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Chairman SENSENBRENNER. And the gentleman from New York is recognized for 5 minutes.

Mr. NADLER. Thank you. Thank you, Mr. Chairman.

Mr. Chairman, the Judiciary Committee has received testimony from many sources, most recently from the Commercial Law League of America, the Nation's oldest creditors rights organization, that the business provisions in this bill will destroy businesses, especially small businesses. The substitute—that is, this amendment—would correct this problem by giving distressed companies the needed flexibility that will enable many of them to reorganize successfully as opposed to liquidate in a Chapter 11 proceeding.

Organized labor has also spoken out against the small business provisions of this bill because they recognize that a failed reorganization hits workers the hardest. They're the ones who lose their jobs. They're the ones who lose their benefits. They're the ones who see their pensions evaporate.

If you have had a large and small business bankruptcy in your district, you know what happens when a company goes under. Preserving value in a company through successful rehabilitation where it is possible benefits everyone—the employees, the creditors, the communities. This bill, however, has rigid and inflexible deadlines that is not found in the current code, especially those dealing with the time in which a company may propose a plan of reorganization. It also places absolute limits on the time in which a business must decide whether to assume or reject a commercial lease, even if they are current in their rent payments. That limit could prove disastrous in cases involving businesses with hundreds of stores. Does anyone know about the Kmart bankruptcy or the Cinema Multiplex bankruptcies? How would arbitrary deadlines have affected those cases?

Other arbitrary rules that would force the conversion of a case to liquidation are dangerous to our economy and to American business, especially small businesses. When this bill first appeared in 1997, everyone was singing "Happy days are here again." There were few fears that massive bankruptcies in our airline industry, the collapse of much of our tech industry, the implosion of such market bellwethers as Enron and WorldCom or the coal or steel industries were just over the horizon.

It would be foolhardy for the Members of this Committee to ignore what is going on in the real world just because we have voted for this bill in the past. In the case of these business provisions, they could mean the loss of thousands of jobs, the unnecessary liquidation as opposed to reorganization of valuable and still viable businesses, and the loss of business and value for trade creditors and communities.

Let's take an example from the business pages—from the financial pages. The last time we marked up this bill, I noted that that morning's New York Times had reported that United Airlines was seeking an extension on its April 8th deadline for filing a plan of reorganization until October 6th. Why were they seeking this extension? According to the report, the extra time would give United the chance to gauge the consequences of any war with Iraq on the airline industry, unquote.

 

 

 

 

 

 

 

 


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Is there anyone here other than one of United's competitors who does not think that that made sense at that time? Would we have wanted to insist that United file a plan without getting a handle on what is about to happen? Would the Members of the Committee prefer to just liquidate the whole thing?

According to the Times, "The Air Transport Association said in a report yesterday that a long conflict could prompt the industry to cut 70,000 more jobs on top of the 100,000 lost since the September 11th attacks in 2001." It said, "Several carriers could be forced in bankruptcy along with United and US Airways, which had filed for Chapter 11 protection last summer." In fact, an ATA spokesman was quoted in the London Financial Times as stating that the war could add another $4 billion to airline losses on top of the $5.7 billion forecast and cut a further 2,200 daily flights.

In court papers, United requested the extension to avoid premature formulation of a Chapter 11 plan and to ensure that the formulated plan takes into account the interests of the company, its employees, and its creditors. That was then.

Judge Weidoff is still keeping United in the air and people are still working. Could you imagine what would have happened if we had tied his hands the way this bill would? Is there any doubt what would have happened to that case? United would have been liquidated, the employees laid off, and the creditors not gotten their debts repaid. Shouldn't the law allow courts to review the facts and decide whether or not such flexibility as in the Bankruptcy Code has long required in the best interest of the creditors and the estate?

Mr. Chairman, our job is to make the system work better, not to wreck it. Chapter 11 is a model that other countries are trying to emulate. They look to our system of rehabilitating going concerns values where possible as preferable to their emphasis on liquidation. Just as the rest of the world is realizing that our system encourages risk taking and promotes the rehabilitation of distressed businesses, this bill—or this provision would take our system back in the other direction. Perhaps this Committee could listen to the sound of the market forces before acting.

I urge the adoption of this amendment to allow the system to remain somewhat flexible so that businesses can be saved instead of liquidated. Thank you. I yield back.

Chairman SENSENBRENNER. The gentleman from Utah.

Mr. CANNON. Thank you, Mr. Chairman.

Section 404 of the bill, under current law, Chapter—this refers to section 404. Under current law, a Chapter 11 debtor or lessee must assume or reject a nonresidential lease within 60 days. This 60-day period, however, can be and often is routinely extended by the court. Section 404 of the current bill fixes the deadline by which the debtor must assume or reject a lease. It requires a nonresidential lessee to either assume or reject within 120 days of the filing of bankruptcy or by the date that the court confirms the plan of reorganization. This period can be extended for an additional 90 days on the motion of the lessee or the lessor. And then there are further provisions for extension.

Let me just point out that section 404 is a result of extensive negotiation over the preceding three Congresses. This bill is not hostile to lessees. As a matter of fact one of the principal groups of

 

 

 

 

 

 

 

 


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nonresidential lessees, the National Retail Federation, is one of the bill's strongest supporters on this particular point.

The provision gives landowners greater certainty in dealing with bankrupt tenants because it sets a firm time frame by which the debtor must decide whether to continue with a lease of a shopping center and the ability it produces means ultimately we get better rates more equitable rates, and promotes competition among landlords. Bankruptcy Code section 502 limits the amount of damages that a landlord can claim as an administrative expense, priority if a tenant assumes a lease, and then rejects the lease at a later time. This prevents landlords from getting a financial windfall at the expense of unsecured creditors. It's a well-thought-out and well-balanced part of the whole bill.

Now, many of these issues deal with small businesses, and we have very, very wide-ranging groups supporting these small business provisions, like the National Bankruptcy Review Commission, Executive Office of the United States Trustees, bankruptcy judges, the National Association of Credit Management, and the American Bankruptcy Institute.

This section gives teeth to those charged with the oversight of these cases, including the courts, the United States trustees and parties in interest. It only requires small business debtors to do what they should do and be doing while they're in Chapter 11, that is, pay their post-petition obligations as they become due and make progress toward confirmation.

Deadlines in these provisions are not absolute. Most can be extended upon a proper showing of cause. And this streamlines the process by providing for flexible rules for disclosure statements and plans.

Again, the bill can be criticized at various points and narrow perspectives, but as a whole, and in particular with this section, the section that's attempted to be amended here by Mr. Nadler, the bill is well considered and well balanced, and I would urge my colleagues to reject this amendment.

Thank you, Mr. Chairman. I yield back.

Mr. BERMAN. Mr. Chairman?

Chairman SENSENBRENNER. The gentleman from California, Mr. Berman.

Mr. BERMAN. Thank you, Mr. Chairman. Move to strike the last word.

Chairman SENSENBRENNER. The gentleman is recognized for 5 minutes.

Mr. BERMAN. I yield to the gentleman from New York.

Mr. NADLER. Thank you. Mr. Chairman, the provisions—what's wrong with the provisions in the bill that this seeks to enact is that they are rigid. One, first of all, most of what Mister—the gentleman from Utah talked about was lessees. Lessees and lessors are only one part of what we're talking about here. And if you look at the amendment, it says repeatedly the court may extend the time period specified in this paragraph if the debtor established by clear and convincing evidence that an extension is justified by circumstances beyond the debtor's control that were not foreseeable on the date for the order of relief.

Again, unless the debtor established by clear and convincing evidence that there are circumstances beyond the debtor's control that

 

 

 

 

 

 

 

 


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were not foreseeable on the date of the order of relief. Unless the debtor established by clear and convincing evidence that there are—et cetera.

The court may extend the time period specified in paragraph 2 if the debtor established by clear and convincing evidence that an extension is justified by circumstances beyond the debtor's control that were not foreseeable.

In other words, we're giving the judge in this amendment the ability—in the interest of the creditors, in the interest of the debtors, in the interest of the employees, in the interest of everybody, the ability in case of unforeseeable developments, the ability to extend otherwise rigid deadlines, deadlines that in the abstract may make sense. Deadlines that may say 90 days and then a one-time extension of another 60 days may sound reasonable but in a given case may not prove to be reasonable.

The code has always given the judges some discretion, and all this amendment says, the burden of proof is on the debtor. The burden of proof for a debtor who wants an extension of time is on the debtor to prove by clear and convincing evidence. The second highest standard of evidence that he needs the extension because of circumstances beyond his control that were not foreseeable at the time of the order.

And if the judge believes that he has established that beyond—by clear and convincing evidence, at that point why shouldn't the judge have the ability to extend a deadline and maybe save a company, save the jobs, save the community, get the creditors the ability to have more of their debts repaid? It doesn't make sense to be this rigid.

Now, judges are going to be reluctant to extend deadlines repeatedly, especially when you put the burden of proof on the debtor and say not only does it have to be clear and convincing evidence, but it has to be circumstances that are beyond his control and totally unforeseeable at the time the order was given. I don't see what sense it makes to deny some flexibility when you may save 20,000 jobs or a community or get—or for that matter, that may redound to the benefit of the creditor, too.

So why wouldn't we give this kind of flexibility—I shouldn't say "give'—keep this kind of flexibility in the system?

I yield back to the gentleman. I thank him for yielding.

Chairman SENSENBRENNER. Does the gentleman from California yield back?

Mr. BERMAN. I do.

Mr. WATT. Mr. Chairman?

Chairman SENSENBRENNER. The gentleman from North Carolina, Mr. Watt.

Mr. WATT. I won't take 5 minutes. I just want to make the point that this discussion has pointed up once again how we miss opportunities to address problems by not having hearings and going through regular order. I don't think either one of these gentlemen is trying to do anything unreasonable, but we are operating in a system here that you all have set that basically is making a mockery of the legislative process. It's clear that you're not going to allow one comma, one period, one capital letter, anything to be done to this bill because you don't want it to go to conference. I understand that. But it makes this markup a charade. And it makes

 

 

 

 

 

 

 

 


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us look like we're just—this is just an irrelevant process, that the Senate has shaped this bill, and this bill is too important to the American consumer, debtor, and creditor to have this happen to it. And our institution is too important for us to make our institution have this kind of impact.

So, I mean, I—if I sound a little frustrated, it's because I am a little frustrated, because we're just playing games here. And so I yield back.

Chairman SENSENBRENNER. The question is on the amendment offered by the gentleman from New York, Mr. Nadler. Those in favor will say aye? Opposed, no? The noes appear to have it. The noes—a rollcall will be ordered. Those in favor of the Nadler amendment will, as your names are called, answer aye, those opposed, no, and the clerk will call the roll.

The CLERK. Mr. Hyde?

[No response.]

The CLERK. Mr. Coble?

Mr. COBLE. No.

The CLERK. Mr. Coble, no. Mr. Smith?

Mr. SMITH OF TEXAS. No.

The CLERK. Mr. Smith, no. Mr. Gallegly?

Mr. GALLEGLY. No.

The CLERK. Mr. Gallegly, no. Mr. Goodlatte?

[No response.]

The CLERK. Mr. Chabot?

Mr. CHABOT. No.

The CLERK. Mr. Chabot, no. Mr. Lungren?

Mr. LUNGREN. No.

The CLERK. Mr. Lungren, no. Mr. Jenkins?

Mr. JENKINS. No.

The CLERK. Mr. Jenkins, no. Mr. Cannon?

Mr. CANNON. No.

The CLERK. Mr. Cannon, no. Mr. Bachus?

[No response.]

The CLERK. Mr. Inglis?

Mr. INGLIS. No.

The CLERK. Mr. Inglis, no. Mr. Hostettler?

Mr. HOSTETTLER. No.

The CLERK. Mr. Hostettler, no. Mr. Green?

[No response.]

The CLERK. Mr. Keller?

Mr. KELLER. No.

The CLERK. Mr. Keller, no. Mr. Issa?

Mr. ISSA. No.

The CLERK. Mr. Issa, no. Mr. Flake?

[No response.]

The CLERK. Mr. Pence?

[No response.]

The CLERK. Mr. Forbes?

[No response.]

The CLERK. Mr. King?

Mr. KING. No.

The CLERK. Mr. King, no. Mr. Feeney?

Mr. FEENEY. No.

The CLERK. Mr. Feeney, no. Mr. Franks?

 

 

 

 

 

 

 

 


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Mr. FRANKS. No.

The CLERK. Mr. Franks, no. Mr. Gohmert?

Mr. GOHMERT. No.

The CLERK. Mr. Gohmert, no. Mr. Conyers?

[No response.]

The CLERK. Mr. Berman?

Mr. BERMAN. Aye.

The CLERK. Mr. Berman, aye. Mr. Boucher?

[No response.]

The CLERK. Mr. Nadler?

Mr. NADLER. Aye.

The CLERK. Mr. Nadler, aye. Mr. Scott?

[No response.]

The CLERK. Mr. Watt?

Mr. WATT. Aye.

The CLERK. Mr. Watt, aye. Ms. Lofgren?

[No response.]

The CLERK. Ms. Jackson Lee?

[No response.]

The CLERK. aye. Ms. Waters?

Ms. WATERS. Aye.

The CLERK. Ms. Waters, aye. Mr. Meehan?

Mr. MEEHAN. Aye.

The CLERK. Mr. Meehan, aye. Mr. Delahunt?

Mr. DELAHUNT. Aye.

The CLERK. Mr. Delahunt, aye. Mr. Wexler?

Mr. WEXLER. Aye.

The CLERK. Mr. Wexler, aye. Mr. Weiner?

[No response.]

The CLERK. Mr. Schiff?

Mr. SCHIFF. Aye.

The CLERK. Mr. Schiff, aye. Ms. Sanchez?

Ms. SANCHEZ. Aye.

The CLERK. Ms. Sanchez, aye. Mr. Smith?

Mr. SMITH OF WASHINGTON. Aye.

The CLERK. Mr. Smith, aye. Mr. Van Hollen?

[No response.]

The CLERK. Mr. Chairman?

Chairman SENSENBRENNER. No.

The CLERK. Mr. Chairman, no.

Chairman SENSENBRENNER. Members who wish to cast or change their vote? The gentleman from Alabama, Mr. Bachus.

Mr. BACHUS. No.

The CLERK. Mr. Bachus, no.

Chairman SENSENBRENNER. The gentleman from Wisconsin, Mr. Green.

Mr. GREEN. No.

The CLERK. Mr. Green, no.

Chairman SENSENBRENNER. The gentleman from New York, Mr. Weiner.

Mr. WEINER. Aye.

The CLERK. Mr. Weiner, aye.

Chairman SENSENBRENNER. The gentleman from Virginia, Mr. Scott.

Mr. SCOTT. Aye.

 

 

 

 

 

 

 

 


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The CLERK. Mr. Scott, aye.

Chairman SENSENBRENNER. The gentleman from Michigan, Mr. Conyers.

Mr. CONYERS. Aye.

The CLERK. Mr. Conyers, aye.

Chairman SENSENBRENNER. Further Members who wish to cast or change their vote? If not, the clerk will report.

The CLERK. Mr. Chairman, there are 13 ayes and 18 noes.

Chairman SENSENBRENNER. And the amendment is not agreed to. Are there further amendments?

Mr. SCHIFF. Mr. Chairman?

Chairman SENSENBRENNER. The gentleman from California, Mr. Smith.

Mr. SCHIFF. Schiff.

Chairman SENSENBRENNER. Schiff. I'm sorry.

Mr. SCHIFF. It is going to be very confusing on this Committee now.

 

 

 

 


Mr. Chairman, I have an amendment at the desk numbered 006.

Chairman SENSENBRENNER. The clerk will report the amendment.

The CLERK. Amendment to S. 256 offered by Mr. Schiff. Page 19, after line 21, insert the following (and make such technical and conforming changes as may be appropriate):

"(8)(A) No judge, United States trustee'——

Chairman SENSENBRENNER. Without objection the amendment will be considered as read and the gentleman from California is recognized for 5 minutes.

[The amendment follows:]

 

 



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Mr. SCHIFF. Mr. Chairman, I thank you. My amendment would simply provide that if at least 51 percent of the creditor claims against you in bankruptcy are the result of identity theft, you should not be forced out of the protections of Chapter 7. This is an amendment similar to that offered by Senator Nelson of Florida, but is significantly narrower than the amendment that was offered in the Senate.

A few years ago the manager of an identity theft program at the FTC commented on how identity theft was becoming rampant in the country. She commented that not only can identity theft wreak havoc on the credit of a victim, but it can even force them into bankruptcy. Since then the problem has grown at epidemic rates. Identity theft has now topped the list of consumer complaints filed with the FTC for the last 4 years in a row. In September 2003 the FTC released a comprehensive survey concluding that a staggering 27 million Americans have been the victims of identity theft in at least the 5 years, costing consumers and businesses an estimated $53 billion in 2002 alone.

In fact, the home States of several Members of this Committee are at the top of the list of identity theft victims, with Texas ranking No. 4, Florida ranking No. 5, and my own home State of California ranking No. 3 in the number of victims of identity theft per capita, with over 37,000 complaints reported by consumers, costing over $40 million just last year.

We've also heard of the recent breaches of massive databases holding personal information. Identity thieves posing as legitimate customers gained access to ChoicePoint's database of 19 billion public records. The company has acknowledged that hackers had access to data on 145,000 people and that stolen information has since been used in at least 750 identity theft scams.

Just last week databases belonging to LexisNexis were also compromised with hackers stealing information on at least 32,000 people. With these epidemic level increases comes the likelihood that more innocent individuals will be forced to file bankruptcy.

Just last month a man was sentenced in New York to 2 years in prison for using a former girlfriend's identity to commit fraud. The scheme lasted several months, during which the perpetrator took out three personal loans from private loan agencies in the victim's name, purchased an Audi and a Chevy pickup truck. Ultimately the fraud resulted in the theft of over 300,000, forcing the victim to declare bankruptcy.

There are a great many examples of this. November of last year a women in Pennsylvania similarly victimized, similarly forced to file bankruptcy right before Christmas.

We shouldn't turn our backs on these individuals. Last year this Committee supported legislation Mr. Carter and I sponsored to crack down on criminals who perpetrate identity theft. Now this Committee has the opportunity to directly address the plight of some of the victims of this crime forced into bankruptcy. The amendment is simple and very narrowly drawn. It merely says that if at least 51 percent, slightly more than half of the claims against you in bankruptcy are the result of bankruptcy—the result of identity theft, something you had no control over, you should not be forced out of the protections of Chapter 7.

 

 

 

 

 

 

 

 


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I know that there has been a desire among the majority to keep the bill in its pristine state, but this is a good amendment. I think it's one that ought to enjoy bipartisan support, as our identity theft did last year, and I would urge you to accept it. This is more narrow than what was offered in the Senate. It would specifically address the problem where the major reason why you would be forced out of Chapter 7 is because you are a victim of identity theft, and I urge my colleagues to join support, and I reserve the balance of my time.

Chairman SENSENBRENNER. The gentleman will have to yield back.

Mr. SCHIFF. I yield back, Mr. Chairman.

Chairman SENSENBRENNER. The gentleman from Utah, Mr. Cannon.

Mr. CANNON. Thank you, Mr. Chairman.

I'm just sort of working through this amendment now, and it's obviously—it's obvious to me that it's an important idea and maybe something that we'd want to consider in the context of future changes, a technical blurb, something like that. For the purposes of this bill, besides the fact that we want to do a reasonable bill, and I think that this bill is available to amend if we get new reasons. Thus far I don't think we've heard many.

But this is a new issue, and I appreciate the fact that it is more narrowly drafted than the Senate counterpart, but there's some problems that I have in this bill, and I think those are substantial, and that's why I think if we do anything with this we'd have to do it—I would encourage the Members to vote against it so we can deal with it at some future time.

In the first place we're fairly vague about the identity theft and how it's established and what that means. In the second place, what happens if a person has a significant amount of identity theft—losses caused by identity theft and then becomes wealthy and has the ability to otherwise deal with these things? And so——

[Laughter.]

Mr. SCHIFF. Would the gentleman yield?

Mr. CANNON. Yes, in just a moment. Let me just say in summary from my perspective, I don't, I don't have a handle on how we deal with this, how it would fit in, and it would clearly disrupt the whole process of moving forward a bill. So I would encourage my colleagues to reject this amendment. And who asked to——

Mr. SCHIFF. I asked the gentleman if he would yield.

Mr. CANNON. Oh, certainly, Mr. Schiff.

Mr. SCHIFF. This is a, you know, rough replay of a scenario that took place in this Committee a couple years ago when I offered and amendment to this bill, to just do a study of whether those trying to get child support would be adversely impacted by the bill. It just called for a GAO study of the issue. The author of the bill at that time was Mr. Gekas. He made comments very similar to yours, along the lines of this may not be a bad idea, this may be a good idea, but we don't want anything added to the bill.

Mr. CANNON. Reclaiming my time, I think the point between the time that Mr. Gekas was here and now is there's been a lot of time to develop that idea, and if somebody wanted to do it, it could have been developed. I don't know that this issue has come up in the hearings that we've had or in the negotiations or discussions we've

 

 

 

 

 

 

 

 


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had anywhere. This has been an issue out there, but that hasn't had an advocate in the context of this bill.

Mr. SCHIFF. Will the gentleman yield again?

Mr. CANNON. Certainly.

Mr. SCHIFF. You know, I know the gentleman, with all due respect, is really reaching for a rationale to vote down the amendment, and, you know, I—Mr. Gekas, in the last scenario, offered to take up my amendment in the manager's amendment. It went up to the Rules Committee as part of this package. It came down from the Rules Committee, having been deleted from the package. And when I asked him why, he said, "You know, I thought I was the author of this bill, but it essentially is being controlled by the interest behind the bill," and he could not even succeed with an amendment he supported.

I hope we're not to that point. This is a very simple amendment that says——

Mr. CANNON. Reclaiming my time, I just—Mr. Gekas is not here to defend himself. That is an extraordinary statement. I knew Mr. Gekas very well. I've taken over the Subcommittee that he chaired earlier. I don't mean to challenge your credibility on the issue, but beyond Mr. Gekas we need to have a process, and we have not talked about this issue. I don't know if you've talked with other people that are engaged in the bill, but the issue has not, that is the issue of identity theft and how we fit it in the bill, has not been raised in a context where we could vet it and deal with it.

So part of the reason I'm stretching is because it's a new issue, and I don't know how it fits into—and I grant that I'm stretching. I don't know how it fits in. I don't know what it does to the bill. If it's going to be dealt with, it needs to be dealt with in the context to determine——

Mr. SCHIFF. Will the——

Mr. CANNON. Pardon me, just if I can finish. We need to deal with it in a context where we can consider the implications for the whole bill. And so I have a little bit of time left.

Mr. SCHIFF. I appreciate the gentleman yielding, and I'm not impugning at all Mr. Gekas" credibility, who fought for my amendment, and I'm appreciative to him. But I do challenge the process that's going on here where we have a markup. We spend hours here. And if the majority has made the decision that we will accept no amendments no matter how meritorious, then this really is a futile exercise, and we are all too busy to engage in a futile exercise.

Mr. CANNON. Reclaiming the last few moments that I have, it is a futile exercise if there's nothing new or if we can't make a clear and compelling case for something, which I don't think you can do with an issue like this at this time with the limited debate here. But we have a process.

Chairman SENSENBRENNER. The gentleman's time has expired.

Mr. WATT. Mr. Chairman?

Chairman SENSENBRENNER. The question is on the——

Mr. WATT. Mr. Chairman?

Chairman SENSENBRENNER. The gentleman from North Carolina, Mr. Watt.

Mr. WATT. I move to strike the last word.

Senator Carper. The gentleman's recognized for 5 minutes.

 

 

 

 

 

 

 

 


437

Mr. WATT. And I really didn't intend to just get on this and stay on it, but we're getting to the point of just being ridiculous here, and you know, I think we all are beginning to have our sensibilities insulted. And to be honest with you and very blunt, the Republicans are beginning to do a disservice to themselves by looking like robots, and that's unfortunate.

This bill and the substance of this bill is too important to the American people to treat it like this, and I, I mean I think there's more integrity just to say, "Look, we're not going to amend this bill, you know, call the previous question," you know, which you all have done before. You try to do it when you can blame it on us. We're trying to be constructive here, offer really good amendments that a number of people have said are really good amendments, and—but there's no flexibility here, and I don't know what we are doing. This is a charade.

And I'm embarrassed because this is out of—I mean bankruptcy started out—I guess I'm taking the lead on this because bankruptcy is the subject matter of Commercial and Administrative Law, which I am the Ranking Member of, and I don't want to see my Chair, Mr. Cannon, continue to embarrass himself like this. There's no rational reason for what's being——

Mr. CANNON. Would the gentleman yield?

Mr. WATT. I'm happy to yield to him if he can tell me he's not embarrassing himself.

Mr. CANNON. You know, I actually find it embarrassing that we make an issue out of, out of the failure of an amendment that hasn't had any development. This is not a heavy-handed process that has culminated over 7 years to where we are today.

Mr. WATT. Reclaiming my time.

Mr. CANNON. This is a 7-year process.

Mr. WATT. Reclaiming my time, I am making an issue of the fact that you all are making a charade of the legislative process on an important public policy such as bankruptcy. I'm embarrassed by this, and I think you should be embarrassed by it. So I, you know, I'm—this is not the first time I've said this today. This is not about this particular amendment but the cumulative effect of what you are doing is embarrassing to yourself, and, you know, I'm going to keep offering these amendments as long as you all sit here and embarrass yourself, but at some point you're going to have to just say to the American people, "Regardless of how meritorious an amendment is on this bill, we are not going to amend the bill because our leadership has told us that. Mr. Delay or whoever is calling the shots has told us we are not going to amend this bill."

And I don't know why we fight for the jurisdiction of our Committee if our Committee can't do anything with the jurisdiction. What good is jurisdiction if you're not going to do anything?

Mr. BACHUS. Would the gentleman yield?

Mr. WATT. We are legislators.

Mr. BACHUS. Would the gentleman yield?

Mr. WATT. I'm happy to yield to the gentleman.

Mr. BACHUS. We've been amending this bill for 8 years, have we not? I mean this bill, we amended this bill this year and last year and the year before. So I mean it's not——

Mr. WATT. Keep embarrassing yourself.

Mr. BERMAN. Would the gentleman yield?

 

 

 

 

 

 

 

 


438

Mr. WATT. I'm happy to yield to the gentleman from California.

Mr. BERMAN. Would the gentleman—if the gentleman from North Carolina would yield to the gentleman from Alabama, could he explain to me why an amendment that says if 51 percent of your debts occurred because somebody stole your identity and that the ripple implications of accepting that amendment will so upset the delicate balance of this pristine bill that—in ways that we can never know. Just give us a coherent reason why an amendment as narrow and specific as this should be rejected on its face? I can understand accepting it and fine tuning it. I can understand—but you see the impression that we get over here?

Mr. BACHUS. I appreciate the gentleman——

Chairman SENSENBRENNER. The time of the gentleman from North Carolina has expired.

Mr. BERMAN. Mr. Chairman?

Chairman SENSENBRENNER. The Chair moves to strike the last word——

Mr. BERMAN. Mr. Chairman?

Chairman SENSENBRENNER—and recognizes himself.

First, there has been plenty of process on this bill over 8 years, and all of the paper that has been generated, hearings, markups, Committee reports and debates on the floor are on the clerk's desk. And if you're having trouble seeing the clerk over the pile of papers, it shows that there has been plenty of information that has been submitted.

Now, second, relative to the amendment that has been offered by the gentleman from California, Mr. Schiff, a person is not responsible for debts that he or she did not incur. So if the debt was run up by somebody else as a result of identity theft, the person in whose name the debt was run up is not responsible for it. And if there is identity theft, that is a factual issue that the bankruptcy judge can determine, and even without this amendment, the bankruptcy judge can disallow the claim that has been made against the bankrupt's estate. That is simple law.

Now, everybody knows what the process is here. The people who don't like this bill want to amend it to send it back to the other body because they know the other body will have to spend two more weeks jumping through the hoops to get a piece of legislation passed.

This bill has been hanging around here for 8 years. It is a bill that has gotten overwhelming support in both the Senate and the House of Representatives. There has been rollcall after rollcall, and I've added up the score in both the House and the Senate. Since the 105th Congress the aggregate total of votes on bankruptcy legislation has been 2,455 ayes to 871 nays.

We're getting close to the goal line on this. Most of these arguments have been ventilated repeatedly in the past. I think that this amendment is merely an attempt to try to kill the bill because everybody knows that a debtor is not responsible for the debts he didn't incur. The amendment should be voted down.

Ms. WATERS. Mr. Chairman?

Chairman SENSENBRENNER. The gentlewoman from California, Ms. Waters.

Ms. WATERS. I move to strike the last word.

 

 

 

 

 

 

 

 


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Chairman SENSENBRENNER. And the gentlewoman is recognized for 5 minutes.

Ms. WATERS. Mr. Chairman, if in fact this amendment does no harm, and if in fact it would be a restatement of existing law, then I don't see why it could not be considered for adoption.

However, I think there are a few things that you, Mr. Chairman, said that would help everyone here to understand that you have no intentions of accepting any amendments on this bill today. You talk about the number of votes that have been taken. You talk about how high the paper is stacked before the clerk, and you basically have said to us that we're here today convened simply to vote this bill out, and that you will do that because you have the numbers, you have the majority of this Committee. You're not going to accept any amendments. And why then are we going through allowing us to take our good time to offer these amendments when you have decided the fate of our amendments already?

I think it is worse than a charade, and I think it is, as Mr. Watt has said, embarrassing to us all, and I feel a little bit bad for the jockey of the bill over there from Idaho, who cannot defend—from Iowa—who cannot—where's he from? I'm sorry, Utah, somewhere out there. Who cannot defend his objections to the—cannot defend his objections to the amendment.

So, Mr. Chairman, is a motion in order to move that we close down the Committee and we just vote the bill out?

Chairman SENSENBRENNER. Does the gentlewoman move the previous question on the bill and the amendments?

Mr. DELAHUNT. Would the gentlelady—Mr. Chairman?

Chairman SENSENBRENNER. Does the gentlewoman make that motion?

Mr. DELAHUNT. Mr. Chairman?

Ms. WATERS. The gentlewoman is prepared to make the motion. I hear some objections from my colleagues on this side of the aisle.

Chairman SENSENBRENNER. Well, then should we vote on it and see what——

Ms. WATERS. Well, let me just—let me, let me just get a nod from—where's my leader on this? Where's Mr. Conyers? Is he here?

Mr. CONYERS. Yes, he is here.

Ms. WATERS. Mr. Conyers, what would you have me do?

Mr. CONYERS. Well, I'd ask you to yield to me first.

Ms. WATERS. I will yield to you on this before I offer this motion.

Mr. CONYERS. I'd like to point out about this large number of reports and other documents that have been put on the table, the witness table, that I've counted 1, 2, 3, 4, 5, 6 new Members on this Committee for the 109th session. I can't recall how many are new Members from the 108th session. But for the years that this bill has been going on, to now come up in the first part of the 109th session and say we've been working on this bill for 6 or 7 or 8 years, and so therefore, we've had enough discussion, let's get this on with, is perhaps not the best congressional or legislative procedure that we can engage in.

Mr. INGLIS. Would the gentleman yield?

Mr. CONYERS. No. I know you're a, you're a new old Member, and so we'll give you the credit you deserve.

But I think that that should be—I think that this should be taken into consideration. The amendment I offered earlier about

 

 

 

 

 

 

 

 


440

v

veterans, I don't recall it being offered before. We haven't had any hearings in this session.

Ms. WATERS. Reclaiming my time. I think what I hear the Ranking Member advising me is not to offer the motion, so, Mr. Conyers, what I would like to do is make a suggestion to the Members on our side of the aisle, and that is, take up all your amendments, find some more, put your staffs to work so that they can create some more, and let's just stay here for a couple of days.

Chairman SENSENBRENNER. Does the gentlewoman yield back the balance of her time so that she can do that?

Ms. WATERS. If the gentlewoman had intended to do that, she would have let you know.

Chairman SENSENBRENNER. The time of the gentleman has—gentlewoman has expired. We're about 10 minutes away from four votes on the floor.

Mr. LUNGREN. Mr. Chairman?

Chairman SENSENBRENNER. Who seeks recognition? The gentleman from California, Mr. Lungren.

Mr. LUNGREN. Mr. Chairman, I'm one of those old new or new old Members that the Ranking Member referred to, and I consider very importantly my obligation to act in the best interest of my constituents and the people of this Nation. I must remark that I'm surprised that the gentlelady from California is yielding to the iron clad rule of a Ranking Member. I thought we should independently make our decisions as to what is best.

But let me just say this. I have——

Ms. WATERS. They dare not take independence when they are doing what they are told.

Mr. LUNGREN. I understand, I understand. I might say that I have been absent from this chamber for 16 years, although interestingly enough, one of the elevator operators noted me on the elevator the other day, and asked where I'd been because she hadn't seen me around for a little while. So I told her it had been 16 years.

And I understand the frustration of the minority because I was there for 10 years, and I understand being on the losing side of votes. But, you know, it's not a charade when the votes are taken and you're on the losing side because there's more on the other side than there are on your side. That's sort of the result of what happened in November.

The frustration that you feel is probably a mirror image of the frustration that those of us feel on this side who have seen this work done on a major effort to reform a Bankruptcy Code that drastically needs to be reformed. There's a consensus in this country. And to see that happen year after year after year and be tangled up in disputes, I mean, let's be real. The reason we don't have a reform of the Bankruptcy Code over the last number of years was because of actions taken by some in the other body on the abortion issue, and there was an effort to make sure that that social issue was driven and driven and driven and driven and driven, despite all of the facts, despite all of the necessity for us to do something with the Bankruptcy Code.

And so that's why we're here now. We know that there's a need to have a Bankruptcy Code reform. We know that the best chance we have of doing that is to basically minimize any differences be-

 

 

 

 

 

 

 

 


441

tween ourselves and the Senate, particularly on a piece of work that has really the earmarks of Members of this body, Members of this Committee over the last number of years. As I understand it—and I stand to be corrected—this product has a number of amendments brought by both the majority and the minority over the last number of years that have been voted on either by recorded vote or voice vote.

So that's what we're talking about, and I understand what my friends on the other side are doing, trying to make sure that we're put in a position of voting against the aged and the poor and the young and kids and veterans and everybody else. And we understand that's being done, and you have every right to do it, and I wouldn't refer to it as a charade. But the fact of the matter is we are either going to have a major reform of the Bankruptcy Code or we are not, And if we repeat what's been done in this Congress over the last five or six congresses, we will not have it, and that ill serves the American people, it ill serves the people I represent.

So, yes, I am exercising some discipline not to offer amendments, and not to support certain amendments that I might otherwise wish to because I do not want to see my pursuit of the perfect ensure that we defeat the good. And we have made a good job of defeating the good in this Congress in the last number of years. And so I appreciate what my friends have said, but, frankly, it's not a charade when one makes a judgment that in order to actually have a bill on the President's desk that does a lot of good, rather than no bill once again, that we exercise discipline individually, and not support some things that we may otherwise wish to support.

Mr. CONYERS. Would my friend, Mr. Lungren yield?

Mr. LUNGREN. I would be happy.

Mr. CONYERS. And I thank you.

Mr. LUNGREN. And I want to say one thing. In the time that I was out of this chamber, whenever I visited, the Ranking Member was probably the most gracious in recognizing me when I was here, and I just wanted to say that for the record. I appreciate that.

Mr. CONYERS. I thank the gentleman. Would you review, at your leisure, sir, the organizations that are supporting the position that has been made clear by those of us on this side of the Committee room and the names of the organizations, lobbyists, banks and credit card organizations, commercial organizations that represent what you asserted was a majority of people. I think you'd find, my friend from California, that when the National Bankruptcy Conference, the American Bankruptcy Institute, the National Conference of Bankruptcy Judges, the National Association of Chapter 13 Trustees, the National Association of——

Mr. LUNGREN. Okay, reclaiming my time, I object to——

Chairman SENSENBRENNER. The gentleman's time has expired.

The question is on the amendment offered by the gentleman——

Mr. DELAHUNT. Mr. Chairman?

Chairman SENSENBRENNER. The gentleman from Massachusetts, Mr. Delahunt.

Mr. DELAHUNT. Yes. I'm going to yield in just 30 seconds to the gentleman from—Schiff, who's the author of this particular amendment. But in response to what—the observations by Mr. Lungren, I mean I would suggest that the amendments that have been offered today deal with obvious issues and egregious problems that

 

 

 

 

 

 

 

 


442

I would concluded that if there was not the exercise of discipline, there would be nearly unanimous agreement in terms of the adoption of these particular amendments.

You know, I'm listening to Mr. Cannon, whom I consider a friend and one of the better Members of this Committee, you know, speak about his children and the fact that Government is not a good protector. And yet today we're here rejecting the amendment put forth by Mr. Watt and myself relative to the discharge, the dischargeability of debts implicating interest over 50 percent. I mean we haven't protected the American citizen today from the predatory lender. And to speak about the marketplace in terms of the need for credit and suggesting that putting some boundaries, in imposing some accountability in terms of the lending community, I would suggest that's not doing what we ought to be doing. That's not protecting the people, all of the people of this country.

And that's not about the marketplace. As I said earlier, that is right up there with, you know, what the mafia did, we reject it. How—if we adopted that amendment, how could the other body, other body not agree to that particular amendment? And the reality is—and we have heard example after example over the course of the last three or 4 months, that that in fact is happening to people all over the country. With that, I'll yield to the gentleman from California.

Mr. SCHIFF. I thank the gentleman for yielding, and somehow my amendment seems to have provoked a disagreement between the Chair of the Subcommittee and the Chair of the full Committee. The Chair of the Subcommittee maintaining that my amendment, the problem with my amendment is that it may somehow do harm, the Chairman maintaining that the problem with my amendment is that it does nothing at all, that is the existing law. The Chairman of the Subcommittee maintaining that the problem is that this issue has never been explored, the problem as addressed by the Chairman is that this issue and every other has already been explored. It can't be both.

And the charade that my colleagues from California refers to—and charade is a stronger term than I would use—is not that you win a vote or we lose a vote. The illusion is that this is a markup, that this is a Committee that today is really deliberating the amendments and making decisions. That's the illusion. The reality is that the deal was made before we ever came into the Committee room.

And the reason I brought up the history, at least my little amendment some years ago in the 107th Congress, is that this has been the history as long as I've been here, on this bill. When I offered an amendment in the 107th Congress, two congresses ago, I was given much the same response, which is this issue has already been decided before the markup, so why are you offering something in the markup, good idea, bad idea, no idea at all? Where were you when we decided this in the back room before we got into the Committee?

And you know, for most of us in the minority we're not part of that discussion. The financial interests are part of the discussion, the majority is part of the discussion, the minority is not. My colleague from California referred to his years in the minority, and I can only say, as we found in 1994, majorities are fleeting. Ours

 

 

 

 

 

 

 

 


443

was, yours may be as well, and it would be worthwhile to consider what it's like to stand in your colleague's shoes.

And I would only urge that if you feel the amendment has weight, support it. If you feel the amendment is somehow superfluous, vote against it, but let's have a real markup where the Committee can do real work, where those of us who are not invited to the back room can have input in the work product that goes out of the Committee.

Mr. Chairman, I yield back.

Chairman SENSENBRENNER. The time of the gentleman from Massachusetts has expired.

The question is on the amendment offered by the gentleman from California, Mr. Schiff. Those in favor will say aye.

Opposed, no.

The noes appear to have it.

Mr. Chairman, I request a recorded vote.

Chairman SENSENBRENNER. A recorded vote will be ordered. Those in favor of the Schiff amendment will, as your names are called, answer aye, those opposed no, and the clerk will call the roll.

The CLERK. Mr. Hyde?

[No response.]

The CLERK. Mr. Coble?

Mr. COBLE. No.

The CLERK. Mr. Coble, no. Mr. Smith?

[No response.]

The CLERK. Mr. Gallegly?

Mr. GALLEGLY. No.

The CLERK. Mr. Gallegly, no. Mr. Goodlatte?

[No response.]

The CLERK. Mr. Chabot?

Mr. CHABOT. No.

The CLERK. Mr. Chabot, no. Mr. Lungren?

[No response.]

The CLERK. Mr. Jenkins?

Mr. JENKINS. No.

The CLERK. Mr. Jenkins, no. Mr. Cannon?

Mr. SCHIFF. Mr. Lungren said no.

The CLERK. Oh, I'm sorry. Mr. Lungren, no. Mr. Jenkins, no. Mr. Cannon?

Mr. CANNON. No.

The CLERK. Mr. Cannon, no. Mr. Bachus?

Mr. BACHUS. No.

The CLERK. Mr. Bachus, no. Mr. Inglis?

Mr. INGLIS. No.

The CLERK. Mr. Inglis, no. Mr. Hostettler?

[No response.]

The CLERK. Mr. Green?

Mr. GREEN. No.

The CLERK. Mr. Green, no. Mr. Keller?

[No response.]

The CLERK. Mr. Issa?

[No response.]

The CLERK. Mr. Flake?

[No response.]

 

 

 

 

 

 

 

 


444

The CLERK. Mr. Pence?

[No response.]

The CLERK. Mr. Forbes?

[No response.]

The CLERK. Mr. King?

Mr. KING. No.

The CLERK. Mr. King, no. Mr. Feeney?

Mr. FEENEY. No.

The CLERK. Mr. Feeney, no. Mr. Franks?

Mr. FRANKS. No.

The CLERK. Mr. Franks, no. Mr. Gohmert?

Mr. GOHMERT. No.

The CLERK. Mr. Gohmert, no. Mr. Conyers?

Mr. CONYERS. Aye.

The CLERK. Mr. Conyers, aye. Mr. Berman?

Mr. BERMAN. Aye.

The CLERK. Mr. Berman, aye. Mr. Boucher?

[No response.]

The CLERK. Mr. Nadler?

Mr. NADLER. Aye.

The CLERK. Mr. Nadler, aye. Mr. Scott?

Mr. SCOTT. Aye.

The CLERK. Mr. Scott, aye. Mr. Watt?

[No response.]

The CLERK. Ms. Lofgren?

[No response.]

The CLERK. Ms. Jackson Lee?

[No response.]

The CLERK. Ms. Waters?

[No response.]

The CLERK. Mr. Meehan?

Mr. MEEHAN. Aye.

The CLERK. Mr. Meehan, aye. Mr. Delahunt?

Mr. DELAHUNT. Aye.

The CLERK. Mr. Delahunt, aye. Mr. Wexler?

[No response.]

The CLERK. Mr. Weiner?

Mr. WEINER. Aye.

The CLERK. Mr. Weiner, aye. Mr. Schiff?

Mr. SCHIFF. Aye.

The CLERK. Mr. Schiff, aye. Ms. Sanchez?

Ms. SANCHEZ. Aye.

The CLERK. Ms. Sanchez, aye. Mr. Smith?

Mr. SMITH OF WASHINGTON. Aye.

The CLERK. Mr. Smith, aye. Mr. Van Hollen?

Mr. VAN HOLLEN. Aye.

The CLERK. Mr. Van Hollen, aye. Mr. Chairman?

Chairman SENSENBRENNER. No.

The CLERK. Mr. Chairman, no.

Chairman SENSENBRENNER. Further Members who wish to cast or change their votes? The gentleman from Texas, Mr. Smith.

Mr. SMITH OF TEXAS. Mr. Chairman, I vote no.

The CLERK. Mr. Smith, no.

Chairman SENSENBRENNER. Any further Members? Gentlewoman from California, Ms. Waters?

 

 

 

 

 

 

 

 


445

Ms. WATERS. Aye.

The CLERK. Ms. Waters, aye.

Chairman SENSENBRENNER. The clerk will report. Oh, the gentleman from Alabama, Mr. Bachus?

The CLERK. Mr. Chairman, Mr. Bachus is—Mr. Bachus votes no, has voted no.

Chairman SENSENBRENNER. The gentleman from North Carolina, Mr. Watt?

Mr. WATT. Aye. I wanted to be recorded. I wasn't recorded. Is that all right?

Chairman SENSENBRENNER. Of course.

Mr. WATT. Thank you.

The CLERK. Mr. Watt, aye.

Chairman SENSENBRENNER. Anybody else who wishes to cast or change their vote? Going once, going twice, and the clerk will report.

The CLERK. Mr. Chairman, there are 13 ayes and 15 noes.

Chairman SENSENBRENNER. And the amendment is not agreed to.

We have four votes on the floor. The Chair asks Members to return promptly after the last vote so that we can get going. There is a hearing that has been noticed for 2:00 p.m. in the Subcommittee on the Constitution. That will be postponed until after the markup is completed today, and the Committee stands recessed.

[Recess.]

Chairman SENSENBRENNER. The Committee will be in order. A working quorum is present. Pending at the time of the recess was a motion to report the bill, Senate 256 favorably. Are there further amendments?

Mr. DELAHUNT. Mr. Chairman?

Chairman SENSENBRENNER. The gentleman from Massachusetts.

 

 

 

 


Mr. DELAHUNT. Thank you, Mr. Chairman. I have an amendment at the desk. It's numbered Delahunt 003.

Chairman SENSENBRENNER. The clerk will report the amendment.

The CLERK. Amendment to S. 256 offered by Mr. Delahunt. Page 507, after line 6, insert the following (and make such technical and conforming changes as may be appropriate):

Chairman SENSENBRENNER. Without objection, the amendment is considered as read, and the gentleman from Massachusetts is recognized for 5 minutes.

[The amendment follows:]




448

Mr. DELAHUNT. I thank the Chairman, and I think my final comment prior to the vote was that we haven't protected citizens today because we will be passing a bankruptcy bill that while there is a focus on personal responsibility, there is none on corporate responsibility. But I'm also concerned that we're establishing, for lack or failure to address a particularly egregious abuse that favors the affluent in this country, for failure to do that we're creating two bankruptcy systems, one for the more affluent and one for the rest of America.

So I would hope that all of my colleagues would support me in this change to eliminate what has been described euphemistically as a millionaire's loophole by addressing the issue of so-called asset protection trust. They are trusts that a person creates to shield assets for his or her own benefit. In other words, it's a financial planning to design for the more well to do who are concerned about potential bankruptcy. And currently there is no limit to the value of assets that can be shielded from bankruptcy by this particular device. The amendment is simple. It seeks to limit that value of assets up to $125,000. Now, let me emphasize that this amendment does not adversely affect retired Americans or take anything away from their retirement secretary such as IRAs, et cetera.

It also protects charitable, educational and other trusts set aside for legitimate purposes. As some experts have said, asset protection is just another term for making one self judgment proof. I would suggest that it is simply abuse of the existing system, or better yet, it's nothing more than gaming the current bankruptcy system.

This is a new development that has occurred in the last several years. The loophole is the result of laws that were adopted in five States exempting the so-called asset protection trusts from the Federal Bankruptcy Code. So for those that are interested, take note that in Alaska, Delaware, Nevada, Rhode Island and Utah, all have laws protecting stashed assets, and what's really amazing to me is you don't even have to live there to take advantage of them. Now, that's a good deal if you have a lot of money.

So if we're truly serious about abuse, bankruptcy law should not allow individuals to decide how much they want to keep away from creditors by setting up a self-created trust to do exactly that. That is doing financial planning and taking advantage of the current system to secure advantages.

This loophole is, in my judgment, evidence of how the current system provides two bankruptcy laws, one for the well connected and one for middle class families. Remember, more than half of middle class Americans who declare bankruptcy do so because of massive hospital bills or other catastrophic health care costs that they didn't expect or could not anticipate. Another third of all bankruptcies are the result of job losses. Nonetheless, the bill before this Committee today creates a special rule for millionaires. Whether the assets are villas or yachts or sport cars, investments or just suitcases full of cash, they're untouchable in the bankruptcy reorganizations of the well to do, who utilize these asset protection trusts, and neither creditors nor the courts can reach them.

The right way to address this bill is to put forth—this problem rather, is to put forward a bankruptcy protection bill with one standard, one standard for everyone that treats all Americans the same regardless of income and regardless of circumstances. You

 

 

 

 

 

 

 

 


449

know, what message does it send when Congress submits middle class debtors to a means test irrespective of State law, while permitting the wealthy to continue to place huge sums out of reach of creditors. I don't believe we want to do that. And we can address it here today.

And I would hope that my colleagues on the other side of the aisle would listen, would reflect. I dare say if this particular amendment was passed and it was returned to the Senate, you would have your bill, and at the same time we would eliminate this mechanism for abuse from the system as it now is constituted and we could hold our heads high. I see my time has expired.

Chairman SENSENBRENNER. That it is.

The gentleman from Utah.

Mr. CANNON. Thank you, Mr. Chairman. In fact, I appreciate your clarifying the State from which I come.

[Laughter.]

Mr. CANNON. This is an issue that has been debated in the Senate and soundly defeated. And let me just talk a little bit about background here. The Bankruptcy Code, section 541, generally defines what assets constitute property of the bankruptcy estate that can be made available to pay the claims of creditors. It also specifies what assets do not constitute property of the bankruptcy estate. For example, section 541(c)(2) provides that a trust is not property of the estate if the debtor's access to the trust is restricted. Thus, for example, a spendthrift trust, which is defined as a trust by the terms of the trust or by statute, a valid restraint on the voluntary and involuntary transfer of the interest that the beneficiary's imposed—pardon me for all the "legalese" but it gets to the point of where we're going I think—is established by the debtor before filing for bankruptcy relief, it would not constitute the property of the bankruptcy estate.

Under the Restatement of Trusts, a self-settled trust is a trust created by a person for his or her own benefit with a provision restraining the voluntary or involuntary transfer of person's interest, so the Restatement provides that such trust can be pierced by the person's creditors. Nevertheless, five States, Alaska, Delaware, Nevada, Rhode Island and Utah, have enacted laws that permit their citizens to establish self-settled trusts where they can place their assets outside the reach of their creditors including their homes as permitted under Delaware law. The State laws provide that property placed in such trust cannot be reached by creditors with exceptions that vary by State. Some except child, spousal support claimants and persons who suffered injury or death as a result of the settler's actions, for example.

It also appears that fraudulent transfers made by the settler to an asset protection trust may be avoided under applicable State laws as well as pursuant to Bankruptcy Code section 548. Alaska appears to allow such transfers to be set aside upon the showing of actual fraud. Delaware, on the other hand, appears to allow such transfers to be set aside based on either actual or constructive fraud, including a transfer of property for less than reasonably equivalent value which is similar to Bankruptcy Code section 548.

The bill as amended closes the self-settled trust loophole. An amendment by Senator Talent authorizing the bankruptcy trustee to avoid any transfer of property by a debtor to a self-settled trust

 

 

 

 

 

 

 

 


450

 made within 10 years preceding the filing—which is the same period that the amendment suggests, by the way—preceding the filing of the debtor's bankruptcy case if the debtor is a beneficiary of such trust, and the debtor made such transfer with actual intent to hinder, delay or defraud a creditor.

So what is an asset protection trust or self-settled trust? Neither the Internal Revenue Code nor the entire United States Code contain any reference to either of these terms. This is a matter of State law. To the extent that a—or an asset protection trust is a creature of State law, then this issue inherently involves States rights. The States should be able to determine for themselves what property their citizens can protect from the claims of creditors. This is not only implicit in the homestead exemption, but with regard to the status of all types of items of property including household goods and furnishings, livestock, family Bibles and church pews is determined under State law to be exempt property.

For example, according to CRS, Delaware only gives its citizens $5,000 homestead exemption, while Utahans only have a $10,000 homestead exemption. Why should these States be allowed—why shouldn't these States be allowed to have their citizens provide for their retirement nest egg by placing their assets in a trust fund, when in other States like Texas you have a huge homestead exemption?

States that have authorized asset protection trusts appear to be extremely supportive of them. Alaska's legislature announced that it had hoped to become the financial service center for the world as s result of authorizing such trusts. So why do we have such outrage? Senator Kennedy successfully had a provision included in the pending bankruptcy legislation, section 224, that protects up to $1 million in IRAs and other similar pension plans. An asset protection trust may be the only way for some individuals who live in a State with a nominal homestead exemption and no IRA exemption to protect assets from creditors. The issue should be studied and determined. We need to work on this. The fact is if we're going to move a bill out today, this is an issue that has been dealt with, has been debated, has been argued. It's been considered. The bill has been amended to include the basic provisions here, and I urge my colleagues to vote no on the amendment.

Thank you, Mr. Chairman. I yield back.

Mr. WATT. Mr. Chairman?

Chairman SENSENBRENNER. The gentleman from North Carolina.

Mr. WATT. I move to strike the last word.

Chairman SENSENBRENNER. The gentleman's recognized for 5 minutes.

Mr. WATT. Mr. Chairman and Members, all of what Mr. Cannon said would probably be a lot more rational if the underlying bill didn't set a national standard for homesteads too, and so we set a national standard for homestead exemptions at $125,000, yet what he's saying is that people ought to be able to be allowed to pour all of their non-homestead assets into these trusts and have them exempt because it's a matter of State law.

That is just absolutely inconsistent. I mean if you're going to have a national standard on homestead exemptions, it seems to me rational that you would have a national standard on non-homestead assets, and I think that's the only thing that Mr. Delahunt's

 

 

 

 

 

 

 

 


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