Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005 -- (Senate - March 03, 2005)
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Mr. SCHUMER. Mr. President, I will be very brief. This amendment closes the so-called millionaires loophole. If any of you happened to read yesterday's New York Times, there is in existing law a hidden loophole which basically says if you are a millionaire and want to file a certain trust in one of five States, you can hide all your money even though you declare bankruptcy. So the irony is, in this bill, while we are talking about people who make $35,000 or $40,000 or $45,000 and we want to make sure they do not abuse bankruptcy, the law allows this abuse of bankruptcy.
The Bankruptcy Abuse Prevention and Consumer Protection Act, which I am introducing along with my colleagues Senators DURBIN, FEINSTEIN, and BINGAMAN, and I believe Senator Clinton as well, will close this loophole.
You do not have to be a resident of these five States, but you can be a millionaire or billionaire and stash away assets: mansions, racing cars, yachts, investments, in a special trust, and you can hold onto that windfall after bankruptcy. That is not fair. We will debate the amendment later this afternoon. I want to notify my colleagues and place it in order on the floor.
The amendment has been read?
The PRESIDING OFFICER. Yes, it was.
Mr. SCHUMER. It is now in order so I will yield the floor.
Mr. KENNEDY. Will the Senator yield?
Mr. SCHUMER. I am happy to.
Mr. KENNEDY. One of the concerns many of us had in this bill is the interest of fairness. I think fairness ought to be standard for any piece of legislation. As it is currently before us, we will have those who will be able, with their homestead exemption, to preserve homesteads valued at millions and millions of dollars and, on the other side, individuals will lose completely all of their savings because they will lose their homes. There is no fairness there.
The Senator from New York is pointing out in another area the issue of fairness. Those who have resources and have wealth and have the contacts will be able to shelter their resources while basically middle-income working families, the working poor who are trying to get by and have seen an explosion of different costs, on housing, on health care, on tuition, will be buried.
This will be another dramatic example where those who have it will be able to preserve it and those who have been struggling will lose it.
Mr. SCHUMER. I thank my colleague. He is exactly on point. It is outrageous that someone worth millions or billions of dollars can declare bankruptcy and then shield their assets in this trust so they do not come before the bankruptcy court. The Senator, my friend from Massachusetts, is exactly right; we are talking about people who make $45,000 and we are going after them, yet we are allowing millionaires and billionaires to use this loophole. Of course, it is not all millionaires and billionaires, it is a small number who go into bankruptcy and who abuse it. We can close it. We will debate this amendment later this afternoon, but let us hope that we do not have a lockstep, let's vote ``no'' on everything. It would be hypocritical to say we have to close abuses on middle-income people and not close abuses on the very wealthy.
I will be happy to continue to yield to my friend.
Mr. KENNEDY. I will ask a final question. A third of all the bankruptcies are among those who are earning below the poverty line. Does the Senator think they will be able to take advantage of this loophole?
Mr. SCHUMER. I would say to my colleague from Massachusetts, they can't even afford the lawyer to write the first page of the trust that these others can. Again, the question answers itself. What is good for the goose is good for the gander. What is good for someone below the poverty line certainly ought to be good for millionaires and billionaires who want to abuse the bankruptcy process.
I yield the floor in deference to my colleague from Pennsylvania.
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Mr. SCHUMER. Mr. President, I rise in support of my amendment No. 42 and will call for the yeas and nays on my amendment at the appropriate time. Mr. President, I rise to speak to my amendment to the Bankruptcy Abuse Prevention and Consumer Protection Act to close an ugly loophole that protects millionaires, while at the same time this bill will punish, among others, veterans' families and sick people with mountains of medical bills.
The front page of yesterday's business section in the New York Times ran a story on a shocking loophole in bankruptcy law that is a windfall for the wealthy, called the millionaire's loophole. Let me read to you a little bit about it. I am going to read from the New York Times here. The headline is:
Proposed law in bankruptcy has loophole; wealthy could shield many assets in trust.
The bankruptcy legislation being debated by the Senate is intended to make it harder for people to walk away from their credit card and other debts. But legal specialists say the proposed law leaves open an increasingly popular loophole that lets wealthy people protect substantial assets from creditors, even after filing for bankruptcy.
Here is the problem. In five States--Alaska, Delaware, Nevada, Rhode Island and Utah--millionaires and even billionaires can stash away their assets--whether it be a mansion, racing car, a yacht, or any kind of financial asset or investment, or even a suitcase filled with cash--in a special kind of trust, so that they can hold on to that windfall even after filing for bankruptcy. When they file for bankruptcy, these wealthy people, creditors would not be able to reach anything in those trusts. So here you have wealthy people filing for bankruptcy and yet having huge amounts of assets protected in a little trust hidden away.
The bill tries to address the infamous homestead exemption by attaching a $125,000 ceiling to it. But it doesn't matter. A millionaire doesn't need a home to protect his or her assets. All they need is a good lawyer, a pencil, paper, and one of these trusts.
As one legal expert said: With this loophole, the wealthy won't need to buy houses in Florida or Texas to keep their millions. So if anyone is manipulating the system, it is these guys. By the way, you don't have to be in these five States. All you have to do is file the trust in one of these States. My great State of New York, I am happy to say, is blessed with many millionaires. We hope there are more of them. But they should not be allowed to file in Delaware, or Utah, or Alaska a trust that allows them to declare bankruptcy and yet keep their assets. It is a basic way for wealthy people to not pay their debts.
We have heard a lot in this bill about people who gamble profligately and waste their money and declare bankruptcy. That is an abuse that the bill should, in my judgment, close. But then why are we continuing to allow it to remain in the law? It is not this bill that does it; it is in the law. But as we close those methods of using bankruptcy abusively, how can we leave this one open? This ``million dollar bankruptcy baby'' deserves an Oscar for the best legal loophole for the wealthy. This millionaire's loophole is so bad that it must be knocked out before this fight is over. There is no question that, without this amendment, the bankruptcy laws will continue to make it easier for millionaires to keep their millions than for poor people to simply stay afloat.
I hope my colleagues on the other side of the aisle will join me in that amendment. I know there seems to be some kind of edict that you cannot vote for any amendment. Can we please make an exception for this one? I am sure just about everybody agrees with us. I am joined in this amendment by my colleagues Senators BINGAMAN, DURBIN, FEINSTEIN, and CLINTON; they have cosponsored the amendment. This amendment closes this millionaire's loophole by forcing those who seek to use these trusts to cheat. It only allows them to protect as much as $125,000 in assets in these trusts and not a penny more. In other words, it makes it analogous to what we do for homes in the homestead exemption in this bill.
Again, if we don't want wealthy people to be able to hide their assets in their homes and escape the rigors of the bankruptcy law, why would we allow them to do that in trusts? To clarify, the amendment doesn't adversely affect retirees who have saved for a lifetime to build a retirement nest egg. The solution is straightforward. It is written in the spirit of the bill. In fact, when looking at statements made by some of this bill's greatest champions, you would think they would have no problem accepting this amendment in the bill.
The bill's sponsor is a good man. I am now on his committee. He is known as having a great deal of integrity. Well, here is what Senator Grassley said about the bill. This was in one of his State's local papers: Filing for chapter 7 bankruptcy, he said, ``was not intended to be a convenient financial planning tool where deadbeats can get out of paying their debts scot-free, while honest Americans who play by the rules have to foot the bill.''
I agree with that statement. This amendment fits the words of Senator Grassley exactly. Why would we not include this amendment in the bill? That is the essence of the amendment we have. Deadbeats exist in all tax brackets. There are some middle-class deadbeats. There are some poor deadbeats, of course. What about the wealthy deadbeats? Why are they treated differently than everybody else?
I hope my friends on the other side of the aisle, because of this grand edict ``don't vote for any amendment,'' don't end up protecting wealthy deadbeats from the same punishment they are doling out to those who are not so financially fortunate.
I have listened to my Republican friends and their concerns about the abuse of our bankruptcy system by gamblers, hustlers, and cheaters. I have listened for a number of years, and I share those concerns. But I hope my colleagues will come to the floor to vote for this amendment that will end the egregious millionaire's loophole. Make no mistake about it, I am not against millionaires and billionaires. I think it is great when an American achieves success and makes a lot of money. But don't declare bankruptcy and hide your assets and shed your debts. The people who should least be able to do this are the wealthy.
I hope my colleagues will vote for this amendment, which will end the egregious millionaire's loophole. We cannot let a few bad apple millionaires evade the system by cutting and running on their debts. This bill, I am afraid, of course, doesn't go after just the bad apples. That is an issue my colleague from Massachusetts has been ably taking up on the floor, as have many other of my colleagues. It actually labels the whole bushel of bankruptcy filers rotten.
I wish the bill made more of a distinction between those who are abusive, who gamble, or who are profligate and try to shake off their debt, and those who have run into real hardship because they are in the military or because they have health care problems. The bill makes no distinction between those two groups and that is wrong. We need to make sure the bill targets the Nation's cheats and not its cheated. I urge my colleagues to close the millionaire's loophole by voting for this amendment.
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