S. 586. A bill to amend title 11, United States Code, to limit the value of certain real property that a debtor may elect to exempt under State or local law, and for other purposes to the Committee on the Judiciary.
(Senate - March 11, 1999)
Posted by the Amerian Bankruptcy Institute
By Mr. KOHL (for himself, and Mr. Sessions):
S. 586. A bill to amend title 11, United States Code, to limit the
value of certain real property that a debtor may elect to exempt under
State or local law, and for other purposes to the Committee on the
Judiciary.
[Page: S2577]
BANKRUPTCY ABUSE REFORM ACT OF 1999
Mr. KOHL. Mr. President, I rise today, with Senator
Sessions, to introduce the bipartisan Bankruptcy Abuse
Reform Act of 1999, legislation which addresses a serious problem that
threatens Americans' confidence in our bankruptcy laws. The measure
would cap at $100,000 the State homestead exemption that an individual
filing for personal bankruptcy can claim. It passed the Senate last year
when it was included in the Consumer Bankruptcy Reform Act of 1998 (H.R.
3150), and I hope that we can all support this measure again this year.
The goal of our measure is simple but vitally important: to make sure
that our Bankruptcy Code is more than just a beachball for crooked
millionaires who want to hide their assets.
Let me tell you why this legislation is critically needed. In chapter
7 Federal personal bankruptcy proceedings, the debtor is allowed to
exempt certain possessions and interests from being used to satisfy his
outstanding debts. One of the chief things that a debtor seeks to
protect is his home, and I agree with that in principle. Few question
that debtors should be able to keep a roof over their heads. But, in
practice, this homestead exemption has become a source of great abuse.
Under section 522 of the Code, a debtor may opt to exempt his home
according to local, State, or Federal bankruptcy provisions. The Federal
exemption allows the debtor to shield up to $15,000 of value in his
house. The State exemptions vary tremendously: some States do not allow
the debtor to exempt any of his home's value, while a handful of states
set no ceiling and allow an unlimited exemption. The vast majority of
states have exemptions under $40,000.
Our proposal would amend Section 522 to cap State exemptions so that
no debtor could ever exempt more than $100,000 of the value of his home.
Mr. President, in the past few years, the ability of debtors to use
State homestead exemptions has led to flagrant abuses of the Bankruptcy
Code. Multimillionaire debtors have moved to one of the states with
unlimited exemptions--most often Florida or Texas--bought
multi-million-dollar houses, and continued to live like kings even after
declaring bankruptcy. This shameless manipulation of the Bankruptcy Code
cheats honest creditors out of compensation and rewards only those who
can `game' the system. Oftentimes, the creditor who is robbed is the
American taxpayer. In recent years, S&L swindlers, convicted insider
trader convicts, and others have managed to protect their ill-gotten
gains through this loophole.
The owner of a failed Ohio S&L, who was convicted of securities
fraud, wrote off most of $300 million in bankruptcy claims, but still
held on to the multimillion dollar ranch he bought in Florida. A
convicted Wall Street financier filed bankruptcy while owing at least
$50 million in debts and fines, but still kept his $5 million Florida
mansion with 11 bedrooms and 21 bathrooms. And just last year, movie
star Burt Reynolds wrote off over $8 million in debt through bankruptcy,
but still held onto his $2.5 million Florida estate. These deadbeats
stay wealthy while legitimate creditors--including the U.S.
Government--get the short end of the stick.
Simply put, the current practice is grossly unfair and contravenes
the intent of our laws: People are supposed to get a fresh start, not a
head start, under the Bankruptcy Code.
Mr. President, the legislation that I have introduced today is
simple, effective and straightforward. It caps the homestead exemption
at $100,000, which is far more than estimated median home equity of
people in bankruptcy. It is endorsed by the National Bankruptcy Review
Commission. And it will protect middle class Americans while preventing
the abuses that are making the middle class question the integrity of
our laws--the abuses the average American taxpayer is paying for out of
pocket.
Indeed, it is even generous to debtors. Less than ten states have a
homestead exemption that exceeds $100,000. More than two-thirds of
states cap the exemption at $40,000 or less. My own home state of
Wisconsin has a $40,000 exemption and that, in my opinion, is more than
sufficient.
Mr. President, this proposal is an effort to make our bankruptcy laws
more equitable. I urge my colleagues to support this important measure.
END