106

To amend the Truth in Lending Act to enhance consumer disclosures regarding credit card terms and charges, to restrict issuance of credit cards to students, to expand protections in connection with unsolicited credit cards and third-party checks, and to protect consumers from unreasonable practices that result in unnecessary credit costs or loss of credit, and for other purposes.

To amend title 11, United States Code, to provide for health care and employee benefits, and for other purposes. (Introduced in Senate)

To revise the banking and bankruptcy insolvency laws with respect to the termination and netting of financial contracts, and for other purposes.

Making appropriations for the Departments of Commerce, Justice, and State, the Judiciary, and related agencies for the fiscal year ending September 30, 2000, and for other purposes.

An Updated Analysis of the Consumer Bankruptcy Provisions
of H.R. 833 Bankruptcy Reform Act of 1999, As passed by the House of Representatives
Prepared for the American Bankruptcy Institute

Web posted and Copyright ©

November 1, 1999, American Bankruptcy Institute.

An Updated Analysis of the Consumer Bankruptcy Provisions
of H.R. 833

Bankruptcy Reform Act of 1999,

As passed by the House of Representatives

Written by:

Hon. Eugene R. Wedoff

United States Bankruptcy Court

Northern District of Illinois

Chicago, Illinois

H.R. 833, passed by the House of Representatives on May 5, 1999, proposes major
changes in the Bankruptcy Code (Title 11, U.S.C.). A parallel bill, S. 625, is pending in the
Senate. H.R. 833 and S. 625 build on two bills—H.R. 3150 and S. 1301—that were passed by
the separate houses of the 105th Congress last year, but which were not enacted into law. The
American Bankruptcy Institute published analyses of the consumer provisions of each of the prior
bills, see http://www.abiworld.org/legis/bills/98julhr3150.html and http://www.abiworld.org/legis/bills/98julnew1301a.html.

This analysis of H.R. 833 follows the format of the prior analyses: first, by identifying
each of the changes that the bill would make in the current consumer law; second, by assessing the
impact that these changes would have on the operation of the law; and third, by suggesting
alternative approaches, where appropriate, to achieving the goals of the legislation. Several of the
suggested alternatives reflect work done by the Consumer Bankruptcy Legislative Group—a group
of individuals assembled to represent diverse interests affected by consumer bankruptcy law. The
complete recommendations of the group have also been published by ABI:

http://www.abiworld.org/legis/reform/rec4000.html.

Introduction to current consumer bankruptcy law.⁽¹⁾

An Introduction to Proposed Bankruptcy Reform
http://www.abiworld.org/legis/bills/s1301intro.html provides a description of the operation of
current consumer bankruptcy law, which may be helpful in understanding the changes proposed in
H.R. 833.

Summary: major effects of the consumer bankruptcy provisions of H.R. 833.

The major effects that H.R. 833 would have on consumer bankruptcy law include the
following (with reference made to the relevant section(s) of the bill):

Chapter 7

1. Means testing. §102. Section 707(b) of the Bankruptcy Code would be amended to
provide for dismissal of Chapter 7 cases or (with the debtor's consent) conversion to Chapter 13,
upon a finding of abuse. Abuse would be presumed if the debtor had more than $100 in monthly
income available to pay general unsecured debt, based on a formula incorporating collection
standards of the Internal Revenue Service. The case trustee would be required to file a statement
as to the calculation under the formula in each case, which the court would be required to serve on
creditors, and, if the presumption applied, the trustee would be required to file either a motion
under §707(b) or a statement explaining why the motion was not being filed. There are conflicting
provisions regarding standing to bring §707(b) motions, but such standing would be extended to
all parties in interest in cases where the debtor's income is above a defined median.



2. Compensation of trustees for means testing. §§102, 607, 614. No additional
compensation would be provided to trustees for work involving means testing that does not
involve conversion or dismissal of the case. Section 707(b) would be amended both to require the
court to award damages if it finds that a Chapter 7 filing violates Fed.R.Bankr.P. 9011, and to
specify that these damages may include an award of fees and costs from debtor's counsel to the
trustee or a civil penalty payable to the trustee. Moreover, §§101 and 607 of H.R. 833 are
intended to extend Rule 9011 to the debtor's lists and schedules. In the event that the actions of
the trustee result in conversion or dismissal of a Chapter 7 case, the trustee would be allowed an
administrative claim for compensation and expense reimbursement for these actions. This claims
would not be subject to the fee cap of §326 and would be payable if the case converted to Chapter
13 case or in any subsequently filed Chapter 13 case.

3. Support priority. §139. Family support obligations of the debtor would have the first
priority in distribution, ahead of the costs of administering the estate.

4. Nonsubordination of property tax liens to family support claims. §801. Section 724(b)
of the Bankruptcy Code currently allows a Chapter 7 trustee to pay family support obligations
from funds that would otherwise be used to satisfy a property tax lien, with the tax lien being
subordinated to other liens on the affected property. This type of subordination would be
eliminated, so that if the debtor owed both property taxes (secured by a lien on the debtor's
property) and support obligations, the proceeds of any sale of the property would be used to pay
the taxes before the support obligations.

Chapter 13



1. Stripdown of secured claims. §§122, 123. Claims secured by purchase money security
interests arising within five years of the bankruptcy filing would not be subject to stripdown under
§506(a). Where stripdown remained applicable, collateral would be valued at its retail price.

2. Preconfirmation adequate protection. §135. Prior to distributions to creditors under a
confirmed Chapter 13 plan, debtors would be required both to make proposed plan payments and
adequate protection payments to lessors of personal property and holders of secured claims. The
adequate protection payments would have to be made at least monthly and in at least the contract
amounts.

3. Delay in confirmation. §605. Even in the absence of objections to confirmation, the
confirmation hearing could not take place until at least 20 days after the §341 meeting of creditors.

4. Plan length. §606. Debtors whose income is above a defined median would be
required to pay their creditors either in full or through a plan with a length of five years.

5. Exceptions to discharge. §§127, 807. In addition to those debts excepted from a
Chapter 13 discharge under current law, there would also be exceptions to discharge for debts
defined by § 523(a)(1), (2), (3)(b), (4), and—insofar as personal injury or wrongful death is
concerned—(6).

General

1. Tax returns. §§603(b), 604. Individual debtors would generally be required to file
with the court copies of their tax returns for the three year period preceding the bankruptcy as well
as all returns filed with taxing authorities while the bankruptcy case is pending. The returns could
be inspected by any party in interest, subject to regulations designed to prevent use other than in
the bankruptcy case. Failure to file the prebankruptcy returns within 45 days of the bankruptcy
filing (or within one extension for a maximum of 45 days) would result in automatic dismissal of
any voluntary filing.

2. Audits. §602. Audits, conducted by certified or licensed public accounts in accordance
with generally accepted auditing standards, would be required (1) of all information provided by
the debtors in at least 0.4% of consumer cases, randomly selected, and (2) of any schedules of
income and expenses that "reflect greater than average variances from the statistical norm."

3. Credit counseling. §302(a). Individuals would be ineligible for relief under any
chapter of the Code unless they had, within 90 days of their bankruptcy filing, received credit
counseling—through a service approved by the United States trustee or bankruptcy administrator
—that included, at least, a briefing on the opportunities for credit counseling and assistance in
performing an initial budget analysis. Exceptions would be made (1) for districts in which
adequate services were unavailable and (2) for debtors with exigent circumstances requiring filing
before the counseling could be obtained (in which case the debtor would be required to complete
the counseling within 30 days after the bankruptcy filing).

4. Debtor education. §§104, 302(b)-(c). Pilot educational programs for debtor financial
management would be tested in six judicial districts over an 18 month period, and thereafter
evaluated for effectiveness and cost. At the same time, all Chapter 7 debtors would be subject to
denial of discharge under §727, and Chapter 13 debtors would not be granted a discharge, if they
failed to complete an instructional course concerning personal management, unless the United
States trustee or bankruptcy administrator determined that approved courses were inadequate.



5. Successive discharges. § 137. Debtors would be denied discharge in any Chapter 13
case filed within five years of the order of relief in any other bankruptcy case in which the debtor
received a discharge. A Chapter 7 case would be subject to denial of discharge under §727 if the
debtor received a Chapter 7 or 11 discharge in a case filed within 8 years of the filing of the
pending case.

6. Notice to creditors. §603(a). Notice to a creditor would not be effective unless served
at the address filed by the creditor with the court or at the address stated on the last communication
from the creditor to the debtor.

7. Exemptions. §§ 124, 147. There would be a 730-day residency requirement before a
debtor could claim state exemptions. A $250,000 cap would be placed on homestead exemptions,
but would be able to be waived by express state legislation.

8. Reaffirmations. §108. Reaffirmations of unsecured debt would require a court hearing
unless the debtor was represented by counsel and waived the hearing requirement.

9. Appeals. §612. Final decisions of bankruptcy judges would be appealable directly to
the circuit courts of appeal unless the circuit had established bankruptcy appellate panels (BAPs).
Where BAPs were established, the appeal would be presented to the BAP unless a party to the
appeal elected to have the court of appeals hear the case.

The consumer bankruptcy provisions of H.R. 833: specific proposals.

H.R. 833 is divided into 12 titles, seven of which contain provisions that affect consumer
bankruptcy. Most of the relevant provisions are included in Title I, "Consumer Bankruptcy
Provisions." However, provisions affecting consumer bankruptcy are also included in Title II,
"Discouraging Bankruptcy Abuse"; Title III, "General Business Bankruptcy Provisions"; Title VI,
"Streamlining the Bankruptcy System"; Title VII, "Bankruptcy Data"; Title VIII, "Bankruptcy Tax
Provisions"; and Title XI, "Technical Corrections." This analysis discusses only those sections of
these titles that would have a significant effect on consumer bankruptcy. Finally, there is a
discussion of the single section of Title XII, "General Effective Date; Application of
Amendments." For each section discussed, a reference is made to any section of S. 625 dealing
with the same subject.

Title I ("Consumer Bankruptcy Provisions")

Subtitle A—"Needs based bankruptcy"

§101 ("Conversion") (See S. 625, §101)

Changes. Section 706(c) of the Bankruptcy Code currently provides that the court may
not convert a Chapter 7 case to a case under Chapter 12 or 13 unless the debtor requests such a
conversion. As amended, Section 101 provides that conversion could also be ordered when the
debtor consents to it.

Impact. This section would operate primarily in connection with motions to dismiss
Chapter 7 cases brought against a debtor under §707(b) of the Code. Under current law, there
may be a question of whether, instead of ordering dismissal in connection with such a motion, the
court, with the debtor's consent, could order conversion of the case to Chapter 13. Section 101
would clarify that the option of conversion is available to the debtor in such situations. Because
H.R. 833 expands the circumstances under which Chapter 7 cases are subject to dismissal under
§707(b)—see the discussion of §102, below—this clarification may be helpful.

§102 ("Dismissal or conversion") (See S. 625, §102)

This provision is the subject of Recommendations 1 and 2 of the Consumer Bankruptcy
Legislative Group.

Changes. Section 102, the central provision for the "needs-based" bankruptcy approach
of H.R. 833, operates by broadening §707(b) of the Bankruptcy Code. Section 707(b) currently
provides for dismissal of Chapter 7 cases if granting relief under Chapter 7 would be a "substantial
abuse" of the provisions of Chapter 7. "Substantial abuse" is not defined, and standing to bring a
motion for dismissal under §707(b) is limited—it may be brought only by the United States trustee
or by the court, and "not at the request or suggestion of any party in interest." Section 102 would
change §707(b) in the following respects:

(1) The proposal would change the ground for relief from "substantial abuse" to simple
"abuse" of the provisions of Chapter 7, and would remove the current presumption in favor of the
form of bankruptcy relief chosen by the debtor.

(2) If abuse is found, the proposal would allow, with the debtor's consent, conversion to
Chapter 13 (but not Chapter 11) as an alternative to dismissal.

(3) Although "abuse" would continue to be undefined, two sets of considerations would
apply in a court's determination of §707(b) motions: (a) a presumption of abuse would arise in
defined circumstances, and (b) general factors would be applicable where the presumption did not
arise.



(4) The presumption of abuse would arise under an amended §707(b)(2) where the
debtor's "current monthly income"—after specified deductions—was at least $100 ($6,000 over
60 months). "Current monthly income" would be defined as the monthly income received by the
debtor (and the debtor's spouse in a joint case), averaged over the 180 days "preceding the date of
determination," together with amounts regularly contributed by others to the debtor's household
expenses, but not including war crime reparations or Social Security benefits. Five deductions
would be made from this amount:

(a) "Estimated administrative expenses and attorneys' fees." This deduction would
be defined as "10 percent of projected payments under a chapter 13 plan."

(b) Monthly living expenses as prescribed under standards issued by the Internal
Revenue Service for collection of unpaid taxes, with modifications. The expense
allowances under the IRS collection standards fall into three categories: National
Standards, covering food, housekeeping supplies, clothing, services, personal care
products, and miscellaneous expenses; Local Standards, covering housing and
transportation; and Other Necessary Expenses, covering taxes, health care, court
ordered payments, involuntary wage deductions, accounting and legal fees, and
other expenses necessary to produce the debtor's income.⁽²⁾
Debtors would be
limited to deducting the amounts set out in the national IRS standards—except that
the IRS allowances for food and clothing could be increased by up to 5% "if it is
demonstrated that it is reasonable and necessary." Debtors would also be limited to
deductions for housing and transportation set out in the IRS local standards,
without including payment of debt (such as home mortgages and auto loans).
Finally, for items in the IRS's "other necessary expenses" category, debtors would
be allowed to deduct their actual expenses, including "the continuation of actual
expenses of a dependent child under the age of 18 for tuition, books, and required
fees at a private elementary or secondary school, not exceeding $10,000 per year."

(c) Monthly secured debt payments, defined as all secured debt payments
contractually due in the 60 months following the filing of the bankruptcy petition,
divided by 60.

(d) Monthly priority debt payments, defined as the total amount of priority debt
divided by 60.

(e) Monthly charitable contributions. Section 707(b),as amended by H.R. 833,
would continue to provide that in determining whether to dismiss a case under
§707, the court may not "take into consideration whether a debtor has made, or
continues to make, charitable contributions." "Charitable contributions" are defined
to allow up to 15% of a debtor's gross income to be paid to any tax-qualified
charitable organization.

(5) Where the presumption arose—that is, where the debtor's "current monthly income,"
less the five categories of deductions, was at least $100—the debtor would be able to prevail
against a §707(b) motion only "by demonstrating extraordinary circumstances that require additional expenses or adjustment of current monthly income" and showing that these extraordinary circumstances were sufficient to reduce the debtor's income after allowable expenses to less than $100
monthly. In order to make such a demonstration, the debtor would have to "itemize each
additional expense or adjustment of income and provide documentation for such expenses or
adjustment of income and a detailed explanation of the extraordinary circumstances which make
such expenses or adjustment of income necessary and reasonable," and the accuracy of all such
itemized information would have to be attested to, under oath, by the debtor and the debtor's
attorney.

(6) Where the presumption did not arise—that is, where the debtor's "current monthly
income," less the five categories of deductions, was less than $100—or where the presumption
was rebutted, a court ruling on a §707(b) motion would be required to consider (a) whether the
debtor filed the petition in bad faith, and (b) whether the "totality of the circumstances . . . demonstrates abuse."

(7) The debtor's schedules of current income and expenses (currently set out on Schedules
I and J) would be required to include a statement of "current monthly income," together with
calculations showing whether there would be a presumption of abuse under §707(b). The Federal
Rules of Bankruptcy Procedure would be required to be amended so as to prescribe a form for
these schedules. The trustee would be required to review the materials submitted by the debtor,
and, within 10 days after the §341 meeting of creditors, file a statement with the court as to
whether the debtor's schedules would give rise to a presumption of abuse. The court would be
required to provide a copy of the statement regarding the presumption to all creditors within five
days of its filing.

(8) If the presumption applied, and if the debtor's income was at least equal to a defined
national median, then the trustee would have the obligation to file either a motion under §707(b) or
a statement as to why such a motion was not being filed.⁽³⁾

(9) The current limitation on standing to bring a motion under §707(b) would be reversed,
with amended §707(b)(1) affirmatively providing that the motion could be made by "the trustee or
any party in interest." However, there would be different and inconsistent limitations on standing
to bring a motion under §707(b), depending on whether the presumption was involved. In order
for the presumption to be invoked by any party, the debtor's income would have to be above a
defined regional median.⁽⁴⁾
But for a creditor to bring any motion under §707(b)—even a motion
that did not involve the presumption—the debtor's income would have to at least equal to the
national median applicable to the trustee's mandatory filing.⁽⁵⁾

(10) If a panel trustee brought a successful motion under §707(b), and if the debtor's
attorney violated Fed.R.Bankr.P. 9011 by filing the case under Chapter 7, the court would be
required to award damages against the debtor's attorney, which could include both reimbursement
of the trustee's expenses and an award of a civil penalty to the trustee. The signature of the
debtor's attorney on a bankruptcy petition would be declared to constitute a certificate that the
debtor's "petition, lists, schedules, and documents" are "well grounded in fact."

(11) If a party other than a trustee or United States trustee brought an unsuccessful motion
under §707(b), and if the court found that the motion was not substantially justified or that the
party brought the motion solely to coerce the debtor into waiving a right under the Bankruptcy
Code, the court would be authorized to award the debtor all reasonable costs in contesting the
motion, including attorneys' fees.

(12) Within three years of the enactment of the amendments, the Director of the Executive
Office for the United States Trustees (EOUST) would be required to submit a report to Congress
on the utility of the IRS collection standards in measuring abuse under §707(b).

Impact. The purpose of means-testing is to deal with debtors who have the ability to
make substantial payments, from current income, to their general unsecured creditors. Under
means-testing, these debtors would be denied the right to obtain an immediate discharge of their
indebtedness in Chapter 7, under which (depending on the applicable exemption law) they may
make little or no payments to general unsecured creditors. The means-testing procedures of H.R.
833, as passed, address several of the problems of earlier proposals, but still present significant
difficulties in accomplishing the goal of means-testing:

(1) The presumption of abuse would frequently be difficult to apply or arbitrary. At each
step in its application, there are problems with H.R. 833's formula for determining whether a
debtor has at least $100 per month available to pay general unsecured debt, and hence should be
presumed to be abusing Chapter 7.

• Determining the total income available to the debtor. In applying the presumption
  formula, the first step is to determine the debtor's current gross monthly income. There are
  several problems in this step.

  First, there is no apparent justification for excluding Social Security benefits from
  income—the source of funds received by a debtor in no way affects the debtor's ability to
  pay debts. Thus, for example, there would seem to be no reason why a debtor who
  chooses early retirement and lives on a combination of investment earnings and social
  security benefits should be treated as having less income than an individual who obtains the
  same amount of money through continued employment.

  Second, the bill directs that income be averaged over the 180 days preceding the
  "date of determination." It is unclear whether this date would be the date of the preparation
  of the debtor's schedules (which could be substantially before filing the bankruptcy case),
  the date of filing (which could require last-minute changes in the debtor's schedules), or
  some later date, such as the date of a hearing in which the application of the presumption is
  being determined (in which case, the schedules would often be unable to reflect the
  appropriate income figure).

  Third, a 180-day period would often produce anomalous results. Because 180
  days is always less than six months, debtors who are paid monthly will often have only
  five paydays during the 180-day period preceding their bankruptcy filing, artificially
  reducing current monthly income.

  Fourth, and similarly, the 180-day average will produce anomalous results for
  seasonal workers; for example, debtors who earn most of their income during the summer
  would show an artificially high total income if the 180-day period ended in the middle of
  fall, and an artificially low income if the period ended in mid-spring.

  Fifth, and most significantly, the total income determined by a 180-day average will
  simply be inaccurate whenever the debtor's income has permanently changed during the
  180-day period. For example, a debtor may file a bankruptcy case after a prolonged period
  of unemployment, but shortly after getting a new permanent job, in which case the salary
  of the new job would be artificially reduced by the lower income during the period of
  unemployment. Conversely, a debtor who files a Chapter 7 case shortly after obtaining a
  new permanent job with substantially reduced income, would have the presumption
  calculated based on an artificially high income. H.R. 833 provides for a debtor to show
  extraordinary circumstances justifying a reduction from the 180-day average, but there is
  no provision for disclosure of factors indicating that a debtor's actual income is higher than
  the average.

• Deduction of administrative expenses and attorneys' fees. Once a debtor's current
  monthly income is determined, the formula for the presumption requires that several
  expense items be deducted. The first of these is administrative expenses and attorneys'
  fees, defined as "10 percent of projected payments under a chapter 13 plan." This
  definition is ambiguous. It could mean (a) all payments that a debtor would make under
  the plan, including direct payments to creditors like mortgagees, (b) only the payments that
  the debtor would make to the Chapter 13 trustee, or (c) the payments that the Chapter 13
  trustee would make to creditors. Of these possibilities, the second is perhaps the most
  likely, since this would approximate the actual administrative expenses that would be
  incurred by a trustee in disbursing funds to creditors under a Chapter 13 plan, pursuant to
  28 U.S.C. §586(e)(1)(B). However, even with this understanding, there would still be
  substantial questions about how much would be paid by the debtor to the trustee in a
  Chapter 13 case. Most significantly, this sum would vary greatly depending on whether
  the debtor would have current mortgage payments made by the Chapter 13 trustee or paid
  directly. For example, if the debtor had a monthly mortgage payment of $2000, the
  administrative expense deduction would be $200 greater if it assumed that the mortgage
  would be paid by the trustee in a Chapter 13 plan.

• Deduction under IRS "National Standards." The first of the monthly living expenses to
  be deducted under the means-test formula are the "National Standards" that allowed by the
  Internal Revenue Service. These standards set out specific allowances— regardless of the
  debtors' actual expenditures—for items such as food, clothing, and household supplies, on
  a nationwide basis. Because the standard is nationwide, it would discriminate against
  debtors in areas with a higher-than-average cost of living. Moreover, because the statute
  would allow an increase of up to 5% for food and clothing allowances "if it is
  demonstrated that it is reasonable and necessary," a discretionary determination of
  reasonableness will be required whenever a debtor claims the increase.
• Deduction under IRS "Local Standards." The IRS "Local Standards" include deductions
  from income for housing and transportation costs, set out on a regional basis. In contrast
  to the national standards, the IRS Manual states that the local standards are maximum
  allowances—if the debtor's actual housing or transportation costs are less, then the actual
  costs are to be applied. Thus, in order to apply the local standards, the debtor's actual
  housing and transportation costs must be determined in every case. Another set of
  problems would arise from the bill's requirement that "the debtor's monthly expenses shall
  not include any payments for debts." The IRS's local standards include payments for debt.
  The local standards for transportation include an "ownership" component to cover monthly
  loan or lease payments and the housing standards are intended to cover the cost of
  obtaining housing, including rent or mortgage payments. Thus, in order to apply the local
  standards under the bill, the auto loan and home mortgage payments must be deleted from
  the amounts allowed by the standards. For the transportation standards, this can be done,
  because the standards separate ownership costs from operating costs. A debtor who
  owned an automobile would therefore be allowed only actual operating costs, up to the
  maximum specified by the standards. However, it is not possible to similarly apply the
  local standards for housing to debtors who pay home mortgages, since the IRS provides a
  single allowance to cover the cost both of acquiring and maintaining housing. For
  example, the housing allowance for a family of four in Cuyahoga County, Ohio is $1069
  monthly. There is no way to know what part of this allowance should be deducted in order
  to account for a mortgage payment. If the debtor's mortgage payment is $500 per month,
  it is not clear that $569 should be allowed as a maximum cost for items such as insurance,
  utilities and repairs. On the other hand, if the debtor's mortgage is $1100, it can hardly be
  that the debtor should receive no monthly allowance for maintaining the home. For debtors
  with mortgages, the IRS local standard simply cannot be meaningfully applied in the
  manner directed by H.R. 833.
• Deduction for "Other Necessary Expenses." The IRS collection standards recognize that
  there are a number of expenses that debtors may have, that (1) are either necessary to
  provide for the health and welfare of the debtor and the debtor's family or necessary for the
  production of income, but (2) are not covered by the national and local standards. The IRS
  allows for such expenses in the amounts established as necessary by the taxpayer. The
  IRS Manual (at §5323.434) sets out two different lists of categories into which these "other
  necessary expenses" may fall, but the Manual also states: "The expenses listed . . . do not
  exhaust the category of necessary expenses. Other expenses may be considered if they
  meet the necessary expense test: health and welfare and /or production of income." The
  incorporation of the IRS's "Other Necessary Expenses" into H.R. 833's presumption
  formula raises several questions. The bill specifies that the debtor should be allowed
  "actual monthly expenses for the categories specified as Other Necessary Expenses." This
  appears to imply if the debtor's expenses fit within categories specified in the Manual as
  Other Necessary Expenses, then they should be allowed in the amounts actually expended
  by the debtor, even if these amounts are not shown to be necessary. For example, one
  category specified in the Manual in the "Other Necessary Expenses" category is child care.
  Exhibit 5300-46 of the IRS Manual states: "Care should be taken to ensure that only a
  reasonable amount is allowed. Costs of child care can vary greatly. We should not allow
  expensive child care if more reasonable alternatives are available." The bill would appear to
  contradict this provision of the Manual, requiring a deduction for purposes of the
  presumption formula for whatever child care expenses are actually incurred by the debtor.
  On the other hand, a debtor may have an expense necessary for the welfare of the family
  but not specifically identified in the IRS Manual. For example, the debtor may own a
  rental unit, and incur costs of maintaining that unit in order to obtain rental income. The
  costs of maintaining a rental unit are not specifically listed in the IRS Manual as a category
  of necessary expenses, but would plainly be included under the "production of income"
  test set out in the Manual. The bill could be interpreted to disallow such expenses in
  applying the presumption formula. In any event, it can be anticipated that debtors will
  assert as "other necessary expenses" many items that might be questioned, such as life
  insurance premiums, special diets for health reasons, and contributions for the care of
  elderly relatives. For all such questionable claims, a determination will have to be made
  before the presumption formula can be applied. The bill does specify, contrary to the IRS
  Manual, that the expenses of private primary and secondary education should be deducted,
  up to $10,000 annually for each dependent child under 18 years of age.
• Deduction for secured debt. The bill provides a deduction for secured debt, calculated as
  1/60th of all the secured debt that will be "contractually due" in the 60 months following
  the date of the petition. It is unclear whether this would include payments that are in
  default at the time of the petition. However, unless such defaulted amounts are deducted,
  the presumption formula would not give an accurate picture of the debtor's ability to make
  payments in a Chapter 13 plan. In any event, the deduction discriminates against those
  who do not have secured debt. For example, a debtor who drives an old car, with no
  outstanding loan, will receive no allowance for ownership costs under the IRS local
  standards; a debtor who leases a car will have ownership costs capped by the local
  standards; but a debtor who buys a new car on credit will have the entire cost of the loan,
  in an unlimited amount, deducted from income. Similarly, a debtor would not be allowed a
  special deduction for monthly cable television fees, but would be allowed to deduct the cost
  of a satellite dish purchased on credit.
• Deduction for priority debt. The deduction for priority debt is defined as "the total
  amount of unsecured debts entitled to priority" divided by 60. In order for this deduction
  to apply meaningfully, it would have to include not only the priority debt outstanding at the
  time of the bankruptcy filing, but also any interest that would accrue on the debt during the
  period after the bankruptcy filing.
• Deduction for charitable contributions. Charitable contributions of up to 15% of the
  debtor's gross income are deducted only if it can be found that the debtor "continues to
  make the contributions." This may lead to questions about whether charitable contributions
  proposed by the debtor are a "continuation" of a prior practice.

In summary, the presumption formula is problematic in that (1) calculation of current monthly
income has no fixed period for determination, and would often produce a figure different from the
debtor's actual monthly income; (2) the deductions for food, clothing, and other necessary
expenses would require discretionary determinations; (3) the IRS local standard for housing cannot
be applied to debtors with home mortgages; (4) debtors without secured indebtedness would be
substantially disadvantaged; and (5) debtors would be encouraged to increase secured
indebtedness, charitable donations, and expenditures on discretionary "other necessary expenses"
in order to avoid the presumption of abuse.

(2) The presumption of abuse is subject to manipulation. Due to some of the features of
the means-testing formula outlined above, debtors would be able to avoid an otherwise applicable
presumption of abuse by prebankruptcy planning. For example, a debtor might, at the time of
consulting a bankruptcy attorney, have gross monthly income of $10,000 and "current monthly
income" after the allowed deductions, of $1,500. The debtor could remove this remaining income
by commencing a program of charitable contributions or by incurring additional secured debt (for
example, by trading in a used car for a new one, purchased on credit). Current estimates indicate
that the means-testing of H.R. 833 would result in no more than 10% of currently filed Chapter 7
cases being subject to a presumption of abuse.⁽⁶⁾
However, these estimates are based on filing made
under current law, which presents little incentive to increase charitable contributions and secured
indebtedness prior to filing under Chapter 7. Under the means test of H.R. 833, it can be expected
(1) that the percentage of affected cases would be lower than anticipated because of the ability of
debtors to work around the means-testing formula, and (2) that courts will be required to make
substantial numbers of discretionary determinations as to whether prebankruptcy actions of the
debtor were undertaken in good faith.

(3) The proposal requires significant additional work by trustees and the court, with no
provision for additional funding. As noted in the previous paragraph, the means-testing
provisions of H.R. 833 are likely to result in only a small percentage of Chapter 7 cases being
converted to Chapter 13. The vast majority of Chapter 7 cases are "no-asset" cases, in which no
funds are available for paying administrative expenses. Nevertheless, the bill would mandate that
Chapter 7 trustees file with the court in every case a report as to application of the presumption.
This would add to the cost of the trustee's processing of routine no-asset cases, with no provision
for additional compensation. Moreover, in each case, the bill would require the court to serve
creditors with a copy of the report. Assuming 15 to 25 creditors in each of 1.4 million cases, this
requirement would burden the clerk's office and the postal service with the handling of 20 to 37
million additional pieces of mail annually. This additional activity, in the great majority of cases,
will merely inform creditors that the presumption is inapplicable.

(4) The complex standing limitations would be difficult to apply and arbitrary. H.R. 833
would apply two different definitions of median income to issues of standing to bring motions
under §707(b). If a debtor's current monthly income is less than a defined national median,
standing to bring any motion under §707(b) would be limited to the court, the United States trustee
and the case trustee. But if the debtor's income is not greater than a defined regional income, no
party (including the court and trustees) would be able to invoke the exemption. This system of dual
standing limitations will require calculation and maintenance of multiple lists of median income,
with resulting uncertainty in application. Moreover, where the national and regional medians
differ, there will be standing limitations with no apparent basis in policy: (a) for debtors whose
income is at least equal to the national median but is not greater than the regional median, any party
could bring a §707(b) motion, but the motion could not assert the presumption of abuse; (b) for
debtors whose income is greater than the regional median but less than the national, only the court
and trustees could bring a §707(b) motion, but they would be allowed to assert the presumption.

(5) The relationship between the proposed statutory language and Fed.R.Bankr.P. 9011 is
confused. Fed.R.Bankr.P. 9011 is the bankruptcy equivalent of Rule 11 of the Federal Rules of
Civil Procedure. It requires, among other things, that an attorney representing a debtor sign every
petition filed under the Bankruptcy Code, and it provides that this signature constitutes a
certificate, among other things, "that the attorney . . . has read the document [and] that to the best
of the attorney's . . . knowledge, information, and belief formed after reasonable inquiry it is well
grounded in fact and is warranted by existing law or a good faith argument for the extension,
modification, or reversal of existing law." The rule requires sanctions for its violation that may,
but need not, include a civil penalty. The rule does not apply to lists, schedules, and statements.
The proposed change to §707(b) contains language that (1) requires a civil penalty if the court
finds a violation of Rule 9011 in connection with a §707(b) motion filed by a panel trustee or
bankruptcy administrator, and (2) states that the signature of an attorney in connection with a
Chapter 7 petition constitutes a certification of the kind specified in Rule 9011, applicable to lists,
schedules and statements. Under these provisions, where a Rule 9011 motion is brought in
connection with a Chapter 7 petition, it would be unclear whether: (1) the terms of the rule or the
terms of the proposed statute would apply; (2) whether the civil penalty required by the statute
applies only to violations of the terms of Rule 9011, or whether it applies to violations of the
signature requirement set out in the proposed statutory language; and (3) whether, if Rule 9011
were amended in the future, the mandatory civil penalty imposed by the statute would apply to the
amended language of the rule.

Alternatives.

1. Method for determining income available for payment of general unsecured debt.

Scheduling of monthly income. The debtor's schedules should list "current
monthly income," as defined in H.R. 833, except that the "180-day" average should be the average
income during the six calendar months preceding the date of filing. If current monthly income does
not reflect the income that will actually be available to the debtor at the time of the bankruptcy
filing, the debtor should be required to state the amount of income that will actually be available,
and the reasons why current monthly income does not reflect the actually available monthly
income.⁽⁷⁾

Scheduling of expenses. Deductions from income should be scheduled for (1)
secured debt payments, including arrearages, (2) priority debt payments, and (3) charitable
contributions, again, as each of these categories is defined in the bill. Finally, the other living
expenses of the debtor should be measured against average expenditure levels, based on data
compiled by the Bureau of Labor Statistics (BLS).⁽⁸⁾

Specifically, (1) Federal Rules of Bankruptcy
Procedure and Official Forms should be adopted to require the scheduling of expenses in
categories corresponding to those in which consumer expenditure data is collected by BLS;⁽⁹⁾
(2)
the United States trustees and bankruptcy administrators should be required to designate and
publish, on an annual basis, tables of average expenditure levels, applicable within their districts,
for the categories specified in the rules and forms, based on BLS data; (3) a reasonable allowance
should be designated by law for discretionary expenditures;⁽¹⁰⁾
and (4) debtors should be required
to schedule their living expenses within the specified categories, compare their expenditures to the
designated level in each category, and provide a specific explanation for any expenditure that is
greater than the designated level. Debtors should also be required to enumerate and explain any
necessary expenses for which average expenditure data cannot be designated, such as costs of
child care, future support payments, and the expenses of operating a business owned by the
debtor.⁽¹¹⁾

2. Procedure for dismissal or conversion.

Filing obligations. There should be no additional filing obligations imposed on
case trustees, United States trustees, or bankruptcy administrators. Rather, case trustees should be
given an incentive to pursue meritorious motions under §707(b) (as proposed in Point 3, below).

Standing and time for filing. Standing to bring §707(b) motions should be as
provided in the H.R. 833, but a single, national median income test should apply: case trustees
(not limited to panel trustees) as well as judges, bankruptcy administrators, and United States
trustees should be allowed to bring §707(b) motions in any Chapter 7 case. Other parties in
interest, in all Chapter 7 cases, should be allowed to suggest specific grounds for the filing of a
§707(b) motion to the judge, bankruptcy administrator, United States trustee or case trustee, but
they should be allowed to bring such motions themselves only in cases where the debtor's current
monthly income exceeds the national median income, adjusted for inflation. A deadline for filing
§707(b) motions should be fixed at 10 days after the conclusion of the meeting of creditors,
subject to extension of time for cause.

Burden of proof. On a motion brought under §707(b), the court would be required
to convert or dismiss the Chapter 7 case if the debtor's schedules themselves reflected income
available to pay general unsecured claims in excess of the defined level, unless the debtor
established that reductions in current income or increases in appropriate expenses, resulting from
events subsequent to the filing of the schedules, reduced available income below the defined level.
Where the debtor's schedules reflected less than the defined amount of income available to pay
general unsecured debts, but where the debtor's current monthly income exceeded the applicable
median, the debtor, in responding to a §707 motion, would bear the burden of establishing (1) the
income actually available to the debtor, (2) the appropriateness of any expenditures in excess of the
designated amounts, and (3) the appropriateness of any expenditures in categories for which there
is no designated amount. Where the debtor's schedules reflected less than the defined amount of
income to pay general unsecured debt and the debtor's current monthly income was below the
applicable median, the moving party would bear the burden of establishing that the debtor's
actually available income and appropriate expenses result in available income to pay general
unsecured claims in excess of the defined amount.

3. Compensation for successful motions under §707(b).

There should be no special provisions for awards of costs and fees against debtors'
counsel. Rather, trustees and bankruptcy administrators who bring any successful §707(b) motion
should be awarded an administrative claim against the debtor that is not subject to discharge in the
pending case or in any subsequently filed case. There should be no special provisions for
application of Fed.R.Bankr.P. 9011.

§103 ("Notice of alternatives") (See S. 625, §103)

Changes. Section 342(b) of the Bankruptcy Code currently requires that the clerk of
court provide each consumer debtor with a notice indicating the chapters of the Code under which
the debtor may proceed. This subsection would be changed to require further information in the
notice—(1) the "purpose, benefits, and costs" of each chapter, (2) "the types of services available
from credit counseling agencies," and (3) warnings, regarding both the penalties for false
statements in connection with bankruptcy cases and the fact that information supplied by debtors is
subject to examination by the Attorney General.

Impact. This change has the potential for providing useful information at little additional
cost to the bankruptcy system.

§104 ("Debtor financial management training test program") (See S. 625, §104)

Changes. The Executive Office of the United States Trustee would be required (1) to
develop a program to educate debtors on the management of their finances, (2) to test the program
for 18 months in six judicial districts, (3) to evaluate the effectiveness of the program during that
period,⁽¹²⁾
and (4) to submit a report of the evaluation to Congress within three months of the conclusion of the evaluation. There is no authorization given to bankruptcy courts to require debtors
to participate in financial management training.

Impact. A test program of the kind outlined in H.R. 833 could be very helpful in
determining what types of debtor education would be effective. The only apparent problem with
the proposal is that 18 months may not be a long enough time to assess the effectiveness of an
educational program. Success in financial management would be indicated by such factors as
completion of a Chapter 13 plan, ability to reestablish high quality credit, and (most importantly)
avoidance of further financial overspending. These factors are unlikely to be measurable after one
year.

Alternatives. The legislation might better provide for an interim report within 3 months
of the completion of the test program, with a follow-up reports at intervals of two and four years
thereafter.

Subtitle B—"Consumer bankruptcy protections"

§105 ("Definitions") (See S. 625, §221)

§106 ("Enforcement") (See S. 625, §§222-24)

Changes. These two sections of H.R. 833 set up a new system for regulating the
providers of consumer bankruptcy services. Section 105 defines the term "debt relief agency" to
include both lawyers and non-lawyer providers of consumer bankruptcy goods or services
(excluding tax-exempt nonprofit organizations, creditors, and depository institutions and credit
unions). Section 106 would establish, in a new § 526 of the Bankruptcy Code, a set of
regulations bearing on "debt relief agencies" and a mechanism for enforcing the regulations.

The regulations would prohibit "debt relief agencies" from (1) failing to perform promised
services, (2) negligently making or counseling to be made any false statement in a bankruptcy
filing, (3) misrepresenting the services to be provided, or the benefits or detriments of bankruptcy,
and (4) advising the incurring of debt to pay for bankruptcy related services. Waivers of these
prohibitions by debtors would be invalid.

There would be three distinct mechanisms for enforcing the prohibitions. First, a debtor
would have a private cause of action against a "debt relief agency" (1) for intentional or negligent
failure to comply with the prohibitions, (2) for dismissal or conversion of a bankruptcy case due to
the agency's intentional or negligent failure to make required filings, and (3) for any intentional or
negligent "disregard" of "the material requirements" of the Bankruptcy Code and Rules "applicable
to such debt relief agency." In any such action, the debt relief agency would be liable for the fees
and charges it received in connection with services rendered to the debtor, as well as actual
damages and reasonable attorneys' fees and costs. Second, state governments would be
authorized (through their chief law enforcement officers or designated agencies) to bring actions to
enjoin violations of the new §526 or to pursue the private cause of action granted to debtors on
their behalf (with an award of fees and costs awarded to the state in any successful action). Any
district court in the state would be given "concurrent jurisdiction" over such actions by the state.⁽¹³⁾

Third, the bankruptcy court, on its own motion or on motion of the United States trustee or the
debtor, would be authorized to enjoin both intentional violations of the new §526 and any "clear
and consistent pattern or practice" of violating the section. Civil penalties would also be authorized
in connection with such motions.State consumer protection laws would be superseded only to the
extent that they were inconsistent with the new federal debtor protections specified for the
Bankruptcy Code.

Impact. The proposed prohibitions and enforcement mechanisms would strengthen the
ability of the courts to deal with dishonest and incompetent providers of bankruptcy-related
services. However, the prohibition against advising the incurring of debt to fund a bankruptcy
filing is overbroad. While a debtor should never be counseled to borrow money fraudulently, with
the intent of discharging the debt, it may be entirely appropriate to enter into a secured loan for the
purposes of financing a bankruptcy filing, and a loan from a friend or relative (intended to be
repaid despite the discharge) may also be proper. Moreover, the exclusion of nonprofit
organizations may unnecessarily weaken the effectiveness of the proposal. Such
organizations—which may be sponsored by debtors' attorneys as well as by creditor-funded
organizations—also have the potential for engaging in dishonest or incompetent provision of
services.

Alternatives. (1) The prohibition against counseling the incurring of debt to pay for a
bankruptcy filing should be limited to fraudulent incurred debt. (2) The exclusion of nonprofit
organizations should be removed.

§107 ("Sense of the Congress") (no parallel in S. 625)

Changes. None. The section simply expresses the sense of Congress that the states
should develop courses in personal finance for grade school and high school. No action is
required.

§108 ("Discouraging abusive reaffirmation practices") (See S. 625, §204)

This provision is the subject of Recommendation 7 of the Consumer Bankruptcy Legislative
Group.

Changes. This section would impose special requirements for the reaffirmation of
wholly unsecured debts. Unless such a debt was owed to a credit union (in which case the special
provisions would not apply), the reaffirmation agreement could only go into effect after a court
hearing, at which the debtor would be required to appear in person, and at which the court would
determine whether the agreement (1) was an undue hardship, (2) was in the debtor's best interest,
and (3) was a result of a threat by the creditor to take action that was either illegal or that the
creditor did actually intend to take. The reaffirmation agreement for such debts would be required
to contain a clear and conspicuous statement of the right of the debtor to such a hearing. A debtor
represented by counsel would be able to waive the right to the hearing by signing a written
statement of waiver, identifying the debtor's counsel.

Impact. This proposal is directed at the potential for creditor abuse in obtaining
reaffirmations of unsecured debt. This focus is reasonable. Abuse of the reaffirmation process is
much more likely to occur when the claim in question is not secured by collateral with substantial
value, since there is often little need for debtors to reaffirm such debt. Nevertheless, the proposal
is unlikely to have a major impact. Under current law (§524(c) and (d)), a court hearing on reaffirmations is already required for unrepresented debtors, so the requirement of a hearing for unsecured debt reaffirmations makes little difference for such debtors. Debtors represented by counsel may currently enter into binding reaffirmation agreements, under current law, if their attorneys
execute a declaration stating, among other things, that the reaffirmation would not impose an
undue hardship on the debtor. It can be anticipated that debtors whose counsel have executed such
a declaration will almost always waive the "right" to a court hearing (and thus avoid the need to
make an appearance at court). It is likely that hearings would only be held where conscientious
debtors' counsel, rather than simply refusing to approve a reaffirmation agreement, execute the
required declaration only if their clients agree not to waive hearing. This would have the effect of
leaving to the court the question of whether the reaffirmation agreement is in the debtor's best
interests.

The proposal would create uncertainty by failing to indicate how the required hearing
would be initiated. Finally, the proposal excludes debts owing to credit unions, for no apparent
reason, since reaffirmations of unsecured credit union debt may also be against a debtor's best
interests.

Alternatives.

1. Unless a reaffirmation agreement involves a claim secured by a valid, perfected and
enforceable purchase money security interest in property with an original selling price to the debtor
(exclusive of costs of financing) of not less than $3,000, the agreement should be effective only
(a) after a hearing, on motion by the creditor, attended by the debtor, and (b) upon findings by the
court (1) that the agreement is in the best interest of the debtor and (2) that, in light of the income
and expenses set forth on the debtor's schedules filed in the case, the debtor has the ability both to
pay the reaffirmed debt and to provide support to all of the persons for whom he or she is
responsible, including all court-ordered support payments.

2. For all reaffirmations as to which a court hearing is not conducted, the debtor's
attorney's certificate should include a representation that the debtor has the ability to pay the
reaffirmed debt as well as provide necessary support, including all court-ordered support
payments, in light of the income and expenses set forth on the debtor's schedules filed in the case.

§109 ("Promotion of alternative dispute resolution") (See S. 625, §201)

Changes. Two distinct changes would be effected by this section of H.R. 833. First,
an additional ground for partial disallowance of claims would be created. Claims based on wholly
unsecured consumer debts could be reduced by up to 20 percent upon a showing by the debtor (by
clear and convincing evidence) (1) that the debtor offered the creditor an alternative repayment
schedule through an approved credit counseling agency within 60 days before filing bankruptcy,
(2) that the offer provided for payment to the claimant of at least 60 percent of the amount of the
debt over 'the repayment period of the loan, or a reasonable extension thereof," (3) that no part of
the debt is nondischargeable, or entitled to priority, or "would be paid a greater percentage in a
chapter 13 plan than offered by the debtor," and (4) that "the creditor unreasonably refused to
consider the debtor's proposal."

The second change would prohibit trustees from using preference theory (under §547 of
the Code) to recover any sums paid to creditors as part of a repayment plan created by an approved
credit counseling agency.

Impact. The additional ground for partial disallowance is unlikely to have a substantial
impact, for several reasons: (1) A debtor is only affected by the allowance of unsecured claims in
situations where unsecured creditors are paid in full. Otherwise, any reduction in one creditor's
claim merely results in other creditors receiving a higher dividend. (2) The maximum reduction is
only 20% of the claim, unlikely to be a significant amount in most consumer cases. (3) A heavy
burden of proof (clear and convincing evidence) is placed on the debtor, as to elements such as the
reasonableness of the debtor's proposal and whether the creditor refused to "consider" the
proposal. Such a burden is likely to be difficult to meet in most situations. (4) No provision is
made for any award of a debtor's costs and fees in pursuing the claim reduction. A debtor
following a bankruptcy filing is unlikely to have funds available to prosecute the objection.

A debtor who enters into a credit counseling plan may very well exclude certain creditors
whom the debtor does not wish to have paid. Unless payments to other creditors can be recovered
as preferences, the credit counseling plan will have the effect of ratifying the debtor's
discrimination.

Alternatives. (1) The grounds for disallowance of claims under §502(b) could include
failure of a creditor to negotiate in good faith when presented with a repayment plan proposed by
the debtor in consultation with an approved credit counseling service. This ground for
disallowance could be limited (as in the proposal) to general unsecured debt, and could provide for
partial disallowance at a fixed rate of 50%. Any party in interest would have standing to assert the
objection.

(2) Payments made under a repayment plan proposed through an approved credit
counseling service should only be exempt from preference recovery if the plan was proposed by
the debtor in good faith.

§110 ("Enhanced disclosure for credit extensions secured by a dwelling") (no
parallel in S. 625)

Changes. None. The Federal Reserve Board would be directed to conduct a study and
submit a report to Congress regarding the need for additional disclosures to consumers entering
into home equity

To revise the banking and bankruptcy insolvency laws with respect to the termination and netting of financial contracts, and for other purposes.

H.R. 4718 To extend for 3 additional months the period for which chapter 12 of title 11 of the United States Code is reenacted. (Introduced in the House)

Be it enacted by the Senate and House of Representatives of the United States of America in Congress assembled,
SECTION 1. SHORT TITLE\; TABLE OF CONTENTS.
(a) Short Title: This Act may be cited as the `Consumer Bankruptcy Reform Act of 1999'.
(b) Table of Contents: The table of contents for this Act is as follows:
Web posted © May 4,
1999, American Bankruptcy Institute.

S.
945

Introduced May 3, 1999

by Sens. Richard Dubrin (D-Ill.), Patrick Leahy (D-Vt.),

Ted Kennedy (D-Mass.), Russ Feingold (D-Wisc.) and Paul Sarbanes
(D-Md.)

Be it enacted by the Senate and House of Representatives

of the United
States of America in Congress assembled,



SECTION 1. SHORT TITLE; TABLE OF CONTENTS.

(a) Short Title: This Act may be cited as the `Consumer Bankruptcy
Reform Act of 1999'.

(b) Table of Contents: The table of contents for this Act is as follows:

Sec. 1. Short title; table of contents.



TITLE I--NEEDS-BASED BANKRUPTCY

Sec. 101. Conversion.



Sec. 102. Dismissal or conversion.



TITLE II--ENHANCED PROCEDURAL PROTECTIONS FOR

CONSUMERS



Sec. 201. Allowance of claims or interests.



Sec. 202. Exceptions to discharge.

Sec. 203. Effect of discharge.



Sec. 204. Automatic stay.



Sec. 205. Discharge.



Sec. 206. Discouraging predatory lending practices.



Sec. 207. Enhanced disclosure for credit extensions secured by dwelling.

Sec. 208. Dual-use debit card.

Sec. 209. Enhanced disclosures under an open end credit plan.



Sec. 210. Violations of the automatic stay.



Sec. 211. Discouraging abusive reaffirmation practices.



Sec. 212. Sense of Congress regarding the homestead exemption.



Sec. 213. Encouraging creditworthiness.



Sec. 214. Treasury Department study regarding security interests under
an open end credit
plan.

TITLE III--IMPROVED PROCEDURES FOR EFFICIENT

ADMINISTRATION OF THE BANKRUPTCY SYSTEM



Sec. 301. Notice of alternatives.



Sec. 302. Fair treatment of secured creditors under chapter 13.



Sec. 303. Discouragement of bad faith repeat filings.



Sec. 304. Timely filing and confirmation of plans under chapter 13.

Sec. 305. Application of the codebtor stay only when the stay protects
the debtor.



Sec. 306. Improved bankruptcy statistics.



Sec. 307. Audit procedures.



Sec. 308. Creditor representation at first meeting of creditors.



Sec. 309. Fair notice for creditors in chapter 7 and 13 cases.



Sec. 310. Stopping abusive conversions from chapter 13.

Sec. 311. Prompt relief from stay in individual cases.



Sec. 312. Dismissal for failure to timely file schedules or provide
required information.



Sec. 313. Adequate time for preparation for a hearing on confirmation of

the plan.



Sec. 314. Discharge under chapter 13.



Sec. 315. Nondischargeable debts.



Sec. 316. Credit extensions on the eve of bankruptcy presumed
nondischargeable.

Sec. 317. Definition of household goods and antiques.



Sec. 318. Relief from stay when the debtor does not complete intended
surrender of
consumer debt collateral.



Sec. 319. Adequate protection of lessors and purchase money secured
creditors.



Sec. 320. Limitation.



Sec. 321. Miscellaneous improvements.



Sec. 322. Bankruptcy judgeships.

Sec. 323. Definition of domestic support obligation.



Sec. 324. Priorities for claims for domestic support obligations.



Sec. 325. Requirements to obtain confirmation and discharge in cases
involving domestic
support obligations.



Sec. 326. Exceptions to automatic stay in domestic support obligation
proceedings.



Sec. 327. Nondischargeability of certain debts for alimony, maintenance,

and support.



Sec. 328. Continued liability of property.

Sec. 329. Protection of domestic support claims against preferential
transfer motions.



Sec. 330. Protection of retirement savings in bankruptcy.



Sec. 331. Additional amendments to title 11, United States Code.



Sec. 332. Debt limit increase.



Sec. 333. Elimination of requirement that family farmer and spouse
receive over 50 percent
of income from farming

operation in year prior to bankruptcy.

Sec. 334. Prohibition of retroactive assessment of disposable income.




Sec. 335. Amendment to section 1325 of title 11, United States Code.




Sec. 336. Protection of savings earmarked for the postsecondary
education of children.



TITLE IV--FINANCIAL INSTRUMENTS



Sec. 401. Bankruptcy Code amendments.



Sec. 402. Damage measure.

Sec. 403. Asset-backed securitizations.



Sec. 404. Prohibition on certain actions for failure to incur finance
charges.



Sec. 405. Fees arising from certain ownership interests.



Sec. 406. Bankruptcy fees.



Sec. 407. Applicability.



TITLE V--ANCILLARY AND OTHER CROSS-BORDER CASES

Sec. 501. Amendment to add chapter 6 to title 11, United States Code.




Sec. 502. Amendments to other chapters in title 11, United States Code.




TITLE VI--MISCELLANEOUS



Sec. 601. Executory contracts and unexpired leases.



Sec. 602. Expedited appeals of bankruptcy cases to courts of appeals.




Sec. 603. Creditors and equity security holders committees.

Sec. 604. Repeal of sunset provision.



Sec. 605. Cases ancillary to foreign proceedings.



Sec. 606. Limitation.



Sec. 607. Amendment to section 546 of title 11, United States Code.



Sec. 608. Amendment to section 330(a) of title 11, United States Code.




TITLE VII--TECHNICAL CORRECTIONS

Sec. 701. Adjustment of dollar amounts.



Sec. 702. Extension of time.



Sec. 703. Who may be a debtor.



Sec. 704. Penalty for persons who negligently or fraudulently prepare
bankruptcy
petitions.



Sec. 705. Limitation on compensation of professional persons.



Sec. 706. Special tax provisions.

Sec. 707. Effect of conversion.



Sec. 708. Automatic stay.



Sec. 709. Allowance of administrative expenses.



Sec. 710. Priorities.



Sec. 711. Exemptions.



Sec. 712. Exceptions to discharge.

Sec. 713. Effect of discharge.



Sec. 714. Protection against discriminatory treatment.



Sec. 715. Property of the estate.



Sec. 716. Preferences.



Sec. 717. Postpetition transactions.



Sec. 718. Technical amendment.

Sec. 719. Disposition of property of the estate.



Sec. 720. General provisions.



Sec. 721. Appointment of elected trustee.



Sec. 722. Abandonment of railroad line.



Sec. 723. Contents of plan.



Sec. 724. Discharge under chapter 12.

Sec. 725. Extensions.



Sec. 726. Bankruptcy cases and proceedings.



Sec. 727. Knowing disregard of bankruptcy law or rule.



Sec. 728. Rolling stock equipment.



Sec. 729. Curbing abusive filings.



Sec. 730. Study of operation of title 11 of the United States Code with
respect to small
businesses.

Sec. 731. Transfers made by nonprofit charitable corporations.



Sec. 732. Effective date; application of amendments.



TITLE I--NEEDS-BASED BANKRUPTCY



SEC. 101. CONVERSION.

Section 706(c) of title 11, United States Code, is amended by inserting
`or consents to'
after `requests'.



SEC. 102. DISMISSAL OR CONVERSION.

(a) In General: Section 707 of title 11, United States Code, is
amended--



(1) by striking the section heading and inserting the following:



`707. Dismissal of a case or conversion to a case under chapter 13';




and



(2) in subsection (b)--



(A) by inserting `(1)' after `(b)';

(B) in paragraph (1), as redesignated by subparagraph (A) of this
paragraph--



(i) in the first sentence--



(I) by striking `but not' and inserting `or';



(II) by inserting `, or, with the debtor's consent, convert such a case
to a case under
chapter 13,' after `consumer debts'; and



(III) by striking `substantial abuse' and inserting `abuse'; and



(ii) by striking `There shall be a presumption in favor of granting the
relief requested
by the debtor.'; and

(C) by adding at the end the following:

`(2) In considering under paragraph (1) whether the granting of relief
would be an abuse
of the provisions of this chapter, the

court shall consider whether--



`(A) under section 1325(b)(1), on the basis of the current income of the

debtor, the
debtor could pay an amount greater than or

equal to 30 percent of unsecured claims that are not considered to be
priority claims (as
determined under subchapter I of

chapter 5); or



`(B) the debtor filed a petition for the relief in bad faith.

`(3)(A) If a panel trustee appointed under section 586(a)(1) of title 28

brings a motion
for dismissal or conversion under this

subsection and the court grants that motion and finds that the action of

the counsel for
the debtor in filing under this chapter was

not substantially justified, the court shall order the counsel for the
debtor to reimburse
the trustee for all reasonable costs in

prosecuting the motion, including reasonable attorneys' fees.

`(B) If the court finds that the attorney for the debtor violated Rule
9011, at a minimum,
the court shall order--



`(i) the assessment of an appropriate civil penalty against the counsel
for the debtor;
and



`(ii) the payment of the civil penalty to the panel trustee or the
United States trustee.

`(C) In the case of a petition referred to in subparagraph (B), the
signature of an
attorney shall constitute a certificate that the

attorney has--



`(i) performed a reasonable investigation into the circumstances that
gave rise to the
petition; and



`(ii) determined that the petition--



`(I) is well grounded in fact; and



`(II) is warranted by existing law or a good faith argument for the
extension,
modification, or reversal of existing law and does

not constitute an abuse under paragraph (1).

`(4)(A) Except as provided in subparagraph (B) and paragraph (5), the
court may award a
debtor all reasonable costs in

contesting a motion brought by a party in interest (other than a panel
trustee or United
States trustee) under this subsection

(including reasonable attorneys' fees) if--



`(i) the court does not grant the motion; and



`(ii) the court finds that--



`(I) the position of the party that brought the motion was not
substantially justified; or




`(II) the party brought the motion solely for the purpose of coercing a
debtor into
waiving a right guaranteed to the debtor under

this title.

`(B) A party in interest that has a claim of an aggregate amount less
than $1,000 shall
not be subject to subparagraph (A).

`(5)(A) Only the judge, United States trustee, bankruptcy administrator,

or panel trustee
may bring a motion under this

subsection if the debtor and the debtor's spouse combined, as of the
date of the order for
relief, have current monthly total

income equal to or less than the national median household monthly
income calculated on a
monthly basis for a household of

equal size.

`(B) For purposes of subparagraph (A), for a household of more than 4
individuals, the
median monthly income for that

household shall be--



`(1) the median monthly income of a household of 4 individuals; plus

`(2) $583 for each additional member of that household.'.

(b) Clerical Amendment: The table of sections for chapter 7 of title 11,

United States
Code, is amended by striking the item

relating to section 707 and inserting the following:



`707. Dismissal of a case or conversion to a case under chapter 13.'.




TITLE II--ENHANCED PROCEDURAL PROTECTIONS FOR

CONSUMERS



SEC. 201. ALLOWANCE OF CLAIMS OR INTERESTS.

Section 502 of title 11, United States Code, is amended by adding at the

end the
following:

`(k)(1) The court may award the debtor reasonable attorneys' fees and
costs if, after an
objection is filed by a debtor, the

court--



`(A)(i) disallows the claim; or



`(ii) reduces the claim by an amount greater than 20 percent of the
amount of the initial
claim filed by a party in interest; and



`(B) finds the position of the party filing the claim is not
substantially justified.

`(2) If the court finds that the position of a claimant under this
section is not
substantially justified, the court may, in addition to

awarding a debtor reasonable attorneys' fees and costs under paragraph
(1), award such
damages as may be required by the

equities of the case.'.



SEC. 202. EXCEPTIONS TO DISCHARGE.

Section 523 of title 11, United States Code, is amended--



(1) in subsection (a)(2)(A), by striking `a false representation' and
inserting `a
material false representation upon which the

defrauded person justifiably relied'; and



(2) by striking subsection (d) and inserting the following:

`(d)(1) Subject to paragraph (3), if a creditor requests a determination

of
dischargeability of a consumer debt under this section

and that debt is discharged, the court shall award the debtor reasonable

attorneys' fees
and costs.

`(2) In addition to making an award to a debtor under paragraph (1), if
the court finds
that the position of a creditor in a

proceeding covered under this section is not substantially justified,
the court may award
reasonable attorneys' fees and costs

under paragraph (1) and such damages as may be required by the equities
of the case.

`(3)(A) A creditor may not request a determination of dischargeability
of a consumer debt
under subsection (a)(2) if--



`(i) before the filing of the petition, the debtor made a good faith
effort to negotiate a
reasonable alternative repayment schedule

(including making an offer of a reasonable alternative repayment
schedule); and

`(ii) that creditor refused to negotiate an alternative payment
schedule, and that refusal
was not reasonable.

`(B) For purposes of this paragraph, the debtor shall have the burden of

proof of
establishing that--



`(i) an offer made by that debtor under subparagraph (A)(i) was
reasonable; and



`(ii) the refusal to negotiate by the creditor involved to was not
reasonable.'.



SEC. 203. EFFECT OF DISCHARGE.

Section 524 of title 11, United States Code, is amended by adding at the

end the
following:

`(i) The willful failure of a creditor to credit payments received under

a plan confirmed
under this title (including a plan of

reorganization confirmed under chapter 11) in the manner required by the

plan (including
crediting the amounts required under

the plan) shall constitute a violation of an injunction under subsection

(a)(2).

`(j) An individual who is injured by the failure of a creditor to comply

with the
requirements for a reaffirmation agreement under

subsections (c) and (d), or by any willful violation of the injunction
under subsection
(a)(2), shall be entitled to recover--



`(1) the greater of--



`(A)(i) the amount of actual damages; multiplied by



`(ii) 3; or

`(B) $5,000; and



`(2) costs and attorneys' fees.'.



SEC. 204. AUTOMATIC STAY.

Section 362(h) of title 11, United States Code, is amended to read as
follows:

`(h)(1) An individual who is injured by any willful violation of a stay
provided in this
section shall be entitled to recover--



`(A) actual damages; and

`(B) reasonable costs, including attorneys' fees.

`(2) In addition to recovering actual damages, costs, and attorneys'
fees under paragraph
(1), an individual described in

paragraph (1) may recover punitive damages in appropriate
circumstances.'.



SEC. 205. DISCHARGE.

Section 727 of title 11, United States Code, is amended--



(1) in subsection (c), by adding at the end the following:

`(3)(A) A creditor may not request a determination of dischargeability
of a consumer debt
under subsection (a) if--

`(i) before the filing of the petition, the debtor made a good faith
effort to negotiate a
reasonable alternative repayment schedule

(including making an offer of a reasonable alternative repayment
schedule); and



`(ii) that creditor refused to negotiate an alternative payment
schedule, and that refusal
was not reasonable.

`(B) For purposes of this paragraph, the debtor shall have the burden of

proof of
establishing that--



`(i) an offer made by that debtor under subparagraph (A)(i) was
reasonable; and



`(ii) the refusal to negotiate by the creditor involved to was not
reasonable.'; and



(2) by adding at the end the following:

`(f)(1) The court may award the debtor reasonable attorneys' fees and
costs in any case in
which a creditor files a motion to

deny relief to a debtor under this section and that motion--



`(A) is denied; or



`(B) is withdrawn after the debtor has replied.

`(2) If the court finds that the position of a party filing a motion
under this section is
not substantially justified, the court may

assess against the creditor such damages as may be required by the
equities of the case.'.




SEC. 206. DISCOURAGING PREDATORY LENDING PRACTICES.

Section 502(b) of title 11, United States Code, is amended--



(1) in paragraph (8), by striking `or' at the end;



(2) in paragraph (9), by striking the period at the end and inserting `;

or'; and



(3) by adding at the end the following:



`(10) the claim is based on a secured debt if the creditor has failed to

comply with the
requirements of subsection (a), (b), (c),

(d), (e), (f), (g), (h), or (i) of section 129 of the Truth in Lending
Act (15 U.S.C.
1639).'.

SEC. 207. ENHANCED DISCLOSURE FOR CREDIT EXTENSIONS SECURED BY DWELLING.

(a) Open-End Credit Extensions:



(1) Credit applications: Section 127A(a)(13) of the Truth in Lending Act

(15 U.S.C.
1637a(a)(13)) is amended--



(A) by striking `consultation of tax advisor: A statement that the' and
inserting the
following: `tax deductibility: A statement

that--



`(A) the'; and



(B) by striking the period at the end and inserting the following: `;
and

`(B) in any case in which the extension of credit exceeds the fair
market value of the
dwelling, the interest on the portion of the

credit extension that is greater than the fair market value of the
dwelling is not tax
deductible for Federal income tax purposes.'.



(2) Credit advertisements: Section 147(b) of the Truth in Lending Act
(15 U.S.C. 1665b(b))
is amended--



(A) by striking `If any' and inserting the following:



`(1) In general: If any'; and



(B) by adding at the end the following:

`(2) Credit in excess of fair market value: Each advertisement described

in subsection (a)
that relates to an extension of

credit that may exceed the fair market value of the dwelling shall
include a clear and
conspicuous statement that--



`(A) the interest on the portion of the credit extension that is greater

than the fair
market value of the dwelling is not tax

deductible for Federal income tax purposes; and



`(B) the consumer may want to consult a tax advisor for further
information regarding the
deductibility of interest and charges.'.

(b) Non-Open End Credit Extensions:



(1) Credit applications: Section 128 of the Truth in Lending Act (15
U.S.C. 1638) is
amended--

(A) in subsection (a), by adding at the end the following:



`(15) In the case of a consumer credit transaction that is secured by
the principal
dwelling of the consumer, in which the

extension of credit may exceed the fair market value of the dwelling, a
clear and
conspicuous statement that--



`(A) the interest on the portion of the credit extension that is greater

than the fair
market value of the dwelling is not tax

deductible for Federal income tax purposes; and



`(B) the consumer should consult a tax advisor for further information
regarding the
deductibility of interest and charges.'; and

(B) in subsection (b), by adding at the end the following:

`(3) In the case of a credit transaction described in paragraph (15) of
subsection (a),
disclosures required by that paragraph

shall be made to the consumer at the time of application for such
extension of credit.'.



(2) Credit advertisements: Section 144 of the Truth in Lending Act (15
U.S.C. 1664) is
amended by adding at the end the

following:

`(e) Each advertisement to which this section applies that relates to a
consumer credit
transaction that is secured by the principal

dwelling of a consumer in which the extension of credit may exceed the
fair market value
of the dwelling shall clearly and

conspicuously state that--

`(1) the interest on the portion of the credit extension that is greater

than the fair
market value of the dwelling is not tax

deductible for Federal income tax purposes; and



`(2) the consumer may want to consult a tax advisor for further
information regarding the
deductibility of interest and charges.'.

(c) Effective Date: This section and the amendments made by this section

shall take effect
1 year after the date of enactment of

this Act.



SEC. 208. DUAL-USE DEBIT CARD.

(a) Consumer Liability:

(1) In general: Section 909 of the Electronic Fund Transfer Act (15
U.S.C. 1693g) is
amended--



(A) by redesignating subsections (b) through (e) as subsections (d)
through (g),
respectively;



(B) in subsection (a)--



(i) by redesignating paragraphs (1) and (2) as subparagraphs (A) and
(B), respectively,
and indenting appropriately;



(ii) by inserting `Cards Necessitating Unique Identifier:



`(1) In general: ' after `(a)';

(iii) by striking `other means of access can be identified as the person

authorized to use
it, such as by signature, photograph,'

and inserting `other means of access can be identified as the person
authorized to use it
by a unique identifier, such as a

photograph, retina scan,'; and



(iv) by striking `Notwithstanding the foregoing,' and inserting the
following:



`(2) Notification: Notwithstanding paragraph (1),'; and



(C) by inserting after subsection (a) the following new subsections:


`(b) Cards Not Necessitating Unique Identifier: A consumer shall be
liable for an
unauthorized electronic fund transfer only

if--



`(1) the liability is not in excess of $50;



`(2) the unauthorized electronic fund transfer is initiated by the use
of a card that has
been properly issued to a consumer other

than the person making the unauthorized transfer as a means of access to

the account of
that consumer for the purpose of

initiating an electronic fund transfer;



`(3) the unauthorized electronic fund transfer occurs before the card
issuer has been
notified that an unauthorized use of the card

has occurred or may occur as the result of loss, theft, or otherwise;
and

`(4) such unauthorized electronic fund transfer did not require the use
of a code or other
unique identifier (other than a

signature), such as a photograph, fingerprint, or retina scan.

`(c) Notice of Liability and Responsibility To Report Loss of Card,
Code, or Other Means
of Access: No consumer

shall be liable under this title for any unauthorized electronic fund
transfer unless the
consumer has received in a timely manner

the notice required under section 905(a)(1), and any subsequent notice
required under
section 905(b) with regard to any

change in the information which is the subject of the notice required
under section
905(a)(1).'.



(2) Conforming amendment: Section 905(a)(1) of the Electronic Fund
Transfer Act (15 U.S.C.
1693c(a)(1)) is amended to

read as follows:

`(1) the liability of the consumer for any unauthorized electronic fund
transfer and the
requirement for promptly reporting any

loss, theft, or unauthorized use of a card, code, or other means of
access in order to
limit the liability of the consumer for any

such unauthorized transfer;'.

(b) Validation Requirement for Dual-Use Debit Cards:



(1) In general: Section 911 of the Electronic Fund Transfer Act (15
U.S.C. 1693i) is
amended--



(A) by redesignating subsection (c) as subsection (d); and



(B) by inserting after subsection (b) the following new subsection:

`(c) Validation Requirement: No person may issue a card described in
subsection (a), the
use of which to initiate an electronic

fund transfer does not require the use of a code or other unique
identifier other than a
signature (such as a fingerprint or retina

scan), unless--



`(1) the requirements of paragraphs (1) through (4) of subsection (b)
are met; and



`(2) the issuer has provided to the consumer a clear and conspicuous
disclosure that use
of the card may not require the use of

such code or other unique identifier.'.



(2) Technical and conforming amendment: Section 911(d) of the Electronic

Fund Transfer Act
(15 U.S.C. 1993i(d)) (as

redesignated by subsection (a)(1) of this section) is amended by
striking `For the purpose
of subsection (b)' and inserting `For

purposes of subsections (b) and (c)'.



SEC. 209. ENHANCED DISCLOSURES UNDER AN OPEN END CREDIT PLAN.

(a) Amendments to the Truth in Lending Act:



(1) Enhanced disclosure of repayment terms:



(A) In general: Section 127(b) of the Truth in Lending Act (15 U.S.C.
1637(b)) is amended
by adding at the end the

following:

`(11)(A) In a clear and conspicuous manner, repayment information that
would apply to the
outstanding balance of the

consumer under the credit plan, including--



`(i) the required minimum monthly payment on that balance, represented
as both a dollar
figure and a percentage of that

balance;



`(ii) the number of months (rounded to the nearest month) that it would
take to pay the
entire amount of that current balance if

the consumer pays only the required minimum monthly payments and if no
further advances
are made;



`(iii) the total cost to the consumer, including interest and principal
payments, of
paying that balance in full if the consumer pays

only the required minimum monthly payments and if no further advances
are made; and



`(iv) the following statement: `If your current rate is a temporary
introductory rate,
your total costs may be higher.'.



`(B) In making the disclosures under subparagraph (A) the creditor shall

apply the annual
interest rate that applies to that

balance with respect to the current billing cycle for that consumer in
effect on the date
on which the disclosure is made.'.



(B) Publication of model forms: Not later than 180 days after the date
of enactment of
this Act, the Board of Governors of the

Federal Reserve System shall publish model disclosure forms in
accordance with section 105
of the Truth in Lending Act for the

purpose of compliance with section 127(b)(11) of the Truth in Lending
Act, as added by
this paragraph.

(C) Civil liability: Section 130(a) of the Truth in Lending Act (15
U.S.C. 1640(a)) is
amended, in the undesignated paragraph

following paragraph (4), by striking the second sentence and inserting
the following: `In
connection with the disclosures referred

to in subsections (a) and (b) of section 127, a creditor shall have a
liability determined
under paragraph (2) of this subsection

only for failing to comply with the requirements of section 125, 127(a),

or of paragraph
(4), (5), (6), (7), (8), (9), (10), or (11)

of section 127(b), or for failing to comply with disclosure requirements

under State law
for any term or item that the Board has

determined to be substantially the same in meaning under section
111(a)(2) as any of the
terms or items referred to in section

127(a), or paragraph (4), (5), (6), (7), (8), (9), (10), or (11) of
section 127(b).'.



(2) Disclosures in connection with solicitations:

(A) In general: Section 127(c)(1)(B) of the Truth in Lending Act (15
U.S.C. 1637(c)(1)(B))
is amended by adding at the end

the following:



`(iv) Credit worksheet: An easily understandable credit worksheet
designed to aid
consumers in determining their ability to

assume more debt, including consideration of the personal expenses of
the consumer and a
simple formula for the consumer to

determine whether the assumption of additional debt is advisable.



`(v) Basis of preapproval: In any case in which the application or
solicitation states
that the consumer has been preapproved

for an account under an open end consumer credit plan, the following
statement must appear
in a clear and conspicuous manner:

`Your preapproval for this credit card does not mean that we have
reviewed your individual
financial circumstances. You should

review your own budget before accepting this offer of credit.'.



`(vi) Availability of credit report: That the consumer is entitled to a
copy of his or her
credit report in accordance with the Fair

Credit Reporting Act.'.



(B) Publication of model forms: Not later than 180 days after the date
of enactment of
this Act, the Board of Governors of the

Federal Reserve System shall publish model disclosure forms in
accordance with section 105
of the Truth in Lending Act for the

purpose of compliance with section 127(c)(1)(B) of the Truth in Lending
Act, as amended by
this paragraph.

(b) Effective Date: This section and the amendments made by this section

shall take effect
on January 1, 2001.

SEC. 210. VIOLATIONS OF THE AUTOMATIC STAY.

Section 362(a) of title 11, United States Code, is amended--



(1) in paragraph (7), by striking `and' at the end;



(2) in paragraph (8), by striking the period and inserting `; and';



(3) by adding at the end the following:



`(9) any communication threatening a

Dear Representative Nadler:
Thank you for your letter of March 4, 1999, to the President regarding bankruptcy reform. He has asked me to respond on his behalf. The President appreciates your kind words about the role that he and the First Lady played during last year’s debate on bankruptcy reform. He also appreciates your continued dedication to this issue.
Web posted and Copyright © March 24,
1999, American Bankruptcy Institute.

EXECUTIVE OFFICE OF THE PRESIDENT

OFFICE OF MANAGEMENT AND BUDGET

WASHINGTON, D.C. 20503

March 23, 1999

The Honorable Jerrold Nadler

Subcommittee on Commercial and Administrative Law

Committee on the Judiciary

U.S. House of Representatives

Washington, DC 20515

Dear Representative Nadler:

Thank you for your letter of March 4, 1999, to the President regarding bankruptcy
reform. He has asked me to respond on his behalf. The President appreciates your kind
words about the role that he and the First Lady played during last year’s debate on
bankruptcy reform. He also appreciates your continued dedication to this issue.

As you know, the President supports responsible bankruptcy reform that is balanced,
would reduce abuses of the bankruptcy system, and would require debtors and creditors
alike to act responsibly. The President was disappointed that the last Congress failed to
produce legislation that he could support. He remains hopeful that bipartisan consultation
and compromise will result in legislation that he can enthusiastically sign this year.

Last year the Administration expressed its strong opposition to the House-passed
version of H.R. 3150. We encouraged passage of the Senate bill "as an important step
toward balanced bankruptcy reform," but noted that the Administration would support
its enactment "only if the essential reforms incorporated by the Senate
managers’ amendment [were] preserved and strengthened and the unbalanced and
arbitrary elements of the current House bill [were] omitted." Although we thought
that the Senate bill could be further improved, we believed that the extraordinary
bipartisan support for the Senate bill was an endorsement of balance and moderation. We
were disappointed that the Conference Report failed to include key provisions of the
Senate bill, thus failing the test of balance. In my letter to Congressional leadership
dated October 9, 1998, I noted that the President’s senior advisors recommended that
the President veto the Conference Report. Our position from last year has not changed.

During this year’s debate, the Administration will continue to encourage Congress
to find an appropriate balance. Among the issues that must be addressed are:

• Access to Chapter 7: Any "means test" imposed should deny access to
  Chapter 7 only to those who genuinely have the capacity to repay a portion of their debts
  successfully under a Chapter 13 repayment plan. Thus, debtors affected by a means test
  must be given a meaningful opportunity to have their specific circumstances considered by
  bankruptcy courts with discretion to determine whether they genuinely have the capacity to
  repay a portion of their debts. In addition, the time periods and thresholds used in any
  means test should be set to ensure that only those debtors with a strong likelihood of
  success are denied access to Chapter 7.
• Nondischargeable Debts: It is generally inappropriate to make
  post-bankruptcy credit card debt a new category of nondischargeable debt. The Bankruptcy
  Code makes debts nondischargeable only where there is an overriding public purpose, as
  with debts for child support and alimony payments, education loans, tax obligations, or
  debts incurred by fraud. We remain skeptical that the current protections against fraud
  and debt run-up prior to bankruptcy are ineffective and that the additional debts made
  nondischargeable by this bill meet the standard of an overriding public purpose. If new
  categories of nondischargeable debt are to be created, however, they should be narrowly
  tailored and limited to situations where the debtor is clearly abusing the system, such as
  when the debtor: (1) incurred the debt to pay nondischargeable debt with an intent to
  avoid the debt in bankruptcy; and/or (2) incurred the debt on the eve of bankruptcy for
  goods and services that are not reasonably acquired to support the debtor's household.
• Coercive Credit Practices: Particularly if we are to provide new
  opportunities for creditors to challenge debtors' use of the bankruptcy system under the
  707(b) abuse test, it is imperative that we adequately limit prevalent abusive creditor
  practices such as coercive reaffirmations and violations of the automatic stay. While the
  Senate bill initially took laudable steps in this direction, the Conference Report rolled
  back existing consumer protections by denying consumers an effective means for remedying
  the harm from such practices and eliminating the current authorization for penalties for
  intentional violation of debtor rights.
• Consumer Information and Protection: The challenge posed by the
  unprecedented level of bankruptcy filings requires us to ask greater responsibility of
  both debtors and creditors. Credit card companies must give consumers more and better
  information so that they can understand and better manage their debts.
• Homestead Exemptions: At the same time that we are creating a system
  that will deny certain moderate-income Americans access to the traditional "fresh
  start," we should also close the loopholes that allow the wealthy to shield hundreds
  of thousands of dollars of wealth from their creditors.

We look forward to working with you and your colleagues on both sides of the aisle to
address these and other important concerns and to produce responsible, balanced bankruptcy
reform.

Sincerely,

Jacob J. Lew

Director

Identical Letter Sent to the Honorable John Conyers, Jr.

To amend title 11, United States Code, to provide for family fishermen, and to make chapter 12 of title 11, United States Code, permanent.