Senate and House bankruptcy conferees met on April 23rd and moved one
step closer to sending their report to President Bush by reaching an
agreement on the hotly debated homestead exemption provision in the
reform bill. It was their first-ever agreement in more than five years
of debate on changes to that section of the U.S. Bankruptcy Code.
Under existing law,
debtors in Florida, Texas, Kansas, Iowa and South Dakota can shield an
unlimited amount of home equity from creditors by filing for bankruptcy
protection. Under the new agreement, which was a combination of
amendments between Sen. Herb Kohl (D-Wis.) and Rep. Sensenbrenner, in
order to be eligible for a state’s unlimited homestead exemption, an
individual must own a residence in the state for at least 40 months
before declaring bankruptcy. If unable to meet the residency
requirement, the debtor would be allowed to take only a $125,000
homestead exemption. The new language applies only in states whose
homestead cap already exceeds $125,000, such as Florida. The deal
would bar individuals convicted of felonies or securities crimes in the
past 10 years from having access to the unlimited homestead exemption.
The bankruptcy court also would have to find a link between the debtor’s
crime and the declaration of bankruptcy.
The sole issue standing
between the legislation and its enactment concerns the question of
whether perpetrators of abortion clinic violence should be able to
discharge judgments against them in bankruptcy. The difference between
a “blockade” and a “peaceful protest” is the issue holding back an
agreement on the bankruptcy overhaul legislation. Conference Committee
Chairman James Sensenbrenner (R-Wis.) said the key to finally resolving
the dispute would be defining the specific acts that the protest-related
provision would cover. Rep. Henry Hyde (R-Ill.) insisted that
protesters should be allowed to discharge their protest-related debts if
they were fined for inadvertently stepping across lines designed to keep
them a certain distance from an abortion clinic. “There are blockades
and then there are blockades,” he said. Schumer agreed that peaceful
protestors should not be barred from having their debts discharged, but
said he would insist on language barring people from discharging debts
related to fines levied for purposeful blockading of clinics.
Sensenbrenner
directed Hyde and Schumer to get together to work out the language
differences. No meetings are scheduled for Bankruptcy conferees. While
staff negotiations have been ongoing, sources noted that those
negotiations probably have run their course, making the issue a
"member-level" matter, reported CongressDaily. Sen. Charles
Schumer (D-N.Y.) said he intended to meet privately with Rep. Henry
Hyde (R-Ill.) to see if they can forge an agreement.
Both the House and Senate passed bankruptcy reform
bills in early 2001, but the two versions differed significantly.
Attempts to appoint a conference committee to iron out the differences
in the House and Senate versions, and to begin the Conference delayed
passage of the legislation for months.
The reform legislation, which has run a rocky course
for several years, reached another stalemate and was placed on the
Congressional backburner in the wake of the terrorist attacks on New
York City and Washington, D.C. The formal meeting of House and Senate
conferees had been scheduled for September 12th.
Note: The bills
passed by the House and Senate have not been signed into law. Both
houses must adopt the same bill before it can submitted to the
President. Both versions of the legislation have an effective date of
180 days after the date of enactment, when the president signs the bill
or it is passed over his veto, so the effective date is still more than
six months away.
Bankruptcy Measure Would Make Filing for Chapter 7
Much Harder
The Wall Street Journal has
analysed how the proposed bills would change the rules for those filing
for chapter 7 bankruptcy. The new law would make filing for chapter 7
more difficult. To read the story, point your browser to
www.wsj.com (subscription required).
House Bill 333
The House approved H.R. 333, the "Bankruptcy Abuse
Prevention and Consumer Protection Act of 2001" by a vote of 306-108 on
March 1, 2001. The final vote came after several hours of impassioned
debate and consideration of six amendments. Just before the final
vote, the House defeated a motion by Rep. John Conyers (D-Mich.) to
recommit the bill back to the Judiciary Committee, with an amendment to
restrict the marketing of credit cards to those under age 21. The House
also defeated a Democratic alternative to the bill, by a vote of
162-256.
Senate Bill 420
The Senate moved slowly in its consideration of
amendments to the bankruptcy bill (S. 420), conducting only four
roll-call votes on germane amendments on Tuesday, March 13th. The
Senate voted to invoke cloture on March 14th, thereby limiting germane
and non-germane amendments and clearing the way for final passage.
History of the Current Bankruptcy Reform
Legislation
In June, 1998, the U.S. House of
Representatives passed what almost became the most sweeping bankruptcy
reform legislation in twenty years. A parallel but slightly less
stringent bill was passed by the Senate in September, 1998. The Senate
and House versions were then reconciled just before Congress adjourned
in October, 1998. The House approved the reconciled legislation but the
Senate never voted on the final bill and it died on the Senate floor.
Similar legislation was introduced in 1999. That legislation failed to
pass in the fall session of Congress.
Similar reform legislation was passed by
Congress at the close of the 2000 session but President Clinton vetoed
the bankruptcy reform legislation on December 19, 2000, too late for
Congress to override his veto, saying that it was unfair to ordinary
debtors and working families who fall on hard times. The president
said the bill would allow debtors who own expensive homes to shield
their mansions from creditors while debtors with moderate incomes,
especially renters, must live frugally and comply with rigid payment
plans for five to seven years.
The Proposed Legislation
If the proposed legislation is enacted,
many individuals will find it much more difficult to file for Chapter 7
bankruptcy protection. Debtors may have to attempt credit counseling
before they will be permitted to file for bankruptcy protection.
Section 707(b) of the Bankruptcy Code would be amended to provide for
dismissal of Chapter 7 cases or (with the debtor's consent) conversion
to Chapter 13, upon a finding of abuse. Abuse would be presumed if the
debtor had more than $100 in monthly income available to pay general
unsecured debt, based on a formula incorporating collection standards of
the Internal Revenue Service. Debtors whose family income exceeds a
national median for their size family would have to go through this
"means testing" on the request of any creditor. Debtors with the ability
to pay 25% (Senate version) or more of their unsecured debt would
have to file a Plan under Chapter 13 and make payments for a minimum of
5 years. For individuals with higher than normal expenses (many of which
would not be counted in the means testing), the new legislation may
severely hamper or altogether eliminate their ability to file for
bankruptcy protection.
Some other significant changes;
