Grassley Seeks Update of Bankruptcy Code

Current Trend Underscores Need for Overhaul of System

Sen. Chuck Grassley today introduced a bipartisan plan to improve the nation's bankruptcy system.

Sens. Robert Torricelli of New Jersey and Joe Biden of Delaware joined Grassley as co- sponsors of the Bankruptcy Reform Act of 1999. "The goal is common-sense reform that secures a safety net to protect those who deserve a fresh start, while closing the loopholes that too many now exploit to walk away from debt they can repay," Grassley said.

Grassley said his proposal reflects two years of debate on Capitol Hill on how best to respond to an alarming trend. In 1999, the number of bankruptcy filings is expected to reach an all-time high for the fourth year in a row, despite record low unemployment and continued economic expansion. The number of bankruptcies filed last year totaled 1.4 million.

Grassley said there's plenty of blame to go around for this negative trend, including the fact that the stigma of declaring bankruptcy has lessened and that Congress set a bad example with 30 years of deficit spending.

To the extent that the bankruptcy code itself is contributing to the trend, Grassley said that changes to the law are needed. "Real reform should address a number of factors such as irresponsible consumerism, lax bankruptcy laws and lawyer-run bankruptcy mills," he said.

Last fall, the Senate voted 97 to 1 in favor of Grassley's bipartisan plan to overhaul the federal bankruptcy code. The Senate bill was modified during negotiations with the House of Representatives. And in the final days of the 105th Congress, the House gave the conference report overwhelming bipartisan support. However, in the Senate, the measure was prevented from ever coming to a vote before the end of the session.

"Last year's effort provided a productive starting point for a renewed bipartisan, bicameral effort to update the federal bankruptcy code," Grassley said. A summary of the differences between the conference report of last year and the Senate bill introduced today follows on one page.

Last week, Grassley participated in a bicameral hearing to consider bankruptcy reform. The House/Senate hearing convened by Grassley and Rep. George Gekas of Pennsylvania was the first joint review of the federal bankruptcy code since 1932. Grassley is chairman of the Senate subcommittee responsible for bankruptcy policy. Gekas is chairman of the House subcommittee with jurisdiction over bankruptcy law.




Means Test

  • The new Senate bill gives bankruptcy judges greater discretion in considering whether to transfer a debtor from Chapter 7 to Chapter 13.
  • The new Senate bill requires only a showing of "special circumstances," rather than "extraordinary circumstances," for Chapter 7 debtors with apparent repayment ability to avoid being transferred to Chpater 13.
  • A new Senate bill raises the minimum dollar amount from $5,000 to $15,000, with the effect that debtors with a marginal ability to repay won't be swept up by the means test.

Consumer Protections

  • The new Senate bill requires the Attorney General and the FBI Director to designate one prosecutor and one agent in every district to investigate reaffirmation practices which violate current federal criminal laws, including the criminal laws under which Sears was prosecuted.
  • The new Senate bill specifically authorizes state attorneys general to enforce federal criminal laws against abusive reaffirmations, again including state criminal laws similar to those under which Sears was prosecuted.
  • The new Senate bill specifically authorizes state attorneys generals to enforce state laws regarding unfair trade practices against creditors who deceive debtors into reaffirmation agreements, including the state laws under which Sears was sued.
  • The new Senate bill drops a provision barring class action lawsuits for reaffirmation violations.
  • The new Senate bill reinserts a provision making it a violation of the automatic stay to threaten to file motions in order to coerce reaffirmations.
  • The new Senate bill reinserts a provision penalizing creditors who fail to acknowledge payments received in Chapter 13 plans and, thereafter, seek a "double payment."

Greater Protections for Child Support

  • The new Senate bill requires bankruptcy trustees to notify appropriate state agencies of a debtor's location and specific address, if the debtor owes child support. This effectively turns bankruptcy courts into locator services to help track down "deadbeat parents."
  • The new Senate bill requires bankruptcy trustees to notify child support claimants of thier right to enforce payment through an appropriate state agency.
  • The new Senate bill permits state agencies which enforce payment of child support obligations to request that creditors who hold reaffirmed or non-discharged debts to provide the last known address and telephone number of the debtor. Again, this effectively turns bankruptcy courts into locator services which will help to track down "deadbeat parents."
  • The new Senate bill provides that debts incurred to pay non-dischargeable debts will continue to be dischargeable if the debtor owes child support or alimony.

Fewer Non-Dischargeable Debts

  • The new Senate bill raises the dollar limits on cash advances on the eve of bankruptcy, presumed non- dischargeable from $250 to $750.
  • The new Senate bill shortens the time during which purchases and cash advances are presumed non- dischargeable from 90 days to 70 days.