Legislative Update

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Dec/Jan 1999

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<h3>Executive Office of the President Statement of Administration Policy</h3> 
(This statement has been coordinated by OMB with the concerned agencies.)

Nov. 8, 1999 (Senate)

S. 625 - Bankruptcy Reform Act of 1999 (Grassley (R) Iowa and eight co-sponsors)

The president supports bankruptcy reform that is balanced, would reduce abuses of the bankruptcy system, and
would require debtors and creditors alike to act responsibly. Last year, the Senate produced such a balanced bill with
overwhelming bipartisan support. The president is disappointed that, this year, the House failed to produce
legislation that he could support. S. 625 reflects some improvements over H.R. 833 as passed by the House. The
administration, however, continues to have serious reservations about S. 625 and strongly opposes some of its
provisions. For example, we are deeply concerned about a provision of the manager's amendment that adds an
important "safe harbor" that protects low-income debtors from motions to deny them access to chapter 7 under the
means test, but also eliminates an essential "safe harbor" that would protect low-income debtors from coercive
creditor motions that might be brought under a vague "totality of the circumstances" test more appropriately
enforced by bankruptcy trustees and courts. The latter protection eliminated by the managers' amendment was
included in the reported version of the Senate bill, the House-passed bill and last year's conference report. The
administration's other objections to this bill are explained in detail in the attachment.

Most of the administration's concerns would be addressed by relevant amendments that the administration
understands will be offered on the Senate floor. The administration's views on the anticipated amendments are also
contained in the attachment. The administration remains hopeful that bipartisan cooperation will result in
responsible bankruptcy legislation that the president can enthusiastically sign.

Finally, the administration understands that certain non-relevant amendments will be offered as well. On Nov. 4,
1999, in a letter to the majority leader, the president made clear that he strongly supports an increase in the
minimum wage of $1 over the next two years; however, if Congress sends him a bill delaying the increase,
repealing overtime protections for certain workers, adding costly and unnecessary tax cuts that threaten fiscal
discipline and direct benefits away from working families, and thwarting ongoing efforts to enforce pension law, he
will veto it.

In addition, the administration strongly opposes the inclusion of an unrelated education amendment, a version of
the Teacher Empowerment Act. When similar legislation passed the House this summer, the president indicated that
he would veto it. The administration's position on this legislation has not changed. The amendment would
eviscerate the class-size reduction program passed on a bipartisan basis last year and replace it with a block grant
that fails to guarantee that any funds will be used to support the crucial work of reducing class sizes in the early
grades. In addition, the block grant does not target funds toward the neediest students and does not include
important provisions to improve teacher quality. If this amendment is attached to S. 625, the president will veto the
bill.

The administration opposes the drug-related amendment because it would reduce the current disparity between crack
and powder cocaine sentences solely by increasing powder cocaine penalties dramatically instead of addressing both
crack and powder cocaine penalties. Decreasing the threshold amount of powder cocaine necessary to obtain five- and
10-year mandatory minimum sentences may be counterproductive because it could significantly redirect federal law
enforcement resources from the highest-level offenders. In addition, this amendment would actually exacerbate the
disproportionate impact of cocaine sentencing on minorities because, according to U.S. Sentencing Commission
statistics, approximately 31percent of defendants sentenced at the federal level for powder cocaine offenses in 1998
were African American, 48 percent were Hispanic, and only 19 percent were white.

Detailed Administration Views on S. 625 and Anticipated Floor Amendments

Access to Chapter 7. Any means test used in bankruptcy proceedings should deny access to chapter 7 bankruptcy
procedures only to those debtors who genuinely have the capacity to repay a portion of their debts successfully
under a chapter 13 repayment plan. Debtors who may be denied a discharge of their debts must be given a
meaningful opportunity to have their specific circumstances considered by bankruptcy courts with the authority to
determine whether they genuinely have the capacity to repay a portion of their debts. In its current form, S. 625
would use a relatively inflexible and arbitrary means test to limit access to chapter 7. The administration strongly
opposes this provision.

As reported, S. 625 would apply rough guidelines, developed by the Internal Revenue Service (IRS) for tax
repayment plans, as standards for determining debtors' ability to repay, with exceptions only for expenses that are
both "reasonable and necessary." While some expense standards should be used to guide the determination of ability
to repay, they should be tailored for bankruptcy. We should not simply import standards that were developed for a
different purpose—tax collection—and which are applied for that purpose with far more discretion than S. 625
would allow for bankruptcy. We note that the Congress has criticized the IRS for inadequate flexibility in using
these standards for tax collection, yet this bill would use them far more rigidly for bankruptcy purposes. The
administration believes that the IRS expense formulas can be used as a starting point for developing appropriate
bankruptcy guidelines, but that each system would be best served by its own appropriate standards. As House
Judiciary Committee Chairman Henry Hyde has said, the use of IRS guidelines without flexibility "depriv[es]
debtors and their families of the means to pay for their basic needs." As Chairman Hyde noted on the House floor,
"The cost of food in Omaha, Neb., or Boise, Idaho, is different than in downtown Manhattan. So what is realistic
about an inflexible standard?"

The Senate bill creates a largely self-executing mechanism under which elaborate debtor filings will be reviewed by
United States Trustees, who, based on the filings, will file a motion to deny access to chapter 7, if the debtor has
the capacity to repay or her use of chapter 7 is abusive. As modified by the managers' amendment, the bill also
gives creditors the ability to file motions to challenge the debtors' use of chapter 7 as abusive under a vague
"totality of the circumstances" test. Creditor motions alleging abuse could be used by creditors against low- and
moderate-income debtors—who have few resources for legal advice—to coerce or threaten them to forgo their rights.
The bill should provide below-median-income debtors with a "safe harbor" from general abuse motions by creditors,
as well as with the "means-test safe harbor" that the managers' amendment provides. Both are essential.

Finally, since the bill as amended by the managers' amendment precludes any party from filing a §707(b) motion
alleging that a below-median-income debtor has the capacity to repay under the means test, there is no justification
for requiring that these debtors fulfill the elaborate means-test paperwork requirements. The courts will bear
unnecessary costs for collection and storage of these useless filings and they impose an unnecessary cost (and
increased legal fees) on the debtor as well. These debtors should be required to provide only the information
sufficient to verify their income eligibility for the "safe harbor." Similarly, a more streamlined system could screen
out those with no capacity to repay before additional paperwork requirements are imposed. All parties should be
able to agree that any means test should be implemented efficiently. Burdensome filing and hearing requirements
that lead to little or no additional debt repayment are not in the interest of debtors, creditors, or taxpayers.

The administration understands that a series of amendments will be offered to improve the fairness and efficiency of
the means test. The administration strongly supports these amendments, including:

<ul>
<li>An amendment by Sen. Feingold to clarify that the long-term care expenses of a debtor caring for a non-dependent
parent or relative are necessary expenses under the means test [Ed. Note: This amendment was agreed to on Nov.
17.];

</li><li>A similar amendment by Sen. Leahy to clarify that certain expenses for victims of domestic abuse are necessary
expenses under the means test [Ed. Note: This amendment was passed by 94-0 on Nov. 9.];
</li><li>A similar amendment by Sen. Schumer to clarify that retraining expenses of displaced or unemployed workers are
necessary expenses under the means test;
</li><li>An amendment by Sen. Dodd to address special concerns of children and families, which includes a provision to
clarify that the expenses associated with adopting a child are necessary expenses under the means test;
</li><li>An amendment by Sens. Schumer and Durbin to provide an appropriate safe harbor from all types of creditor
motions and unnecessary paperwork requirements for below-median-income debtors;
</li><li>An amendment by Sen. Durbin to reduce unnecessary costs and inefficiency in the reformed bankruptcy system by
streamlining application of the means test and reducing costly paperwork collections without affecting debt
repayment under the system;
</li><li>An amendment by Sen. Schumer to authorize the Treasury Department, in consultation with the Executive Office
for United States Trustees, to modify certain of the IRS guidelines for use in bankruptcy to account for variations in
the cost of living; and
</li><li>An amendment by Sen. Schumer to improve the accuracy of the means-test calculation by counting all required
chapter 13 expenses (administrative costs, reasonable attorneys fees, and arrearages on other debt) in calculating
capacity to repay under the means test. [Ed. Note: This amendment was agreed to on Nov. 17.]
</li></ul>

Abusive Creditor Reaffirmation Practices. Much evidence shows that debtors often reaffirm unsecured debt and
low-value secured debt on unfavorable terms even though they do not have the means to meet their own necessary
expenses and make more important debt payments, placing such priority debts as child support and alimony
obligations at risk. Such reaffirmations frequently are the result of insufficient or misleading information or threats
from creditors. S. 625 as reported does little to address these abuses. If we are to provide substantial new
opportunities for creditors to challenge debtors' use of the bankruptcy system under chapter 7 of the Bankruptcy
Code, we must limit abusive creditor practices such as coercive reaffirmations and violations of the automatic stay
against collection actions. We understand Sen. Sessions may offer an amendment to provide some protections
against abusive reaffirmations. However, we believe the amendment has significant loopholes, allowing debtors to
reaffirm debts they cannot afford and failing to provide creditors with all the information that bankruptcy judges
deem necessary and which many are already requiring be provided in their courts. The administration strongly
supports:

<ul>

<li>An amendment by Sen. Reed, that protects debtors by giving them adequate information for decisions about
significant reaffirmations of unsecured and low-value secured debt. [Ed. Note: This amendment was agreed to on
Nov. 10.]
</li></ul>

We understand, however, that Sens. Reed and Sessions continue to discuss ways to reconcile their two amendments
in a way that might address our concerns.

Credit Card Information and Protection. The administration continues to believe that reform must address the
factor that is most strongly correlated with the rise in personal bankruptcy: rising levels of consumer debt.
Americans now receive more than 3.5 billion credit card solicitations per year, many of which are marketed to
encourage consumers to carry high balances and incur large interest charges. One of the most effective ways to
reduce the number of bankruptcies in this new financial era is to give consumers the information they need to
manage their credit card debts effectively, recognizing the creditors' superior information and bargaining ability.
Consumers must be given clear information on the terms of their credit and the financial implications of not paying
off their credit card balances. The administration supports:

<ul>
<li>An amendment by Sens. Grassley, Torricelli, Biden and Johnson addressing some abusive credit practices, such as
failure to disclose "teaser" rates clearly, and requiring limited generic disclosure of the impact of making only the
minimum payment on credit cards. While the Grassley-Torricelli amendment is an improvement over H.R. 833,
much more should be done. The amendment creates a system that is unnecessarily burdensome for consumers who
may be reluctant to call their credit card company if they are worried about their finances or are pressed for time.
[Ed. Note: This amendment was agreed to on Nov. 17.] The administration strongly supports:

</li><li>An amendment by Sen. Schumer to expand coverage of the teaser rate disclosures provided under the amendment
by Sens. Grassley and Torricelli to apply to applications or solicitations available to the public in catalogs,
magazines and restaurants; and

</li><li>An amendment by Sen. Dodd to require additional information specific to the individual consumer to allow them
to better understand the impact of making only the minimum payment.
</li></ul>

Cramdowns. S. 625 also changes the lien-stripping or "cramdown" provisions in current law governing a chapter
13 bankruptcy, under which the lien underlying a secured debt is reduced to its value at the time of bankruptcy. The
administration agrees that lien-stripping should be limited to automobile loans incurred in the period preceding
bankruptcy to prevent abuses, but believes that the provisions in the Senate bill are excessive. While the
administration strongly prefers the Senate provisions to the extreme prohibitions in H.R. 833, the five-year
prohibition on lien-stripping on automobile debts in the current bill will do little more to deter bankruptcy abuses
than a more reasonable time limit. Instead, the prohibition will significantly reduce repayment of priority, unsecured
debts like child support and taxes. The administration strongly supports:

<ul>
<li>An amendment by Sen. Kohl that would ban cramdowns of secured goods with purchase money security interests
incurred within six months of the bankruptcy filing.
</li></ul>

Non-dischargeable Debts. The Bankruptcy Code makes debts non-dischargeable only where there is an overriding
public purpose, as with debts for child support and alimony payments, educational loans, tax obligations or debts
incurred by fraud. In an attempt to deal with the possibility of abuse, the bill makes non-dischargeable debt incurred
on the eve of bankruptcy and certain debts incurred to pay non-dischargeable debts. Unfortunately, the amendment
will catch those who innocently incur debts as well. Moreover, the additional credit card and other non-priority
debts made non-dischargeable by these provisions will compete in some cases after bankruptcy with child support,
alimony, taxes and other societal priorities like educational loans and taxes. The administration strongly prefers the
provisions in S. 625, which offer some protection for child support and alimony, to those in H.R. 833. However,
the administration also strongly supports:

<ul>
<li>An amendment by Sen. Moynihan that would preserve the current non-dischargeability rules for lower-income
debtors, those least likely to incur debts on the eve of bankruptcy for abusive purposes [Ed. Note: This amendment
was defeated 55-42 on Nov. 17.]; and
</li><li>An amendment by Sen. Dodd to address special concerns of children and families, which includes a provision to
alter the bill's non-dischargeability provisions to make it less likely that debts legitimately incurred to support a
family will be made non-dischargeable [Ed. Note: This amendment was defeated 51-45 on Nov. 10]; and

</li><li>An amendment by Sen. Schumer that would make court-ordered fines and debts resulting from abortion clinic
violence non-dischargeable. As the Justice Department noted in a May 14, 1999 letter to Sen. Schumer, the
administration generally opposes the expansion of non-dischargeable debt unless there is an overriding public policy
objective and no other way to achieve that objective, but believes this amendment is a necessary tool in current
efforts to end clinic violence and intimidation.
</li></ul>

Loopholes for the Wealthy. The administration supports closing loopholes in bankruptcy law, such as unlimited
homestead exemptions, that allow many wealthy debtors to avoid their responsibility to repay a significant portion
of their debt. Bankruptcy reform should not place a greater responsibility for debt repayment on moderate- and
low-income debtors than it does on high-income debtors. The administration strongly supports:

<ul>
<li>An amendment by Sen. Kohl to place a reasonable limit on homestead exemptions. [Ed. Note: This amendment
passed by 76-22 on Nov. 10.]
</li></ul>
Barriers to Entry to the Bankruptcy System. Finally, the bill appears to place unnecessary barriers to entry into
the bankruptcy system that will not prevent abuse, but will create burdens on those with a genuine need for speedy
bankruptcy protection. The administration strongly supports:

<ul>
<li>An amendment by Sen. Leahy to save the taxpayers an estimated $24 million over five years by eliminating the
requirement that every debtor file three years of tax returns and instead permit any party in interest to demand the
copies when needed to verify the debtor's assets and income, thus reducing filing and storage costs and unnecessary
paperwork burdens [Ed. Note: This amendment was agreed to on Nov. 16.]; and

</li><li>An amendment by Sen. Durbin to allow certain mandatory credit counseling to be provided over the phone. [Ed.
Note: This amendment was agreed to on Nov. 17.]</li></ul>

<h3>Excerpts from the Senate Debate on S. 625 (Nov. 5-17, 1999)</h3>

Sen. Grassley: Every time a debt is wiped away through bankruptcy, somebody loses money. Of course, when
someone who extends credit has their obligation wiped away in bankruptcy, they are forced to make a decision.
Should this loss simply be swallowed as a cost of business? Or do you raise prices for other customers to make up
your losses?... For this reason, Treasury Secretary Larry Summers testified at his confirmation hearing before the
Senate Finance Committee that bankruptcy tends to drive up interest rates... The bankruptcy bill we're considering
will discourage bankruptcies, and therefore lessen upward pressure on interest rates and higher prices by making it
harder for people who can repay to wipe them away... Of course, people who can't repay can still use the bankruptcy
system as they would have before. But for people with higher incomes who can repay their debts, the free ride is
over.

Sen. Leahy: ...the bill before us strays from the blueprint of last year's balanced reform in the Senate. For
example, today's bill requires the means testing of debtors based on expense standards that are formulated by the
IRS... the means testing severely restricts a judge's discretion to take into account individual debtors'
circumstances. As a result, it has the potential to cause an unforgiving and inflexible result of denying honest
debtors access to a post-bankruptcy fresh start... The latest study funded by the nonpartisan American Bankruptcy
Institute found that only 3 percent of chapter 7 filers could afford to repay some portion of their debt. To force the
other 97 percent to submit to this arbitrary means test in trying to reach 3 percent lacks common sense and poses an
additional burden on the 97 percent...

Sen. Durbin: The sad but obvious fact is that the people who declare bankruptcy are poor. The average income of a
person who declares bankruptcy is $17,652. In 1981, the average income was 23,254. People in our bankruptcy
system are just getting poorer. One would not believe that to be the case, listening to this debate, the suggestion
that so many people are coming into the bankruptcy court who are loaded with money, who, through crafty
attorneys and their own ingenuity, are able to avoid their responsibility... The people showing up in bankruptcy
court are poor people, with indebtedness of roughly $25,000... When we allow credit card companies and finance
companies to grab more in bankruptcy and hang on to more after bankruptcy, it lessens the likelihood that the
divorced woman trying to raise a child is going to be able to have any pot of money to draw from for help. This is
a pie of limited proportions after a bankruptcy. If the credit card companies can stay there, taking the money away
from that former husband who filed for bankruptcy, many times it will be at the expense of his children and former
wife.

Sen. Sessions: I believe we are eliminating abuses in the system. For example, I point out a landlord who leases an
apartment to a tenant; that tenant's lease is for one year, that year is up, and he owes the landlord money. The
landlord seeks to move him out because he is going to rent the apartment to somebody else. That tenant can file for
bankruptcy and stay, or stop, any lawsuits for eviction. Months can go by. And the landlord has to hire an attorney
to go to bankruptcy court to try and get the stay lifted on filing the eviction notice so they can go forward...
Eventually the landlord always wins, but often it takes months to get a final hearing and will cost him a good deal
of money and attorney's fees. The bill changes that.

Sen. Kennedy: The drop in filings this year is ample indication that a harsh bankruptcy bill is not needed. Without
any action by Congress, the number of bankruptcy filings is decreasing... Leading economists believe the crisis is
self-correcting... Lenders respond to an unexpected increase in personal bankruptcies by curtailing new lending to
consumers teetering closest to bankruptcy, with or without new legislation. The high rate of default at the peak of
the bankruptcy crisis began to impinge on the profitability of lending and, as a result, lenders tightened their
underwriting standards. This in the non-legislative, free-market response which made the crisis abate. Despite these
facts, the Senate is pursuing legislation that is a taxpayer-funded administrative nightmare for struggling debtors.

Sen. Grassley: One of the major problems with the bankruptcy system is the mindset of some of the lawyers who
specialize in bankruptcy. Many lawyers today view bankruptcy simply as an opportunity to make money for
themselves with a minimal effort. And this profit motive causes bankruptcy lawyers to promote bankruptcy even
when a financially troubled client has the obvious ability to pay his or her debts. As one of the members of the
National Bankruptcy Review Commission noted in the Commission's 1997 report, many who make their living off
of the bankruptcy process have forgotten that declaring bankruptcy has a moral dimension. Bankruptcy lawyers
shouldn't counsel someone to walk away from his or her debts without pointing out the moral consequences of
making a promise to pay and then breaking that promise.

Sen. Leahy: We have to ask, who are the principal beneficiaries? Right now, they are the companies that make up
the credit industry. I searched high and low in the bill for the provisions by which these companies are asked to pay
for these mandates that benefit them or even contribute to the costs and burdens of the bill, a bill that they support.
If they are getting these huge benefits, are they required to pay anything for them? They are not. I can find no
provisions by which credit card companies and others who expect to receive a multibillion-dollar windfall from this
bill will have to pay the added costs of this measure. Investing a couple hundred million of taxpayers' money to
make several billion dollars for the credit card industry might seem to be a good business investment, but not if the
taxpayers have to pick up the bill to hand over a multibillion-dollar benefit to the credit card companies. In addition
to these costs to the federal government, there are the additional mandates imposed on the private sector. We keep
saying how we want to keep government off the back of the private sector. In fact, CBO estimates the private sector
mandates imposed by just two sections of the bill will result in annual increased costs of between $280 million and
$940 million a year. Are we willing to tell the private sector that with this bill we are, in effect, putting a tax on
them of $280 million to $940 million a year, which over five years will amount to between $1.4 billion and $4.7
billion to be borne by the private sector? If we vote for this bill, are we going to tell them we just gave that kind of
a tax increase to them? So all in all, this amounts to a bill of an estimated cost over five years of $5 billion to be
borne by taxpayers and debtors so the credit industry can pocket another $5 billion. Not a bad day's work by the
credit industry lobbyists but a good result for the American people. They are going to be happy if they get the
American taxpayers to give them $5 billion just like that. They ought to be awfully happy. I haven't heard or seen
any answers to those basic questions. I think those who say this is going to benefit the American public ought to be
more specific. CBO doesn't see it that way. They see a great transfer from the American public to one industry. For
all that I can see, any savings generated by this bill will be gobbled up in windfall profits for the credit industry,
without any guarantee of benefits for working people, and with a $1 billion per year out-of-pocket cost to taxpayers
and those in the bankruptcy system.

Sen. Reed: Mr. President, I rise in strong support of the Reed-Sessions Amendment No. 2650 to the manager's
amendment to S. 625. I urge my colleagues to support the passage of this important amendment. The
Reed-Sessions amendment deals with the reaffirmation of one's debt, and it reflects a compromise that has been
worked out at length between myself, Sen. Sessions, the Treasury Department and consumers. I believe it is a fair
and balanced amendment that seeks to treat those who enter into reaffirmation agreements with their creditors in a
fair and just manner, and to provide them—as well as the bankruptcy courts—with the greatest amount of
information they need in order to make the wisest decisions possible. For those of my colleagues unfamiliar with
these agreements, a reaffirmation is an agreement between a debtor and a creditor in which the debtor reaffirms his
or her debt and willingness to pay the creditor back, even after many of the other debts may have been discharged
during bankruptcy. The creditor must then file this reaffirmation agreement with the bankruptcy court. The court
then has the opportunity to review this agreement, but in most cases, for one reason or another, does not. Recently,
there have been some documented cases in which creditors have used coercive and abusive tactics with consumers in
order to persuade them to reaffirm their debt, when in many of these cases there is no question that the individual
can in no way afford to do so. The most visible of these cases occurred with Sears, in which the company did not
even file these reaffirmation agreements with the court, therefore negating even the option of the court to review
these cases. The Reed-Sessions amendment would essentially provide for clear and concise disclosures when a
debtor chooses to enter into a reaffirmation agreement with a creditor. Our amendment would create a uniform
disclosure form, whereby everyone who is filing a reaffirmation agreement must fill this form out. Based on the
information provided on the form, certain situations will then obligate the court to review such agreements in order
to determine if the reaffirmation agreement is truly in the debtor's best interests. In constructing this compromise
amendment, I think we have achieved some very important goals. First and foremost, we want everyone to
recognize that a reaffirmation agreement is a very weighty decision, and that the individual needs to
understand—whether they are represented by counsel or not—all the ramifications of the agreement into which he or
she is entering. In fact, the individual needs to understand that they in no way need to file a reaffirmation
agreement. Another vital issue is to have the court review such cases in which the debtor wants to reaffirm his or her
debt, but in calculating the difference between the person's income and all their monthly expenses, it remains
impossible for the debtor to do so. In other words, there exists a presumption of undue hardship upon the person. It
is at that point that we want the court to have the ability to step in and say to this person, that either they have the
ability to repay some of this debt because of other sources of funds—such as a gift from the family—or that they do
not, and therefore the reaffirmation cannot be approved by the court. Without this amendment, we are concerned that
the abuses in the reaffirmation system that we have seen will continue to occur, and the courts may continue to be
left in the dark with respect to the existence of these agreements, let alone have the option to review them. The
amendment is not perfect, and if given the choice, I probably would have preferred to go even further than we have
in our language. With that said, I think it's still important to note that with this amendment, we have given our
courts and consumers the appropriate tools that will provide them with the necessary information to make decisions
that are in the individual's best interests, not the creditor's. That is a crucial point that I wanted to emphasize. I
appreciate all the efforts of those involved in the process that went into constructing this compromise amendment,
and I am confident that it strengthens the hands of our courts, and more importantly, the minds of our consumers as
they make decisions that will weigh upon them for the rest of their lives.

Sen. Moynihan: However, the bill presently before the Senate extends the time (from 60 days to 90 days for
consumer debts, for instance) in which this presumption of fraudulent activity takes place, and it changes the dollar
amounts. We propose to keep the law as it is for low-income persons—people below the median income level, who
already live hand-to-mouth, who often find themselves in a bind, with no intent to defraud, and keep borrowing
until they are in bankruptcy situations. They won't have lawyers and can't defend against presumptions. We simply
keep the existing law. Deal with true fraud and important bankruptcies as the bill proposes to do but leave the small
and hapless folk to their small and hapless fortunes.

Sen. Hatch: Under S. 625, limits are placed on a debtor's ability to buy luxury goods and take out large cash
advances on the eve of bankruptcy. The bill accomplishes this by creating a rebuttable presumption that certain
debts are not dischargeable. Specifically, the bill provides that debts of more than $250 per credit card for luxury
goods that are incurred within three months of bankruptcy, and cash advances of more than $750, incurred within 70
days of bankruptcy, are presumed to be fraudulent and are non-dischargeable. These provisions, while an
improvement over current law, are by no means a solution to the load-up problem. Debtors still essentially are free
to take out a cash advance of $750 and buy luxury goods valued at $250 on each of their credit cards before even the
presumption of non-dischargeability kicks in. It is also important to note that under the bill, luxury goods
specifically exclude "goods or services reasonably necessary for the support or maintenance of the debtor or a
dependent of the debtor." Many have complained that these provisions do not go far enough to close the load-up
loophole. The amendment by the Senator from New York, in contrast, undermines the bill's modest anti-load-up
provisions by applying them only to those with income above the national median. Simply stated, the amendment
would create an unjustified double standard, with those who fall under the national median income being permitted
to load up on luxury goods and cash advances before filing for bankruptcy, as permitted by current law.

<h3>List of Remaining Key Amendments to S. 625 (Nov. 17, 1999)</h3>

Wellstone Amendment No. 2537, to disallow claims of certain insured depository institutions.

Wellstone Amendment No. 2538, with respect to the disallowance of certain claims and to prohibit certain coercive
collection practices.

Levin Amendment No. 2658, to make non-dischargeable debts related to gun claims.

Schumer/Durbin Amendment No. 2762, to modify the means test relating to safe harbor provisions.

Schumer Amendment No. 2763, to ensure that debts incurred as a result of clinic violence are non-dischargeable.

Schumer Amendment No. 2764, to provide for greater accuracy in certain means testing.

Dodd Amendment No. 2753, to amend the Truth in Lending Act to provide for enhanced information regarding
credit card balance payment terms and conditions, and to provide for enhanced reporting of credit card solicitations
to the Board of Governors of the Federal Reserve System and to Congress.

Feingold Amendment No. 2748, to provide for an exception to a limitation on an automatic stay under §362(b) of
Title 11, U.S. Code, relating to evictions and similar proceedings to provide for the payment of rent that becomes
due after the petition of a debtor is filed.

Schumer/Santorum Amendment No. 2761, to improve disclosure of the annual percentage rate for purchases applied to credit card accounts.

Journal Date

Wednesday, December 1, 1999 - 12:00