Senate

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

A bill to amend the Federal Deposit Insurance Act with respect to information provided to the Bureau of Consumer Financial Protection.

To provide for the appointment of additional temporary bankruptcy judges, and for other purposes.

To repeal the Dodd-Frank Wall Street Reform and Consumer Protection Act.

S. 586. A bill to amend title 11, United States Code, to limit the value of certain real property that a debtor may elect to exempt under State or local law, and for other purposes to the Committee on the Judiciary.

By Mr. KOHL (for himself, and Mr. Sessions):

S. 586. A bill to amend title 11, United States Code, to limit the
value of certain real property that a debtor may elect to exempt under
State or local law, and for other purposes to the Committee on the
Judiciary.

[Page: S2577]

BANKRUPTCY ABUSE REFORM ACT OF 1999

Mr. KOHL. Mr. President, I rise today, with Senator
Sessions, to introduce the bipartisan Bankruptcy Abuse
Reform Act of 1999, legislation which addresses a serious problem that
threatens Americans' confidence in our bankruptcy laws. The measure
would cap at $100,000 the State homestead exemption that an individual
filing for personal bankruptcy can claim. It passed the Senate last year
when it was included in the Consumer Bankruptcy Reform Act of 1998 (H.R.
3150), and I hope that we can all support this measure again this year.
The goal of our measure is simple but vitally important: to make sure
that our Bankruptcy Code is more than just a beachball for crooked
millionaires who want to hide their assets.

Let me tell you why this legislation is critically needed. In chapter
7 Federal personal bankruptcy proceedings, the debtor is allowed to
exempt certain possessions and interests from being used to satisfy his
outstanding debts. One of the chief things that a debtor seeks to
protect is his home, and I agree with that in principle. Few question
that debtors should be able to keep a roof over their heads. But, in
practice, this homestead exemption has become a source of great abuse.

Under section 522 of the Code, a debtor may opt to exempt his home
according to local, State, or Federal bankruptcy provisions. The Federal
exemption allows the debtor to shield up to $15,000 of value in his
house. The State exemptions vary tremendously: some States do not allow
the debtor to exempt any of his home's value, while a handful of states
set no ceiling and allow an unlimited exemption. The vast majority of
states have exemptions under $40,000.

Our proposal would amend Section 522 to cap State exemptions so that
no debtor could ever exempt more than $100,000 of the value of his home.

Mr. President, in the past few years, the ability of debtors to use
State homestead exemptions has led to flagrant abuses of the Bankruptcy
Code. Multimillionaire debtors have moved to one of the states with
unlimited exemptions--most often Florida or Texas--bought
multi-million-dollar houses, and continued to live like kings even after
declaring bankruptcy. This shameless manipulation of the Bankruptcy Code
cheats honest creditors out of compensation and rewards only those who
can `game' the system. Oftentimes, the creditor who is robbed is the
American taxpayer. In recent years, S&L swindlers, convicted insider
trader convicts, and others have managed to protect their ill-gotten
gains through this loophole.

The owner of a failed Ohio S&L, who was convicted of securities
fraud, wrote off most of $300 million in bankruptcy claims, but still
held on to the multimillion dollar ranch he bought in Florida. A
convicted Wall Street financier filed bankruptcy while owing at least
$50 million in debts and fines, but still kept his $5 million Florida
mansion with 11 bedrooms and 21 bathrooms. And just last year, movie
star Burt Reynolds wrote off over $8 million in debt through bankruptcy,
but still held onto his $2.5 million Florida estate. These deadbeats
stay wealthy while legitimate creditors--including the U.S.
Government--get the short end of the stick.

Simply put, the current practice is grossly unfair and contravenes
the intent of our laws: People are supposed to get a fresh start, not a
head start, under the Bankruptcy Code.

Mr. President, the legislation that I have introduced today is
simple, effective and straightforward. It caps the homestead exemption
at $100,000, which is far more than estimated median home equity of
people in bankruptcy. It is endorsed by the National Bankruptcy Review
Commission. And it will protect middle class Americans while preventing
the abuses that are making the middle class question the integrity of
our laws--the abuses the average American taxpayer is paying for out of
pocket.

Indeed, it is even generous to debtors. Less than ten states have a
homestead exemption that exceeds $100,000. More than two-thirds of
states cap the exemption at $40,000 or less. My own home state of
Wisconsin has a $40,000 exemption and that, in my opinion, is more than
sufficient.

Mr. President, this proposal is an effort to make our bankruptcy laws
more equitable. I urge my colleagues to support this important measure.

END

A bill to amend the Truth in Lending Act to empower the States to set the maximum annual percentage rates applicable to consumer credit transactions, and for other purposes.

To authorize 36 additional bankruptcy judgeships, 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.
MEMORANDUM

Re: Section 603 of Chemical Weapons Convention Implementation Act

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

June 23, 1997

As chair of the Bankruptcy and Taxation Working Group of the National Association of
Attorneys General, I write to support the bankruptcy provisions contained in S. 610, the
implementing legislation for the Chemical Weapons Treaty. We believe these provisions
represent a balanced approach that recognizes the needs of the debtor and creditors, while
ensuring that the government may continue to exercise its vital and fundamental police and
regulatory powers to protect the citizenry as a whole. The new language does not expand
the scope of those police powers, rather it only serves to clarify existing Congressional
intent about the extent to which the exercise of such powers should be exempt from the
automatic stay. Its inclusion will remove the ambiguities in current law, thereby
eliminating unnecessary litigation, delay, and expense for all parties involved in such
matters.

The provisions in S. 610 will allow the government to continue to adjudicate liability
issues and liquidate damages in cases involving police and regulatory matters, including
areas such as environmental protection, consumer protection, and labor laws. In addition,
as under current law, the government will be free to force compliance with injunctive
obligations that are not claims and to enforce non-monetary judgments. The proposal,
however, specifically excludes the enforcement of monetary judgments from the police and
regulatory power exception. Thus, as is currently the case, the stay will continue to
bar the actual collection of money judgments even where they are entered in true
police and regulatory actions. Moreover, it does nothing to change the existing scope
of police and regulatory powers which do not include matters such as collection of taxes,
student loans, small business loans, or other similar purely monetary issues. Finally,
it does not except governmental actions from the provisions of the automatic stay
(§§362(a)(4) and (5)) which bar the creation or enforcement of liens against property of
the estate and/or the debtor. Thus, the interests of secured creditors will not be
affected by these provisions.

The provisions ensure that the government’s authority to carry out bona fide
police and regulatory actions will not be impeded by the automatic stay where no attempt
to collect a monetary judgment is at issue. Under the current language, the provisions of
§§362(a)(3) and/or (6) have sometimes been held to bar implementation of decisions in
police and regulatory actions where they would, unavoidably, impact on property of the
estate. The situations dealt with in the Chemical Weapons bill are an obvious example of
where the application of §§362(a)(3) and (6) to governmental actions could cause serious
danger. Clearly, even if a maker of such weapons files bankruptcy, the government must
retain the ability to control the weapons and the chemicals used to make them, to seize
them if authorized to do so by the bill, and, in general, to exercise the full authority
provided for in S. 610 without being required to defer critical actions while it files a
motion with the bankruptcy court to lift the stay. Indeed, financial difficulties facing a
debtor may be the very reason that it tries to circumvent the law to find an easy source
of funds to escape those problems. It is in those situations that the ability of the
government to act quickly is more important, not less.

Chemical weapons, however, are only one of a myriad of areas in which the government
must be free to act in order to protect its citizenry, even if those actions may,
unavoidably, make it more difficult for an individual entity to reorganize. When a law is
passed, it is often clear that some portion of the regulated businesses may not be able to
survive if they must comply with its terms, but the decision to accept that risk is a
choice that has been made by the legislature, and should not be subject to revision on an ad
hoc basis by the bankruptcy courts. There are many instances where the government must
be free to act directly and expeditiously to control estate property: the destruction of
unsafe and condemned buildings, [ FN: In re Javens,
107 F.3d (6th Cir. 1997).] seizure of diseased or contaminated meat or
confiscation of produce infested with Mediterranean fruit flies can hardly be held hostage
to the need to obtain a lifting of the stay. The government must also be able to act on
licensing issues where public health and safety or consumer protection issues are at
stake, even if this means an unsafe or crooked facility is put out of business. [ FN: In re Wilner Wood Products Co. v. State of Maine,
128 B.R. 1 (D. Me. 1992);In re Professional Sales Corp., 56 B.R. 753 (N.D. Ill.
1985).] Finally, the legislature may determine that some estate property
must be treated as contraband and removed from the stream of commerce, regardless of its
sales value. This may involve the destruction of counterfeit goods or those made in
violation of applicable labor laws, [ FN: In re
Brock v. Rusco Industries Inc., 842 F.2d 270 (11th Cir. 1988); Donovan v. TMC
Industries Inc., 20 B.R. 997 (N.D. Ga. 1982).] or the forfeiture of
items which are the proceeds and instrumentalities of a crime. [

FN: In re James, 940 F.2d 46 (3rd Cir. 1991)] Regardless of
the intrinsic "value" of the goods, the government must be allowed to seize
and/or destroy such items in order to protect against the harm that they do to the
debtor’s employees and competitors by their very existence; to do otherwise would be
to make the government an accomplice in the debtor’s unlawful actions. Moreover,
forfeiture of assets, whether on a civil or criminal basis, has been made an integral part
of this country’s war on crime, particularly in the drug area. Again, bankruptcy
cannot and should not be seen as an avenue of escape from those legislative policy
choices.

This provision ensures that those choices will be respected. The courts retain power to
restrain bad faith conduct by the government in the limited circumstances where this would
also be allowed outside of bankruptcy courts. [ FN: Younger
v. Harris, 401 U.S. 37 (1971).] That exception, though, cannot be
equated to a general power in the bankruptcy courts to authorize a debtor to violate the
law that all others must obey whenever the court thinks the law is unwise, unnecessary, or
unduly burdensome. Those policy judgments are for the legislature, not the courts and this
proposal clarifies that fundamental position.

Heidi Heitkamp, Chair

Bankruptcy and Taxation Working Group

National Association of Attorneys General

Note: The above was forwarded to Sen. Charles Grassley and Sen. Patrick
Leahy, Ranking Member of the Subcommittee on Administrative Oversight and the Courts and
its members.

Mr. President, I rise today to introduce legislation that would modify our bankruptcy laws to deal with bankruptcies in the health care sector.

Mr. GRASSLEY. Mr. President, I rise today to introduce legislation that would modify our bankruptcy laws to deal with bankruptcies in the health care sector. According to testimony I received in the Subcommittee on Administrative Oversight and the Courts, almost one-third of our hospitals could face foreclosure because they are not financially sound. And a number of nursing homes are in terrible financial trouble. I believe that chapter 11 and chapter 9 of the Bankruptcy Code could be vitally important in keeping troubled hospitals in business. The bill we are proposing will ensure that chapter 11 will work fairly and efficiently in the unfortunate event that we face a rash of health care bankruptcies. The bill will also make sure the health care businesses which liquidate under Chapter 7 don't just throw patients by the wayside in a rush to sell assets and pay creditors.

Currently, the Bankruptcy Code does an adequate job of helping debtors reorganize and helping creditors recover losses. However, the code does not provide protection for the interests of patients. This bill contains several important reforms to protect patients when health care providers declare bankruptcy. Specifically, the bill addresses the disposal of patient records, the costs associated with closing a health care business, the duty to transfer patients upon the closing of a health care facility and the appointment of an ombudsman to protect patient rights.

Section 102 covers the disposal of patient records. The legislation provides clear and specific guidance to trustees who may not be aware of state law requirements for maintaining the patient records or the confidentiality issues associated with patient records. Section 102 is necessary given the patient's need for the records and the apparent lack of clear instruction, whether statutory or otherwise, describing a proper procedure in dealing with patient records when closing a facility.

Section 103 brings the costs associated with closing a health care business, including any expenses incurred by disposing of patient records and transferring patients to another health care facility, within the administrative expense umbrella of the Bankruptcy Act.

Section 104 provides for an ombudsman to act as an advocate for the patient. This change will ensure that judges are fully aware of all the facts when they guide a health care provider through bankruptcy. Prior to a chapter 11 filing or immediately thereafter, the debtor employs a health care crisis consultant to help it in its reorganization effort. The first step is usually cutting costs. Sometimes, this step may result in a lower quality of patient care. The appointment of an ombudsman should balance the interests between the creditor and the patient. These interests need balancing because the court appointed professionals owe fiduciary duties to creditors and the estate but not necessarily to the patients. There will be occasions which illustrate that what may be in the best interest of creditors may not always be consistent with the patients' best interest. The trustee's interest, for example, is to maximize the amount of the estate to pay off the creditors. The more assets the trustees disburses, the
more his payment will be. On the other hand, the ombudsman is designed to insure continued quality of care at least above some minimum standard. Such quality of care standards currently exist throughout the health care environment, from the health care facility itself to State standards and Federal standards.

Consider the following excerpt from the Los Angeles Times on September 28, 1997 which describes the unconscionable, pathetic, and traumatizing consequences of sudden nursing home closings:

It could not be determined Saturday how many more elderly and chronically ill patients may be affected by the health care company's financial problems. Those at the Reseda Care Center in the San Fernando Valley, including a 106-year-old woman, were rolled into the street late Friday in wheelchairs and on hospital beds, bundled in blankets as relatives scurried to gather up clothes and other personal belongings.

The presence of an ombudsman probably would result in fewer instances similar to what I just described, where trustees quickly close health care facilities without notifying appropriate state and federal agencies and without notifying the bankruptcy court.

Section 1105 requires a trustee to use reasonable and best efforts to transfer patients in the face of a health care business closing. This provision is both useful and necessary in that it outlines a trustee's duty with respect to a transfer of vulnerable patients.

For all these reasons, I urge you to join me and my colleagues in supporting this bill which will protect the interests of patients in health care bankruptcies.

Mr. LEAHY. Mr. President, I am pleased to join Senator Grassley and Senator Torricelli in introducing legislation to protect patient privacy when a hospital, nursing home, HMO or other institution holding medical records is involved in a bankruptcy proceeding that leads to liquidation.

Of course, in the best case scenario any institution holding patient health care records would continue to follow applicable state or federal law requiring proper storage and safeguards. The fact is, however, under current law during a business liquidation an individual would have to wait until there has been a serious breach of their privacy rights before anyone stepped in to ensure that patient privacy is protected. Under current law it is questionable what protection these most sensitive personal records would have during a liquidation.

The reality of this situation and the practical questions of what recourse an individual would have if their personal medical records were not properly safeguarded against a business that is going out of business makes this provision essential. Our legislation would set in law the procedure that an institution holding medical records would have to follow during a liquidation proceeding.

The bottom line is that we do not want to have to wait until there has been a breach of privacy before steps are taken to protect patient privacy. Once privacy is breached--there is nothing one can really do to give that back to an individual.

I have been working on the overall issue of medical privacy for many years. I look forward to working with Senator Grassley and Senator Torricelli on this issue to make sure that patient privacy rights are protected in bankruptcy.

END

S. 178—To permanently reenact chapter 12 of title 11, United States Code, relating to family farmers.