Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 - Part I
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005 -- (Senate - March 09, 2005)
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Mr. KENNEDY. Mr. President, the most disturbing thing about this supposed bankruptcy reform is the utter lack of fairness and balance in the legislation. It gets tough on working families facing financial hardship due to a health crisis, job loss caused by a plant closing or offshoring of a job, or a military callup to active duty. The laws of bankruptcy are being changed to wrest every last dollar out of these unfortunate families in order to further enrich the credit card companies.
However, the authors of this legislation look the other way when it comes to closing millionaires' loopholes and ending corporate abuse. The legislation fails to address the real crisis in corporate bankruptcy where reorganization plans often benefit the very insiders whose greed and mismanagement brought down the company at the expense of the workers, the retirees, and the creditors, and it fails to address the shocking abuse of millionaires hiding their assets in so-called asset protection trusts, placing them completely beyond the reach of creditors.
This bill also fails to deal effectively with the unlimited homestead exemptions in a few States which allow the rich to hold on to their multimillion-dollar mansions while middle-class families in other States lose their modest homes. We truly cannot allow this bill to pass without closing the millionaires' homestead loophole once and for all. It has become a national embarrassment. Millionaire deadbeats buy a huge mansion in Florida and Texas to shield their wealth from creditors. The harsh rules of bankruptcy being established by this bill will trap hard-working middle-class families, but the unlimited homestead exemption will allow rich debtors to escape.
Existing bankruptcy laws allow those in bankruptcy to protect from their creditors certain assets, the nature of which is largely determined by State law. Most States make some allowance for homes or homesteads people live in, but the allowance is a modest one, too modest, in many States, for elderly people with large equity in the homes they have lived in for most of their lives.
However, five States--the most notorious of which are Texas and Florida--have unlimited homestead exemptions. This means debtors in those States can stash away millions, even tens of millions of dollars in the States and leave their creditors with nothing.
S. 256 leaves this gaping loophole wide open. It will allow the real abusers of the bankruptcy system to file for bankruptcy and to still keep their fortunes and properties intact while leaving their creditors with nothing. S. 256 has created some minor exceptions to the homestead exemption, none of which would be applicable in many of the most egregious cases. The bill fails to deal with the problem head on of multimillionaires who abuse bankruptcy by stashing away wealth while they declare bankruptcy.
My amendment caps the amount allowed for the homestead exemption at $300,000. This is an adequate allowance for most people. The average home in the United States is $240,000, a great deal higher in many of the regions of the country and lower in some parts of the country. This $300,000 is an adequate allowance for most people and would end the exploitation of the homestead exemption to hide assets from creditors. It would add some measure of fairness and balance to a bill that sorely needs some fairness and balance.
Some of the most egregious abuses we have currently and that this legislation fails to deal with are the kinds of abuses that we have in the case of Ken Lay, the former chairman of Enron, who owns a $7 million penthouse condominium. Mr. Lay made over $200 million from Enron stock and $19 million in bonuses. Other executives received bonuses as high as $5 million. Over 5,000 employees lost their jobs, and 20,000 lost an estimated $1 billion in retirement savings. Now, Ken Lay has been able to put some $7 million in a penthouse condominium in Houston's exclusive River Oaks neighborhood with 12 rooms covering 12,800 square feet.
We are going to find there have been hard-working men and women who have had health insurance--half of all of the bankruptcies are the result of dramatic health bills. Seventy-five percent of those individuals had health insurance. And, as we have pointed out during the course of this debate, if your family is touched by cancer, you, by definition, are going to have $35,000 to $40,000, at a minimum, out-of-pocket expenses. And that, in many situations, is enough to drive a family into bankruptcy.
If you have another serious health need, it will do the same. If you have important needs for children, such as spina bifida, autism, or other kinds of significant and important children's diseases, it will run into tens of thousands of dollars.
What we have seen in our study of these bankruptcies is half of the bankruptcies are caused by these medical disasters. Yet, we are unprepared to give any kind of consideration to these hard-working people who have taken out health insurance to try to provide for their families and, through no fault of their own, have been caught up in these dramatic health care bills. They are struggling and try to avoid bankruptcy and meet their responsibilities. But once they get caught in this net that is included in the bill, they will be punished--and I say ``punished''--by the provisions in this bill which are unduly harsh and I believe unduly unfair.
But not Ken Lay. Not Ken Lay. Here it is: He will be out there in his $7 million penthouse condominium in Houston's River Oaks neighborhood, with 12 rooms and covering 12,800 square feet.
Or Andrew Fastow, the former chief financial officer of Enron, who recently built a large house in River Oaks valued in the millions, his home will not be taken. He will be able to go home every night to that home and be able to live there while we are seeing the homes taken from working families whose only problem was that their family was hit by cancer or another serious illness. We are seeing their homes taken, when we see individuals who have basically violated the trust of their company and of the workers get a free ride in the form of millions of dollars.
You call that fair? You call that fair? All this amendment says is, we will have a uniform standard. We have a uniform standard in this amendment. We are going to have a uniform standard with regard to the equity in the house. We are not going to let these individuals go off and be able to shield all of their income.
We find Jeffrey Skilling, Enron's former president and chief executive officer, lives in a 15-room house in River Oaks valued at over $4 million.
WorldCom's chief financial officer, Scott Sullivan, who was charged with falsifying the books by more than $3.8 billion, recently built a 4-acre, $15 million estate in Boca Raton, FL, with an 18-seat movie theater, art gallery, and lagoon.
You are telling me we are going to protect those individuals in their homes when we have single mothers who cannot get the child support or alimony, through no fault of their own, and they are thrown into bankruptcy and in danger of losing their homes? And the cruelty is the innocent individual, more often the wife, who is not getting the alimony or child support, has a very good chance of losing her home--but not these individuals, not Dennis Kozlowski, the former CEO of Tyco International, who is said to have used $19 million from a no-interest loan from his company to pay part of the cost of a $30 million compound in Boca Raton, FL, called, ironically, Sanctuary. So $30 million he has been able to put away there.
There are hundreds of thousands of workers who have lost their jobs, lost their savings, lost their health care, lost their pensions--but he is going to be protected by this legislation. Where is the fairness in this legislation when it comes to this issue in terms of homes?
We have a law firm in hock for $100 million. Former Baseball Commissioner Bowie Kuhn moved to a mansion in Ponte Vedra Beach, FL, and immediately sought protection from the creditors. And the list goes on and on and on.
What is the current situation with regard to the homes and homesteads? Well, if you get caught up with a claim against you, and you live in any of these States--in New Jersey, in Pennsylvania, or Maryland--there is no homestead exemption. Your home, if you have the blessings to have a home, is thrown right in there, sold right off, put right on the market, and out you go.
In the State of Michigan, it is $3,500 in value. In Kentucky, it is $5,000 of value; Georgia, $5,000; South Carolina, $5,000; Ohio, $5,000; Alabama, $5,000; Virginia, $5,000, plus $500 per dependent; Tennessee, $5,000 in value, and $7,500 with your home if you are a married couple; Indiana, $7,500; Illinois, $7,500; Missouri, $8,000.
But there is no limitation for the Ken Lays, the Jeffrey Skillings, the Dennis Kozlowskis putting aside tens of millions of dollars that is going to be protected.
These families will have that amount of equity that will be protected. You can go into some other States: New York, $10,000; North Carolina, $10,000; and Wyoming, $10,000. And some States go on up to $75,000--Connecticut. In Montana it is $100,000. In my State of Massachusetts, it is $300,000. But there is no limit at all, no dollar limit--some acreage amount--in Texas. In Texas, it is 10 acres in an urban area. It can be in downtown Dallas or downtown Houston. Or it can be 200 acres in a rural area. You are protected. If you have a home on 10 acres, wherever it is in an urban area--or 200 acres in a rural area--you are not touched by this legislation. And that is true in varying degrees for the six States.
So we have to ask ourselves, why treat these six States separately and differently from all of the other States, and particularly where, in the other States, when people fall into bankruptcy, one of the first assets they are going to lose is their home.
So at the appropriate time we will have an opportunity to vote on my amendment. As I say, this amendment closes that homestead loophole but permits, notwithstanding any other provision, the maximum amount of homestead exemption that may be provided under State law shall be $300,000.
If you get a judgment against you for $400,000, they sell your home, but at least that $300,000 is enough that you may be able to get something, particularly if you are an elderly person living on an income of $1,200 or $1,500 a month, you might be able to survive.
But the idea outside of that is that you are effectively taking away the homes and putting them at risk for 44 States and permitting 6 States to effectively circumvent this legislation in a very important way. It is wrong. I hope our colleagues and friends can support our measure.
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Mr. President, this amendment is designed to protect single mothers and their children, who are forced into bankruptcy because they did not receive the child and spousal support they were entitled to, from the harsh provisions of this bankruptcy bill. Single mothers are 50 percent more likely than married people to go bankrupt and three times more likely than childless people to go bankrupt. That statistic tells a great deal about the reality of why people are in bankruptcy.
The proponents of this bill argue that people file for bankruptcy because they are spendthrifts looking to escape their financial obligations. But this stereotype is terribly wrong. The bankruptcy courts are filled with the cases of hard-working people who were pushed over the financial brink because of a family health crisis, a lost job, or a failure to receive child support. These are the people this bill would turn the screws on, looking to squeeze out a few more dollars for the credit card companies.
The amendment focuses on this last group, on single parents trying to raise their children without the financial support they were supposed to receive from the absent parent. It would exempt from the onerous means test a single parent who failed to receive child support or spousal support that she was entitled to receive pursuant to a valid court order totaling more than 35 percent of her household income within a 12-month period. No wonder such a person ended up in bankruptcy. She was never paid more than a third of the income she expected over an entire year to help raise her children, to provide for their basic needs and well-being. Under those circumstances, she had no choice but to fall back on borrowing to support her family. She was not irresponsible. What she did was unavoidable.
Few people realize the magnitude of this problem. In 2004, $95 billion in child support--$95 billion--was uncollected. Failure to receive that child support put millions of single-parent families in a deep financial hole through no fault of their own, and it is the children who suffer the most in these situations. Why on earth would we want to make things even more difficult for these families? Most single moms have to struggle to make ends meet. They are working in low-wage jobs without good benefits. Over three quarters, 78 percent, of them are concentrated in four typically low-wage occupational categories. When the economy is tough, they are often the first ones let go.
The poverty rate for single moms is nearly 40 percent as compared to 19 percent for single fathers. It is no wonder that single mothers are now more likely to go bankrupt than any other demographic group--more than the elderly, more than divorced men or married couples, more than minorities or people living in poor neighborhoods. Yet this legislation would deny traditional bankruptcy relief to many single-parent families who never received the child support they were owed. Instead, they would have to keep paying those credit card bills for another 5 years. Is that fair? I can't believe that a majority of my Senate colleagues think it is.
I am asking them to extend a little compassion to these single mothers struggling to raise their children.
The following women's and children's organizations continue to oppose this bill: The National Women's Law Center, the National Partnership for Women and Families, National Organization for Women, Parents for Children, YWCA, Business and Professional Women, the Children's Defense Fund, Voices for America's Children. They do so because of the particularly harsh provisions of this bankruptcy bill and the heavy weight it puts upon women generally and most particularly on innocent women who are being denied child support and alimony and because they, through no fault of their own, run into this kind of a financial crisis. This legislation will impose harsh provisions upon them, and they will be treated not just in bankruptcy but they will be treated with the harsh provisions that will effectively put them in indentured servitude for the next 5 years.
The National Women's Law Center, in writing to urge opposition to S. 256, says it is harsh on economically vulnerable women and their families. They point out that the bill would inflict additional hardship on over 1 million economically vulnerable women and families who are affected by the bankruptcy system each year--1 million women, the majority of whose only problem is that their husbands have failed to provide alimony and child support. And we are going to wrap them in with the spendthrifts who run amok with their credit. These are innocent individuals. We are saying that the harsher provisions of this bankruptcy law--that is going to indenture these women for 5 years; they can get judgments against them for 5 years--will exist for these families, women forced into bankruptcy because of family breakups, factors which account for 9 out of the 10 filings of women who are owed child and spousal support by men who file for bankruptcy.
It is going to be more difficult for the women to even get the alimony from their husbands who may be in bankruptcy but needing to owe alimony to their wives, because the husbands are going to be subjected to the provisions in this legislation and that is going to make the wife compete with the credit card companies. So that is going to be another burden which these individuals are going to have to face.
I hope we can find some support for this amendment because we are talking about perhaps among the most innocent group of people who will be caught in this. We have talked about single moms. We have talked about the National Guard and Reserve. We have talked about those who have been hit by the medical bankruptcy. All, through really no fault of their own or very little fault of their own, are going to be facing a very harsh future.
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Mr. KENNEDY. Mr. President, one of the extraordinary phenomenons we are facing at this time is the outsourcing of American jobs, the movement of American manufacturing jobs out of this country--by and large to the Far East but to other countries--and the growth of what we call ``temps''--companies that provide temporary workers. Those temporary workers have few, if any, benefits. So, obviously, when they run into challenging health crises and more limited incomes, they are facing the dangers of bankruptcy.
That is why I am offering this amendment--to ensure that workers who have lost their jobs or who have an illness or injury that prevents them from working are not unfairly thrown into the harsh means test created by this bill. This means test puts additional burdens on the debtors already trying to get their lives and finances back together after a difficult period.
The means test applies to those debtors whose average income for the 6-month period prior to filing bankruptcy is above the median income. Some debtors forced to file for bankruptcy because they lost their jobs are already exempt because they had no income in the last 6 months, but those who lose their jobs within 6 months before the filing for bankruptcy can be fairly included in the means test based on income they are no longer earning. My amendment would correct this problem. It provides that income from any job in which the debtor is no longer employed and income from any activity in which he can no longer engage due to a medical disability will be excluded from this calculation.
Mr. President, if we look at what has been happening in the economy, particularly to those individuals who are unemployed, many of them have been looking for employment for some period of time. If we look at the numbers of unemployed workers in January 2001, it was 6 million. In February 2005, it is 8 million. We are in a period where those who are unemployed are unemployed for a longer period than at any time in recent history.
This chart shows what happens in recoveries. The recoveries before 1991--the increase in terms of the employment and recoveries beginning in 1991 are here, and our current recovery shows that it is very light in terms of the total number of jobs that are created.
This is one of the important charts, Mr. President. This has 8 million Americans competing for 3.4 million jobs. That is the economic condition for workers in this country: 8 million people are looking for 3.4 million jobs. Obviously, there are going to be many millions of Americans who are not going to be able to get those jobs. When they can't get the jobs, they don't have the unemployment compensation, and they are unable to provide for their families, what happens? They end up in bankruptcy.
We are trying to say that for those individuals--by and large individuals who have lost their jobs because of outsourcing--the best projection is that we are going to lose 3.4 million jobs; 3.4 million jobs are at risk of being shipped overseas. 540,000 jobs in 2004; 830,000 in 2005; 1.7 million in 2010; and 3.4 million in 2015. Basically, when the manufacturing jobs go overseas, individuals lose their income, or if they are able to get some income, it is as a part-time worker with no health coverage. Their income goes down dramatically. What happens to those individuals? They end up in bankruptcy through no fault of their own. These are Americans who want to work.
From 2001, we have seen 2.8 million manufacturing jobs lost; 2.8 million jobs were lost. These are the jobs with good benefits, good wages, the jobs that are the backbone of America. When you take 2.8 million of these jobs out of the market and you have 8 million people chasing 3.4 million jobs, we know there are going to be millions of American workers who are going to find increasing pressure in providing for their families. That is what is happening today.
What we are saying is, if these workers are going to be forced into bankruptcy because they have lost their jobs, they are not going to have to fall into the cruelest part of the bankruptcy. That is all we are saying. We have done this. I have been here when we had our trade adjustment assistance. We said some industries were adversely affected because of imports. We provided some consideration for those workers. We are finding out now that we are losing hundreds of thousands and millions of jobs that are being moved overseas. The result is that many of these individuals are unable to have the kind of income they need, and they are forced into bankruptcy. When they are forced into bankruptcy, we are saying that they don't go into chapter 13; they go in and meet their responsibilities and get a fresh start. They don't go into a chapter 13, which will force them to continue to pay for 5 years.
If you look at this chart, you will see that 49 of the 50 States have lost manufacturing jobs. So this reaches the whole dimension of this legislation because this legislation is national. This particular challenge is national. There is obviously a great deal more focus on this in the industrial heartland, in New York, Pennsylvania, Ohio, Indiana, Illinois, Michigan, Wisconsin, and many of those States, and even in Massachusetts we have lost 83,000 manufacturing jobs. There are plenty of other jobs, such as in North Carolina where they lost 163,000 jobs.
So we have to ask ourselves, what happens to these individuals? We know what happens to them. We know that if they can get a job, they are going to be paid a good deal less. If they cannot, they will run out of unemployment compensation. We are not providing extended unemployment compensation, and we know that the final catch is that in this economy, the health insurance is up, college tuition is up, housing is up, and gas is up. It is forcing these individuals into bankruptcy.
All we are saying for those individuals who have lost their jobs--jobs that have gone overseas, lost manufacturing jobs--and are unable to get those jobs and are forced into bankruptcy, that they will not have the harshest provisions of bankruptcy directed upon them. We ought to show some consideration to them. These are not spendthrifts, Mr. President. These are hard-working Americans who, 5 years ago, would not be facing this particular challenge, and now they are. We ought to at least give them some consideration.
Mr. President, I think I have until 2:45.
The PRESIDING OFFICER. The Senator is correct.
Mr. KENNEDY. Mr. President, we in the Senate were elected to serve the people. It is our solemn duty to fight for the American people every single day, for the values they share and the priorities they care about most. Above all else, the American people expect us to stand for fairness, freedom, and opportunity. Those values are the cornerstone of the American dream. We believe that if you live right and work hard, you should be able to care for your family. You should be able to afford a comfortable home in a safe neighborhood. You should be able to put your children through school and in college. You should have time to spend with your family, practice your faith, and contribute to your community.
We also believe that when life throws you an unexpected setback, you can count on your neighbors to pitch in. If you lose your job or you fall seriously ill, we all want to help out. You should be given a second chance to pick yourself up, dust yourself off, work hard, and reclaim the American dream for you and your family. That is the American way. That is the American spirit. That is what our bankruptcy courts should be about: giving average Americans who have lived responsibly a second chance.
This bill before us turns the American dream into the American nightmare. This bankruptcy bill turns its back on our most basic values as Americans. It is not a bill of the people, by the people, or for the people. It is a bill of the credit card companies, written by the credit card companies, and for the credit card companies, and it has no place in America.
This bill is about greed. It is about the most profitable corporations in America--the credit card companies--using the Senate to enhance their profits, even more by shaking down hard-pressed Americans in bankruptcy court. It stacks the deck in favor of the credit card companies and against American families who do everything right but find themselves in bankruptcy because they lose a job, fall ill with cancer, or get divorced.
I am reminded of the words of Leviticus in the 25th chapter. It reads:
If one of your brethren becomes poor, and falls into poverty among you, then you shall help him, like a stranger or sojourner, that he may live with you. Take no usury or interest from him; but fear your God, that your brother may live with you.
You shall not lend him your money for usury, nor lend him your food at a profit.
But this bill ignores those words. It allows the credit card companies that charge outrageous interest rates, exorbitant fees, and force you into bankruptcy to still win back almost every dime in bankruptcy court against Americans who have fallen on hard times. This pillaging of the middle class must come to an end.
Today we will pass a bankruptcy bill that rewards the credit card companies at the expense of average Americans. Last month, we passed a class action bill that makes it harder for average Americans to hold big corporations accountable, and we have a President who wants to give your Social Security away to Wall Street.
Credit card companies, big corporations, Wall Street--when is this President and this Republican Congress finally going to give the American people just 1 minute to debate their issues? When are we going to make their health care more affordable so they do not have to worry every night if one of their children gets sick? When are we going to make college more affordable so parents can proudly send their children to college to build their own futures? When are we going to fight for clean water and clean air so we can raise our families in health? When are we going to compete for good jobs, not by lowering the pay but by raising our skills in the global economy? When are we going to fight for a secure retirement for Americans who have lived responsibly and worked hard all of their lives? When is the Senate finally going to stand up and fight for the American people?
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Mr. KENNEDY. First of all, I want to pay tribute to my friend and colleague, Senator Kohl, who has worked on this issue for many, many years. This amendment closes one of the gaping loopholes in this bill, but it is a loophole millions of dollars wide and millions of dollars deep.
Right now, because a few States have no limit on homestead, the Ken Lays, the Jeff Schillings, and the Dennis Kozlowskis in this world can hide millions of dollars or tens of millions of dollars of their assets from their creditors even after they go into bankruptcy. There isn't much fairness or balance in the bill so far, but this amendment will put a very small measure of balance in the bill by limiting the homestead exemption nationwide to $300,000.
I ask my colleagues to vote for balance and fairness, and agree to this amendment.
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