Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005--Continued -- (Senate - March 10, 2005)

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Mr. REED. Mr. President, today I share my concern over S. 256, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, and urge my colleagues to vote against this flawed legislation. This legislation provides a misguided and uneven approach to combating bankruptcy abuse, especially because it leaves so many causes of bankruptcy unaddressed.

Most provisions in this bill were written years ago and do not target abuses which have recently gained public attention. When this bill was originally drafted, corporate fraud at Enron and elsewhere had not yet come to light. The executives at these corporations had not yet been caught enjoying huge personal gains at the expense of shareholders and employees only to later file for bankruptcy. This bill does not fully address these types of bankruptcy abuses, and unfortunately efforts to close these loopholes failed.

At the time this bill was drafted, companies were less likely to file for bankruptcy to shed health care and pension obligations to their retirees. In fact, the number of senior citizens in bankruptcy tripled from 1992 to 2001, representing the largest increase of any group. Today, nearly a million Americans have had their pension plans taken over by the Pension Benefit Guarantee Corporation and their benefits reduced; this is a substantial increase from when the bill was drafted. I am disappointed that this body not only voted against the Feingold amendment that would have helped elderly Americans protect their houses, but also against the Rockefeller amendment to improve employees' claim for owed wages and benefits. The Rockefeller amendment would have also required companies that dropped retiree health benefits to reimburse each affected retiree for 18 months of COBRA coverage upon reemerging from bankruptcy.

The bill adds a means test, which supporters of the bill say will significantly reduce abuse. The nonpartisan American Bankruptcy Institute found that over 96 percent of families seeking to go into chapter 7 bankruptcy would be judged as unable to pay under the new means test. However, the means test would likely deter qualifying families from filing for bankruptcy due to the addition of regulatory requirements and legal costs.

I am not opposed to sensible bankruptcy law reform, but this is a reverse Robin Hood--squeeze the down-on-their-luck middle class and impoverished Americans and give the proceeds to the financial services industry. Contrary to the claims of creditors, many of these families simply cannot pay. About half of families going into bankruptcy have had their utilities or phone shut off, and 60 percent went without medical care. One in five families that are bankrupt because of medical bills went without food. Surveys have shown that many of them want to repay their bills but are unable to, and they must ultimately file for bankruptcy to stop the harassment of collection agents.

This bill does nothing to prevent bankruptcy by targeting its causes. We should work to ensure adequate worker compensation, lower the high cost of health care, improve financial education, and stem predatory lending.

Our middle class is increasingly squeezed. Median family income has been relatively stagnant, rising by only 12 percent in constant dollars from 1978 to 2003. This increase has not kept up with families' sharply increasing costs. Health care costs have risen by 327 percent in constant dollars from 1988 to 2004. The real cost of tuition at a four year public university increased by 646 percent from 1978 to 2003. Child care costs have risen by 35 percent more than inflation from 1986 to 2003.

With less disposable income, families are less able to make it through difficult financial times and can be devastated by a single unexpected event. It saddens me that many of my colleagues in the majority voted against Senator Kennedy's amendment to raise the minimum wage for the first time in eight years. This measure could have meant the difference to countless Americans between being able to pay their bills and having to file for bankruptcy.

Indeed, according to a new Harvard Law School study, illness or high medical costs cause half of personal bankruptcies. Certainly this is sure to affect the 45 million uninsured Americans, up from 30 million in 1978. It also has a traumatic effect on those who do have health insurance, one-third of whom lost it while they were sick. Yet again, I believe it was a mistake for this body to have killed an amendment to offer protections to patients with high medical bills.

We also continue to see some banks cross the line into predatory lending practices. We must continue to find a balance between providing access to credit and capital and protecting individuals from predatory lending. Unfortunately, as many of my colleagues have pointed out, members of our Armed Forces have become a top target of these unsavory practices. Senator Durbin's G.I. protection amendment would have extended protections to military members who have been forced into bankruptcy because of income loss connected to their service. It would also have protected them from predatory ``pay day'' loans. Unfortunately, this amendment was voted down.

For all of these reasons, I intend to vote against this flawed legislation, and I urge my colleagues to do the same.

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