Senate

To amend title 11, United States Code, to improve protections for employees and retirees in business bankruptcies.

Mr. GEKAS. Mr. Speaker, I move to suspend the rules and pass the bill (H.R. 2942) to extend for 6 additional months the period for which chapter 12 of title 11 of the United States Code is reenacted, as amended.

Mr. President, today I am introducing a bill to make reorganization under Chapter 12 of the Bankruptcy Code
applicable to family fishermen. In brief, the bill would allow family fishermen the opportunity to apply for the protections of
reorganization in bankruptcy and provide to them the same protections and terms as those granted the family farmer who enters
bankruptcy.

THE FISHERMEN'S BANKRUPTCY PROTECTION ACT

     [Begin insert]

Ms. COLLINS. Mr. President, today I am introducing a bill to make reorganization under Chapter 12 of the Bankruptcy Code
applicable to family fishermen. In brief, the bill would allow family fishermen the opportunity to apply for the protections of
reorganization in bankruptcy and provide to them the same protections and terms as those granted the family farmer who enters
bankruptcy. 

Like many Americans, I'm appalled by those who live beyond their means, and use the bankruptcy code as a tool to cure their
self-induced financial ills. I have supported and will continue to support alterations to the bankruptcy code that ensure the
responsible use of its provisions. All consumers bear the burden of irresponsible debtors who abuse the system. Therefore, I
believe bankruptcy should remain a tool of last resort for those in severe financial distress. 

As those familiar with the bankruptcy code know, business reorganization in bankruptcy is a different creature than the forgiveness
of debt traditionally associated with bankruptcy. Reorganization embodies the hope that by providing business a break from
creditors, and allowing debt to be adjusted, the business will have an opportunity to get back on sound financial footing and thrive.
In that vein, Chapter 12 was added to the bankruptcy code in 1986 by the Senator from Iowa, Mr. Grassley, to provide for
bankruptcy reorganization of the family farm and to give family farmers a `fighting chance to reorganize their debts and keep their
land'. 

To provide the `fighting chance' envisioned by the authors of Chapter 12, Congress provided a distinctive set of substantive and
procedural rules to govern effective reorganization of the family farm. In essence, Chapter 12 was a recognition of the unique
situation of family owned businesses and the enormous value of the family farmer to the American economy and our cultural
heritage. 

Chapter 12 was modeled on bankruptcy Chapter 13 which governs the reorganization of individual debt. However, to address the
unique problems encountered by farmers, Chapter 12 provided for significant advantages over the standard Chapter 13 filer. These
advantages include a longer period of time to file a plan for relief, greater flexibility for the debtor to modify the debts secured by
their assets, and alteration of the statutory time limit to repay secured debts. The Chapter 12 debtor is also given the freedom to
sell off parts of his or her property as part of a reorganization plan. 

Unlike Chapter 13, which applies solely to individuals, Chapter 12 can apply to individuals, partnerships or corporations which fall
under a $1.5 million debt threshold--a recognition of the common use of incorporation even among small family held farms. 

Without getting too technical, I should also mention that Chapter 12 also contains 

significant advantages over corporate reorganization which is governed by Chapter 11 of the Bankruptcy Code. For example,
Chapter 12 creditors generally may not challenge a payment plan that is approved by the Court. 

Chapter 12 has been considered an enormous success in the farm community. According to a recent University of Iowa study, 74
percent of family farmers who filed Chapter 12 bankruptcy are still farming, and 61 percent of farmers who went through Chapter
12 believe that Chapter 12 was helpful in getting them back on their feet. 

Recognizing its effectiveness, my bill proposes that Chapter 12 should be made a permanent part of the bankruptcy code, and
equally important, my bill would extend Chapter 12's protections to family fishermen. 

In my own state of Maine, fishing is a vital part of our economy and our way of life. The commercial fishing industry is made up of
proud and fiercely independent individuals whose goal is simply to preserve their business, family income and community. 

In my opinion, for too long the fishing industry has been treated like an oddity, rather than a business through which courses the
life's blood of families and communities. This bill attempts to bridge that gap and afford fishermen the protection of business
reorganization as it is provided to family farmers. 

There are many similarities between the family farmer and the family fisherman. Like the family farmer, the fisherman should not
only be respected as a businessman, but for his or her independence in the best tradition of our democracy. Like farmers,
fishermen face perennial threats from nature and the elements, as well as changes to laws which threaten their existence. Like
family farmers, fishermen are not seeking special treatment or a hand-out from the federal government, they seek only `the fighting
chance' to remain afloat so that they can continue in their way of life. 

Although fishermen do not seek special treatment from the government, they play a special role in seafaring communities on our
coasts, and they deserve protections granted others who face similar, often unavoidable, problems. Fishermen should not be denied
the bankruptcy protections accorded to farmers solely because they harvest the sea and not the land. 

I have proposed not only to make Chapter 12 a permanent part of the bankruptcy code, but also to apply its provisions to the family
fisherman. The bill I have proposed mirrors Chapter 12 with very few exceptions. Its protections are restricted to those fishermen
with regular income who have total debt less than $1.5 Million, the bulk of which, eighty percent, must stem from commercial
fishing. Moreover, families must rely on fishing income for these provisions to apply. 

Those same protections and flexibility we grant to farmers should also be granted to the family fisherman. By making this modest
but important change to the bankruptcy code, we will express our respect for the business of fishing, and our shared wish that this
unique way of life should continue

To make improvements in the operation and administration of the Federal courts, and for other purposes.

To amend the Truth in Lending Act to provide for enhanced disclosure under an open end credit plan.

A bill to amend the Truth in Lending Act, to establish fair and transparent practices related to the marketing and provision of overdraft coverage programs at depository institutions, and for other purposes.

To implement the obligations of the United States under the Convention on the Prohibition of the Development, Production, Stockpiling and Use of Chemical Weapons and on Their Destruction, known as `the Chemical Weapons Convention' and opened for signature and signed by the United States on January 13, 1993.
Big Changes in Stay Exemptions Brewing

Written by:

Bruce A. Markell

Professor of Law

Indiana University School of Law—Bloomington

bmarkell@polecat.law.indiana.edu

Web posted and Copyright ©
June 25, 1997, American Bankruptcy
Institute.

Editor's Note:

Other Commentary on Section 603 of S. 610:

• Big Changes in Stay Exemptions
  Brewing: The Chemical Weapons Convention Implementation Act of 1997, a criticism of the
  proposal by Prof. Bruce A. Markell, June 25, 1997
• Brewing a Tempest in a
  Teapot: A Response to Professor Markell, in support of the proposal by Karen Cordry, July
  1, 1997
• Memorandum to Sen.
  Grassley in support of the proposal prepared by Heidi Heitkamp, June 23, 1997
• A response to Karen
  Cordry by Prof. Markell Includes proposed section
  addressing automatic stay concerns of S. 610, July 1997
• A response to Prof.
  Markell by Karen Cordry, July 18, 1997
• Memorandum prepared by
  the ABI, June 1997

The Changes

here
are some potentially large changes to the automatic stay brewing in Congress. The Chemical
Weapons Convention Implementation Act of 1997", S. 610, which
passed the Senate on May 23, and
which was introduced in the House on June 10, has changes to the exemptions to the automatic
stay which go way beyond Chemical Weapons treaties.

The full text of Section 603 of the bill, which would make the changes, is reproduced below. In essence, the changes increase the current exemptions from the
stay for governmental entities seeking to enforce any police or regulatory power (it is
not limited to actions under the Chemical Weapons Treaty).

Section 603 accomplishes this sweeping change by first eliminating the current exemptions for
police and regulatory activity (§§362(b)(4) and 362(b)(5)). It then replaces them
with an omnibus exemption for any actions stay by §362(a)(1) (the commencement or
continuation of an action on a pre-petition claim), §362(a)(2) (the enforcement of a
pre-petition judgment), §362(a)(3) (any act to take possession or control of property of the
estate or of the debtor) and §362(a)(6) (any act to collect, assess or recover a pre-petition
claim). The exemption will apply if the actions are "the commencement or continuation of an
action or proceeding by a governmental unit . . . to enforce such governmental unit's . . . police
and regulatory power, including the enforcement of a judgment other than a money judgment,
obtained in an action or proceeding by the governmental unit to enforce such governmental unit's
. . . police or regulatory power."

Similar changes do not appear in the House companion bill, HR 1590,
sponsored by Lee Hamilton of Indiana.

Current Law

Under current law, a governmental entity is not restricted in enforcing its police or regulatory
powers so long as it does not try to take possession or exercise control over property of the
estate. For example, the government can continue or initiate a criminal prosecution and can
initiate an injunctive proceeding to stop pollution, even if such activities relate back to a period
before the petition.

What the government cannot do, however, is take control of estate property, in part because
it is within the exclusive jurisdiction of the bankruptcy court under §1334(e) of the Judicial
Code (title 28, U.S.C.). For example, the government cannot take control of transferrable liquor
licenses, or exercise its regulatory powers for private gain. If there is any question, the
government can always seek relief from the stay, in many cases on an ex parte basis
(depending on the emergency), and if there is a problem with any legitimate action, the stay can
always be retroatively annulled. (Technically, §§362(b)(4) and (5) currently contain
no exemptions for actions stayed under §362(a)(3)).

Effect of the Changes

Under the change contained in Section 603 of the Chemical Weapons bill, governmental entities
need not worry about the stay if they determine that their action fits within police or regulatory
power. This is because it adds, for the first time, exemptions to §362(a)(3) and
§362(a)(6) for any exercise of police or regulatory powers by governmental entities. If
adopted, §362(b) would exempt, for example, the seizure and destruction of T-shirts in the
debtor's warehouse if they violate copyright law. It could also conceivably be used to justify the
seizure and sale of a $1000 care containing $100 of contraband drugs, with the legitimate $900
profit going to tax coffers instead of creditors. [Note: at least one circuit has held that civil
forfeitures relating to pre-petition exemptions are already exempt from the stay. In re
James, 940 F.2d 46 (3d Cir. 1991). There are, however, cases that go the other way: See
In re Goff, 159 BR 33 (Bankr. N.D. Okla. 1993); In re Thomas, 179 BR 523 (Bankr.
E.D. Tenn. 1995) (post petition seizure); In re Ryan, 15 BR 514 (Bankr. D. Md. 1981).]

Exceptions for Collection Activity?

The bill also permits, by including an exemption to §362(a)(6), governmental action
pursuant to the police or regulatory power in order to collect a debt. (§362(a)(6) stays
"any act to collect, assess or recover a [pre-petition] claim.") I can't figure that one out, but I
guess some court will have to.

Double Whammy:

Seminole and the Exemption from §362(a)(3)

This legislation is particularly troubling in light of the uncertainty caused by the Supreme Court's
decision in Seminole Tribe of Florida v. Florida, 116 S.Ct. 1114 (1996). Under some
readings of Seminole, the states (but not municipalities) are immune, under the Eleventh
Amendment, from jurisdiction in bankruptcy court. If so, whether they may be sued in state court
then turns on the status of sovereign immunity under state law.

This leads to the specter of a state making a unilateral determination that a seizure is
permitted by its interpretation of its police and regulatory powers, and then never having
that issue reviewed in any court, federal or state. To put it in context, if a state
determines that products manufactured by a debtor violate state unfair trade law, and if state law
permits civil seizure and forfeiture in such circumstances, the whole business may be confiscated
without ever having to seek bankruptcy court relief.

After confiscation, the identity of who may challenge the state's determination, and how it
will be challenged, will solely be a function of state law. This can be troubling, especially in light
of recent Supreme Court determination that co-owners and lienors need not be given any
opportunity to contest a civil forfeiture. Bennis v. Michigan, 116 S. Ct. 994 (1996)
(upholding Michigan statute allowing car to be forfeited as abatable nuisance after man engaged
service of prostitute in car, notwithstanding state's failure to reimburse man's wife's part
ownership interest).

Lack of Public Input

As far as I know, there were no hearings or any testimony on the issue. Press releases from Sen.
Grassley's office indicate that the changes were suggested by the National Association of
Attorneys General. There is nothing in the public record to explain why the changes go beyond
changes necessary to implement the Chemical Weapons convention.

One irony behind these changes is that one of the reasons that Congress created the National Bankruptcy Review
Commission was to stop piecemeal riders such as that found in the Chemical Weapons bill.
The Commission initially rejected the type of amendments set forth in the Chemical Weapons bill
last fall, but decided early this year to discuss them again. When it finally was able to fit the
discussion onto its agenda, at the Friday, June 20 meeting of the Commission in Detroit, the
Commission was reduced to a roundtable discussion on the effect of pending legislation, rather
than an investigation of what ought to be the law.

The Text of the Bill

Here are the changes, found in Section 603 of S. 610:

Section 362(b) of title 11, United States Code, is amended—
(1) by striking paragraphs (4) and (5); and
(2) by inserting after paragraph (3) the following:

"(4) under paragraph (1), (2), (3), or (6) of subsection (a) of this section, of the
commencement or continuation of an action or proceeding by a
governmental unit or any organization exercising authority under the
Convention on the Prohibition of the Development, Production,
Stockpiling and Use of Chemical Weapons and on Their Destruction,
opened for signature on January 13, 1993, to enforce such governmental
unit's or organization's police and regulatory power, including the
enforcement of a judgment other than a money judgment, obtained in an
action or proceeding by the governmental unit to enforce such
governmental unit's or organization's police or regulatory power; "

A bill to amend title 11 of the United States Code to require the public disclosure by trusts established under section 524(g) of such title, of quarterly reports that contain detailed information regarding the receipt and disposition of claims for injuries based on exposure to asbestos, and the filing of such reports with the Executive Office for United States Trustees.

To improve options for excellence in education.