Bankruptcy Reform Ends with Pocket Veto

On December 7th legislation, which would overhaul the U.S. bankruptcy statutes, passed the Senate by a strong, bipartisan vote of 70-28. The "Bankruptcy Reform Act of 2000" had been in the works for three years, beginning with the 105th Congress. President Clinton had signaled his intent to veto the bill throughout the fall, creating much speculation as to whether backers could hold together enough votes to override. However, the point became moot when the 106th Congress adjourned on December 15th, allowing the President to do nothing and thereby quietly exercise a pocket veto. A pocket veto is an automatic rejection of a bill if the President fails to sign it within ten days of passage if Congress is not in session.

In a "Memorandum of Disapproval" President Clinton wrote "I firmly believe that Americans would benefit from bankruptcy reform legislation that would stem abuse of the bankruptcy system by, and encourage responsibility of, debtors and creditors alike." However, the President cited two (and only two) areas in which the bill was so fundamentally flawed that he felt compelled to withhold approval. Text of his memorandum is in quotes:

• Lack of limits on homestead exemptions: The President referred to negotiations between the bill's supporters in Congress and his Administration that had reached some agreement about homestead exemption limits. "Unfortunately H.R. 2415 fails to incorporate that agreement, instead reverting to a provision that my Administration has repeatedly said was fundamentally flawed and contrary to the central premise of this legislation: that debtors who truly have the capacity to repay a portion of their debts do so. The agreement would have benefited not only those debtors' creditors but also all other debtors through lower credit costs. In contrast, the current bill's unlimited homestead exemptions allow debtors who own lavish homes to shield their mansions from their creditors, while moderate-income debtors, especially those who rent, must live frugally under rigid repayment plans for 5 to 7 years. This loophole for the wealthy is fundamentally unfair and must be closed. And the inclusion of a provision that limits—to some degree—a wealthy debtor's capacity to move assets before bankruptcy into a home in a State with an unlimited homestead exemption does not ameliorate the glaring omission of a real homestead cap."
• Failure to withhold bankruptcy protection for individuals who unlawfully bar access to legal health clinics: "I have made clear that bankruptcy legislation must require accountability and responsibility from those who unlawfully bar access to legal health services. . . The Congress and the States have established remedies for those who suffer as a result of these tactics. However, we are increasingly seeing the use of the bankruptcy system as a strategic tool by those who seek to promote clinic violence while shielding themselves from personal liability and responsibility. It is critical that we shut down this abusive use of our bankruptcy system and prevent endless litigation that threatens the court-ordered remedies owed to victims of clinic violence."

Both credit industry leaders and the bill's sponsors in Congress such as Sen. Charles Grassley (R-IA) have indicated that bankruptcy reform will remain a priority issue in the new 107th Congress.