Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005--Continued -- (Senate - March 10, 2005)

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Mr. KERRY. Mr. President, I strongly believe that reform of our bankruptcy laws is necessary. Too often, bankruptcy is used as an economic tool to avoid responsibility for unsound decisions and reckless spending.

Last year Americans paid interest on about $690 billion in revolving debt. Most of that debt is credit card debt. According to a Consumer Federation of America study, the average household carries between $10,000 and $12,000 in credit card debt and has nine credit cards. Consumers pay an average interest rate of 12.4 percent or approximately $85 billion annually in credit card debt interest.

Let me point out that during both the 105th and 106th Congress, I supported legislation to reform bankruptcy laws and end the abuse of the system.

However, I am unable to support the Bankruptcy Reform Act before us today because I believe it is unfair and unbalanced, does far too little to help consumers and curb creditor abuses, and includes an inflexible ``means test'' that will harm many debtors who are genuinely in need of the protections and the ``fresh start'' that bankruptcy is intended to provide.

The Bankruptcy Code currently offers two alternatives for individuals: chapter 7, under which a debtor's assets are sold and the proceeds are divided among creditors, and chapter 13, under which debtors who have a regular income develop a repayment plan for a portion of the debt. In many cases, debtors filing under chapter 13 repay a greater proportion of their debt than those filing under chapter 7.

The Bankruptcy Reform bill creates a ``means test'' that will make it more difficult for individuals earning above the median income level to erase debts under chapter 7, forcing them to file under chapter 13, which would require them to repay a greater portion of their debt. I believe that those who can afford to repay a greater portion of their debts during the bankruptcy process should be required to do so.

A narrowly targeted reform bill designed to reduce abuse of the system would provide bankruptcy judges with the discretion to dismiss or convert a case to chapter 7, but would not mandate it. It would have provided creditors the opportunity to ask for a dismissal or conversion without putting the burden on every filer to prove that he or she deserves the protections of chapter 7.

However, the ``means test'' included in the bill is inflexible, and it provides no room for a bankruptcy judge to determine whether the circumstances that led to the debtor's financial situation warrant treatment under chapter 7. A parent with a sick child bankrupted by medical bills is treated the same way as a reckless spender who ran up debt on luxury items. That's simply not right.

Again and again, Senators offered amendments that sought to increase the flexibility of the ``means test'' and offered other changes to improve many aspects of this legislation. Unfortunately, in almost every case, these amendments were defeated.

The Senate voted against giving any relief to families forced into bankruptcy by devastating health care costs. One million men and women each year turn to bankruptcy protections in the aftermath of a serious medical problem--and three-quarters of them have health insurance. Senator Kennedy offered amendments to exempt from the means test debtors who have incurred large medical expenses and other reasonable considerations. Both his amendments were defeated.

The Senate voted against relief for children caught up in their parents' bankruptcy. And it voted against relief to help military families who are struggling with the burdens in Iraq and around the world.

The Senate defeated critical consumer protections that would simply give consumers more information and might help end some of the abusive and deceptive practices of some credit card companies. The industry pushes out an incredible 5 billion solicitations every year. Under current regulations companies can change interest rates at almost any time. They market aggressively and, I believe for some, deceptively. Only last year, the Office of the Comptroller of the Currency issued an advisory letter warning national banks that engaged in deceptive credit card marketing and account management practices that they would face compliance and reputation risks.

Remarkably the bill does protect the wealthiest Americans by allowing them to continue hiding their assets from creditors during bankruptcy and never making good on their debt. Senator Schumer offered an amendment to eliminate and end this abuse, and it was defeated. And it does not stop corporate executives from looting their companies and leaving workers, stockholders, and creditors holding the bag. How can we target middle-class families and ignore the wealthiest Americans as they hide their assets?

This bill is needlessly punitive to families. It is as if we have gone out of our way to harm and not help them. For example, when a debtor receives a bankruptcy discharge, the legislation sets up new classes of nondischargeable debt that will compete for payment along with child and family support. Senator Dodd offered an amendment to enable parents to better meet the needs of their children during bankruptcy. Unfortunately, it was defeated. The credit card companies beat the kids on that vote.

This bill is not only detrimental to consumers, but it also hurts our small businesses. This effort to reform our bankruptcy laws will make it more difficult for entrepreneurs to start a small business and imposes additional regulations and reporting requirements on small businesses who file for bankruptcy.

I believe we must do everything possible to ensure the viability of small businesses and to assist in fostering entrepreneurship in our economy. Regulatory and procedural burdens should be lowered for small business wherever possible. However, the bill fails to meet this challenge. Instead, this legislation promotes additional red tape and a government bureaucracy. It imposes new technical and burdensome reporting requirements that are more stringent on small businesses that file for bankruptcy than they are on big business. Further, the bill will provide creditors with greatly enhanced powers to force small businesses to liquidate their assets.

Any big business would have difficulty complying with these new burdensome reporting requirements. But think of the difficulties an entrepreneur or a mom-and-pop grocery store will have in complying with this dizzying array of new and complex requirements. These small businesses are the most likely to need, but least likely to be able to afford, the assistance of a lawyer or an accountant to comply with these new requirements. I cosponsored an amendment offered by Senator Feingold to strike many of the small business provisions in the bill because they would increase reporting requirements on small businesses and make it easier for creditors to force liquidations of small business during the bankruptcy process. Unfortunately, that amendment was not adopted.

I am pleased that an amendment sponsored by Senator Collins and myself which will extend chapter 12 bankruptcy protections to our family fishermen, has been included in the bill. The small, family-owned fishing businesses are in serious trouble. We are making progress in rebuilding stocks; however, the cost of this progress has been carried by fishermen working Georges Bank and the Gulf of Maine. The Collins-Kerry amendment will help ensure that fishermen have the flexibility under chapter 12 of the Bankruptcy Code to wait out the rebuilding of our commercial fish stocks without back tracking on our conservation gains to date. It will help preserve the rich New England fishing heritage in Massachusetts.

Despite some provisions, which I do believe improve the system, overall this bill does not provide bankruptcy reform. Inexcusably, this bill helps creditors without helping consumers. It will let the very rich continue to hide money in homes and trusts. It gives no relief to families hit by medical bills or other financial hardship. It even puts credit card companies ahead of children when debt is allocated to creditors. I will vote no.

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