Senate House Panels Clear Reform Bill

The Senate and House Judiciary Committees approved separate versions of comprehensive

bankruptcy reform in late April, setting the stage for further consideration of the most

sweeping change in the law in more than 20 years. The House version (H.R. 833), authored by

Rep. George Gekas (R-Pa.), was approved by the committee on a 22-13 vote after five days of

often contentious markup. The Senate counterpart (S. 625), sponsored by Sen. Charles

Grassley (R-Iowa), was approved 14-4 after panel members agreed to leave many contested

issues, such as consumer disclosure requirements and means-test adjustments, to further floor

amendment. Both bills have bipartisan support in Congress, though the Clinton administration

has criticized a number of key provisions as too favorable to creditors.

</p><p>Both bills are built on

the platform of H.R. 3150 from the last Congress, and would means-test eligibility for relief

under chapter 7. Though the ability-to-repay calculations differ in the two bills, both would

deny some consumers the right to file in chapter 7 and shift others to chapter 13 repayment

plans over five years. Both bills also contain limits on serial filings and largely forbid

lienstripping in chapter 13. Other key features broaden the categories of non-dischargeable

consumer debt and mandate consumer credit counseling, the filing of debtor's tax returns and

audits of debtor's schedules, among other provisions.

</p><p>The sponsors of both

bills were able to beat back most attempts by committee Democrats to weaken the bill, but

renewed efforts are likely on the House and Senate floors. One such proposal would require

credit card lenders to disclose late fees and more prominently display interest rates beyond

introductory "teaser rates." Also to come is more debate over the use of IRS living standards to

determine reasonable expenses under the means test. One proposal from House Judiciary

Chairman Henry Hyde (R-Ill.) would strike the IRS standards in favor of the current law's

reliance on judicial discretion. This proposal was adopted in committee, but later reversed. A

Senate proposal from Sen. Charles Schumer (D-N.Y.) would substitute Bureau of Labor

Statistics data to determine reasonable living expenses.

</p><p>Rep. Barney Frank

(D-Mass.), who has supported the bill in the past, warned advocates and credit industry

lobbyists that their opposition to the disclosure amendments jeopardizes the likelihood of the

bill's ultimate success. He voted "present" in the committee this year.

</p><p>Among the commercial

provisions are proposed special rules for small business and single-asset real estate cases,

more creditor-friendly rules for the debtor's assumption or rejection of commercial leases,

and changes in preference and tax rules. The House bill contains a restriction on a corporate

debtor's venue choice, creating a presumption in favor of the debtor's principal place of

business, rather than the place of incorporation. This proposal is aimed at the widespread

practice of many chapter 11 debtors who choose Delaware as a debtor-friendly venue. This

proposal will be very controversial in the Senate; S. 625 is co-sponsored by both Delaware

senators.

</p><p>The House bill will

likely reach the floor first, perhaps by early May. Last year's version passed with 300 votes.

Any vote more than 291 signifies the bill as "veto-proof," an important consideration when

negotiating with the White House.

</p><p>ABI World contains several documents analyzing the bill's provisions, as well as letters to Congress explaining the Clinton administration's views.

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