I'm pleased that we are getting down to the final stages of the bankruptcy conference. Hopefully we'll get this done today because this legislation has been a long time in the making. There has been strong bipartisan support for bankruptcy reform for years. The bills received overwhelming support from both bodies of Congress. A number of the provisions in the House and Senate bills were identical. Since the naming of the conferees last summer, staff of both parties and both houses have met on numerous occasions to negotiate and reach compromises on the legislation. Now, there are a few outstanding issues to resolve, and if we are all willing to do our jobs in good faith, I think that we could reach a resolution today. I urge my colleagues to work with me to get the job done.
I want to reiterate why it is important to get a bankruptcy bill passed. The number of filings show that we need to do something about the bankruptcy crisis - they've broken all records and continue to increase in numbers. With a slower economy, many businesses are cutting costs, and a good bankruptcy bill that limits losses will help businesses, so they won't have to lay off employees due to defaults by customers. This bill cracks down on abusive and frivolous bankruptcy filings that hurt the nation's economy. Meaningful bankruptcy reform will help us as we pull out of a recession.
Let me explain why this is the case. Every time a debt is wiped away through bankruptcy, someone loses money. When someone who extends credit has their obligation wiped away in Chapter 7 bankruptcy, he has to decide who will pick up the loss - the lender or the consumer. And when losses are frequent and the economy is weak, lenders are more likely to raise prices for other consumers to offset those losses.
The bottom line is that someone has to pick up the tab when people get out of repaying their own debts. But right now the people who get out of their repayment responsibilities have it easy, because they can file for Chapter 7 bankruptcy, regardless of their ability to repay their debts. The current bankruptcy regime facilitates the proliferation of these abuses. It has contributed to the fraying of the moral fiber of our nation. The system allows anyone to get full debt cancellation in Chapter 7 with no questions asked, even if they have the means to pay off their debts. This has resulted in a tax on hard-working Americans who play by the rules and pay their own way. That isn't right. People who can repay their debts need to pull their own weight.
Both bankruptcy bills change all that by asking the question of whether repayment is possible. Because if the debtor can repay, then he or she will be channeled from Chapter 7 to Chapter 13, which requires people to repay a portion of their debt as a precondition for debt cancellation. The bill's means test is flexible - a debtor may rebut the presumption by demonstrating "special circumstances" which justify adjustments to the means test. In this way, the bankruptcy bill preserves a fresh start for people who have been overwhelmed by sudden unforseen emergencies or medical debts. According to the GAO, the bill allows for 100 percent deductibility of medical expenses before examining repayment ability. Also, people of limited income can still file under Chapter 7 as under current law.
But we end the free ride for people with higher incomes and substantial assets, who can repay their debts but have decided to game the system instead.
The bankruptcy bill also contains new provisions that improve the situation for women and children. The bill has priorities and tools so that child support and alimony come first and will be collected ahead of every other pre-bankruptcy creditor. We move up the priority for child support from number seven to number one. The bill makes debt discharge in bankruptcy conditional upon full payment of past due child support and alimony. The bill makes payment of child support arrears a condition of plan confirmation. Domestic support obligations are automatically non-dischargeable, without the costs of litigation. The bill provides better notice and more information to facilitate child support collection, and to track down deadbeat parents. In addition, the bill permits battered women to deduct domestic violence expenses and protects their privacy, and it contains privacy protections for minors when there is a bankruptcy.
I wanted to make a few comments about one specific issue, the homestead provision in the bankruptcy bills. Although we haven't reached an agreement on the homestead provision, we've had very productive discussions and I believe we are close to a resolution.
One of the most unfair aspects of the bankruptcy code is the ability of very wealthy people to shield large amounts of assets in homesteads. While the homestead exemption has a noble purpose - to protect the poorest of the poor from being thrown out onto the streets to pay their creditors - it has been abused by the rich to escape payment of debts.
This is unacceptable. In the wake of the Enron bankruptcy, I'm concerned that many rich executives and well paid bankruptcy lawyers will take advantage of the homestead exemption. Right now, the House bill provides that a person must have a residency in a state for two years before claiming the homestead exemption, or else there is a cap of $100,000 on the homestead. Then there is a seven-year look-back provision which allows the court to review the debtor's activities for the past seven years to determine whether the debtor was trying to shield assets through the homestead exemption. The Senate passed bill imposes a flat $125,000 homestead cap.
While both provisions are better than current law, we can do even better. Just in the past few days, negotiations have been extremely promising and I think that we are close to a deal. Personally, I think that the homestead exemption should make sure that individuals that have violated federal securities anti-fraud laws should not be able to get out of paying their debts by craftily moving assets into an unlimited homestead and then go into bankruptcy. I think that a carve-out of this kind of problem is the right move and will crack down on the abuses in this area. The rich should not be allowed to escape their debts by pouring money into their homesteads.
So in final analysis, the bill promotes responsibility among borrowers and creates a deterrence for those who want to cheat the system. I thought that the bill both houses of Congress passed last year was a good one. It was too bad that President Clinton pocket vetoed it. So in this Congress, I have worked with my colleagues in good faith and in a spirit of compromise to get a bill done, even though I believed that last year's bill didn't need to be changed. I did that in the Judiciary Committee, on the floor of the Senate, and during these past months of conference talks. Now I hope my colleagues will work to defeat amendments that will reopen up provisions that have already been agreed to, compromised on, or rejected. I also hope that my colleagues will work in good faith to limit amendments so we can resolve this piece of legislation today. I hope that any amendments offered will be in the spirit of closing out these few remaining issues. Let's cross the finish line on bankruptcy reform legislation. The time has come for a bankruptcy bill.