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BANKRUPTCY REFORM ACT OF 1999
(House of Representatives - May 05, 1999)
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BANKRUPTCY REFORM ACT OF 1999
The SPEAKER pro tempore (Mrs. Emerson). Pursuant to House Resolution
158 and rule XVIII, the Chair declares the House in the Committee of
the Whole House on the State of the Union for the consideration of the
bill,
H.R. 833.
{time} 1230
In the Committee of the Whole
Accordingly, the House resolved itself into the Committee of the
Whole House on the State of the Union for the consideration of the bill
(
H.R. 833) to amend title 11 of the United States Code, and for further
purposes, with Mr. Nethercutt in the chair.
The Clerk read the title of the bill.
The CHAIRMAN. Pursuant to the rule, the bill is considered as having
been read the first time.
Under the rule, the gentleman from Pennsylvania (Mr. Gekas) and the
gentleman from Michigan (Mr. Conyers) each will control 30 minutes.
The Chair recognizes the gentleman from Pennsylvania (Mr. Gekas).
Mr. GEKAS. Mr. Chairman, I yield myself such time as I may consume.
Mr. Chairman, the Constitution of the United States guarantees that
bankruptcy shall be available to the citizens of our Nation.
Accordingly, Congresses, ever since the first moment of our new land,
have incorporated into their work special provisions to accommodate
those individuals who find themselves totally engulfed by debt rather
than to submit them to the prison dungeons that were the plight of
people previously prior to the United States.
We, our enlightened forefathers, saw fit to allow the Congress to
evolve in a situation in which a fresh start would be accorded to an
ordinary citizen who cannot meet his obligations; and that is where we
are here today.
We, in a long line of congressional action, re-guarantee the fresh
start to individuals who become so engulfed in debt that there is no
other way except for the Government to discharge their obligations and
to allow them to start all over again. We guarantee that in this bill.
But to balance that situation, we also provide in this bill a
mechanism whereby if those individuals who file for bankruptcy can,
after a careful screening, be placed in a situation where they could
repay some of the debt over a period of years, then this bill
accommodates that and allows people to be moved from Chapter 7, where
they would have gotten that fresh start automatically, to Chapter 13,
where they must work through a plan for repayment of some of the debt
over a period of time.
Now, here is the thing that we must make clear to the opponents of
bankruptcy reform and to the people of our country. We are talking
about a dividing line caused by the median income. We provide that the
median income shall be the dividing line.
In other words, people under the median income in our country who
apply for bankruptcy almost certainly will be accorded almost
automatically the fresh start which their financial circumstances
dictate. But we also said that if the income is over the median income,
then that set of financial circumstances should be more closely
scrutinized to determine if any money can be repaid to this debt that
has been accumulated. That is a very balanced and a fair way to
approach the economic system of our Nation.
And what is that median income? We are talking about a median income
of $51,000 for a family of four is the starting point. So if an
individual with four people in the family is earning $30,000 or $40,000
or $50,000, that fresh start is guaranteed. But if they are earning
$55,000, $60,000, $80,000, $100,000 or beyond, then that set of
finances has to be looked at more closely under the provisions of our
bill to see if anything should be used for repayment of some of the
debt. That is fair. That is proper.
The more we do that, the less burden the rest of the taxpayers have
to bear. Because the taxpayers have to pick up the slack. Consumers at
the retail outlets, at the supermarkets, have to pay more. Interest
rates go up, etc. The more we are able to recoup some of the debt from
the high-income people, the less the burden will be on the rest of the
public.
That is what the clear message is of the bankruptcy reform
legislation which we have before the House today. I ask for an
overwhelming vote in support of the underlying bill.
Mr. Chairman, I include for the Record the following letters:
House of Representatives,
Committee on Commerce,
Washington, DC, May 3, 1999.
Hon. Henry Hyde,
Chairman, Committee on the Judiciary, Rayburn House Office
Building, Washington, DC.
Dear Henry: I am writing with regard to
H.R. 833, the
Bankruptcy Reform Act of 1999. As you know, the regulation of
securities and exchanges is a matter committed to the
jurisdiction of the Committee on Commerce pursuant to Rule X
of the Rules of the House of Representatives.
Section 1011 of
H.R. 833, as ordered reported (``SIPC
Stay''), amends the Securities Investor Protection Act of
1970 (P.L. 91-598), a statute within the jurisdiction of the
Committee on Commerce. As you will recall, this provision was
originally contained in the Financial Contract Netting
Improvement Act of 1998, introduced in the 105th Congress as
H.R. 4393 and on which the Committee on Commerce received an
additional referral of the bill upon its introduction, as did
the Committee on the Judiciary.
Because of the importance of this legislation, I recognize
your desire to bring it before the House in an expeditious
manner, and I will not exercise the Committee's right to a
sequential referral. By agreeing to waive its consideration
of the bill, however, the Commerce Committee does not waive
its jurisdiction over
H.R. 833. In addition, the Commerce
Committee reserves its authority to seek conferees on any
provisions of the bill that are within its jurisdiction
during any House-Senate conference that may be convened on
this legislation. I ask for your commitment to support any
request by the Commerce Committee for conferees on
H.R. 833
or similar legislation.
I request that you include this letter and your response as
part of the Record during consideration of the legislation on
the House floor.
Thank you for your attention to these matters. I remain,
Sincerely,
Tom Bliley,
Chairman.
____
House of Representatives,
Committee on the Judiciary,
Washington, DC, May 3, 1999.
Hon. Tom Bliley,
Chairman, Committee on Commerce, House of Representatives,
Rayburn House Office Building, Washington, DC.
Dear Tom: Thank you for your letter regarding your
Committee's jurisdictional interest in
H.R. 833, the
Bankruptcy Reform Act of 1999.
I acknowledge your committee's jurisdiction over section
1011 (``SIPC Stay'') of this legislation and appreciate your
cooperation in moving the bill to the House floor
expeditiously. I agree that your decision to forgo further
action on the bill will not prejudice the Commerce Committee
with respect to its jurisdictional prerogatives on this or
similar provisions, and will support your request for
conferees on those provisions within the Committee on the
Commerce's jurisdiction should they be the subject of a
House-Senate conference. I will also include a copy of your
letter and this response in the Congressional Record when the
legislation is considered by the House.
Thank you again for your cooperation.
Sincerely,
Henry J. Hyde,
Chairman.
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____
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 5, 1999.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary, House of
Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for
H.R. 833, the
Bankruptcy Reform Act of 1999.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Susanne
S. Mehlman (for federal costs), who can be reached at 226-
2860, Lisa Cash Driskill (for the state and local impact),
who can be reached at 225-3220, and John Harris (for the
private-sector impact), who can be reached at 226-6910.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
CONGRESSIONAL BUDGET OFFICE COST ESTIMATE, MAY 5, 1999
H.R. 833: Bankruptcy Reform Act of 1999
(As reported by the House Committee on the Judiciary on April 28, 1999)
SUMMARY
H.R. 833 would make many changes and additions to the laws
relating to bankruptcy, including establishing a system of
means-testing for determining eligibility for relief under
chapter 7 of the U.S. bankruptcy code. CBO estimates that
implementing
H.R. 833 would cost $333 million over the 2000-
2004 period--$322 million in discretionary spending, subject
to appropriation of the necessary funds, and $11 million in
mandatory spending. CBO also estimates that enacting this
bill would decrease receipts by about $4 million over the
next five years. Because the bill would affect direct
spending and governmental receipts, pay-as-you-go procedures
would apply. Provisions in title VIII also would affect
receipts, but the Joint Committee on Taxation (JCT) has not
completed an estimate of such changes at this time.
H.R. 833 contains an intergovernmental mandate as defined
in the Unfunded Mandates Reform Act (UMRA), but its costs
would be insignificant and would not exceed the threshold
established in that act ($50 million in 1996, adjusted
annually for inflation). Overall, CBO expects that enacting
this bill would benefit state and local governments by
enhancing their ability to collect outstanding obligations in
bankruptcy cases.
H.R. 833 would impose new private-sector mandates, as
defined in UMRA, on bankruptcy attorneys, creditors, and
credit and charge-card companies. CBO estimates that the
costs of these mandates would exceed the $100 million (in
1996 dollars) threshold established in UMRA.
DESCRIPTION OF THE BILL'S MAJOR PROVISIONS
In addition to establishing means-testing for determining
eligibility for chapter 7 bankruptcy relief,
H.R. 833 would:
Require the Executive Office for the United States Trustees
(U.S. Trustees) to establish a test program to educate
debtors on financial management; authorize 18 new temporary
judgeships and extend five existing judgeships in 19 federal
districts; permit courts to waive chapter 7 filing fees and
other fees for debtors who could not pay such fees in
installments; require that at least one out of every 250
bankruptcy cases under chapter 13 or chapter 7 be audited by
an independent certified public accountant; exempt chapter 11
debtors from having to pay certain fees in connection with
their bankruptcy cases; require the Administrative Office of
the United States Courts (AOUSC) to receive and maintain tax
returns for all chapter 7 and chapter 13 debtors; and require
the AOUSC and the U.S. Trustees to collect and publish
certain statistics on bankruptcy cases.
Other provisions would make various changes affecting the
bankruptcy provisions for municipalities and the treatment of
tax liabilities in bankruptcy cases.
estimated cost to the federal government
As shown in the following table, CBO estimates that
implementing
H.R. 833 would cost the courts, the AOUSC, and
the U.S. Trustees $24 million in fiscal year 2000 and $322
million over the 2000-2004 period, subject to appropriation
of the necessary funds. In addition, we estimate that
mandatory spending for the salaries and benefits of
bankruptcy judges would increase by less than $500,000 in
2000 and $11 million over the 2000-2004 period. Enacting the
means-testing and fee waiver provisions in title I would
result in a net loss in revenues of about $4 million over the
next five years. The costs of this legislation fall within
budget function 750 (administration of justice).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------
2000 2001 2002 2003 2004
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Means-Testing (Section 102):
Estimated Authorization Level........................ 4 8 8 8 7
Estimated Outlays.................................... 4 8 8 8 7
Debtor Financial Management Training (Section 104):
Estimated Authorization Level........................ 4 0 0 0 0
Estimated Outlays.................................... 1 3 0 0 0
Additional Judgeships--Support Costs (Section 128):
Estimated Authorization Level........................ (\1\) 6 11 11 12
Estimated Outlays.................................... (\1\) 6 11 11 12
Chapter 7 Filing Fee Waivers (Section 148):
Estimated Authorization Level........................ 2 5 8 13 13
Estimated Outlays.................................... 2 5 8 13 13
Credit Counseling Certification (Section 302):
Estimated Authorization Level........................ 4 3 3 4 4
Estimated Outlays.................................... 2 4 3 4 4
U.S. Trustee Site Visits (Section 410):
Estimated Authorization Level........................ 3 2 2 2 3
Estimated Outlays.................................... 1 4 2 2 3
Audit Procedures (Section 602):
Estimated Authorization Level........................ 0 6 15 18 19
Estimated Outlays.................................... 0 6 15 18 19
Maintenance of Tax Returns (Section 603):
Estimated Authorization Level........................ 3 6 7 9 9
Estimated Outlays.................................... 3 6 7 9 9
Elimination of Quarterly Filing Fees (Section 608):
Estimated Authorization Level........................ 10 10 10 10 10
Estimated Outlays.................................... 10 10 10 10 10
GAO and SBA Studies (Sections 609, 613, 414):
Estimated Authorization Level........................ 1 (\1\) 0 0 0
Estimated Outlays.................................... 1 (\1\) 0 0 0
Compiling and Publishing Data (Sections 701-702):
Estimated Authorization Level........................ 0 5 9 8 8
Estimated Outlays.................................... 0 5 9 8 8
------------------------------------------------------
Total Discretionary Changes:
Estimated Authorization Level........................ 31 51 73 83 85
Estimated Outlays.................................... 24 57 73 83 85
CHANGES IN DIRECT SPENDING
Additional Judgeships (Section 128):
Estimated Budget Authority........................... (\1\) 2 3 3 3
Estimated Outlays.................................... (\1\) 2 3 3 3
CHANGES IN REVENUES \2\
Changes in Filing Fees (Section 102): Estimated Revenues. 0 0 (\1\) 1 1
Chapter 7 Filing Fee Waivers (Section 148): Estimated (\1\) -1 -1 -2 -2
Revenues................................................
------------------------------------------------------
Total Revenue Changes: Estimated Revenues................ (\1\) -1 -1 -1 -1
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
\2\ The Joint Committee on Taxation has not yet completed its review of tax provisions in title VIII.
basis of estimate
For purposes of this estimate, CBO assumes that
H.R. 833
will be enacted by October 1, 1999, and that all estimated
authorization amounts will be appropriated for each fiscal
year.
Spending Subject to Appropriation. Most of the estimated
increases in discretionary spending would be required to fund
the additional workload that would be imposed on the U.S.
Trustees. Currently, the U.S. Trustees are funded through the
bankruptcy-related fees collected by the courts. Without
additional statutory authority, these fees
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H2657]]
cannot be increased to cover any expenditures or loss of
offsetting collections that would occur under the bill.
Because the legislation does not provide for such increases
in fees, any additional costs would be subject to the
availability of appropriated funds.
Means-Testing (Section 102). This section would establish a
system of means-testing for determining a debtor's
eligibility for relief under chapter 7. Only those debtors
whose income exceeds the regional median household income
with certain adjustments would be subject to the means test.
Under the means test, if the debtor is expected to have at
least $6,000 over five years (after the deduction of certain
allowable expenses) available to pay nonpriority unsecured
claims, then the debtor would be presumed ineligible for
chapter 7 relief. A debtor who could not demonstrate
``extraordinary circumstances,'' which would cause the
expected disposable income to fall below the threshold, could
file under other chapters of the bankruptcy code.
Although the private trustees would be responsible for
conducting the initial review of a debtor's income and
expenses and filing the majority of motions for dismissal or
conversion, CBO expects that the workload of the U.S.
Trustees would increase under the means-testing provisions.
The U.S. Trustees would provide increased oversight of the
work performed by the private trustees, file additional
motions for dismissal or conversions, and take part in
additional litigation that is expected to occur as the courts
and debtors debate allowable expenses and other related
issues. Although CBO cannot predict the amount of such
litigation, we expect that, during the first few years
following enactment of the bill, the amount of litigation
could be significant, as parties test the new law's
standards. In subsequent years, litigation could begin to
subside as precedents are established. Based on information
from the U.S. Trustees, CBO estimates that the U.S. Trustees
would require about 60 additional attorneys and analysts to
address the increased workload. As a result, CBO estimates
that appropriations of $35 million would be required over the
next five years.
Debtor Financial Management Test Training Program (Section
104). This section would require the U.S. Trustees to
establish a test training program to educate debtors on
financial management. Based on information from the U.S.
Trustees, CBO estimates that about 90,000 debtors would
participate if such a program were administered by the U.S.
Trustees in fiscal year 2001. At a projected cost of about
$40 per debtor, CBO estimates that the U.S. Trustees would
require an appropriation of about $4 million in 2000 to
administer the program.
Addtional Judgeships--Support Costs (Section 128). This
provision would extend five temporary bankruptcy judgeships
and authorize 18 new temporary bankruptcy judgeships for 19
federal judicial districts. Based on information from the
AOUSC, CBO assumes that one-half of the 18 new positions
would be filled by the beginning of fiscal year 2001 and the
other half would be filled by the start of fiscal year 2002.
Also, we anticipate that all five temporary judgeships would
be filled by fiscal year 2002. We expect that discretionary
expenditures associated with each judgeship would average
about $450,000 (in 2000 dollars), after initial costs of
about $50,000. Therefore, CBO estimates that the
administrative support of additional bankruptcy judges would
require an appropriation of less than $500,000 in fiscal
year 2000 and about $40 million over the 2000-2004 period.
(Salaries and benefits for the judges are classified as
mandatory spending, and those costs are described below.)
Chapter 7 Filing Fee Waivers (Section 148). This section
would permit a bankruptcy court or district court to waive
the chapter 7 filing fee and other fees for a debtor who is
unable to pay such fees in installments. Based on information
from the AOUSC, CBO expects that in fiscal year 2000 chapter
7 filing fees would be waived for about 3.5 percent of all
chapter 7 filers and that the percentage waived would
gradually increase to about 10 percent by fiscal year 2003.
The filing fee for a chapter 7 case is $130, and income from
this fee appears in two different places in the budget. Of
the $130, $70 is recorded as part of the offsetting
collections to the U.S. Trustee System Fund and to the AOUSC,
and $15 is recorded as governmental receipts (i.e.,
revenues). the remaining $45 is paid to the private trustee
assigned to the case and does not affect the federal budget.
The AOUSC also collects an additional $30 million in
miscellaneous fees with each chapter 7 filing. Taking into
account how means-testing would reduce filing rates under
chapter 7, CBO estimates that implementing this section would
result in a loss in offsetting collections totaling $41
million over the 2000-2004 period. The loss of offsetting
collections would reduce the amount available for spending by
the U.S. Trustees and the AOUSC. Because this loss of fees
would not be matched by a reduction in workload, additional
appropriations would be required to replaced this projected
loss.
Credit Counseling Certification (Section 302). This section
would require the U.S. Trustees to certify, on an annual
basis, that certain credit counseling services could provide
adequate services to potential debtors. Based on information
from the U.S. Trustees, CBO estimates that the U.S. Trustees
would require additional attorneys and analysts to handle the
additional workload associated with certification. CBO
estimates that enacting this provision would require
appropriations of $18 million over the next five years.
U.S. Trustee Site Visits in Chapter 11 Cases (Section 410).
This section would expand the responsibilities of the U.S.
Trustees in small business bankruptcy cases to include site
visits to inspect the debtor's premises, review records, and
verify that the debtor has filed tax returns. Based on
information from the U.S. Trustees, CBO estimates that
implementing section 410 would require about 20 additional
analysts to conduct over 2,300 site visits each year. CBO
estimates that the U.S. Trustees would require appropriations
of about $12 million over the next five years for the
salaries, benefits, and travel expenses associated with these
additional personnel.
Audit Procedures (Section 602). Beginning 18 months after
enactment,
H.R. 833 would require that at least one out of
every 250 bankruptcy cases under chapter 7 and chapter
13, plus other selected cases under those chapters, be
audited by an independent certified public accountant.
Based on information from the U.S. Trustees, CBO estimates
that about 1.3 million cases would be subject to audits in
fiscal year 2001, increasing to about 1.8 million in
fiscal year 2004. CBO assumes that about 0.8 percent of
all cases would be audited and that each audit would cost
about $1,000 (in 2000 dollars.) CBO also expects that the
U.S. Trustees would need about 10 additional analysts and
attorneys to support the follow-up work associated with
the audits. Thus, we estimate that implementing this
provision would require appropriations of $6 million in
fiscal year 2001 and $58 million over the 2000-2004
period.
Maintenance of Tax Returns (Section 603). This section
would require the AOUSC to receive and retain tax returns for
the three most recent years preceding the commencement of the
bankruptcy case for all chapter 7 and chapter 13 debtors
(about 8 million debtors over the 2004-2004 period). CBO
estimates that appropriations of $34 million over the next
five years would be required to store and provide access to
over 20 million tax returns.
Elimination of Quarterly Filing Fees (Section 608). This
section would require chapter 11 debtors whose disbursements
are less than $300,000 to pay quarterly fees only until their
case is converted or their plan is confirmed (whichever
occurs first), beginning on October 1, 1999. Currently, these
debtors pay quarterly fees even after their plan has been
confirmed. These fees are recorded as offsetting collections
to the U.S. Trustee System Fund and are available for
spending from that account. According to the U.S. Trustees,
about 4,000 cases would be affected by this provision each
year and, on average, the government collects about $650 per
quarter per case each year. Thus, by shortening the period
during which fees are paid, the bill would reduce annual fee
collections by about $10 million annually. Because this loss
of offsetting collections would reduce the amount available
for spending by the U.S. Trustees (for overall supervision
and administration of bankruptcy cases), CBO estimates that
the U.S. Trustees would require an appropriation of $10
million in fiscal year 2000 and $50 million over the next
five years to compensate for the loss of quarterly filing
fees.
General Accounting Office (GAO) and Small Business
Administration (SBA) Studies (Sections 609, 613, and 414).
Section 609 would require GAO to conduct a study regarding
the impact that the extension of credit to dependents who are
enrolled in postsecondary educational institutions has on
bankruptcy filing rates. Section 613 would require GAO to
conduct a study regarding the feasibility of requiring
trustees to provide the Office of Child Support Enforcement
information about outstanding child support obligations of
debtors. Section 414 would require the Administrator of SBA,
in consultation with the Attorney General, the U.S. Trustees,
and the AOUSC, to conduct a study on small business
bankruptcy issues. Based on information from GAO and SBA, CBO
estimates that completing the necessary studies would cost
between $500,000 and $1 million in 2000, and less than
$500,000 in 2001.
Compilation and Publication of Bankruptcy Data and
Statistics (Sections 701-702).
H.R. 833 would require the
AOUSC to collect data on chapter 7, chapter 11, and chapter
13 cases and the U.S. Trustees to make such information
available to the public. CBO estimates that appropriations of
about $30 million would be required over the 2000-2004 period
to meet these requirements. Of the total estimated cost,
about $24 million would be required for additional legal
clerks, analysts, and data base support. The remainder would
be incurred by the U.S. Trustees for compiling data and
providing Internet access to records pertaining to bankruptcy
cases.
DIRECT SPENDING AND REVENUES
Additional Judgeships (Section 128). CBO estimates that
enacting the means-testing provision (section 102) would
impose some additional workload on the courts. Section 128
would authorize 18 new temporary bankruptcy judgeships and
extend five existing temporary judgeships. Based on
information from the AOUSC and other bankruptcy experts, CBO
expects that the increase in the number of bankruptcy judges
would be sufficient to meet the increased workload. Assuming
that the salary and benefits of a bankruptcy judge would
average about $150,000 a year, CBO estimates that the
mandatory costs associated with the salaries and benefits of
these additional judgeships would be less than $500,000 in
fiscal year 2000 and about $11 million over the 2000-2004
period.
Changes in Filing Fees (Section 102). The means-testing
provision also could affect the
[[Page
H2658]]
government's income from bankruptcy filing fees because it
would cause changes in the number and type of bankruptcy
filings. CBO projects that about 5 to 10 percent of all
chapter 7 debtors (about 50,000 to 100,000 cases each year)
could be subject to the means test proposed under this bill.
CBO expects that those debtors who are not successful in
proving ``extraordinary circumstance'' will either convert
their cases to chapter 13 cases or withdraw their petitions
for bankruptcy relief. Under either of these options, CBO
estimates that there would be no significant effect on the
federal budget because there is no fee for converting a case
from chapter 7 to chapter 13, and filing fees are not
refunded to debtors who withdraw their petitions for
bankruptcy relief. Over the long term, CBO estimates that the
federal government could collect additional revenues as more
debtors file directly under chapter 13. (The government
collects an additional $45 for each case filed under chapter
13 instead of chapter 7.) This increase could be partly
offset by those debtors who might refrain from filing for any
type of bankruptcy relief. On balance, CBO estimates that the
means-testing provision would increase revenues by about $1
million beginning in 2003. This provision would have no
effect on offsetting collections because there is no
difference in the amount of offsetting collections
collected under either chapter 7 or chapter 13, and any
loss in collections would be matched by a reduction in
workload.
Chapter 7 Filing Fee Waivers (Section 148). As mentioned
above, this section would permit a bankruptcy court or the
district court to waiver the chapter 7 filing fee and other
fees for a debtor who is unable to pay such fees in
installments. For each chapter 7 case filed, the federal
government collects $15. Taking into account the means-
testing provision and the amount of expected waivers, CBO
estimates that implementing this section would result in a
loss in revenues of $1 million to $2 million a year beginning
in fiscal year 2001.
CBO estimates that the net effect on revenues of
implementing the meanstesting and fee waiver provisions would
be a loss of about $1 million annually beginning in fiscal
year 2001.
Tax Provisions (Title VIII). The provisions in title VIII
of the bill are currently under review by the Joint Committee
on Taxation, and estimates of their effects on revenues will
be provided when they are completed.
PAY-AS-YOU-GO CONSIDERATIONS
The Balanced Budget and Emergency Deficit Control Act sets
up pay-as-you-go procedures for legislation affecting direct
spending or receipts. Both the means-testing and waiver of
fees would affect receipts; hence, pay-as-you-go procedures
would apply. The net changes in outlays and governmental
receipts are show in the following table. (JCT is reviewing
title VIII and has not yet completed an estimate of its
effects on receipts.) For the purposes of enforcing pay-as-
you-go procedures, only the effects in the current year, the
budget year, and the succeeding four years are counted.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in million of dollars--
--------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays................................... 0 0 2 3 3 3 3 3 3 2 2
Changes in receipts\1\............................... 0 0 -1 -1 -1 -1 -1 -1 -1 -1 -1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated impact of means-testing and waiver of fees. JCT has not completed an estimate of changes in receipts for title VIII.
ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS
H.R. 833 contains an intergovernmental mandate as defined
in UMRA. Overall, CBO expects that enacting this bill would
benefit state and local governments by enhancing their
ability to collect outstanding obligations in bankruptcy
cases.
Mandates. Section 106 of the bill would preempt state laws
governing contracts between a debt relief agency and a
debtor, to the extent that they are inconsistent with the
federal requirements set forth in this bill. Such preemptions
are mandates as defined in UMRA. Because the preemption would
not require states to change their laws, CBO estimates the
costs to states of complying with that mandate would not be
significant and would not exceed the threshold established in
UMRA.
Other Impacts. The changes to bankruptcy law in the bill
would affect state and local governments primarily as
creditors and holders of claims for taxes or child support.
In addition, it would change some of the state statutes that
govern which of a debtor's assets are protected from
creditors in a bankruptcy proceeding.
In 1996, a survey of the 50 states conducted by the
Federation of Tax Administrators and the States' Association
of Bankruptcy Attorneys indicated that more than 360,000
taxpayers in bankruptcy owed claims to states totaling about
$4 billion. Of these claims, states reported collecting only
about $234 million. While CBO cannot predict how much more
money might be collected, it is likely that states and local
governments would collect a greater share of future claims
than they would have under current law.
Exemptions. Although bankruptcy is regulated according to
federal statute, states are allowed to provide debtors with
certain exemptions for property, insurance, and other items
that are different from those allowed under the federal
bankruptcy code. (Exempt property remains in possession of
the debtor and is not available to pay off creditors.) In
some states debtors can choose the federal or state
exemption; other states require a debtor to use only the
state exemptions. This bill would place a ceiling of $250,000
on the exemptions for homesteads and create a new exemption
for certain retirement funds and education savings plans.
These exemption standards would apply regardless of the state
policy on exemptions. The new homestead exemption would make
more money available to creditors in some cases, while the
exemptions on retirement and education savings generally
would make less money available. States would be allowed
to set the homestead exemption above the federal ceiling
if they specifically enacted legislation doing so.
Domestic Support Obligations. The bill would significantly
enhance a state's ability to collect domestic support
obligations, including child support. Domestic support
obligations owed to state or local governments would be given
priority over all other claims, except those same obligations
owned to individuals. The bill also would require that filers
under chapters 11 and 13 pay in full all domestic support
obligations owed to government agencies or individuals in
order to receive a discharge of outstanding debts. In
addition, the automatic stay that is triggered by filing
bankruptcy would not apply to domestic support obligations.
Last, the bill would require bankruptcy trustees to notify
individuals with domestic support claims of their right to
use the services of a state child support enforcement agency
and notify the agency that they have done so. The last known
address of the debtors would be a part of the notification.
Tax Payment Plans. The bill would require that payment
plans for tax liabilities be limited to six years and that
payment amounts be regular and proportionate to payments for
other obligations. Under current law, taxing authorities
sometimes face payment plans that include a series of small
payments followed by a large balloon payment near the end of
the planned payment stream. At that point, the debtors often
fail to complete their payments. This provision would require
that taxes be paid at a rate proportionate to those of other
debts. It also would establish interest rates to be applied
to outstanding tax liabilities. Under current law, any
interest charges on outstanding tax liabilities are
determined at the discretion of the bankruptcy judge.
Time Limits on Tax Collection. Under some circumstances, a
tax claim can qualify for priority status, and thus a state
and local government would be more likely to collect the
debt. However, this status is granted only if tax is assessed
within a specific period of time from the date of the filing
for bankruptcy. If that filing is subsequently dismissed and
a new filing is made, the tax claim may lose its priority
status. The bill would allow more time to pass in some
circumstances, thus increasing the likelihood that state or
local tax claims would maintain their priority status.
Taxes and Administrative Expenses. Under current law,
certain expenses can be paid out of funds that would
otherwise be available to pay tax liens on property. The bill
would restrict the use of funds for administrative expenses
to a limited number of circumstances, thereby making it more
likely that funds would remain available to cover tax
obligations.
Tax Return Filing and Government Notification. A number of
provisions in the bill would require debtors to have filed
tax returns, and in some cases to be current in their tax
payments, before a bankruptcy case may continue. Also,
debtors would be required to provide notice to state
authorities in a specific manner when they pursue relief
under bankruptcy law. These provisions would help states
identify potential claims in bankruptcy cases where they may
be owed delinquent taxes.
Priority of Payments. In some circumstances, debtors have
borrowed money or incurred some new obligation that is
dischargeable (able to be written-off at the end of
bankruptcy) to pay for an obligation would not be
dischargeable. This bill would give the new debt the same
priority as the underlying debt. If the underlying debt had a
priority higher than that of state or local tax liabilities,
state and local governments could lose access to some funds.
However, it is possible that the underlying debt could be for
a tax claim, in which case the taxing authority would face no
loss. Because it is unclear what types of nondischargeable
are covered by new debt and the degree to which this new
provision would discourage such activity, CBO can estimate
neither the direction nor the magnitude of the provision's
impact on states and localities.
Single Asset Cases. One provision of the bill would allow
expedited bankruptcy proceeding in certain single asset cases
(usually involving a large office building). State and
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local governments could benefit to the extent that real
property is returned to the tax rolls earlier as a result of
this provision.
Municipal Bankruptcy. The bill would clarify regulations
governing municipal bankruptcy actions and allow
municipalities that have filed for bankruptcy to liquidate
certain financial contracts.
estimated impact on the private sector
H.R. 833 would impose new private-sector mandates on
bankruptcy attorneys, creditors, and credit and charge-card
companies. Bankruptcy attorneys would be required to make
reasonable inquiries to confirm that the information in
documents they submit to the court or the bankruptcy trustee
is wellgrounded in fact. Creditors would be required to make
disclosures in their agreements with debtors and provide
certain notices to courts and to debtors. Credit and charge-
card companies would be required to disclose minimum-payment
plans in new account materials and monthly statements. CBO
estimates that the costs of these mandates would exceed the
$100 million (in 1996 dollars) threshold established in the
UMRA.
Sections 102 and 607 would make bankruptcy attorneys liable
for misleading statements and inaccuracies in schedules and
documents submitted to the court or to the trustee. To avoid
sanctions and potential civil penalties, attorneys would need
to verify the information given to them by their clients
regarding the list of creditors, assets and liabilities, and
income and expenditures. Based on 1,286,000 projected filings
under chapter 7 and chapter 13 and an estimated increase in
attorneys' costs of $150 to $500 per case, CBO estimates that
the costs to attorneys of complying with this requirement
would be between $190 million and $640 million in fiscal year
2000. With the rise in projected filings over the next five
years, annual costs would be $280 million to $940 million for
fiscal year 2004. CBO expects bankruptcy attorneys to pass
increased costs on to debtors, reducing the pool of funds
available to creditors.
H.R. 833 would require a creditor with an unsecured
consumer debt seeking a reaffirmation agreement with a debtor
to notify the debtor of his right to a hearing to determine
whether the agreement is an undue hardship, is in the
debtor's best interest, or is the result of an illegal threat
by the creditor. The bill also would require creditors to
specify to the court and to the debtor the person designated
to receive notices. Because the required disclosure could be
incorporated into existing standard reaffirmation agreements,
and the notice to the court and the debtor would require only
minimal effort, the costs of this requirement would be
relatively small.
The costs of the mandate for credit and charge-card
companies are also expected to be small.
H.R. 833 would
require credit and charge-card companies to add a brief
statement regarding the function of the minimum payment
option and disadvantages of making only the minimum payment
each month to the materials provided to consumers opening new
accounts and to all customers' monthly statements. Credit and
charge-card companies also would have to provide customers
with an illustration of the length of time required to pay
off a $500 balance if they make only the minimum required
payment. Firms would be able to add this information to the
materials they currently give to customers.
Estimate prepared by: Federal Costs: Susanne S. Mehlman
(226-2860); Impact on State, Local, and Tribal Governments:
Lisa Cash Driskill (225-3220); Impact on the Private Sector:
John Harris (226-6910).
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
Mr. Chairman, I reserve the balance of my time.
Mr. CONYERS. Mr. Chairman, I yield myself such time as I may consume.
(Mr. CONYERS asked and was given permission to revise and extend his
remarks.)
Mr. CONYERS. Mr. Chairman, I am delighted to begin immediately by
talking about the means test and other consumer provisions that will
harm middle-income and low-income people.
Because contrary to the assertion of my friend, the gentleman from
Pennsylvania (Mr. Gekas), that this is going to make it better, the
means test is going to make it worse. It is incorrect to assume that
the effect of this bill's harmful provisions would be limited to
individuals seeking bankruptcy relief who earned more than the regional
median income.
First, there are numerous significant flaws in the manner in which
the median income is calculated. For example, the median income figure
required under this bill will be outdated and understated. This is
because the bill states that the household income is to be based on the
most recent census figures available as of January 1. But as of January
1, the census has information available for only the second year prior
to the date.
Accordingly, during this year, 1999, census figures will be available
only for 1997. At times of inflation, this 2-year lag could result,
obviously, in a significant increase in the number of individuals who
are subject to the motions to dismiss or convert and who may earn more
than the outdated median-income figure.
Another flaw in the median-income formula is that the test measures a
debtor's income based on how much the debtor earned 6 months prior to
bankruptcy. If the debtor lost a good job in month three and has been
working at a low-wage job ever since, the income from that good job and
the help from family members would be counted as if that is what his
future income would be.
In addition, this bill, unlike current law, will permit creditors and
other parties and interests to bring motions to dismiss more
aggressively; and well-funded creditors will have extremely wide
latitude to use such motions as a tool for making bankruptcy an
expensive, protracted, contentious process for honest debtors, their
families and other creditors.
Now, the bill is opposed by a growing number of Members of the House
of Representatives for the simple reason this bill is worse than the
bill we voted on in the last Congress; and it is bad for women,
children, working Americans. But the good news, if this is good news
for them in the credit card industry, it is good for the credit card
industry.
This means test is fatally flawed. The legislation attempts to impose
a one-size-fits-all income and expense test based on IRS standards to
determine who is eligible for bankruptcy relief and how much they may
be required to pay their creditors.
The problem is that the formula fails to take into account such
important items as child care payments, health care costs, and the
costs of taking care of ill parents, to name but a few of the glaring
loopholes. The IRS standards are so extreme that they have been
rejected by the Congress and abandoned by the IRS; and, yet, the credit
card companies would have them apply them in bankruptcy.
Now, the denials have been pouring in pretty fast here so far; and
there is going to be a lot of discussion about how the bill is
devastating to children and women reliant on child care and alimony
payments. Repeat: The bill is devastating to children and women reliant
on child care and alimony payments.
On the debtor's side, the legislation makes it far more difficult for
single mothers to access the bankruptcy similar. On the creditor's
side, the bill pits sophisticated credit card creditors in direct
competition with alimony and child support. The attempts to fix this
incorporated into the legislation are not effective and are largely
redundant.
And, third, but not finally, but I am going to stop here, the bill
will also lead to a loss of jobs and collective bargaining rights. The
business provisions of the bill will impose harsh new time deadlines
and massive new legal and paperwork requirements on small businesses
and real estate concerns and, by design, will lead to premature
liquidation of job loss.
This is why the largest collective bargaining organization in America
has asserted that the legislation will restrict the workings of
bankruptcy cases for small businesses and place numerous jobs at risk.
Now, the bill conveniently ignores the real problem of what has
caused more bankruptcies, namely, the problem of credit card abuse. And
is there any colleague here that does not get credit card applications
monthly, weekly, occasionally daily? And, at the same time, the
legislation responds to every conceivable debtor excess, real or
imagined. It gives a complete pass to the transgressions of the credit
card industry.
My colleagues should be on the alert. This Bankruptcy Reform Act
legislation of the 106th Congress will worsen the conditions of those
few people in their district, working people, honest people, who may
need to access this important court. Please remember, this bill is
worse than the bill we had last year.
Mr. Chairman, I reserve the balance of my time.
Mr. GEKAS. Mr. Chairman, I yield 4 minutes to the gentleman from
Virginia (Mr. Boucher).
(Mr. BOUCHER asked and was given permission to revise and extend his
remarks.)
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Mr. BOUCHER. Mr. Chairman, I want to express thanks to the gentleman
from Pennsylvania for yielding me this time.
I am pleased to rise in strong support of the adoption of this much-
needed reform to our Nation's bankruptcy laws.
In an era in which disposable incomes are growing, unemployment rates
are low, and the economy is strong, consumer bankruptcy filings should
be rare. Contrary, however, to this expectation, in 1998, there were
1.4 million personal bankruptcy files, a 40 percent increase from the
1996 figure. In 1996, that figure reached one million for the first
time. And, in 1998, there was a full 95 percent increase in the number
of personal bankruptcy files from 1990.
Bankruptcies of mere convenience are often driving this increase.
Bankruptcy was never meant to be used as a financial planning tool, but
it is increasingly becoming a first stop rather than a last resort, as
many filers who could repay a substantial part of what they owe elect
to use the complete liquidation provisions of Chapter 7 of the
bankruptcy law, wipe out all of their debt, even that portion they
could repay, and seek an entire fresh start.
{time} 1245
Our legislation will direct more filers into Chapter 13 plans and
make sure that those who can afford to repay a substantial part of
their debt are required to do so.
Mr. Chairman, this is a consumer protection measure. The typical
American family pays a hidden tax of $550 every year arising from the
increased costs of credit and the increases in prices for goods and
services occasioned by the discharge in bankruptcy of $50 billion in
consumer debt on an annual basis. By requiring that people who can
repay a substantial part of the debt they owe do so in Chapter 13
plans, we can greatly lessen that hidden tax, and this bill will
accomplish that result.
Another key point needs to be made about the legislation. The alimony
or child support recipient is clearly better off under the terms of
this bill than she is under present law. At the present time she stands
seventh in the rank of priority for the payment of claims in
bankruptcy. She is behind farmers making claims against warehouses and
grain elevators. She is behind fishermen who make claims against their
warehouses.
Under this bill, the child support or alimony recipient will be
elevated to the first priority. She will now stand number one in line
for the payment of bankruptcy claims. And other provisions of the bill
also make it easier for the bankrupt's assets to be paid to her.
The gentleman from Virginia (Mr. Moran) will be offering amendments
today that I will support and I encourage other Members to support,
that will require greater disclosures on credit card statements of the
costs of making the minimum monthly payment. Credit card statements
would have to indicate that the ordinary finance charge on the
outstanding balance would continue to accrue.
The Moran amendment supplements other new consumer protection
measures that are already a part of this bill. For example, credit card
companies will be prohibited from terminating a customer's account
simply because that customer pays his bills on time and therefore does
not accrue finance charges. That is a very appropriate change to make
and is one of many consumer protection measures contained in the bill.
This is a balanced, bipartisan measure which contains new consumer
protections and requires greater debt repayment by those who can afford
to make that repayment. This measure, when considered on the floor of
the House as a conference report last year, obtained the votes of 300
of the Members, clearly demonstrating the broad bipartisan base for
enacting this reform.
I am pleased to be coauthoring this measure with the gentleman from
Pennsylvania, and I want to commend him for his leadership in bringing
this balanced and bipartisan bill to the floor. I am pleased to join
with him in urging its passage by the House.
Mr. CONYERS. Mr. Chairman, I yield myself 1\1/4\ minutes.
I think it is very important that we begin to deal with the alimony
and child support measure head-on. It has been suggested that this is
not a problem or that it has been improved upon. But actually for women
whose average income was at the median during the last 100 days before
the support checks stopped or women whose child care expenses exceeded
IRS standards, they may be denied access to Chapter 7 and forced into a
restrictive Chapter 13 repayment plan.
Secondly, the bill does not exempt child support or foster care
payments from the means test definition of disposable income, and does
not exclude alimony and child support payments received within 6 months
after filing for bankruptcy from the property of the estate.
How can we talk about women and children are okay? This bill is
presently a disaster for single mothers and their children, which
number in the alimony and child support area an estimated 243,000 to
325,000 bankruptcy cases each year. The National Partnership for Women
and Families have told us that the child support enforcement provision
in the bill would not adequately protect parents and children.
Mr. Chairman, I yield 2\1/2\ minutes to the gentleman from Virginia
(Mr. Scott) a distinguished member of the Committee on the Judiciary.
Mr. SCOTT. I thank the gentleman for yielding me this time.
Mr. Chairman, this bill overturns centuries of well-established laws
involving bankruptcy and the principle that those who are in financial
ruin can get a fresh start if they pay all they have, with certain
exceptions, to their creditors. Instead, they will be required for
those affected to essentially be in debtor's prison for 5 years. Those
who find themselves financially overwhelmed because of a loss of a job,
illness, business failure, will not get a fresh start. They will have
to pay every dime they have, after food and rent and a few other
expenses, to their creditors.
Now, that is not a fresh start. That is a guarantee that at the end
of 5 years they will be worse off than they started. So if someone is
stuck with bills, maybe a spouse had a business reversal, got sick, a
spouse had joint debts and their other spouse leaves or dies, they will
not get a fresh start. They will get no relief for 5 years.
Now, let us not get misled by this means test where only certain
people are affected by this legislation. All that means is that it is
not a bad bill for everybody, it is just a bad bill for some people.
That does not make it a good bill.
Now, there are some technical problems with the legislation. First of
all, the salary calculation in what you have to pay is based on the
last 6 months. Part of the bankruptcy problem may be caused by the fact
that you lost your job, and that calculation is obviously not
effective. You may be forced to pay more than in fact you have as
income. It includes as income disability benefits or veterans benefits
which if you have another job you will essentially lose in the future,
and it forces spouses to compete with sophisticated creditors for their
child support.
But fundamentally it violates centuries of laws that provide for a
fresh start. I ask that this not happen in a haphazardly drawn bill
that has technical problems and which is opposed by virtually every
group of experts in bankruptcy law. Mr. Chairman, I would ask that we
defeat this bill.
Mr. GEKAS. Mr. Chairman, I am pleased to yield 2\1/2\ minutes to the
gentlewoman from New Jersey (Mrs. Roukema).
(Mrs. ROUKEMA asked and was given permission to revise and extend her
remarks.)
Mrs. ROUKEMA. I thank the gentleman for yielding me this time.
Mr. Chairman, I want to offer my strong support for this legislation.
It goes a long way to correct the problems of bankruptcy. But right now
I want to focus on the issue of child support. I have been a pioneer in
the efforts at reforming child support, and I served on the U.S.
Commission for Interstate Child Support Enforcement.
Over the last 10 years we have done a great deal to enforce child
support and require the legal obligations, to close that enforcement
gap. But in recent years we have learned that bankruptcy is one of the
loopholes that has been used. Contrary to what we have heard before, as
I view this legislation, it is strong and goes a long way toward
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closing the enforce
Major Actions:
All articles in House section
BANKRUPTCY REFORM ACT OF 1999
(House of Representatives - May 05, 1999)
Text of this article available as:
TXT
PDF
[Pages
H2655-H2771]
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BANKRUPTCY REFORM ACT OF 1999
The SPEAKER pro tempore (Mrs. Emerson). Pursuant to House Resolution
158 and rule XVIII, the Chair declares the House in the Committee of
the Whole House on the State of the Union for the consideration of the
bill,
H.R. 833.
{time} 1230
In the Committee of the Whole
Accordingly, the House resolved itself into the Committee of the
Whole House on the State of the Union for the consideration of the bill
(
H.R. 833) to amend title 11 of the United States Code, and for further
purposes, with Mr. Nethercutt in the chair.
The Clerk read the title of the bill.
The CHAIRMAN. Pursuant to the rule, the bill is considered as having
been read the first time.
Under the rule, the gentleman from Pennsylvania (Mr. Gekas) and the
gentleman from Michigan (Mr. Conyers) each will control 30 minutes.
The Chair recognizes the gentleman from Pennsylvania (Mr. Gekas).
Mr. GEKAS. Mr. Chairman, I yield myself such time as I may consume.
Mr. Chairman, the Constitution of the United States guarantees that
bankruptcy shall be available to the citizens of our Nation.
Accordingly, Congresses, ever since the first moment of our new land,
have incorporated into their work special provisions to accommodate
those individuals who find themselves totally engulfed by debt rather
than to submit them to the prison dungeons that were the plight of
people previously prior to the United States.
We, our enlightened forefathers, saw fit to allow the Congress to
evolve in a situation in which a fresh start would be accorded to an
ordinary citizen who cannot meet his obligations; and that is where we
are here today.
We, in a long line of congressional action, re-guarantee the fresh
start to individuals who become so engulfed in debt that there is no
other way except for the Government to discharge their obligations and
to allow them to start all over again. We guarantee that in this bill.
But to balance that situation, we also provide in this bill a
mechanism whereby if those individuals who file for bankruptcy can,
after a careful screening, be placed in a situation where they could
repay some of the debt over a period of years, then this bill
accommodates that and allows people to be moved from Chapter 7, where
they would have gotten that fresh start automatically, to Chapter 13,
where they must work through a plan for repayment of some of the debt
over a period of time.
Now, here is the thing that we must make clear to the opponents of
bankruptcy reform and to the people of our country. We are talking
about a dividing line caused by the median income. We provide that the
median income shall be the dividing line.
In other words, people under the median income in our country who
apply for bankruptcy almost certainly will be accorded almost
automatically the fresh start which their financial circumstances
dictate. But we also said that if the income is over the median income,
then that set of financial circumstances should be more closely
scrutinized to determine if any money can be repaid to this debt that
has been accumulated. That is a very balanced and a fair way to
approach the economic system of our Nation.
And what is that median income? We are talking about a median income
of $51,000 for a family of four is the starting point. So if an
individual with four people in the family is earning $30,000 or $40,000
or $50,000, that fresh start is guaranteed. But if they are earning
$55,000, $60,000, $80,000, $100,000 or beyond, then that set of
finances has to be looked at more closely under the provisions of our
bill to see if anything should be used for repayment of some of the
debt. That is fair. That is proper.
The more we do that, the less burden the rest of the taxpayers have
to bear. Because the taxpayers have to pick up the slack. Consumers at
the retail outlets, at the supermarkets, have to pay more. Interest
rates go up, etc. The more we are able to recoup some of the debt from
the high-income people, the less the burden will be on the rest of the
public.
That is what the clear message is of the bankruptcy reform
legislation which we have before the House today. I ask for an
overwhelming vote in support of the underlying bill.
Mr. Chairman, I include for the Record the following letters:
House of Representatives,
Committee on Commerce,
Washington, DC, May 3, 1999.
Hon. Henry Hyde,
Chairman, Committee on the Judiciary, Rayburn House Office
Building, Washington, DC.
Dear Henry: I am writing with regard to
H.R. 833, the
Bankruptcy Reform Act of 1999. As you know, the regulation of
securities and exchanges is a matter committed to the
jurisdiction of the Committee on Commerce pursuant to Rule X
of the Rules of the House of Representatives.
Section 1011 of
H.R. 833, as ordered reported (``SIPC
Stay''), amends the Securities Investor Protection Act of
1970 (P.L. 91-598), a statute within the jurisdiction of the
Committee on Commerce. As you will recall, this provision was
originally contained in the Financial Contract Netting
Improvement Act of 1998, introduced in the 105th Congress as
H.R. 4393 and on which the Committee on Commerce received an
additional referral of the bill upon its introduction, as did
the Committee on the Judiciary.
Because of the importance of this legislation, I recognize
your desire to bring it before the House in an expeditious
manner, and I will not exercise the Committee's right to a
sequential referral. By agreeing to waive its consideration
of the bill, however, the Commerce Committee does not waive
its jurisdiction over
H.R. 833. In addition, the Commerce
Committee reserves its authority to seek conferees on any
provisions of the bill that are within its jurisdiction
during any House-Senate conference that may be convened on
this legislation. I ask for your commitment to support any
request by the Commerce Committee for conferees on
H.R. 833
or similar legislation.
I request that you include this letter and your response as
part of the Record during consideration of the legislation on
the House floor.
Thank you for your attention to these matters. I remain,
Sincerely,
Tom Bliley,
Chairman.
____
House of Representatives,
Committee on the Judiciary,
Washington, DC, May 3, 1999.
Hon. Tom Bliley,
Chairman, Committee on Commerce, House of Representatives,
Rayburn House Office Building, Washington, DC.
Dear Tom: Thank you for your letter regarding your
Committee's jurisdictional interest in
H.R. 833, the
Bankruptcy Reform Act of 1999.
I acknowledge your committee's jurisdiction over section
1011 (``SIPC Stay'') of this legislation and appreciate your
cooperation in moving the bill to the House floor
expeditiously. I agree that your decision to forgo further
action on the bill will not prejudice the Commerce Committee
with respect to its jurisdictional prerogatives on this or
similar provisions, and will support your request for
conferees on those provisions within the Committee on the
Commerce's jurisdiction should they be the subject of a
House-Senate conference. I will also include a copy of your
letter and this response in the Congressional Record when the
legislation is considered by the House.
Thank you again for your cooperation.
Sincerely,
Henry J. Hyde,
Chairman.
[[Page
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____
U.S. Congress,
Congressional Budget Office,
Washington, DC, May 5, 1999.
Hon. Henry J. Hyde,
Chairman, Committee on the Judiciary, House of
Representatives, Washington, DC.
Dear Mr. Chairman: The Congressional Budget Office has
prepared the enclosed cost estimate for
H.R. 833, the
Bankruptcy Reform Act of 1999.
If you wish further details on this estimate, we will be
pleased to provide them. The CBO staff contacts are Susanne
S. Mehlman (for federal costs), who can be reached at 226-
2860, Lisa Cash Driskill (for the state and local impact),
who can be reached at 225-3220, and John Harris (for the
private-sector impact), who can be reached at 226-6910.
Sincerely,
Barry B. Anderson
(For Dan L. Crippen, Director).
Enclosure.
CONGRESSIONAL BUDGET OFFICE COST ESTIMATE, MAY 5, 1999
H.R. 833: Bankruptcy Reform Act of 1999
(As reported by the House Committee on the Judiciary on April 28, 1999)
SUMMARY
H.R. 833 would make many changes and additions to the laws
relating to bankruptcy, including establishing a system of
means-testing for determining eligibility for relief under
chapter 7 of the U.S. bankruptcy code. CBO estimates that
implementing
H.R. 833 would cost $333 million over the 2000-
2004 period--$322 million in discretionary spending, subject
to appropriation of the necessary funds, and $11 million in
mandatory spending. CBO also estimates that enacting this
bill would decrease receipts by about $4 million over the
next five years. Because the bill would affect direct
spending and governmental receipts, pay-as-you-go procedures
would apply. Provisions in title VIII also would affect
receipts, but the Joint Committee on Taxation (JCT) has not
completed an estimate of such changes at this time.
H.R. 833 contains an intergovernmental mandate as defined
in the Unfunded Mandates Reform Act (UMRA), but its costs
would be insignificant and would not exceed the threshold
established in that act ($50 million in 1996, adjusted
annually for inflation). Overall, CBO expects that enacting
this bill would benefit state and local governments by
enhancing their ability to collect outstanding obligations in
bankruptcy cases.
H.R. 833 would impose new private-sector mandates, as
defined in UMRA, on bankruptcy attorneys, creditors, and
credit and charge-card companies. CBO estimates that the
costs of these mandates would exceed the $100 million (in
1996 dollars) threshold established in UMRA.
DESCRIPTION OF THE BILL'S MAJOR PROVISIONS
In addition to establishing means-testing for determining
eligibility for chapter 7 bankruptcy relief,
H.R. 833 would:
Require the Executive Office for the United States Trustees
(U.S. Trustees) to establish a test program to educate
debtors on financial management; authorize 18 new temporary
judgeships and extend five existing judgeships in 19 federal
districts; permit courts to waive chapter 7 filing fees and
other fees for debtors who could not pay such fees in
installments; require that at least one out of every 250
bankruptcy cases under chapter 13 or chapter 7 be audited by
an independent certified public accountant; exempt chapter 11
debtors from having to pay certain fees in connection with
their bankruptcy cases; require the Administrative Office of
the United States Courts (AOUSC) to receive and maintain tax
returns for all chapter 7 and chapter 13 debtors; and require
the AOUSC and the U.S. Trustees to collect and publish
certain statistics on bankruptcy cases.
Other provisions would make various changes affecting the
bankruptcy provisions for municipalities and the treatment of
tax liabilities in bankruptcy cases.
estimated cost to the federal government
As shown in the following table, CBO estimates that
implementing
H.R. 833 would cost the courts, the AOUSC, and
the U.S. Trustees $24 million in fiscal year 2000 and $322
million over the 2000-2004 period, subject to appropriation
of the necessary funds. In addition, we estimate that
mandatory spending for the salaries and benefits of
bankruptcy judges would increase by less than $500,000 in
2000 and $11 million over the 2000-2004 period. Enacting the
means-testing and fee waiver provisions in title I would
result in a net loss in revenues of about $4 million over the
next five years. The costs of this legislation fall within
budget function 750 (administration of justice).
----------------------------------------------------------------------------------------------------------------
By fiscal year, in millions of dollars--
------------------------------------------------------
2000 2001 2002 2003 2004
----------------------------------------------------------------------------------------------------------------
CHANGES IN SPENDING SUBJECT TO APPROPRIATION
Means-Testing (Section 102):
Estimated Authorization Level........................ 4 8 8 8 7
Estimated Outlays.................................... 4 8 8 8 7
Debtor Financial Management Training (Section 104):
Estimated Authorization Level........................ 4 0 0 0 0
Estimated Outlays.................................... 1 3 0 0 0
Additional Judgeships--Support Costs (Section 128):
Estimated Authorization Level........................ (\1\) 6 11 11 12
Estimated Outlays.................................... (\1\) 6 11 11 12
Chapter 7 Filing Fee Waivers (Section 148):
Estimated Authorization Level........................ 2 5 8 13 13
Estimated Outlays.................................... 2 5 8 13 13
Credit Counseling Certification (Section 302):
Estimated Authorization Level........................ 4 3 3 4 4
Estimated Outlays.................................... 2 4 3 4 4
U.S. Trustee Site Visits (Section 410):
Estimated Authorization Level........................ 3 2 2 2 3
Estimated Outlays.................................... 1 4 2 2 3
Audit Procedures (Section 602):
Estimated Authorization Level........................ 0 6 15 18 19
Estimated Outlays.................................... 0 6 15 18 19
Maintenance of Tax Returns (Section 603):
Estimated Authorization Level........................ 3 6 7 9 9
Estimated Outlays.................................... 3 6 7 9 9
Elimination of Quarterly Filing Fees (Section 608):
Estimated Authorization Level........................ 10 10 10 10 10
Estimated Outlays.................................... 10 10 10 10 10
GAO and SBA Studies (Sections 609, 613, 414):
Estimated Authorization Level........................ 1 (\1\) 0 0 0
Estimated Outlays.................................... 1 (\1\) 0 0 0
Compiling and Publishing Data (Sections 701-702):
Estimated Authorization Level........................ 0 5 9 8 8
Estimated Outlays.................................... 0 5 9 8 8
------------------------------------------------------
Total Discretionary Changes:
Estimated Authorization Level........................ 31 51 73 83 85
Estimated Outlays.................................... 24 57 73 83 85
CHANGES IN DIRECT SPENDING
Additional Judgeships (Section 128):
Estimated Budget Authority........................... (\1\) 2 3 3 3
Estimated Outlays.................................... (\1\) 2 3 3 3
CHANGES IN REVENUES \2\
Changes in Filing Fees (Section 102): Estimated Revenues. 0 0 (\1\) 1 1
Chapter 7 Filing Fee Waivers (Section 148): Estimated (\1\) -1 -1 -2 -2
Revenues................................................
------------------------------------------------------
Total Revenue Changes: Estimated Revenues................ (\1\) -1 -1 -1 -1
----------------------------------------------------------------------------------------------------------------
\1\ Less than $500,000.
\2\ The Joint Committee on Taxation has not yet completed its review of tax provisions in title VIII.
basis of estimate
For purposes of this estimate, CBO assumes that
H.R. 833
will be enacted by October 1, 1999, and that all estimated
authorization amounts will be appropriated for each fiscal
year.
Spending Subject to Appropriation. Most of the estimated
increases in discretionary spending would be required to fund
the additional workload that would be imposed on the U.S.
Trustees. Currently, the U.S. Trustees are funded through the
bankruptcy-related fees collected by the courts. Without
additional statutory authority, these fees
[[Page
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cannot be increased to cover any expenditures or loss of
offsetting collections that would occur under the bill.
Because the legislation does not provide for such increases
in fees, any additional costs would be subject to the
availability of appropriated funds.
Means-Testing (Section 102). This section would establish a
system of means-testing for determining a debtor's
eligibility for relief under chapter 7. Only those debtors
whose income exceeds the regional median household income
with certain adjustments would be subject to the means test.
Under the means test, if the debtor is expected to have at
least $6,000 over five years (after the deduction of certain
allowable expenses) available to pay nonpriority unsecured
claims, then the debtor would be presumed ineligible for
chapter 7 relief. A debtor who could not demonstrate
``extraordinary circumstances,'' which would cause the
expected disposable income to fall below the threshold, could
file under other chapters of the bankruptcy code.
Although the private trustees would be responsible for
conducting the initial review of a debtor's income and
expenses and filing the majority of motions for dismissal or
conversion, CBO expects that the workload of the U.S.
Trustees would increase under the means-testing provisions.
The U.S. Trustees would provide increased oversight of the
work performed by the private trustees, file additional
motions for dismissal or conversions, and take part in
additional litigation that is expected to occur as the courts
and debtors debate allowable expenses and other related
issues. Although CBO cannot predict the amount of such
litigation, we expect that, during the first few years
following enactment of the bill, the amount of litigation
could be significant, as parties test the new law's
standards. In subsequent years, litigation could begin to
subside as precedents are established. Based on information
from the U.S. Trustees, CBO estimates that the U.S. Trustees
would require about 60 additional attorneys and analysts to
address the increased workload. As a result, CBO estimates
that appropriations of $35 million would be required over the
next five years.
Debtor Financial Management Test Training Program (Section
104). This section would require the U.S. Trustees to
establish a test training program to educate debtors on
financial management. Based on information from the U.S.
Trustees, CBO estimates that about 90,000 debtors would
participate if such a program were administered by the U.S.
Trustees in fiscal year 2001. At a projected cost of about
$40 per debtor, CBO estimates that the U.S. Trustees would
require an appropriation of about $4 million in 2000 to
administer the program.
Addtional Judgeships--Support Costs (Section 128). This
provision would extend five temporary bankruptcy judgeships
and authorize 18 new temporary bankruptcy judgeships for 19
federal judicial districts. Based on information from the
AOUSC, CBO assumes that one-half of the 18 new positions
would be filled by the beginning of fiscal year 2001 and the
other half would be filled by the start of fiscal year 2002.
Also, we anticipate that all five temporary judgeships would
be filled by fiscal year 2002. We expect that discretionary
expenditures associated with each judgeship would average
about $450,000 (in 2000 dollars), after initial costs of
about $50,000. Therefore, CBO estimates that the
administrative support of additional bankruptcy judges would
require an appropriation of less than $500,000 in fiscal
year 2000 and about $40 million over the 2000-2004 period.
(Salaries and benefits for the judges are classified as
mandatory spending, and those costs are described below.)
Chapter 7 Filing Fee Waivers (Section 148). This section
would permit a bankruptcy court or district court to waive
the chapter 7 filing fee and other fees for a debtor who is
unable to pay such fees in installments. Based on information
from the AOUSC, CBO expects that in fiscal year 2000 chapter
7 filing fees would be waived for about 3.5 percent of all
chapter 7 filers and that the percentage waived would
gradually increase to about 10 percent by fiscal year 2003.
The filing fee for a chapter 7 case is $130, and income from
this fee appears in two different places in the budget. Of
the $130, $70 is recorded as part of the offsetting
collections to the U.S. Trustee System Fund and to the AOUSC,
and $15 is recorded as governmental receipts (i.e.,
revenues). the remaining $45 is paid to the private trustee
assigned to the case and does not affect the federal budget.
The AOUSC also collects an additional $30 million in
miscellaneous fees with each chapter 7 filing. Taking into
account how means-testing would reduce filing rates under
chapter 7, CBO estimates that implementing this section would
result in a loss in offsetting collections totaling $41
million over the 2000-2004 period. The loss of offsetting
collections would reduce the amount available for spending by
the U.S. Trustees and the AOUSC. Because this loss of fees
would not be matched by a reduction in workload, additional
appropriations would be required to replaced this projected
loss.
Credit Counseling Certification (Section 302). This section
would require the U.S. Trustees to certify, on an annual
basis, that certain credit counseling services could provide
adequate services to potential debtors. Based on information
from the U.S. Trustees, CBO estimates that the U.S. Trustees
would require additional attorneys and analysts to handle the
additional workload associated with certification. CBO
estimates that enacting this provision would require
appropriations of $18 million over the next five years.
U.S. Trustee Site Visits in Chapter 11 Cases (Section 410).
This section would expand the responsibilities of the U.S.
Trustees in small business bankruptcy cases to include site
visits to inspect the debtor's premises, review records, and
verify that the debtor has filed tax returns. Based on
information from the U.S. Trustees, CBO estimates that
implementing section 410 would require about 20 additional
analysts to conduct over 2,300 site visits each year. CBO
estimates that the U.S. Trustees would require appropriations
of about $12 million over the next five years for the
salaries, benefits, and travel expenses associated with these
additional personnel.
Audit Procedures (Section 602). Beginning 18 months after
enactment,
H.R. 833 would require that at least one out of
every 250 bankruptcy cases under chapter 7 and chapter
13, plus other selected cases under those chapters, be
audited by an independent certified public accountant.
Based on information from the U.S. Trustees, CBO estimates
that about 1.3 million cases would be subject to audits in
fiscal year 2001, increasing to about 1.8 million in
fiscal year 2004. CBO assumes that about 0.8 percent of
all cases would be audited and that each audit would cost
about $1,000 (in 2000 dollars.) CBO also expects that the
U.S. Trustees would need about 10 additional analysts and
attorneys to support the follow-up work associated with
the audits. Thus, we estimate that implementing this
provision would require appropriations of $6 million in
fiscal year 2001 and $58 million over the 2000-2004
period.
Maintenance of Tax Returns (Section 603). This section
would require the AOUSC to receive and retain tax returns for
the three most recent years preceding the commencement of the
bankruptcy case for all chapter 7 and chapter 13 debtors
(about 8 million debtors over the 2004-2004 period). CBO
estimates that appropriations of $34 million over the next
five years would be required to store and provide access to
over 20 million tax returns.
Elimination of Quarterly Filing Fees (Section 608). This
section would require chapter 11 debtors whose disbursements
are less than $300,000 to pay quarterly fees only until their
case is converted or their plan is confirmed (whichever
occurs first), beginning on October 1, 1999. Currently, these
debtors pay quarterly fees even after their plan has been
confirmed. These fees are recorded as offsetting collections
to the U.S. Trustee System Fund and are available for
spending from that account. According to the U.S. Trustees,
about 4,000 cases would be affected by this provision each
year and, on average, the government collects about $650 per
quarter per case each year. Thus, by shortening the period
during which fees are paid, the bill would reduce annual fee
collections by about $10 million annually. Because this loss
of offsetting collections would reduce the amount available
for spending by the U.S. Trustees (for overall supervision
and administration of bankruptcy cases), CBO estimates that
the U.S. Trustees would require an appropriation of $10
million in fiscal year 2000 and $50 million over the next
five years to compensate for the loss of quarterly filing
fees.
General Accounting Office (GAO) and Small Business
Administration (SBA) Studies (Sections 609, 613, and 414).
Section 609 would require GAO to conduct a study regarding
the impact that the extension of credit to dependents who are
enrolled in postsecondary educational institutions has on
bankruptcy filing rates. Section 613 would require GAO to
conduct a study regarding the feasibility of requiring
trustees to provide the Office of Child Support Enforcement
information about outstanding child support obligations of
debtors. Section 414 would require the Administrator of SBA,
in consultation with the Attorney General, the U.S. Trustees,
and the AOUSC, to conduct a study on small business
bankruptcy issues. Based on information from GAO and SBA, CBO
estimates that completing the necessary studies would cost
between $500,000 and $1 million in 2000, and less than
$500,000 in 2001.
Compilation and Publication of Bankruptcy Data and
Statistics (Sections 701-702).
H.R. 833 would require the
AOUSC to collect data on chapter 7, chapter 11, and chapter
13 cases and the U.S. Trustees to make such information
available to the public. CBO estimates that appropriations of
about $30 million would be required over the 2000-2004 period
to meet these requirements. Of the total estimated cost,
about $24 million would be required for additional legal
clerks, analysts, and data base support. The remainder would
be incurred by the U.S. Trustees for compiling data and
providing Internet access to records pertaining to bankruptcy
cases.
DIRECT SPENDING AND REVENUES
Additional Judgeships (Section 128). CBO estimates that
enacting the means-testing provision (section 102) would
impose some additional workload on the courts. Section 128
would authorize 18 new temporary bankruptcy judgeships and
extend five existing temporary judgeships. Based on
information from the AOUSC and other bankruptcy experts, CBO
expects that the increase in the number of bankruptcy judges
would be sufficient to meet the increased workload. Assuming
that the salary and benefits of a bankruptcy judge would
average about $150,000 a year, CBO estimates that the
mandatory costs associated with the salaries and benefits of
these additional judgeships would be less than $500,000 in
fiscal year 2000 and about $11 million over the 2000-2004
period.
Changes in Filing Fees (Section 102). The means-testing
provision also could affect the
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government's income from bankruptcy filing fees because it
would cause changes in the number and type of bankruptcy
filings. CBO projects that about 5 to 10 percent of all
chapter 7 debtors (about 50,000 to 100,000 cases each year)
could be subject to the means test proposed under this bill.
CBO expects that those debtors who are not successful in
proving ``extraordinary circumstance'' will either convert
their cases to chapter 13 cases or withdraw their petitions
for bankruptcy relief. Under either of these options, CBO
estimates that there would be no significant effect on the
federal budget because there is no fee for converting a case
from chapter 7 to chapter 13, and filing fees are not
refunded to debtors who withdraw their petitions for
bankruptcy relief. Over the long term, CBO estimates that the
federal government could collect additional revenues as more
debtors file directly under chapter 13. (The government
collects an additional $45 for each case filed under chapter
13 instead of chapter 7.) This increase could be partly
offset by those debtors who might refrain from filing for any
type of bankruptcy relief. On balance, CBO estimates that the
means-testing provision would increase revenues by about $1
million beginning in 2003. This provision would have no
effect on offsetting collections because there is no
difference in the amount of offsetting collections
collected under either chapter 7 or chapter 13, and any
loss in collections would be matched by a reduction in
workload.
Chapter 7 Filing Fee Waivers (Section 148). As mentioned
above, this section would permit a bankruptcy court or the
district court to waiver the chapter 7 filing fee and other
fees for a debtor who is unable to pay such fees in
installments. For each chapter 7 case filed, the federal
government collects $15. Taking into account the means-
testing provision and the amount of expected waivers, CBO
estimates that implementing this section would result in a
loss in revenues of $1 million to $2 million a year beginning
in fiscal year 2001.
CBO estimates that the net effect on revenues of
implementing the meanstesting and fee waiver provisions would
be a loss of about $1 million annually beginning in fiscal
year 2001.
Tax Provisions (Title VIII). The provisions in title VIII
of the bill are currently under review by the Joint Committee
on Taxation, and estimates of their effects on revenues will
be provided when they are completed.
PAY-AS-YOU-GO CONSIDERATIONS
The Balanced Budget and Emergency Deficit Control Act sets
up pay-as-you-go procedures for legislation affecting direct
spending or receipts. Both the means-testing and waiver of
fees would affect receipts; hence, pay-as-you-go procedures
would apply. The net changes in outlays and governmental
receipts are show in the following table. (JCT is reviewing
title VIII and has not yet completed an estimate of its
effects on receipts.) For the purposes of enforcing pay-as-
you-go procedures, only the effects in the current year, the
budget year, and the succeeding four years are counted.
--------------------------------------------------------------------------------------------------------------------------------------------------------
By fiscal year, in million of dollars--
--------------------------------------------------------------------------------------------------
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
--------------------------------------------------------------------------------------------------------------------------------------------------------
Changes in outlays................................... 0 0 2 3 3 3 3 3 3 2 2
Changes in receipts\1\............................... 0 0 -1 -1 -1 -1 -1 -1 -1 -1 -1
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Estimated impact of means-testing and waiver of fees. JCT has not completed an estimate of changes in receipts for title VIII.
ESTIMATED IMPACT ON STATE, LOCAL, AND TRIBAL GOVERNMENTS
H.R. 833 contains an intergovernmental mandate as defined
in UMRA. Overall, CBO expects that enacting this bill would
benefit state and local governments by enhancing their
ability to collect outstanding obligations in bankruptcy
cases.
Mandates. Section 106 of the bill would preempt state laws
governing contracts between a debt relief agency and a
debtor, to the extent that they are inconsistent with the
federal requirements set forth in this bill. Such preemptions
are mandates as defined in UMRA. Because the preemption would
not require states to change their laws, CBO estimates the
costs to states of complying with that mandate would not be
significant and would not exceed the threshold established in
UMRA.
Other Impacts. The changes to bankruptcy law in the bill
would affect state and local governments primarily as
creditors and holders of claims for taxes or child support.
In addition, it would change some of the state statutes that
govern which of a debtor's assets are protected from
creditors in a bankruptcy proceeding.
In 1996, a survey of the 50 states conducted by the
Federation of Tax Administrators and the States' Association
of Bankruptcy Attorneys indicated that more than 360,000
taxpayers in bankruptcy owed claims to states totaling about
$4 billion. Of these claims, states reported collecting only
about $234 million. While CBO cannot predict how much more
money might be collected, it is likely that states and local
governments would collect a greater share of future claims
than they would have under current law.
Exemptions. Although bankruptcy is regulated according to
federal statute, states are allowed to provide debtors with
certain exemptions for property, insurance, and other items
that are different from those allowed under the federal
bankruptcy code. (Exempt property remains in possession of
the debtor and is not available to pay off creditors.) In
some states debtors can choose the federal or state
exemption; other states require a debtor to use only the
state exemptions. This bill would place a ceiling of $250,000
on the exemptions for homesteads and create a new exemption
for certain retirement funds and education savings plans.
These exemption standards would apply regardless of the state
policy on exemptions. The new homestead exemption would make
more money available to creditors in some cases, while the
exemptions on retirement and education savings generally
would make less money available. States would be allowed
to set the homestead exemption above the federal ceiling
if they specifically enacted legislation doing so.
Domestic Support Obligations. The bill would significantly
enhance a state's ability to collect domestic support
obligations, including child support. Domestic support
obligations owed to state or local governments would be given
priority over all other claims, except those same obligations
owned to individuals. The bill also would require that filers
under chapters 11 and 13 pay in full all domestic support
obligations owed to government agencies or individuals in
order to receive a discharge of outstanding debts. In
addition, the automatic stay that is triggered by filing
bankruptcy would not apply to domestic support obligations.
Last, the bill would require bankruptcy trustees to notify
individuals with domestic support claims of their right to
use the services of a state child support enforcement agency
and notify the agency that they have done so. The last known
address of the debtors would be a part of the notification.
Tax Payment Plans. The bill would require that payment
plans for tax liabilities be limited to six years and that
payment amounts be regular and proportionate to payments for
other obligations. Under current law, taxing authorities
sometimes face payment plans that include a series of small
payments followed by a large balloon payment near the end of
the planned payment stream. At that point, the debtors often
fail to complete their payments. This provision would require
that taxes be paid at a rate proportionate to those of other
debts. It also would establish interest rates to be applied
to outstanding tax liabilities. Under current law, any
interest charges on outstanding tax liabilities are
determined at the discretion of the bankruptcy judge.
Time Limits on Tax Collection. Under some circumstances, a
tax claim can qualify for priority status, and thus a state
and local government would be more likely to collect the
debt. However, this status is granted only if tax is assessed
within a specific period of time from the date of the filing
for bankruptcy. If that filing is subsequently dismissed and
a new filing is made, the tax claim may lose its priority
status. The bill would allow more time to pass in some
circumstances, thus increasing the likelihood that state or
local tax claims would maintain their priority status.
Taxes and Administrative Expenses. Under current law,
certain expenses can be paid out of funds that would
otherwise be available to pay tax liens on property. The bill
would restrict the use of funds for administrative expenses
to a limited number of circumstances, thereby making it more
likely that funds would remain available to cover tax
obligations.
Tax Return Filing and Government Notification. A number of
provisions in the bill would require debtors to have filed
tax returns, and in some cases to be current in their tax
payments, before a bankruptcy case may continue. Also,
debtors would be required to provide notice to state
authorities in a specific manner when they pursue relief
under bankruptcy law. These provisions would help states
identify potential claims in bankruptcy cases where they may
be owed delinquent taxes.
Priority of Payments. In some circumstances, debtors have
borrowed money or incurred some new obligation that is
dischargeable (able to be written-off at the end of
bankruptcy) to pay for an obligation would not be
dischargeable. This bill would give the new debt the same
priority as the underlying debt. If the underlying debt had a
priority higher than that of state or local tax liabilities,
state and local governments could lose access to some funds.
However, it is possible that the underlying debt could be for
a tax claim, in which case the taxing authority would face no
loss. Because it is unclear what types of nondischargeable
are covered by new debt and the degree to which this new
provision would discourage such activity, CBO can estimate
neither the direction nor the magnitude of the provision's
impact on states and localities.
Single Asset Cases. One provision of the bill would allow
expedited bankruptcy proceeding in certain single asset cases
(usually involving a large office building). State and
[[Page
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local governments could benefit to the extent that real
property is returned to the tax rolls earlier as a result of
this provision.
Municipal Bankruptcy. The bill would clarify regulations
governing municipal bankruptcy actions and allow
municipalities that have filed for bankruptcy to liquidate
certain financial contracts.
estimated impact on the private sector
H.R. 833 would impose new private-sector mandates on
bankruptcy attorneys, creditors, and credit and charge-card
companies. Bankruptcy attorneys would be required to make
reasonable inquiries to confirm that the information in
documents they submit to the court or the bankruptcy trustee
is wellgrounded in fact. Creditors would be required to make
disclosures in their agreements with debtors and provide
certain notices to courts and to debtors. Credit and charge-
card companies would be required to disclose minimum-payment
plans in new account materials and monthly statements. CBO
estimates that the costs of these mandates would exceed the
$100 million (in 1996 dollars) threshold established in the
UMRA.
Sections 102 and 607 would make bankruptcy attorneys liable
for misleading statements and inaccuracies in schedules and
documents submitted to the court or to the trustee. To avoid
sanctions and potential civil penalties, attorneys would need
to verify the information given to them by their clients
regarding the list of creditors, assets and liabilities, and
income and expenditures. Based on 1,286,000 projected filings
under chapter 7 and chapter 13 and an estimated increase in
attorneys' costs of $150 to $500 per case, CBO estimates that
the costs to attorneys of complying with this requirement
would be between $190 million and $640 million in fiscal year
2000. With the rise in projected filings over the next five
years, annual costs would be $280 million to $940 million for
fiscal year 2004. CBO expects bankruptcy attorneys to pass
increased costs on to debtors, reducing the pool of funds
available to creditors.
H.R. 833 would require a creditor with an unsecured
consumer debt seeking a reaffirmation agreement with a debtor
to notify the debtor of his right to a hearing to determine
whether the agreement is an undue hardship, is in the
debtor's best interest, or is the result of an illegal threat
by the creditor. The bill also would require creditors to
specify to the court and to the debtor the person designated
to receive notices. Because the required disclosure could be
incorporated into existing standard reaffirmation agreements,
and the notice to the court and the debtor would require only
minimal effort, the costs of this requirement would be
relatively small.
The costs of the mandate for credit and charge-card
companies are also expected to be small.
H.R. 833 would
require credit and charge-card companies to add a brief
statement regarding the function of the minimum payment
option and disadvantages of making only the minimum payment
each month to the materials provided to consumers opening new
accounts and to all customers' monthly statements. Credit and
charge-card companies also would have to provide customers
with an illustration of the length of time required to pay
off a $500 balance if they make only the minimum required
payment. Firms would be able to add this information to the
materials they currently give to customers.
Estimate prepared by: Federal Costs: Susanne S. Mehlman
(226-2860); Impact on State, Local, and Tribal Governments:
Lisa Cash Driskill (225-3220); Impact on the Private Sector:
John Harris (226-6910).
Estimate approved by: Paul N. Van de Water, Assistant
Director for Budget Analysis.
Mr. Chairman, I reserve the balance of my time.
Mr. CONYERS. Mr. Chairman, I yield myself such time as I may consume.
(Mr. CONYERS asked and was given permission to revise and extend his
remarks.)
Mr. CONYERS. Mr. Chairman, I am delighted to begin immediately by
talking about the means test and other consumer provisions that will
harm middle-income and low-income people.
Because contrary to the assertion of my friend, the gentleman from
Pennsylvania (Mr. Gekas), that this is going to make it better, the
means test is going to make it worse. It is incorrect to assume that
the effect of this bill's harmful provisions would be limited to
individuals seeking bankruptcy relief who earned more than the regional
median income.
First, there are numerous significant flaws in the manner in which
the median income is calculated. For example, the median income figure
required under this bill will be outdated and understated. This is
because the bill states that the household income is to be based on the
most recent census figures available as of January 1. But as of January
1, the census has information available for only the second year prior
to the date.
Accordingly, during this year, 1999, census figures will be available
only for 1997. At times of inflation, this 2-year lag could result,
obviously, in a significant increase in the number of individuals who
are subject to the motions to dismiss or convert and who may earn more
than the outdated median-income figure.
Another flaw in the median-income formula is that the test measures a
debtor's income based on how much the debtor earned 6 months prior to
bankruptcy. If the debtor lost a good job in month three and has been
working at a low-wage job ever since, the income from that good job and
the help from family members would be counted as if that is what his
future income would be.
In addition, this bill, unlike current law, will permit creditors and
other parties and interests to bring motions to dismiss more
aggressively; and well-funded creditors will have extremely wide
latitude to use such motions as a tool for making bankruptcy an
expensive, protracted, contentious process for honest debtors, their
families and other creditors.
Now, the bill is opposed by a growing number of Members of the House
of Representatives for the simple reason this bill is worse than the
bill we voted on in the last Congress; and it is bad for women,
children, working Americans. But the good news, if this is good news
for them in the credit card industry, it is good for the credit card
industry.
This means test is fatally flawed. The legislation attempts to impose
a one-size-fits-all income and expense test based on IRS standards to
determine who is eligible for bankruptcy relief and how much they may
be required to pay their creditors.
The problem is that the formula fails to take into account such
important items as child care payments, health care costs, and the
costs of taking care of ill parents, to name but a few of the glaring
loopholes. The IRS standards are so extreme that they have been
rejected by the Congress and abandoned by the IRS; and, yet, the credit
card companies would have them apply them in bankruptcy.
Now, the denials have been pouring in pretty fast here so far; and
there is going to be a lot of discussion about how the bill is
devastating to children and women reliant on child care and alimony
payments. Repeat: The bill is devastating to children and women reliant
on child care and alimony payments.
On the debtor's side, the legislation makes it far more difficult for
single mothers to access the bankruptcy similar. On the creditor's
side, the bill pits sophisticated credit card creditors in direct
competition with alimony and child support. The attempts to fix this
incorporated into the legislation are not effective and are largely
redundant.
And, third, but not finally, but I am going to stop here, the bill
will also lead to a loss of jobs and collective bargaining rights. The
business provisions of the bill will impose harsh new time deadlines
and massive new legal and paperwork requirements on small businesses
and real estate concerns and, by design, will lead to premature
liquidation of job loss.
This is why the largest collective bargaining organization in America
has asserted that the legislation will restrict the workings of
bankruptcy cases for small businesses and place numerous jobs at risk.
Now, the bill conveniently ignores the real problem of what has
caused more bankruptcies, namely, the problem of credit card abuse. And
is there any colleague here that does not get credit card applications
monthly, weekly, occasionally daily? And, at the same time, the
legislation responds to every conceivable debtor excess, real or
imagined. It gives a complete pass to the transgressions of the credit
card industry.
My colleagues should be on the alert. This Bankruptcy Reform Act
legislation of the 106th Congress will worsen the conditions of those
few people in their district, working people, honest people, who may
need to access this important court. Please remember, this bill is
worse than the bill we had last year.
Mr. Chairman, I reserve the balance of my time.
Mr. GEKAS. Mr. Chairman, I yield 4 minutes to the gentleman from
Virginia (Mr. Boucher).
(Mr. BOUCHER asked and was given permission to revise and extend his
remarks.)
[[Page
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Mr. BOUCHER. Mr. Chairman, I want to express thanks to the gentleman
from Pennsylvania for yielding me this time.
I am pleased to rise in strong support of the adoption of this much-
needed reform to our Nation's bankruptcy laws.
In an era in which disposable incomes are growing, unemployment rates
are low, and the economy is strong, consumer bankruptcy filings should
be rare. Contrary, however, to this expectation, in 1998, there were
1.4 million personal bankruptcy files, a 40 percent increase from the
1996 figure. In 1996, that figure reached one million for the first
time. And, in 1998, there was a full 95 percent increase in the number
of personal bankruptcy files from 1990.
Bankruptcies of mere convenience are often driving this increase.
Bankruptcy was never meant to be used as a financial planning tool, but
it is increasingly becoming a first stop rather than a last resort, as
many filers who could repay a substantial part of what they owe elect
to use the complete liquidation provisions of Chapter 7 of the
bankruptcy law, wipe out all of their debt, even that portion they
could repay, and seek an entire fresh start.
{time} 1245
Our legislation will direct more filers into Chapter 13 plans and
make sure that those who can afford to repay a substantial part of
their debt are required to do so.
Mr. Chairman, this is a consumer protection measure. The typical
American family pays a hidden tax of $550 every year arising from the
increased costs of credit and the increases in prices for goods and
services occasioned by the discharge in bankruptcy of $50 billion in
consumer debt on an annual basis. By requiring that people who can
repay a substantial part of the debt they owe do so in Chapter 13
plans, we can greatly lessen that hidden tax, and this bill will
accomplish that result.
Another key point needs to be made about the legislation. The alimony
or child support recipient is clearly better off under the terms of
this bill than she is under present law. At the present time she stands
seventh in the rank of priority for the payment of claims in
bankruptcy. She is behind farmers making claims against warehouses and
grain elevators. She is behind fishermen who make claims against their
warehouses.
Under this bill, the child support or alimony recipient will be
elevated to the first priority. She will now stand number one in line
for the payment of bankruptcy claims. And other provisions of the bill
also make it easier for the bankrupt's assets to be paid to her.
The gentleman from Virginia (Mr. Moran) will be offering amendments
today that I will support and I encourage other Members to support,
that will require greater disclosures on credit card statements of the
costs of making the minimum monthly payment. Credit card statements
would have to indicate that the ordinary finance charge on the
outstanding balance would continue to accrue.
The Moran amendment supplements other new consumer protection
measures that are already a part of this bill. For example, credit card
companies will be prohibited from terminating a customer's account
simply because that customer pays his bills on time and therefore does
not accrue finance charges. That is a very appropriate change to make
and is one of many consumer protection measures contained in the bill.
This is a balanced, bipartisan measure which contains new consumer
protections and requires greater debt repayment by those who can afford
to make that repayment. This measure, when considered on the floor of
the House as a conference report last year, obtained the votes of 300
of the Members, clearly demonstrating the broad bipartisan base for
enacting this reform.
I am pleased to be coauthoring this measure with the gentleman from
Pennsylvania, and I want to commend him for his leadership in bringing
this balanced and bipartisan bill to the floor. I am pleased to join
with him in urging its passage by the House.
Mr. CONYERS. Mr. Chairman, I yield myself 1\1/4\ minutes.
I think it is very important that we begin to deal with the alimony
and child support measure head-on. It has been suggested that this is
not a problem or that it has been improved upon. But actually for women
whose average income was at the median during the last 100 days before
the support checks stopped or women whose child care expenses exceeded
IRS standards, they may be denied access to Chapter 7 and forced into a
restrictive Chapter 13 repayment plan.
Secondly, the bill does not exempt child support or foster care
payments from the means test definition of disposable income, and does
not exclude alimony and child support payments received within 6 months
after filing for bankruptcy from the property of the estate.
How can we talk about women and children are okay? This bill is
presently a disaster for single mothers and their children, which
number in the alimony and child support area an estimated 243,000 to
325,000 bankruptcy cases each year. The National Partnership for Women
and Families have told us that the child support enforcement provision
in the bill would not adequately protect parents and children.
Mr. Chairman, I yield 2\1/2\ minutes to the gentleman from Virginia
(Mr. Scott) a distinguished member of the Committee on the Judiciary.
Mr. SCOTT. I thank the gentleman for yielding me this time.
Mr. Chairman, this bill overturns centuries of well-established laws
involving bankruptcy and the principle that those who are in financial
ruin can get a fresh start if they pay all they have, with certain
exceptions, to their creditors. Instead, they will be required for
those affected to essentially be in debtor's prison for 5 years. Those
who find themselves financially overwhelmed because of a loss of a job,
illness, business failure, will not get a fresh start. They will have
to pay every dime they have, after food and rent and a few other
expenses, to their creditors.
Now, that is not a fresh start. That is a guarantee that at the end
of 5 years they will be worse off than they started. So if someone is
stuck with bills, maybe a spouse had a business reversal, got sick, a
spouse had joint debts and their other spouse leaves or dies, they will
not get a fresh start. They will get no relief for 5 years.
Now, let us not get misled by this means test where only certain
people are affected by this legislation. All that means is that it is
not a bad bill for everybody, it is just a bad bill for some people.
That does not make it a good bill.
Now, there are some technical problems with the legislation. First of
all, the salary calculation in what you have to pay is based on the
last 6 months. Part of the bankruptcy problem may be caused by the fact
that you lost your job, and that calculation is obviously not
effective. You may be forced to pay more than in fact you have as
income. It includes as income disability benefits or veterans benefits
which if you have another job you will essentially lose in the future,
and it forces spouses to compete with sophisticated creditors for their
child support.
But fundamentally it violates centuries of laws that provide for a
fresh start. I ask that this not happen in a haphazardly drawn bill
that has technical problems and which is opposed by virtually every
group of experts in bankruptcy law. Mr. Chairman, I would ask that we
defeat this bill.
Mr. GEKAS. Mr. Chairman, I am pleased to yield 2\1/2\ minutes to the
gentlewoman from New Jersey (Mrs. Roukema).
(Mrs. ROUKEMA asked and was given permission to revise and extend her
remarks.)
Mrs. ROUKEMA. I thank the gentleman for yielding me this time.
Mr. Chairman, I want to offer my strong support for this legislation.
It goes a long way to correct the problems of bankruptcy. But right now
I want to focus on the issue of child support. I have been a pioneer in
the efforts at reforming child support, and I served on the U.S.
Commission for Interstate Child Support Enforcement.
Over the last 10 years we have done a great deal to enforce child
support and require the legal obligations, to close that enforcement
gap. But in recent years we have learned that bankruptcy is one of the
loopholes that has been used. Contrary to what we have heard before, as
I view this legislation, it is strong and goes a long way toward
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closing the enforcement gap as it relates to the ch