Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005 -- (Senate - March 07, 2005)

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Mr. SCHUMER. Mr. President, I will be very brief. Late last week, this body, in its wisdom, defeated our amendment to close the millionaire's loophole, an amendment that would allow certain trusts to be set up by anybody, but, of course, they are expensive and only those very wealthy who have a purpose would do it and shield their assets in the trust and then declare bankruptcy and shed their debt.

It meant that if you were very wealthy, and you could afford some fancy lawyers, you were a lot better off than somebody who went bankrupt who made $40,000, $45,000, $50,000, or $55,000. I was hoping the amendment could have been adopted, but it was not.

After that point, a number of my colleagues from the other side said, let's try to work something out. We tried this morning but did not reach agreement. So Senator Talent, my friend from Missouri, just offered his amendment, which I regret to say does not close the millionaire's loophole at all. It is something of a subterfuge. There are two basic problems with it.

First, you would have to prove that the intent of the filer of the trust was to avoid bankruptcy. I do not have to tell anyone here who is a lawyer that to prove that intent, especially when the filer would want to make sure that intent could not be proven and would leave no paper trail, no documents or anything else, would be next to impossible. So in a sense, it would not close the loophole at all.

But there is a broader point. Whether the intent was to do it or not, why should someone be able to shield millions of dollars of assets and declare bankruptcy? We are trying to close abuses here. Why are the abuses of the wealthy any less worthy of being closed than, say, of the middle class, someone who might gamble their meager assets away?

This amendment removes the requirement that you must prove the intent of setting up the trust was simply to avoid your assets being taken in bankruptcy, as well as doing one other thing. The amendment has another problem with it which deals with pensions, and our amendment corrects that as well.

Their amendment on pensions would subject pensions to these rules, and we do not want to do that. That is quite different than somebody hiding their assets in these trusts. But some of these trusts are used by pension plans. We do not bring pension plans into it. In fact, we take them out.

The Talent amendment has kept the pension proposal. I am sure we will be debating the Talent amendment and my second-degree amendment to the Talent amendment at some point as we move forward on the bankruptcy bill, but I wanted to let my colleagues know what has happened.

I yield the floor.

The PRESIDING OFFICER. The Senator from Alabama.

Mr. SESSIONS. Mr. President, will the Senator from New York yield for a question?

Mr. SCHUMER. I will be happy to yield for a question.

Mr. SESSIONS. Mr. President, we went through a debate last time over the retirement benefits, the savings plans. I thought we capped those at $1 million.

My question to the Senator from New York, Mr. President, is, how confident is he under the bankruptcy bill as written that these trusts will be held by bankruptcy judges as not subject to being part of the assets of the debtor's estate? Is this something about which the Senator from New York is concerned? And we are not sure or do we have any law that will give the Senator cause to believe that they would not be captured as part of the estate?

Mr. SCHUMER. The lawyers we have consulted have said it is pretty clear-cut that these assets would be held immune from bankruptcy. But probably more important than my opinion, there was an article in the New York Times written by a Pulitzer Prize-winning author who is an expert on the Tax Code who checked this out with many different sources, as I read the article, and said it is pretty clear that these assets would be held immune from bankruptcy.

Let me remind my colleague, only five States allow the setting up of these trusts, but neither Alabama nor New York. Citizens in our States could set up these trusts in Utah. I do not remember all the other States. I remember Utah because Senator Hatch came over to me and said: that is my State you are picking on. They could set up these trusts, use the trusts in those States, and they would be immune from bankruptcy, no matter what the jurisdiction.

Mr. SESSIONS. I thank the Senator from New York. It is a matter that could be significant, and I am glad we are discussing it.

Mr. SCHUMER. If my colleague will yield for a minute, I would prefer not to second degree the amendment of my friend from Missouri. I would like to come to a compromise that truly closes this loophole. I know my friend from Iowa, the leader on this bill, had mentioned in his remarks that he was interested in closing this. My colleague from Utah had mentioned that he was interested in closing this, and rather than having a debate on the amendment of the Senator from Missouri and my second degree, if we could come to a compromise that truly closes the loophole without going further, I would be happy to do that.

Mr. SESSIONS. I thank the Senator for that offer and will look forward to taking him up on that.

Mr. SCHUMER. I thank my colleague, and I yield the floor.

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