Jerrold Nadler

Mr. NADLER

Mr. NADLER. Mr. Chairman, we will come back to that.

Mr. NADLER. Mr. Chairman, which amendment are you referring to? The Boucher-Gekas amendment?

Mr. NADLER. Mr. Chairman, I have a parliamentary inquiry.

Mr. NADLER. Mr. Chairman, I demand a recorded vote, and pending that, I make the point of order that a quorum is not present

Mr. NADLER. Mr. Chairman, I yield back the balance of my time.

Mr. NADLER. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, I am surprised to hear the gentleman from Pennsylvania (Mr. Gekas) point out that the National Bankruptcy Review Commission supports this. The National Bankruptcy Review Commission rejected the central concept of the bill, the so-called means-based testing. But that he does not care about. Let me simply say this. The Small Business Administration of the United States says the provisions of this bill, without this amendment, would add such substantial additional costs to the reorganization process that many small businesses may forgo reorganization under Chapter 11 and immediately file for Chapter 7 liquidation proceedings. They would be forced to close their doors, leaving their creditors without recourse. The nonbipartisan and widely respected National Bankruptcy Conference says, These cost-raising changes ultimately could deny tens of thousands of small businesses a meaningful opportunity to restructure that have obligations and continue in business. This would close the door on thousands of businesses that would have been able to reorganize successfully if given the chance. The AFL-CIO says, The potentially broad reach of these provisions and the manner in which they restrict the workings of the bankruptcy case for these businesses will likely place numerous jobs at risk. So the AFL-CIO, the Small Business Administration, and the National Bankruptcy Conference, which is probably the greatest expert on this, all tell us these provisions which this amendment would strike will kill thousands of small businesses by denying them the realistic opportunity to reorganize, and forcing them instead to liquidate. I urge my colleagues to vote for this amendment so these small businesses are not thrown into liquidation, instead of reorganization, killing thousands and thousands of jobs.

Mr. NADLER. Mr. Chairman, this amendment strikes several sections of the small business title. We have heard testimony from the National Bankruptcy Conference, and we also have received a letter from the Small Business Administration that indicates that the bureaucratic burdens placed by this bill on small businesses, the short time lines for filing many more documents than are necessary for larger businesses, the higher standard for getting an extension of the automatic stay so that the small business, in order to get an extension, would have to pass what amounts to a mini-confirmation hearing, a real catch-22, and the inclusion of a new definition of single-asset real estate in the definition of small business, so that, for example, Rockefeller Center would have to be reorganized under the small business rules if it were involved in a bankruptcy, all combine to make this title a virtual death sentence for thousands of small businesses. I know my colleagues on the other side of the aisle like to oppose regulations that protect the environment or worker safety by arguing they are burdensome on small businesses. We have had several hearings this year attacking clean air regulations and attacking regulations to keep workers from falling off of roofs, and regulations to keep asbestos from being released into the atmosphere. At every point we have heard moving speeches about the fate of small businesses under these regulations. Some members of the committee have opposed increasing our shamefully low minimum wage for the same reasons. Here is a chance to put our words into action. This small business title threatens every small business and independent contractor in America. We should strike its most offending sections. The amendment restores the current definition of small business to a business of $2 million. The increase to $5 million would pull in 85 percent of businesses into this section, and make it involuntary. It will be transforming small business bankruptcy from a safety net for small businesses to a tiger cage. The amendment strikes the burdensome and costly meeting and filing requirements imposed on small businesses for the first time, and it also gets the U.S. Trustee out of the business of essentially running a small business in Chapter 11. It strikes the definition of monthly net income in the bill, and restores the existing definition so that an individual debtor in Chapter 13 may continue to use his or her personal income for a small business. As we may know, many small businesses are either unincorporated or are small businesses which the debtor personally guarantees. They end up in Chapter 13, not Chapter 11. The bill as written would not allow them to use their personal resources to reorganize the business, as current law does. This change would kill many small businesses. Finally, the amendment restores current law in the appointing of a trustee. Mr. Chairman, small business is the engine for job growth in America. There is not a single Member of this House who has not spoken out in defense of small business. That is the right thing to do. But we should not move forward with these costly, onerous, and burdensome new rules that the Small Business Administration and the National Bankruptcy Conference tell us will kill many small businesses unnecessarily, instead of letting them be reorganized. We ought to pass this amendment so as not to impose these new burdens and this death sentence on thousands of small businesses. Mr. Chairman, I reserve the balance of my time.

Mr. NADLER. Mr. Chairman, I yield myself such time as I may consume. (Mr. NADLER asked and was given permission to revise and extend his remarks.)

Mr. NADLER. Mr. Chairman, I believe that with unanimous consent, the Chair could entertain that request.

Mr. NADLER. Mr. Chairman, I offer amendment No. 2.

Mr. NADLER. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, we do not object to this amendment. I just want to point out that, like a number of other amendments, this amendment deals with the problem of child support and spouse support, but does not deal adequately with it. This amendment would raise the priority of support, child and spouse support, above several priorities. It would raise it above several existing priorities that are rarely relevant in consumer cases. It would make it have a higher priority than wages owed by the debtor to people, to workers he did not pay, and payments involving grain elevators and fishermen. It does not change the Chapter 13 payment formula, which still requires payment of credit card debt concurrently with child support. It does not deal with the larger problems created by other provisions of the bill that require payments so great that a Chapter 13 plan may be rendered infeasible. It also does not deal with ``adequate protection payments'' required by Section 320 of the bill that would compete with support at the outset of the plan, so that the debtor could not devote significant funds to payment of even the first priority support claims. If such adequate protection payments failed to provide adequate protection, in fact, a creditor, such as a credit card creditor, who took a security interest in minor household items could argue it was entitled to a still higher superpriority under section 507(b). So in other words, Mr. Chairman, there is nothing wrong with this amendment. It goes a fiftieth of the way towards helping the terrible problems this bill puts in the way of adequately collecting child and spouse support, but it does not deal with the basic problems. So while we have no objection to it and we certainly would not ask for a recorded vote, it does not do very much at all. Mr. Chairman, I yield back the balance of my time.

Mr. NADLER. Mr. Chairman, I ask unanimous consent that that amendment be considered later when the gentleman from Massachusetts (Mr. Delahunt) can come to the floor, because the list we have does not indicate that order.

Mr. NADLER. Mr. Chairman, I have a further parliamentary inquiry. On the list that I have, the Boucher-Gekas amendment is next, and then Gekas and then Shaw-Camp, Paul, Gekas-McCollum-Smith, Scott, Velazquez, Baldacci, and Delahunt is last according to this.

Mr. NADLER. Yes, I do, Mr. Chairman.

Mr. NADLER. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, everyone should remember that the debate in this House today is not over personal responsibility. The debate is not over whether people who can pay their debts should pay their debts. Everyone agrees to that. The debate, Mr. Chairman, is over the measure of the test. That is the first debate. Should it be, as the bill before us has it, an automatic test with no judge there? Should it be a test that looks not at actual expenses and actual facts, but at what the Internal Revenue Service says in its guidelines might be the facts, not at what your rent is, what your child expenses are, but what the Internal Revenue Service says that for an average person in the Northeast and Southwest of the country it might be? I submit that this bill does not make sense in saying that we are going to decide how much someone can afford to pay off on his debts by looking at theories as to what his rent might be, what his child expenses might be instead of what they actually are. That is the first question. The second question is that this bill jumps the line. It takes credit cards and puts them in preference to other debtors, says you cannot have a Chapter 13 plan confirmed unless you can pay $50 minimum for the credit cards. It puts it in preference in practical terms over the child support, over the victims, over the secured debt. It makes no sense except as a reflection of the lobbying and the campaign contributions by the banks and the credit card companies; and that is not the way we ought to distort the law. Mr. Chairman, I would remind my colleagues that every bankruptcy association, the Bankruptcy College, the Bankruptcy Institute, the trustees, the Chapter 13 trustees, the judges, they all tell us this bill should be rethought and makes no sense. I would also remind my colleagues the CBO says this is an unfunded mandate in the private sector between $260 million and $1.3 billion and on the public sector of $214 million. I urge my colleague to think better of it and to vote against this bill.

Mr. NADLER. Mr. Chairman, could I inquire how much time I have remaining?

Mr. NADLER. Mr. Chairman, I yield 3 minutes to the gentlewoman from Texas (Ms. Jackson-Lee). (Ms. JACKSON-LEE of Texas asked and was given permission to revise and extend her remarks.)

Mr. NADLER. Mr. Chairman, I yield 5\1/2\ minutes to the gentleman from Massachusetts (Mr. Delahunt). (Mr. DELAHUNT asked and was given permission to revise and extend his remarks.)

Mr. NADLER. Mr. Chairman, I yield two minutes to the gentleman from Massachusetts (Mr. Meehan).

Mr. NADLER. Mr. Chairman, I yield 3\1/2\ minutes to the gentlewoman from California (Ms. Lofgren).

Mr. NADLER. Mr. Chairman, I yield myself such time as I may consume. Mr. Chairman, bankruptcy is a dull, boring and technical subject. Not many people pay detailed attention to it. And advocating that people behave responsibly and pay their debts, if at all possible, is attractive and unassailable. I know that many people, seduced by that slogan, signed up to support this bill. But it was false packaging, an attractive wrapper to disguise one of the worst special interest bills we have considered in many years. When you strip away the veneer and the verbiage, there stands, starkly revealed, a bill with one central purpose, to take large sums of money from middle- and low-income American families in distress and give it to the credit card companies; and, while we are at it, to take large sums of money from other creditors and give it to the credit card companies. This is a bill of, by, and for the credit card companies which have waged a long and expensive campaign for it. Who benefits from this bill? The credit card companies. Who gets hurt by this bill? Middle- and low-income families who are in over their heads in debt because of a medical emergency, a lost job, gambling addiction; mothers rearing young children dependent on child support or spouse support; crime victims seeking victim's compensation; other creditors who cannot afford the high-priced lawyers of the credit card companies to compete for the collection and who will have to forgo repayment of the $260 million to $1.3 billion the Congressional Budget Office says this bill will add to administrative costs and which will come out of money to be recovered by the creditors; small business owners whose businesses this bill will force into liquidation instead of survival; and the taxpayers, who will have to foot the $214 million the CBO says this bill will add to the Federal budget. Who supports this bill? The credit companies and the big banks. Who opposes this bill? The consumer groups, the AFL-CIO, the women's groups, the victims' rights organizations, the bankruptcy judges, the bankruptcy trustees, the National Bankruptcy Conference, the National Association of Chapter 13 Trustees, the National Association of Consumer Bankruptcy Attorneys, the Administration; in short, everybody who knows the bankruptcy system except the credit card companies and the big banks. In fact, this legislation is nothing more than a special interest favor to the big credit companies and the big banks. It will take American families in terrible economic straits and it will allow creditors to harass them with litigation. It will allow MasterCard and Visa to snatch child support from struggling families. It will clog our courts. It will invade the privacy of families by requiring them to make their tax returns public so that banks and other creditors can review the most private details of their lives, including medical expenses, and it will cost the taxpayers a bundle to collect the reckless debts of credit card companies who sent out more than 3 billion credit card solicitations last year to children, family pets and people already in over their heads. Why do we need this bill? We have heard a great many extravagant claims about the reasons why more than 1.3 million Americans filed for bankruptcy last year. The underlying assumption of this legislation that millions of Americans are essentially deadbeats using the bankruptcy code to cheat unsuspecting and helpless megabanks is quite frankly a slander against the American people. Mr. Chairman, we have been told that the reason we have increased bankruptcy filings is that social mores have changed, that there is no longer a stigma associated with bankruptcy, that people use it as a first financial planning option instead of as a last resort, that there is an easy availability of bankruptcy. But this does not make sense. The bankruptcy code does not cause people to go bankrupt. Lack of health insurance, downsizing, jobs moving abroad, family disintegration, the sort of problems you would hear about if you listened to your neighbors, that is what causes bankruptcy. What is really scandalous is that instead of dealing with the pressures on American families, this Congress chooses to go after the victims. In fact, the Committee on the Judiciary received testimony from academics, from people like Professor Ausubel of the University of Maryland, demonstrating a direct link between deregulation of interest rates, increased lending and the increase in bankruptcies. These findings are supported by the work of the FDIC and we are waiting for the completion of a Congressional Budget Office review of the data which it appears will also likely confirm these findings. What we have seen is that although real interest rates, the costs banks pay for money, have dropped substantially over the last 20 years, credit card interest rates, the price American consumers pay to borrow money on their credit cards, have remained extraordinarily high. The result, credit card operations are now the most profitable of all banking operations, up to five times more profitable than noncredit card operations. If it were true, as we are told by the supporters of this bill, that it is changing social mores, lack of a stigma that are getting people to file for bankruptcy when they still can pay their debts before they are in over their heads when they would not have done so years ago, one would expect that the ratio of debt that people have to their income would have gone down, because people are now filing when they still can pay their debts, whereas earlier they did not. But, in fact, look at this chart. It shows just the opposite. In 1983, the average debt-to-income ratio of a Chapter 7 filer, someone who filed for bankruptcy, was 87 percent. It went up consistently. It has doubled. Now it is 164 percent, which means it went up, not down. People are twice as deeply in debt today before they file for bankruptcy as they were in 1981. They are more desperate. They do not file easily. They wait as long as they can. In fact, if you look at the rise in bankruptcies and you look at the rise in the debt-to-income ratio in people at large and how much debt people have which started increasing with the deregulation of credit card rates about 20 years ago, you find it tracks almost exactly. Look at this. As the debt-to-income ratio goes up, that is what causes the bankruptcy filings to go up. It is the irresponsible lending by the credit card companies that is largely responsible for the increase in bankruptcy filings. In fact, if we wanted to do something about this, we should limit that irresponsible lending. But unfortunately, that amendment was not made in order. We should say that it is an objection to claim, that you cannot collect your debt if you lent the money after you knew that the person was already in over his head, after he already had a debt to income ratio of 40 or 60, draw the line, percent, but that unfortunately the Committee on Rules did not make in order. We know that credit card lending is very profitable today. In fact, if you look at the chart, you see the profitability of credit cards versus the profitability of the overall banking system. The overall banking system has remained at the same level of profitability for the last 25 years. The profitability of the credit card system, however, has doubled. We have to bail them out with this bill because they are losing some money on bad debts when their profitability is five times the profitability of all other parts of the banking system. Credit card interest rates have stayed up. The cost of money has gone down from 14 percent, reduced by half to 6 percent, but the credit card interest rates have gone down from 18 to 16 percent. Then we are told that we will save $400 per American family if we pass this bill because the credit card companies will lower the interest rates to counter the fact that they are getting more money from deadbeats. Look at the record. If you believe that, there are a couple of bridges in New York, not just the Brooklyn Bridge, that I can sell you for only a couple of billion dollars. The fact is that car loans have gone down, mortgages have gone down, the cost of money has gone down, the credit card interest rates stay up and that is why they are so profitable. If we pass this bill, they will be even more profitable, but it will not be passed through to the consumer by a nickel. Having said all that, we agree, there are some people who abuse the system. There are people who are filing for Chapter 7 bankruptcy who can afford to repay their debts. Let us crack down on them. But that is what the Democratic substitute says. Let us crack down on them, but let us crack down on them through a reasonable test, a test that really looks at their ability to pay. The administration in its statement of opposition says: The formulaic mechanism in H.R. 3150 will not distinguish accurately those debtors who have the capacity to repay from those that do not have that capacity. A properly structured system would give bankruptcy courts greater discretion to consider the specific circumstances of a debtor in bankruptcy. That is what we want to do in this substitute. That is what we did in the bill that the committee refused to consider. The fact is if you look at the ability to repay, you will want to look at someone's income and his expenses, how much is he paying in rent, not as the bill before us would say, how much does the Internal Revenue Service think someone in the northeastern United States is probably paying for rent. Who cares what someone might be paying for rent, the average person. The question is how much is he paying for rent, how much is he paying for child care, for his medical expenses for his wife or his daughter or whatever. A formula does not work. We have to have a human being there, a judge, who can take a look at the situation to make a judgment, not a computer. The majority brags about this bill, that you can put it into a computer and the result will be put out, no human discretion, no human sympathy, no human understanding and no facts, only theory, from the Internal Revenue Service, of all people. That is what this means-based test is. Even if you pass the means test, under this bill you will be harassed by creditor motions that are not permitted in the law now, by the threat of litigation, and it will lead to many people who meet the means test having to withdraw their petitions because they cannot afford to pay the lawyers to fight the banks' lawyers on these frivolous, dilatory motions. The other thing this bill does, because its major function is to give a lot of money to the credit card companies, is that credit cards jump the line. They are going to be nondischargeable in bankruptcy. The administration says the bankruptcy code generally makes debts nondischargeable only where there is an overriding public purpose as with debts for child support and alimony payments, educational loans, tax obligations or debts incurred by fraud. What is the overriding public policy purpose for skipping the credit cards ahead of the secured debtor, ahead of priority debt and making it nondischargeable? There is no public policy purpose. What is the public policy purpose for saying that in a Chapter 13 workout plan, you cannot confirm the plan unless you pay $50, minimum monthly, to the credit card companies? So if your ability to repay is $75 a month, $50 goes to the credit card companies and $25 is left for everything else. Credit cards uber alles. Why? Why should the other creditors take second fiddle, creditors who have security interests, creditors who may have done more due diligence? And if your ability to repay is $40, less than the $50 minimum, they cannot confirm a plan, so you are too rich for a Chapter 7 bankruptcy and you are too poor for a Chapter 13 bankruptcy and you fall right through the cracks. And because the purpose of this bill is in these ways, by nondischargeability and a $50 minimum under Chapter 13, to give the money to the credit card companies, it fouls up the child support, it fouls up the victim's collection of crime victim's compensation. The sponsors of the bill say they fixed it in committee. First they denied it. Then they said they fixed it. Now they have an amendment to say they fixed it. But all the groups who deal with this, the women's groups, the child support groups, the administration, they say those fixes are cosmetic, they do not deal with the problem, and they do not. What does it do to small business? For reasons I know not, this bill adds great paperwork requirements to small businesses, constricts the time limits in which they have to do things, adds in effect a mini confirmation hearing before the confirmation hearing, all of which will result, as the Small Business Administration tells us, in thousands and thousands of small businesses that go into Chapter 13 and Chapter 11 for workouts to restructure their debts, to reorganize and to come out of it, retaining the business, retaining their employees, they will not be able to meet it, they will liquidate, jobs are gone. Why should we do this to small business? Finally, this bill is a budget buster. CBO tells us, the Congressional Budget Office, it will cost the taxpayers $214 million out of the Federal budget, and they tell us it is a private sector burden of $260 million to $1.3 billion. That is the effect this bill would have. In summary, this bill affects negatively everybody except the credit card companies and the big banks. The bill is ill-considered, it is not ready to move, it is a budget-buster, it takes away the rights of debtors, and it will hurt many creditors as it aids the credit card companies in their search for greater profits. This bill is unworthy of this House and will cause misery to our neighbors and financial distress. This bill is in fact morally bankrupt and I urge my colleagues to reject it. Mr. Chairman, I reserve the balance of my time.

Mr. NADLER

Mr. NADLER. Mr. Speaker, we continued. The vote is over.

Mr. NADLER. The question for the two gentlemen, and I do not know who wants to answer it, the gentleman from New York says there is no unfunded mandate in here. The gentleman from Colorado says that the puzzle just does not fit. I simply ask, the CBO report says, ``Certain provisions in H.R. 3150 would impose new private sector mandates as defined by the Unfunded Mandates Reform Act with costs that exceed the statutory threshold.'' Why does the gentleman say it does not fit?

Mr. NADLER. Mr. Speaker, will the gentleman yield?

Mr. NADLER. Mr. Speaker, the issue on this point of order is very simple. This House, under Republican leadership, passed the bill. They said we should not impose unfunded mandates on the private sector. Some of us did not agree with that, but that is the law. This bill, according to the Congressional Budget Office, by whose judgment we are bound, imposes an unfunded cost on the private sector of somewhere between $260 million and $1.3 billion per year. That will come out of the money available to pay creditors. We should not proceed. The sponsors of this bill I am sure did not anticipate this. The committee report says it does not impose any costs. That is wrong. It obviously does. We have said for a long time that this bill was rushed through, that the proper research was not done, the implications were not understood. It is now clear that that is true. I would urge that on the substantive grounds that when we legislate, we ought to legislate knowing what we are doing, understanding the implications and all the pros and cons and effects of the bill. We ought to put this aside and come back to it another day. On the legal mandate of the Unfunded Mandates Reform Act, we should not proceed to impose such a mandate on the private sector because that is the law that the gentleman on the other side of the aisle imposed on us. Therefore, I urge a no vote, which I am told is how we have to go in order to proceed. Mr. Speaker, I yield back the balance of my time.