Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005 -- (Senate - March 01, 2005)

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Mr. DURBIN. Mr. President, I thank my colleague from Alabama.

Let me make a couple comments.

First, his amendment, which I will oppose and urge all of my colleagues to oppose, puts servicemen and servicewomen in the category in this bill where they are presumed to be abusers in bankruptcy. That is right. The presumption in his amendment is that if you served in the military and file for bankruptcy, that you are abusing the bankruptcy process. He adds language which says that, and, therefore, we want the judge to take a look at these presumed abusers of the bankruptcy process and consider the fact that they happen to be in the military.

The Senator's amendment is entirely opposite of what we are trying achieve with the Durbin amendment. We are trying to presume the obvious. The men and women serving our country overseas who have been activated in the Guard and Reserve, taken away from their families and their businesses, should be presumed not to be abusive of the process but be presumed to be some of our most important citizens. Why do we want to throw them into the presumption of abusing the bankruptcy process? What I want to do is exactly the opposite. If you are serving our country and you face bankruptcy, we want you to walk into that courtroom and, frankly, get a better shake under the law than you currently get.

First, we don't want you to have to go through the hoops that have been created by the credit card industry and big banks for people who supposedly abuse bankruptcy. No. You put your life on the line for America. You were activated to serve in Iraq, and you risk your life every day for us. You lost your business at home, your family went bankrupt, and yet we are giving you a break in the bankruptcy court, unlike the Sessions amendment, which presumes you are an abuser of the process if a serviceman walks into the bankruptcy court.

The second thing we say is military servicemen don't get to pick the States they live in; they are transferred by the military to different places. But while these transfers of their families are going on, they could go bankrupt. If they go bankrupt, why do you have to make this some sort of roulette game as to what laws apply?

You are in the military and you file for bankruptcy. Then you ought to be able to count on several things:

First, the Federal exemptions on personal property. You know you can always turn to that. That means the things that you can keep in your family, in your household, even if you go through bankruptcy.

Second, the homestead exemption. If you happen to be in a State that is tough and doesn't allow you to protect any part of your equity in your home and you have been transferred there in the military, why use that against men and women who are serving this country? Why wouldn't you say, as our bill does, that we will protect up to $75,000 of your homestead?

Some will say: They may live in a State where it has zero homestead exception. That is true. I plead guilty to the charge that I am favoring the men and women in uniform who file for bankruptcy. I am. Unlike Senator Sessions' amendment, which presumes them to be abusive of bankruptcy, I presume the opposite, that men and women in the military don't go into bankruptcy just because it is an interesting thing to do. I think they have proven that they are responsible people when they raise their hand and swear an oath to the United States and are willing to risk their lives for our country. That is the presumption of responsibility that should be given to the men and women in uniform--exactly the opposite of the presumption of Senator Sessions. His presumption is that they are abusing the process and we will take a second look at it and we will let them come up with more documentation to prove they are not abusing the process.

The last thing my amendment does is to go after the most abusive creditors of the military men and women in America today. I showed the illustrations earlier. Can you imagine that a loan company would actually say to a sailor, airman, a marine, or soldier, we will loan you the money, but we want you to pledge as collateral for the loan your military retirement pay or your disability pay for your injury overseas serving America? They do it. Maybe they are not supposed to. They do it. And they charge these men and women in uniform the most outrageous interest rates in America. It ought to make the credit card companies blush. These pay day lenders charge 100 percent, 200 percent, 400 percent for these soldiers who are trying to keep their families together while they are serving America. My bill, quite honestly, says we are not going to give those creditors a day in court.

Those creditors who charge over 36 percent a year in terms of loans to the military cannot collect them in bankruptcy.

I think that, frankly, is fair to these families because once you get into this ``juice loan'' racket that these payday loan companies come up with, there is no end in sight. You are sunk. Mr. President, $3,000 in debt turns into $20,000 before you can blink an eye.

Let me tell you a difference between what has been offered by Senator Sessions and what I am offering on this floor. The fact is, these groups support my amendment: the Military Officers Association of America, the Air Force Sergeants Association, the National Consumer Law Center, the National Association for the Uniformed Services, the Enlisted Association of the National Guard of the United States, and many other individual leaders in the Guard and Reserve across our country.

They are not supporting the Sessions amendment. I can understand why. They do not think our service men and women should be presumed abusive of the process. Let me tell you why we need this amendment.

In 1999, 16,000 members of the military in America filed for bankruptcy. Since then, there has been a massive activation of troops, Guard and Reserve, across America. Now we have men and women serving for long periods of time they did not anticipate, with dramatic losses in pay. This cutback in income for these individuals is creating a great hardship.

Thirty percent of all military families report a loss of family income when the spouse is deployed. But listen to the numbers for the National Guard and Reserve. Mr. President, 41 percent of Guard and Reserve families lost income when a spouse was deployed. How do they keep it together? Some of them rely on relatives. Mom and dad step in. They are proud of their son or daughter serving in the military, they say: We will try to keep the wife, for example, who stayed home, and the children, together, while you are overseas. Do not worry about us. Just come home safely.

They make great sacrifices. Some of them walk away from a business. Those are the ones who get hit especially hard, such as reservists who own their own business and who are activated.

Fifty-five percent of self-employed reservists lost money when they were activated. And the average loss was $6,500. For some people, $6,500 may not mean much. But for these families, it may tip them over the edge. You find them making sacrifices for America, and all I am asking is, if the worst outcome occurs, if service to our country leads to an economic catastrophe for a family, and they have nowhere to turn but to bankruptcy court, for goodness' sake, should not this Senate say to these men and women in bankruptcy, We are going to give you a helping hand; you reached out your hand to help America; we are going to help you in the bankruptcy court?

But, no, not with the Sessions amendment. The Sessions amendment does not give them the helping hand. The Sessions amendment presumes that they abuse bankruptcy and says to the judge: Take that into consideration if you want to let them off the hook and want to let them try again to file for bankruptcy. That is cold comfort, cold comfort to the men and women in uniform, risking their lives for America, who know, back home, the terrible economic circumstances their families are facing.

Some people think I am making this up, but I am not. The anecdotal evidence that we received from all over the United States, as well as the reports that we have had from the military groups that are supporting my amendment, tell me a lot of families are right on the edge. They may not be able to survive this situation. I talked about this gentleman, Mr. Korizon, from Schaumberg, IL, activated for the Persian Gulf war, who left behind a construction company with 26 people. After he had been activated for 6 months, he had to file bankruptcy. He served his country. He kept his word. He kept his promise. He risked his life for America. He lost his business. He filed for bankruptcy. Does he deserve any special consideration in court? The other side of the aisle says no. Get in line. Just another one of those bankruptcies. I think he does.

You take a look at SGT Patrick Kuberry, who owned a restaurant in Denver. His partner in the restaurant was also in the military. They were both activated. Before it was over--both of them activated--they lost their restaurant and filed for bankruptcy. They served our country after 9/11. They protected us, the Members of the Senate, and our families. And they paid a heavy price. They lost the only business they had. Should they get a break in bankruptcy court? Of course they should. I think most Americans would agree they should.

The list goes on and on. I think the list tells the story. We have to be sensitive to the fact that this amendment, which I have proposed, is an amendment which addresses the most basic and fundamental need here.

Let me tell you something else. Senator Hatch of Utah came to the floor earlier. Do you know what he said? He said: I can't understand why so many more people are filing bankruptcy today. Well, he is unlikely to read this book, but I wish he would. It is called ``The Two-Income Trap,'' by Elizabeth Warren and her daughter Amelia Warren Tyagi. She analyzes why people are filing bankruptcy. And it is not because they are immoral. People are filing bankruptcy because: Since the 1970s, the number of involuntary job losses is up 150 percent. Since the 1970s, wage earners missing work due to illness or disability are up 100 percent, divorce is up 40 percent, people losing health insurance is up 49 percent, wage earners missing work to care for a sick child or elderly family member is up 1,000 percent-plus.

Now, add to these circumstances the possibility that you just received notice that your Guard unit has been activated, and you have a sick parent at home and you wonder: How in the heck am I going to keep this together? I was here working my job, trying to be a good son, a good daughter, trying to take care of my parent. What is going to happen? How am I going to meet this need?

These are real family circumstances of people who serve in the military. All I am asking is to make sure that if the worst thing happens, if they have to go to bankruptcy court, not that they get off the hook--they are not asking for that--but only that they get fair treatment. I knew the credit industry would oppose this amendment. I knew they would oppose it because I went after the payday loans and these ``juice loan'' rackets that are taking advantage of the military. They all gather together when you go after one of their own. The predators are treated just like those who are supposed to be respectable. And that is a shame.

I think the credit industry should sit down and have a balanced bill. And I think they ought to sit down at night and thank their lucky stars that men and women in this country step forward every single day and volunteer to keep us safe, to protect our homes and protect our Nation. Is it too much to ask the credit card industry and this big bank lobby that is behind this bill to give them a break in bankruptcy court if the bottom falls out while they are serving America? I cannot imagine it is.

Mr. President, I yield the floor and reserve the remainder of my time.

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Mr. DURBIN. Will the Senator from Alabama yield for a question on my time?

Mr. SESSIONS. All right.

Mr. DURBIN. I just want to ask the Senator a question.

Is it not true that you have amended page 12, section (B)(I) of S. 256, which reads in part: ``In any proceeding brought under this subsection, the presumption of abuse may only be rebutted by demonstrating special circumstances'' such as being called to active duty in the Armed Forces?

So when I say you are presuming that they are abusing bankruptcy, these are the exact words of your amendment.

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Mr. DURBIN. Mr. President, I thank the Senator from Alabama. This exchange is a rare and a good occurrence. As I said before, it is dangerously close to debate which we occasionally have in the Senate. I thank the Senator from Alabama for being here, even though we are on polar opposite sides of the debate. There should be more conversation and dialog on the floor such as this, a competition of ideas.

Nothing I said about his amendment reflects on him or his respect for the military. He has served in the military. I have not. I have great respect for him for having done that. But what I am trying to do with this amendment is to show what I think is appropriate respect to the men and women serving in uniform.

The point I made earlier was that the section of the underlying bill where people are presumed to have abused bankruptcy--in other words, they can pay their debts, but they try to get discharged from bankruptcy from their debt--that section is what the Senator from Alabama amended. So he puts into that section the requirement that the court take a look at the fact that the person filing bankruptcy may be in the military. That is all. That is the only point I am trying to make. I do not question his respect for the military in any way at all.

His amendment misses the point completely. Instead of presuming that the men and women who serve our country are abusing the bankruptcy laws when they go to file bankruptcy, I say stick to the current law. The current law allows a bankruptcy judge to make this determination. The new proposal by Senator Sessions, the one we are about to vote on, would require the service man or woman to file copious documents, incur additional legal costs, and then, if they are presumed to be abusing bankruptcy, to go through it all over again. What I am trying to do is spare them from that, and maybe it is soft on my part. Maybe I am not tough enough. I am trying to spare them because they are sparing me the worry about the safety of this country. They are serving this country in uniform. They are risking their lives. Yes, maybe I am going a little further than some would. I don't think it is an unreasonable leap. We understand the economic hardships that activation in the military can lead to.

Let me say a word about what used to be known as the Soldiers and Sailors Relief Act, now the Servicemembers Civil Relief Act.

The Senator from Alabama continues to return to it, saying this is their protection. Well, there is some protection in this law as it currently exists, but not nearly enough. This law, as currently written, does not apply to debts incurred after military service begins. So if you are in the military service and have debts that are incurred because you are overseas--your family debts that could lead you into bankruptcy--there is no protection from the Servicemembers Civil Relief Act. The protections are not automatic. You have to go to court and fight for them, too. Imagine that, fighting for your country overseas and being worried about fighting legal battles back home for lien enforcement on autos and other personal property being taken by self-help repossession. It doesn't fully protect servicemembers' spouses or dependents. These protections are not absolute.

If the creditor can show that the proceedings he instituted do not materially affect the serviceman, they can go forward. This bill, as written, doesn't stop debt collection harassment. This bill, as written, is providing protection that is only temporary at best and not long-term solutions to financial problems.

A member of my staff is active military and he is on detail to my office. I always go to him and ask him about these ideas, because he sees it from the eyes of a serviceman. He sent me a little note about Senator Sessions' amendment. He says it keeps the troops subject to the means test, but would allow a call or order to active duty in the armed services, to the extent that such special circumstances justify additional expenses or adjustments of current monthly income. This puts the service member at the mercy of someone else's opinion as to what was justified, what was reasonable. He gives an example, and a good one:

Suppose a soldier decides to keep his family in their home rather than move them in with his parents while he is deployed. You can understand why he might--the comfort of their home, schools the kids are used to. Instead of picking them up and saying I am going overseas and you are moving in with mom and dad, he says stay in the home. Senator Sessions' amendment would force that soldier to justify his decision to keep the family in their home, made under circumstances that few outside the military can appreciate. What may seem like a reasonable alternative--picking up the wife and kids and sending them to mom's and dad's house to live in the basement, or in an extra bedroom, may not be reasonable in that soldier's eyes.

What I am asking my colleagues in the Senate is, when you look at this Bankruptcy Code, join me in saying if we are going to give special consideration and help to the men and women in uniform--I don't think that is an unreasonable thing to do; I think we owe it to them--they ought to have a chance to go to court and be spared from this harsh means test and everything included in this bill to prove up where you stand. The judge, the trustee in bankruptcy, and others are going to make the ultimate decision as to whether you receive your bankruptcy.

Secondly, moving these soldiers all around the United States--at least if they file for bankruptcy, give them an option to choose an exemption under Federal law for personal protections and a $75,000 homestead exemption.

Finally, let me say this to these predatory lenders, the payday loan companies. The argument is if you treat them harshly in bankruptcy court, they may not be able to offer these 100-percent, 200-percent, 400-percent interest loans. I hope they go out of business tomorrow, to be honest. A lot of them are snaring these unsuspecting soldiers and marines and sailors into debt they can never get out from under. I think it is horrendous that men and women who serve our country should be subjected to that. I don't think a 36-percent a year annual interest rate, which we allow in the Durbin amendment, is unreasonably low. I think it is a reasonable return for a loan in most circumstances. It is far more than people pay for cars or homes today. They may pay that much on credit cards, if they are not careful. But to say the payday loan lenders are not going to have their day in court to exploit the men and women in uniform, I think, is a reasonable conclusion. It is a conclusion, frankly, that was joined in by a number of military groups that have endorsed this amendment.

For those colleagues following this debate, let me say that, to my knowledge, the Sessions amendment has no support from military families and support groups. It may have the support of the payday loan companies and some of the credit card companies and banks. But supporting my legislation are the Military Officers Association of America, Air Force Sergeants Association, National Association for the Uniformed Services, and the Enlisted Association of the National Guard of the United States. I will stand with my supporters and ask my colleagues to join me in that effort.

Mr. President, at this time I will yield the floor and reserve the remainder of my time. We are under a unanimous consent request, and I note that Senator Leahy of Vermont has come to lay down an amendment.

If I may get the attention of the Senator from Alabama for a moment. Senator Leahy is here to lay down an amendment. I would appreciate it if we can amend our unanimous consent request to give the Senator 7 minutes and protect and preserve the time we have remaining in debate.

Mr. SESSIONS. That is acceptable to me.

Mr. DURBIN. Mr. President, I ask unanimous consent that Senator Leahy be allowed to lay down his amendment and to speak for 7 minutes, and that we return to debate and the previous unanimous consent request.

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Mr. DURBIN. The first vote for my Senate colleagues will be on the Sessions amendment. The Sessions amendment changes S. 256, the bankruptcy bill, in the section where the bill establishes a presumption that people are abusing bankruptcy. In other words, they are not entitled to bankruptcy. The Sessions amendment says that the judge should consider whether the person who has filed for bankruptcy is in the active military service and is therefore a special circumstance. So Senator Sessions leaves the military men and women in the section of this bill where one presumes to be abusing the law. I do not approach it in that way at all, and that is the reason why the military groups and families are supporting my amendment and not the Sessions amendment.

As I said earlier, Senator Sessions certainly respects the military, but we can show our respect for the military by saying if they are activated to serve this country, if they are removed from their family, removed from their job, removed from their business, and terrible things happen and the business fails or their family goes into bankruptcy and they have to go back to America with their life and limbs intact and file in bankruptcy court, we are going to give them special consideration. They did something special for America; we are going to do something special for them. We are not going to make them jump through all the hoops that have been created by this new bankruptcy law that are expensive, time consuming, and loaded with documents that need to be filed. We are going to protect their home for $75,000 worth at least, wherever they happen to be assigned in the military. We are going to protect their basic possessions that they can have after the bankruptcy is over, and we are not going to protect those creditors and lenders which abused them by charging interest rates which were sky high. We will not give them their day in court.

The PRESIDING OFFICER. The time of the Senator from Illinois has expired.

Mr. DURBIN. I urge my colleagues to oppose the Sessions amendment and support the Durbin amendment, which has the endorsement of the military groups and families.

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Mr. DURBIN. Mr. President, I thank the Senator from Massachusetts.

How many of us have seen men and women going off to serve our country to risk their lives knowing that they are leaving behind families and their businesses and knowing the economic hardship they will face? Some of them are going to be forced into bankruptcy. We have case after case where it has happened. All the Durbin amendment says is, if you have to file bankruptcy after this new bankruptcy reform bill were to become law, the bankruptcy system will consider the fact that you have served our Nation by exempting you from certain aspects of this new bill. We will not push you into a means test, but we will consider your individual circumstances.

We will give you a homestead exemption of $75,000 regardless of where you have been assigned for military duty. We will protect your personal assets with the Federal personal exemption regardless of where you have been assigned to duty and where you have to file bankruptcy.

There are those who say this is a special favor for the armed services. It is, and I believe it should be. They risk their lives for us. They should not risk their home and their finances as well. We ought to stand behind them. Yes, you can vote for the Sessions amendment and for the Durbin amendment as well. They are not inconsistent.

The PRESIDING OFFICER. The question is on agreeing to the Durbin amendment No. 16, as modified.

Mr. DURBIN. I ask for the yeas and nays.

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