, June 10, 1998, at A18.

36. Id.

37. H.R. 833, §§ 102 (proposed amendment to 11 U.S.C. § 707(b)(2)(B)), 130.

38. H.R. 833, § 102 (proposed amendment to 11 U.S.C. § 707(b)(2)(B)).

39. H.R. 833, § 102 (proposed amendment to 11 U.S.C. § 707(b)(6)).

40. H.R. 833, § 102 (proposed 11 U.S.C. § 707(b)(3)).

41. Id.

42. H.R. 833, § 102 (proposed amendment to 11 U.S.C. § 707(b)). Section 102 permits creditors to bring such motions against debtors, but states that, if the debtor's income is less than the highest national median family income for a household of equal size, only the court, a private trustee, or a U.S. Trustee could bring such a motion to dismiss or convert. H.R. 833, § 102 (proposed 11 U.S.C. § 707(b)(6)). This income threshold is based on "family" income while the threshold for the trustee's requirement to bring motions looks to the regional median "household" income, which is lower than the family income. The Census Bureau defines a "family" as "a group of two or more people related by birth, marriage, or adoption who reside together." Bureau of the Census, Econ. and Stats. Admin., U.S. Dept. of Commerce, Money Income in the United States A-1 (1997). A "household" consists of "all people who occupy a housing unit [and] includes the related family members and all the unrelated people, if any." Id. In 1997, the national median family income was $37,005, while the regional incomes ranged from $19,810 to $36,578. Id. at xi-xii.

43. H.R. 833, § 102 (proposed 11 U.S.C. § 707(b)(5)).

44. H.R. 833, § 130 (proposed amendment to 11 U.S.C. § 1325(b)).

45. H.R. 833, § 102 (proposed amendment to 11 U.S.C. § 707).

46. H.R. 833, § 127 (proposed amendment to 11 U.S.C. § 1328(a)).

47. H.R. 833, § 133 (proposed amendment to 11 U.S.C. § 523(a)(2)(C)).

48. H.R. 833, § 143 (proposed amendment to 11 U.S.C. § 523(a)).

49. Id.

50. H.R. 833, § 138 (proposed amendment to 11 U.S.C. § 101).

51. Id.

52. See H.R. 833, § 139 et seq.

53. H.R. 833, § 139 (proposed amendment to 11 U.S.C. § 507(a)). In the current enumeration of priority, the unsecured claims of person who raise grain or operate fish-processing facilities have fifth priority. 11 U.S.C. § 507(a)(5).

54. H.R. 833, § 140 (proposed amendments to title 11, United States Code).

55. H.R. 833, § 141 (proposed amendment to 11 U.S.C. § 362(b)). This includes the interception of tax refunds, the enforcement of medical obligations, or actions to withhold, suspend, or restrict licenses of the debtor for delinquency in support obligations.

56. H.R. 833, § 142 (proposed amendment to 11 U.S.C. § 523). Under current law, a property settlement that is not in the nature of support is excepted from discharge unless the court finds (1) that the debtor does not have the ability to pay the obligation or (2) that discharging the debt would result in a benefit to the debtor that outweighs the detrimental consequences to the ex-spouse or children.

57. H.R. 833, § 143 (proposed amendment to 11 U.S.C. § 522).

58. H.R. 833, § 144 (proposed amendment to 11 U.S.C. § 547(c)(7)).

59. Notices to domestic support recipients must also state that they can use the services of a government support enforcement agency to collect the support.

60. H.R. 833, § 152.

61. H.R. 833, § 153. Representative Gekas moved to strike many of the provisions in Representative Nadler's amendment that placed the claims of women and children above those of the government and other creditors. Among those protections were: (1) requiring that a debtor pay all domestic support obligations before obtaining confirmation of a plan; (2) exempting from the automatic stay actions all proceedings to establish paternity, to establish or modify a domestic support obligation order, to withhold state licenses, and to intercept tax refunds; (3) exempting from bankruptcy all support or property reasonably traceable to divorce decrees or property settlement agreements; and (4) requiring that creditors who are owed nondischargeable debts hold them, when paid, in trust for five years for domestic support creditors.

62. March 11, 1999 Hearing (written statement of Professor Elizabeth Warren).

63. H.R. 833, § 140.

64. H.R. 833, § 139.

65. H.R. 833, § 116 (proposed amendment to 11 U.S.C. § 524).

66. H.R. 833, § 137.

67. Only two members of the National Bankruptcy Review Commission signed onto a dissenting statement supporting the consideration of various means testing options. National Bankruptcy Review Commission, Final Report: Bankruptcy - The Next Twenty Years (Oct. 20, 1997) (Chapter 5, Additional Dissent to Recommendations for Reform of Consumer Bankruptcy Law Submitted by the Honorable Edith H. Jones and Commissioner James I. Shepard).

68. Bankruptcy: The Next Twenty Years, National Bankruptcy Review Commission Final Report 90-91 (Oct. 20, 1997).

69. Report of the Commission on Bankruptcy Laws, H.R. Doc. No. 137, Part I, 93^rd Congress, 158-59 (1973) (citation omitted).

70. The Committee had initially approved an amendment offered by Chairman Hyde eliminating the IRS collection standards from the means test. Subsequently, however, Rep. Graham (R-SC) offered an amendment reintroducing the IRS collection standards into the means test; effectively reversing the Chairman's earlier amendment. The Committee accepted this amendment by a 17-14 largely party line vote, with Chairman Hyde and Rep. Baccus (R-AL), crossing party lines to join with most Democrats in opposing the reinsertion of the IRS standards.

71. IRS Manual § 5323.432.

72. IRS Manual § 5323.433.

73. IRS Manual § 5323.12.

74. As amended by Representative Graham (R-SC), the bill allows a deduction for "the continuation of actual expenses of a dependent child under the age of 18 for tuition, books, and required fees at a private elementary or secondary school, not exceeding $10,000 per year."

75. IRS Manual, Exhibit 5300-46.

76. Hearing on H.R. 3150, the "Bankruptcy Reform Act of 1998," Before the House Subcomm. on Commercial and Admin. Law, 105th Cong., 2d Sess. (Mar. 10, 1998) (written statement of the Honorable Randall J. Newsome, U.S. Bankruptcy Judge, Northern District of California).

77. Internal Revenue Service Restructuring and Reform Act of 1998, Pub. L. No. 105-206, § 3462 (1998).

78. H.R. 833, § 102 (proposed amendment to 11 U.S.C. § 707(b)(2)(B)).

79. Id.

80. H.R. 833, § 102 (proposed amendment to 11 U.S.C. § 707(b)(2)(B)).

81. National Bankruptcy Review Commission, Final Report: Bankruptcy - The Next Twenty Years 90-91 (Oct. 20, 1997).

82. H.R. 833, § 102 (proposed amendment to 11 U.S.C. § 707(b)(4)(B)).

83. Congressional Budget Office, H.R. 3150: Bankruptcy Reform Act of 1998 - Private-Sector Mandates Statement (June 10, 1998).

84. March 17, 1999 Hearing (written statement of Robert H. Waldschmidt, National Association of Bankruptcy Trustees at 3).

85. Henry E. Hildebrand, The Hidden Costs of Bankruptcy Reform 2 (1998)(unpublished manuscript on file with the Committee on the Judiciary, minority staff).

86. H.R. 833, § 602. Although there is broad support for audits, which were a National Bankruptcy Review Commission proposal, the purpose of the proposal (to ensure honesty and accuracy) will fail unless a reasonable requirement is set on the ratio of cases to audit and unless the appropriate substantive standard is applied to the audits.

87. Hearing on Business Bankruptcy Issues in H.R. 3150, the "Bankruptcy Reform Act of 1998," Before the House Subcomm. on Commercial and Admin. Law, 105th Cong., 2d Sess. (Mar. 19, 1998).

88. March 17, 1999 Hearing (testimony of the Honorable William Houston Brown).

89. Congressional Budget Office, Comparison of the Means-Testing Provisions in S. 1301, as reported by the Senate Judiciary Committee's Subcommittee on Administrative Oversight and the Courts on April 2, 1998, and in H.R. 3150, as introduced on February 3, 1998 5 (May 8, 1998).

90. Id. at 3.

91. Id. at 5.

92. Id.

93. H.R. 833, § 603 (proposed amendment to 11 U.S.C. § 521).

94. Congressional Budget Office, Comparison of the Means-Testing Provisions in S. 1301, as reported by the Senate Judiciary Committee's Subcommittee on Administrative Oversight and the Courts on April 2, 1998, and in H.R. 3150, as introduced on February 3, 1998 5 (May 8, 1998). Democratic Representative Melvin Watt, in an attempt to alleviate the burden and cost of this provision to low-income debtors, unsuccessfully offered an amendment that would have required debtors to submit tax returns only if requested by the court, trustee, or any party in interest.

95. March 17, 1999 Hearing (written statement of the Honorable Randall J. Newsome, President, National Conference of Bankruptcy Judges at 1).

96. H.R. 833, § 130 (proposed amendment to 11 U.S.C. § 1325(b)).

97. H.R. 833, §§ 133 (proposed amendment to 11 U.S.C. § 523(a)(2)(C)), 146.

98. Letter from Jacob J. Lew, Director, Office of Management and Budget, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law 2 (Mar. 23, 1999).

99. Hearing on Consumer Bankruptcy Issues in H.R. 3150, the "Bankruptcy Reform Act of 1999," Before the House Subcomm. on Commercial and Admin. Law, 105th Cong., 2d Sess. (Mar. 10, 1998) (written statement of Henry J. Sommer).

100. H.R. 833, § 122.

101. H.R. 833, § 136.

102. H.R. 833, § 137 (proposed amendments to 11 U.S.C. §§ 727(a)(8), 1328).

103. The Biblical origin of debt forgiveness may be found in Deuteronomy 15:1- 3: "[a]t the end of every seven years you shall grant a release of debts. And this is the form of the release: Every creditor who has lent anything to his neighbor shall release it; he shall not require it of his neighbor or his brother, because it is called the Lord's release. Of a foreigner you may require it; but you shall give up your claim to what is owed by your brother." In Deuteronomy 15:9, we are instructed, "See that you do not harbor iniquitous thoughts when you find that the seventh year, the year of remission, is near and look askance at your needy countryman and give him nothing. If you do, he will appeal to the Lord against you and you will be found guilty of sin."

104. H.R. 833, § 102.

105. H.R. 833, §§ 133, 146.

106. H.R. 833, § 133.

107. The reported data are from the Consumer Bankruptcy Project, Phase II. Principal researchers are Dr. Teresa Sullivan, Vice-President of the University of Texas; Jay Westbrook, Benno Schmidt Chair in Business Law, University of Texas; and Elizabeth Warren, Leo Gottlieb Professor of Law, Harvard Law School. These estimates are based on data collected in 1991 in sixteen judicial districts around the country. For more details about the study, see Teresa Sullivan et al., Consumer Debtors Ten Years Later: A Financial Comparison of Consumer Bankrupts 1981-91, 68 AM. BANKRUPTCY L.J. 121 (1994).

108. 11 U.S.C. §§ 507(a)(7) & 523(a)(5).

109. Congressional Research Service, Impact of Consumer Bankruptcy Reform Proposals on Child Support Obligations (May 13, 1998).

110. Statement of Marshall J. Wolf (May 13, 1998) (on file with the House Comm. on the Judiciary).

111. March 18, 1999 Hearing (written statement of Karen Gross, New York Law School).

112. Id. (written statement of Joan Entmacher, National Women's Law Center).

113. Hillary Rodham Clinton, Bankruptcy Shouldn't let Parents off the Hook, Wash. Times, May 7, 1998.

114. Letter from Representative George W. Gekas, et al., to Members of Congress (Apr. 29, 1998).

115. Under current law, domestic support owed to families is a priority debt; support owed to the government is nondischargeable, but is not priority debt.

116. Although the bill gives priority to support claims owed to actual people over those owed to the government in chapter 7 cases where there are assets to distribute, those cases are few, and the new definition could serve to hurt women and children, the most likely creditors of domestic support.

117. Those priorities - which would apply in less than 1% of all cases - deal with debts of grain storage facility operators, debts of fishermen, employee wage claims, retail layaway claims, and the like. 11 U.S.C. § 507(a).

118. H.R. 833, § 141 (proposed amendment to 11 U.S.C. § 362(b)). Specifically, the bill creates exceptions to the automatic stay for enforcement actions undertaken by government child support agencies, including income withholding in cases being enforced by public agencies; actions to withhold, suspend or restrict drivers', professional and occupational, or recreational licenses; reporting overdue support to credit bureaus; intercepting tax refunds; and enforcing medical support. Furthermore, Representative Gekas struck many of the provisions from Representative Nadler's amendment creating new exceptions to the automatic stay. As altered by Representative Gekas, the exceptions to the automatic stay do not go far enough in protecting the interests of women and children because there is no exception for proceedings to establish paternity or to establish or modify a domestic support obligation. It is inconsistent for the bill to except from the stay some family-related proceedings, but to subject others to its requirements.

119. March 18, 1999 Hearing (written statement of Joan Entmacher, National Women's Law Center) (citing U.S. Dept. of Health and Human Servs., Office of Child Support Enforcement, Preliminary Data Report: Child Support Enforcement FY 1997 (Aug. 1998).

120. 11 U.S.C. § 523(a)(6).

121. Kawaauchau v. Geiger, 523 U.S. 57 (1998) (holding that the actor must intend the consequences of the act, injury to someone or something, not just the act, itself). If, therefore, the actor intends only to damage the building and not any person inside, but does injure a person inside, he may be able to discharge the debts arising out of the injury to the person because that injury was not intended. See id.

122. Operation Rescue Founder Files for Bankruptcy due to Lawsuits, Wash. Post, Nov. 8, 1998, at A29; An Anti-Abortion Leader Files for Bankruptcy, N.Y. Times, Nov. 8, 1998, at 45.

123. Memorandum of NARAL 8 (Mar. 30, 1999).

124. Letter from LCCR to Members of Congress (Apr. 21, 1999).

125. Id.

126. Letter from Dan Schulder, Director Legislation, National Council of Senior Citizens, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law (June 9, 1998).

127. Id.

128. 11 U.S.C. §§ 523(a)(6), (9), (13).

129. Letter from Marlene A. Young, Executive Director, NOVA, to the Honorable Henry J. Hyde, Chair, House Comm. on the Judiciary (Apr. 26, 1999).

130. Letter from David Beatty, Director of Public Policy, The National Center for Victims of Crime, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law (Apr. 28, 1999).

131. Letter from Karolyn V. Nunnallee, National President, MADD, to Members of Congress (Apr. 26, 1999).

132. Id.

133. March 16, 1999 Hearing (written statement of Joe Lee, Charts 5-6). In 1993, banks issued credit card loans in the amount of $223 billion; in the same year, there were approximately 900,000 consumer bankruptcy filings. Id. (citing the FDIC and the Administrative Office of the U.S. Courts). In 1998, banks issued $455 billion in credit card loans; that year, there were 1.4 million consumer bankruptcy filings. Id.

134. 439 U.S. 299 (1978).

135. See March 16, 1999 Hearing (written statement of Joe Lee at 1-3).

136. Id. (written statement of Joe Lee at 4-5).

137. Press Release of the National Consumer Law Center, Consumers Union, Consumer Federation of America, and U.S. PIRG (Apr. 19, 1999).

138. Id. (quoting Agenda for Card Marketing Conference '98 (Nov. 9-11, 1998)).

139. Id.

140. Id.

141. U.S. Public Interest Research Group, The Campus Credit Card Trap: Results of a PIRG Survey of College Students and Credit Cards (Sept. 1998).

142. Press Release of the National Consumer Law Center, Consumers Union, Consumer Federation of America, and U.S. PIRG (Apr. 19, 1999).

143. Dan Herbeck, Where Credit Isn't Due: Developmentally-Disable Become Victims, Buffalo News, Apr. 7, 1998, at 1A.

144. Id.

145. Id.

146. Id.

147. March 11, 1999 Hearing (written statement of Gary Klein, National Consumer Law Center).

148. Letter from American Bankruptcy Service to Michael Schwartz (Dec. 18, 1998).

149. March 18, 1999 Hearing (written statement of Damon A. Silvers, AFL-CIO, n.9 (citing Debra Nussbaum, "Lenders Laud the Value of Home Sweet Equity," N.Y. Times, Mar. 22, 1998, § 3 at 10; Richard W. Stevenson, "How Serial Refinancings Can Rob Equity," N.Y. Times, Mar. 22, 1998, § 3 at 10. See also Julia Patterson Forrester, "Mortgaging the American Dream: A critical Evaluation of the Federal Government's Promotion of Home Equity Financing," 69 Tulane L. Rev. 373 (1994))).

150. Section 112 of the bill requires only that credit card companies disclose on customer account statements that making the minimum payments each month will increase the length of time it takes to pay off the account. This "disclosure" provision is meaningless because it would not require credit card companies to tell customers exactly how long it would take, and how much it would cost, if the minimum payments were made.

151. March 16, 1999 Hearing (written statement of Frank Torres, Consumers Union).

152. The bill fails to address the major problem with respect to reaffirmation agreements. It does not penalize creditors that coerce debtors into signing such agreements; instead, it merely penalizes creditors that violate the terms of such agreements. This does not protect already-bankrupt debtors who were coerced into signing reaffirmation agreements at the risk of losing appliances, children's toys, or clothing.

153. H.R. 833, § 114.

154. See Susan Chandler, Sears Keeps Reporting Discharged Debts, Chicago Trib., Nov. 13, 1998, at 2.

155. Leslie Kaufman, Sears to Pay Fine of $60 Million in Bankruptcy Fraud Lawsuit, N.Y. Times, Feb. 10, 1999, at C2. Sears forced customers to sign such agreements and pay back debts despite the fact that the customers had filed for bankruptcy protection. Id. The company ultimately had to pay a $60 million criminal penalty following a guilty plea and another $180 million in reimbursements and penalties to cardholders, and $40 million to settle civil suits brought by state attorneys general. Sears' Subsidiary Admits Bankruptcy Fraud, Agrees to $60 Million Fine, 8 Consumer Bankruptcy News 11 (Feb. 25, 1999). Some reaffirmation agreements are poorly understood by debtors and are obtained either through the debtor's lack of understanding or coercive creditor tactics. In a separate case involving Sears's reaffirmation practices, decided in the Eastern District of New York, In re Bruzzese, 214 B.R. 444 (E.D.N.Y. 1997), a debtor reaffirmed an $1,800 debt to obtain $500 in "new credit" that the court calculated would cost the debtor $621 in finance charges under the terms of the agreement in the first year, or an effective rate of 124.2%. Id. at 448. The court went on to point out, "[w]hat Sears did not disclose and what the debtor's attorney did not explain to his client is that, assuming no defaults in the timely payment of the reaffirmed amount, it would take 76 months to satisfy this amount. Over the 76 months, she would pay a stream of payments totaling $3,269.02, of which the aggregate interest would be $1,469.02. For a wholly-unsecured obligation, this would exceed the maximum payment term of 60 months permitted under a chapter 13 plan by 15 months. Other credit card issuers charge a far lower actual annual percentage rate for a $500 line of credit even to persons who have received a recent discharge in chapter 7 bankruptcy case." Id. Based on its findings, the court ordered Sears to repay all payments made by the debtor with respect to the reaffirmed debt, and annulled the reaffirmation agreement. Id. at 451.

156. H.R. 833, § 402 (proposed amendment to 11 U.S.C. § 101(51D)).

157. See March 18, 1999 Hearing (written statement of Jere W. Glover, Chief Counsel for Advocacy, SBA).

158. H.R. 833, § 406 (proposed 11 U.S.C. § 1115).

159. H.R. 833, § 407 (proposed amendment to 11 U.S.C. § 1121(e)).

160. Letter from Peggy Taylor, Director of Legislation, AFL-CIO, to the Honorable Henry J. Hyde, Chair, House Comm. on the Judiciary (Apr. 20, 1999).

161. March 18, Hearing (written statement of Jere W. Glover, Small Business Administration).

162. March 18, 1999 Hearing (written statement of Jere W. Glover, Chief Counsel for Advocacy, SBA).

163. Letter from Jere W. Glover, Chief Counsel for Advocacy, U.S. Small Business Administration, to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law (Apr. 22, 1998).

164. March 18, 1999 Hearing (written statement of Jere W. Glover, Chief Counsel for Advocacy, SBA).

165. Id. (written statement of Damon A. Silvers, AFL-CIO at 4); March 17, 1999 Hearing (written statement of Kenneth Klee, National Bankruptcy Conference at 7).

166. March 18, 1999 Hearing (written statement of Damon A. Silvers, Associate General Counsel, AFL-CIO).

167. Letter from Peggy Taylor, Director of Legislation, AFL-CIO, to the Honorable Henry J. Hyde, Chair, House Comm. on the Judiciary (Apr. 20, 1999).

168. Id.

169. March 18, 1999 Hearing (written statement of Damon A. Silvers, AFL-CIO); March 17, 1999 Hearing (written statement of Kenneth Klee, National Bankruptcy Conference).

170. H.R. 833, § 213.

171. H.R. 833, § 1012.

172. H.R. 833, § 208.

173. H.R. 833, § 412.

174. Letter from Peggy Taylor, Director of Legislation, AFL-CIO, to the Honorable Henry J. Hyde, Chair, House Comm. on the Judiciary (Apr. 20, 1999).

175. The value to the estate of retaining the ability to assign certain leases is often a significant issue in determining which leases to assume or reject because it impacts upon the ability to pay other creditors. It should also be noted that the lessor already is entitled to get paid post-petition for the use of the property - the debtor is not using it for free.

176. In re Klein Sleep Prods., 78 F.3d 18 (2d Cir. 1996).

177. Hearing on Business Bankruptcy Issues Before the House Subcomm. on Commercial and Admin. Law, 105th Cong., 2d Sess., (Mar. 18, 1998) (statement of Paul H. Asofsky).

178. March 18, 1999 Hearing (written statement of Paul Asofsky).

179. Letter from Paul Asofsky to the Honorable Jerrold Nadler, Ranking Member, House Subcomm. on Commercial and Admin. Law (Feb. 5, 1999) [hereinafter Asofsky Letter].

180. Id. at 2.

181. Id. at 3-4.

182. These are the same standards used in the means test in section 102 of H.R. 833.

183. Asofsky Letter at 4.

184. Id. at 5-6.