106

To improve pay and retirement equity for members of the Armed Forces\; and for other purposes.

To amend certain banking and securities laws with respect to financial contracts.

To make chapter 12 of title 11, United States Code, permanent, and for other purposes.

To amend title 11, United States Code, and for other purposes.

Mr. President, I rise today on behalf of myself and my colleague from Maryland, Senator Mikulski, to introduce legislation that is absolutely critical to the administration of justice and the economy in our State of Maryland.
(Presented by the American Bankruptcy Institute)

The following is an excerpt from the Congressional Record, February 24, 1999:

BANKRUPTCY JUDGESHIPS FOR THE DISTRICT OF MARYLAND

• [Begin insert]

Mr. SARBANES. Mr. President, I rise today on behalf of myself and my colleague from Maryland, Senator Mikulski, to introduce legislation that is absolutely critical to the administration of justice and the economy in our State of Maryland. This legislation provides for four additional bankruptcy judges for the federal judicial District of Maryland.

This bill represents only the most recent of our efforts to strengthen Maryland's federal bankruptcy court. Early in the 105th Congress, we introduced legislation adding two additional bankruptcy judges for the District of Maryland, in line with the then-pending request of the Judicial Conference. The House of Representatives followed suit in summer 1997, passing legislation that authorized these two judges, in addition to other new bankruptcy judgeships throughout the country. Last year, the Senate overwhelmingly passed bankruptcy reform legislation that, among other things, authorized these two judgeships, though under the Senate bill the judges were of temporary, rather than permanent, status. This legislation ultimately was not enacted into law, however, and with such inaction the problem facing Maryland's sitting bankruptcy judges has only grown. Maryland remains without the additional judgeships it so desperately needs to make our bankruptcy system work.

Our State's need for additional bankruptcy judges has long since passed the critical stage. Since November 1993, when Maryland last received an additional bankruptcy judge, the number of bankruptcy filings in the State has more than doubled. While the entire nation has witnessed a surge in bankruptcy filings over the past several years, the increase in Maryland has dwarfed the national average increase. Bankruptcy filings in Maryland in the second quarter of 1998 grew at eight times the national rate of increase for that period; for the 12-month period ending June 30, 1998, the rate of increase in Maryland was the tenth greatest of the 90 federal judicial districts in the Nation. The District of Maryland ranks first among federal judicial districts in filings per judge. As noted earlier, each House of Congress authorized two additional bankruptcy judges for Maryland during the 105th Congress. Simply put, however, the problem has outpaced this solution.

The need for the four additional judgeships sought in this legislation becomes even more evident when one considers it in the context of the case-weighting system adopted by the Judicial Conference in 1991 to assess requests for additional bankruptcy judges. Under this system, different types of bankruptcy cases are assigned different degrees of difficulty and overall weighted case-hour goals are established for the judges.

The Judicial Conference begins to consider requests for additional judges when a district's per-judge weighted caseload reaches 1500 hours. The average United States Bankruptcy Judge had a weighted case-hour load of 1429 hours per year for the 12-month period ending June 30, 1998. For that same period, Maryland's bankruptcy judges averaged a weighted case-hour load of 3020 hours--an astounding 211 percent of the national average. Not only do the Maryland figures dwarf the national average; they also dwarf the prior Maryland figures which led to legislation passed by each Houses of Congress authorizing additional judgeships. Indeed, Maryland's overall weighted case load for the 12-month period ending June 30, 1998, represented a 25% increase over its load for the prior 12-month period alone.

I ask my colleagues to consider these telling statistics:

If Maryland were to receive two additional judgeships tomorrow, its per-judge weighted caseload would still be 2013 hours--41 percent greater than the national average last year, and 34 percent greater than the 1500-hour benchmark used by the Judicial Conference to evaluate requests for additional judgeships.

If Maryland were to receive three additional judgeships tomorrow, its per-judge weighted caseload would still be 1725 hours--21 percent more than the national average, and 15 percent greater than the Judicial Conference benchmark.

Only if Maryland were to receive four additional judgeships, as requested in this bill, would the per-judge caseload in Maryland approximate the national average. And even then each Maryland judge would have a caseload of 1510 case-weighted hours--still above the 1429-hour national average, and still above the 1500-hour Judicial Conference benchmark.

The additional judgeships sought in this bill are essential not only for effective judicial administration, but also for Maryland's economy. Bankruptcy laws foster orderly, constructive relationships between debtors and creditors during times of economic difficulty. Their effective and expeditious implementation results in businesses being reorganized, jobs (provided by creditors and debtors) preserved, and debts managed fairly. Overworked bankruptcy courts have a destabilizing effect on this system, and the inevitable delays occasioned by the lack of judges harm creditors and debtors, imperiling Maryland's businesses and the people they employ.

It is expected that bankruptcy reform legislation will be one of the first items on the Senate's agenda now that it has resumed legislative business. Adding judgeships in Maryland's and other bankruptcy courts in need of relief is an essential component of any such reform, given that the legislation we are contemplating will not only not ease the burdens on these courts, but in fact will increase these burdens by imposing new responsibilities on our nation's bankruptcy judges. And even if comprehensive bankruptcy reform fails or is delayed, the current state of affairs facing Maryland's bankruptcy court requires immediate action in the form of adding judges to that court.

In closing let me once again commend the efforts of Maryland's four sitting bankruptcy judges--Chief Judge Paul Mannes and Judges Duncan Keir, James Schneider, and Steve Derby. Their dedication to the administration of justice is especially impressive given the extraordinary burdens placed on them--burdens which the Senate ought to ease at the earliest possible instance.

• [End insert]

To amend title 11 of the United States Code to permit all debtors to exempt certain payments receivable on account of discrimination based on race, color, religion, national origin, or gender, and for other purposes.

STATEMENTS ON INTRODUCED BILLS AND JOINT RESOLUTIONS (Senate - May 3, 1999)
As Reported Online at http://www.thomas.gov
Posted by the Amerian Bankruptcy Institute
CONSUMER BANKRUPTCY REFORM ACT OF 1999

CONSUMER BANKRUPTCY REFORM ACT OF 1999

Mr. DURBIN.

Mr. President, today, joined by colleagues, Senator
Leahy, Senator Kennedy, Senator

Feingold and Senator Sarbanes, I am
introducing the bankruptcy reform bill that passed the Senate last year
by a vote of 97-1.

A constant theme that has guided me throughout the consideration of
bankruptcy legislation is balanced reform. You cannot have meaningful
bankruptcy reform without addressing both sides of the
problem--irresponsible debtors and irresponsible creditors.

Unfortunately, the bill we worked so hard to develop, was decimated
in conference and the result was a one-sided bill designed to reward the
credit industry and penalize American consumers. I could not support it.
I hope this year will be different.

The bankruptcy code is delicate balance. When you push one thing,
almost invariably something else will give. For that reason, it is
crucial for bankruptcy reform to be thoughtful and for the changes to be
targeted and not create more problems than they attempt to solve.

This year, Senator Grassley has introduced S.625,
the bankruptcy reform bill of 1999. This bill has more similarities to
last year's conference report than the bipartisan measure that passed
the Senate last year by an overwhelming margin.

The Durbin-Leahy bill is fairer. S.625 uses a means test adopted from
IRS collection allowances. The test would require every debtor,
regardless of income, who files for Chapter 7 bankruptcy to be
scrutinized by the U.S. trustee to determine whether the filling is
abusive. The bill creates a presumption that a case is abusive if a
debtor can pay the lesser of 25% of unsecured nonpriority claims or
$15,000 over 5 years. The IRS means test was designed for use on a case
by case basis, not as an automatic template.

In my home state, the average annual income for bankruptcy filers in
the Central District of Illinois for 1998 was $20,448, yet the average
amount of unsecured debt was $22,900. This figure shows that many filers
were hopelessly insolvent. They owed more money on debt that had no
collateral than their total income for the entire year. These debtors
don't even come close to meeting the standards that would require them
to convert their case to a

chapter 13 case, but they will be forced to go through additional
scrutiny at extra costs to everyone involved.

In contrast, the Durbin-Leahy bill gives courts discretion to dismiss
or convert a Chapter 7 bankruptcy case if the debtor can fund a Chapter
13 repayment plan. One of the factors for the court to consider in
making the decision is whether the debtor is capable of paying 30% of
unsecured claims under a 3 year plan. This reform can address abuses
without the complexity of certifying ability to pay in every case as
required by S.625.

The Durbin-Leahy bill is cheaper because every case does not go
through means testing. By requiring the trustee to submit reports on all
filers the cost to trustees is dramatically increased with little
reward.

The means test in S. 625 looks a lot like the means test in the House
bill. We now know that the means test in the House bill would only apply
to far less than 10% of Chapter 7 filings. A study released by the
American Bankruptcy Institute found that by using the test from the
House bill, 97% of sample Chapter 7 debtors had too little income to
repay even 20% of their unsecured debts over five years. As a result,
only 3% of the sample Chapter 7 filers had sufficient repayment capacity
to be barred from Chapter 7 under the rigid means test. This means 100%
of the filers would have to go through a process that would only apply
to 3% of the cases.

Beyond the administrative costs, there is the unneeded stress on poor
families. According to the National Conference on Bankruptcy Judges, a
review of surveys of Chapter 7 cases from 46 judicial districts in 33
states reveals that the median gross annual income for the 3151 cases in
1998 was $21,540, some $15,000 lower than the 1997 national median
income for all families in the United States. Yet, the median amount of
unsecured nonpriority debt for these same debtors was $23,411. These
people are insolvent, and forcing them to go through unnecessary hoops
for little reward is unfair and ineffective.
The Durbin-Leahy bill is more balanced. The Durbin-Leahy bill includes
credit disclosures designed to help families understand their debt and
prevent them from incurring debt which makes them financially
vulnerable. Many families file for bankruptcy after a health crisis or
some other catastrophic event that prevents them from paying their
debts. For example, the survey conducted by the bankruptcy judges shows
that on average over 25% of bankruptcy cases involve debtors with
medical debts over $1000. By requiring more complete information for
debtors, they can make better credit decisions and avoid bankruptcy
altogether.

The Durbin-Leahy bill addresses abusive creditor practices. The
Durbin-Leahy bill protects the elderly from predatory lending practices.
Much of our discussion concerning reform of the nation's bankruptcy laws
has focused upon perceived abuses of the bankruptcy system by consumer
debtors. Far less discussion has occurred with regard to abuses by
creditors that help usher the nation's consumers into bankruptcy. I
believe that abuses exist on both sides of the debtor-creditor
relationship and that bankruptcy reform is incomplete if it fails to
address documented abuses among creditors.

Last year, I worked to protect elderly Americans by prohibiting a
high-cost mortgage lender who extended credit in violation of the
provisions of the Truth-In-Lending Act from collecting its claim in
bankruptcy. If the lender has failed to comply with the requirements of
the Truth-in-Lending Act for high-cost second mortgages, the lender will
have absolutely no claim against the bankruptcy estate. This provision
is not aimed at all lenders or at all second mortgages. Indeed, it is
aimed only at the worst, most predatory, of these by and large worthy
lenders. It is aimed only at practices that are already illegal and it
does not deal with technical or immaterial violations of the Truth in
Lending Act.

Disallowing the claims of predatory lenders in bankruptcy cases will
not end these predatory practices altogether. Yet it is one step we can
take to curb creditor abuse in a situation where the lender bears
primary responsibility for the deterioration of a consumer's financial
situation.

I encourage my Senate colleagues to join Senator
Leahy and me in this effort. Bankruptcy reform must be
balanced and must not create a nation of financial outlaws.

Mr. President, I ask unanimous consent that a copy of the bill be
printed in the Record.

There being no objection, the bill was ordered to be printed in the
Record, as follows:

See http://www.abiworld.org/legis/bills/99mays945.html

END

To amend the Truth in Lending Act to protect consumers from certain unreasonable practices of creditors which result in higher fees or rates of interest for credit cardholders, and for other purposes.

To reenact chapter 12 of title 11, United States Code, and for other purposes.

To extend for 3 additional months the period for which chapter 12 of title 11 of the United States Code is reenacted.