On February 10, the Senate Judiciary Committee heard testimony on a bill (S. 256) to reform the United States Bankruptcy Code. The House and Senate considered a similar bill last year, but a conference committee could not come to a final agreement before the 108th Congress adjourned for the year (see The Source, 1/30/04).
In his short opening statement, Chair Arlen Specter (R-PA) stated that the bankruptcy reform bill under consideration had “strong bipartisan support,” and announced that a mark-up would be held on February 17.
Ranking Member Patrick Leahy (D-VT) expressed his dismay that a provision to bar anti-abortion protestors from declaring bankruptcy to avoid paying court-ordered fines was not included in the bill. Explaining that Sen. Charles Schumer (D-NY) and former committee chair Orrin Hatch (R-UT) had worked together with House members to include the provision in the bill during the 107th Congress, he stated, “The 501-page bankruptcy reform bill introduced a few days ago has been stripped of the consensus clinic violence language and fails to address the discharge of penalties for violence against family planning clinics. As a result, perpetrators of clinic violence can continue to seek shelter in the nation’s bankruptcy courts. That is simply wrong.”
Maria Vullo, a partner at Paul, Weiss, Rifikind, Wharton and Garrison LLP, explained to the committee how individuals found guilty under the Freedom of Access to Clinic Entrances (FACE) Act used the Bankruptcy Code to avoid paying fines at judgment. As an attorney in a number of cases against violent anti-abortion protesters, she witnessed first-hand defendants who “intentionally sought to make themselves judgment proof precisely to avoid having to pay any part of the judgment that my clients obtained. When we found assets, they used the [bankruptcy] court system to seek to avoid their legal obligations.” She added, “These are not honest debtors who find themselves in dire financial straits through acts beyond their control, and who seek to work out their debts owed to creditors. They are not the individuals that the Bankruptcy Code was enacted to protect.” Ms. Vullo concluded, “In order to preserve law and order, the Bankruptcy Code must be amended so that the bankruptcy process is not abused any further. Whatever one’s position on abortion, we can all agree that criminals should not get away with acts of violence and threats of violence.”
A retired attorney with the San Francisco Department of Child Support Services, Philip Strauss, described how the bankruptcy reform bill would affect the collection of child support and alimony payments. He explained that over the past 17 years he had developed a “wish list” of amendments to the Bankruptcy Code that he hoped to see in federal legislation, and that all of them were included in the bill. Stating that the bill would “revolutionize the enforcement of support obligations against debtors in bankruptcy,” Mr. Strauss said that these sections of the bill would “achieve the following: 1) a reduction in the need to appear in bankruptcy court and the consequential reduction in the cost and uncertainty of litigation; 2) a reduction in the current conflicts in law and policy between the Bankruptcy Code and the federal child support enforcement program [Social Security Act, Title IV-D]; 3) reasonable insurances that significant support enforcement mechanisms will not be frustrated by the bankruptcy process; and 4) a clear recognition of the policy that all generally recognized support debts are entitled to a preferential treatment in bankruptcy.”
Testifying on behalf of the Credit Union National Association (CUNA), Kenneth Beine stressed the importance of financial education. He said that CUNA “supports the provision in S. 256 that requires a person contemplating bankruptcy to receive a briefing about available credit counseling and assistance in performing a budget analysis,” adding, “Any sensible bankruptcy reform should include education requirements to give debtors the tools they need to make wise decisions about filing for bankruptcy and to succeed financially after bankruptcy. In anticipation of this, CUNA plans to develop face-to-face and/or online courses to fulfill this aspect of the legislation.”
Elizabeth Warren, a professor at Harvard Law School, expressed her concern that the bill “treats all families alike. It assumes that everyone is in bankruptcy for the same reason too much unnecessary spending.” Giving examples of how families could be forced to file bankruptcy because they have exorbitant health care costs or are the victims of subprime lending scams, she stated, “This Congress wants to set a new moral tone. Do it with the bankruptcy bill. Don’t press ‘one-size-fits-all-they-are-all-bad’ judgments on the very good and the very bad. Spend the time to make the hard decisions. Leave discretion with the bankruptcy judges to evaluate these families. Based on the Harvard medical study and other research, I think you will find that most debtors are filing for bankruptcy not because they have too many Rolex watches and Gameboys, but because they had no choice.”
