Senate Debates Changes to Bankruptcy Laws

JEFFREY BROWN:

Are too many Americans filing for bankruptcy under laws that make it too easy for them to do so? That's been the issue once again for the Senate this week, as it debated Republican-sponsored legislation to change eligibility requirements for those who want to escape their financial debts.

SEN. JEFF SESSIONS:

I am pleased that we are able now to move forward with this bankruptcy bill.

JEFFREY BROWN:

Among other things, the bill would create a "means test" to determine whether individuals are allowed to have their debts cancelled or must enter a repayment plan. Congress has actually debated such a bill for nearly eight years. Each time, it's fallen short. Now supporters and opponents are again debating who would be helped and who hurt?

SEN. EDWARD KENNEDY:

Who do we represent in this party, the credit card companies who have had record profits? They are the principle beneficiary of this legislation. Thirty billion dollars in profits last year, and they want $35 billion. The best estimate is the credit card companies are going to get $5 billion more out of this bill.

SEN. ORRIN HATCH:

I think it's a nice, populist appeal here to blame all the credit card companies for the problems that everybody has in our society today. Look, we have an intelligent society, a highly educated society, and I think everybody knows when they take those credit cards and they accrue debt, they are supposed to pay that debt.

JEFFREY BROWN:

Attempts by Democrats to modify the bill have so far been defeated, including an effort by Illinois' Dick Durbin to exempt all members of the military, including reservists, from being forced into repayment regardless of their financial condition.

SPOKESPERSON:

The amendment is not agreed to.

JEFFREY BROWN:

Instead, the Senate passed a proposal by Alabama Republican Jeff Sessions that would allow that exemption for only active-duty service members, low-income veterans and those with serious medical conditions. The number of Americans filing for Chapter Seven bankruptcy had risen steadily in recent years, until falling off a bit in 2004, when some 1.5 million Americans sought protection.

JEFFREY BROWN:

And joining us from the Senate now are Senators Sessions and Durbin– Republican Jeff Sessions of Alabama, Democratic Senator Dick Durbin of Illinois. Welcome to both of you. Senator Sessions, perhaps you could start by defining for us the problem that needs fixing.

SEN. JEFF SESSIONS:

Well, we think that… we had two goals with this bill, first to preserve the historic privilege that Americans have to wipe out their debts and have a fresh start, but we also realized there were a lot of abuses in bankruptcy, so we developed the bright line rule.

If you make above median income and a judge finds that you can pay back some of those debts, then you can be ordered to do so over a period of up to five years. I think this will deal with those high-income debtors who just wipe out their debts and they can pay a lot of the people they owe money to.

We think that's a good step. It has a lot of other provisions in it, too, but the means test is the big new change. I think it preserves for poor people, low-income people, people below median income, all the privileges they've had historically, but those who make above that shouldn't get off scot-free.

JEFFREY BROWN:

Sen. Durbin, do you think this means test will preserve the balance that Sen. Sessions referred to?

SEN. DICK DURBIN:

No I don't. I think people who can pay back their debts should pay them back and people trying to cheat the system should be stopped. But let's take a look at who is going to bankruptcy court today.

Overwhelmingly the reason people go into bankruptcy court is because of medical bills, and most of those people were insured, had health insurance when their diagnosis came down. These are not people who are lacking any kind of moral fiber. These are people who are struggling to try to keep their families together.

What we want to make certain is that bankruptcy court is still there for those who truly need it, establishing a means test sounds easy: It involves thousands of dollars in legal fees and a stack of documents that a person has to file to prove they're above or below the median income.

JEFFREY BROWN:

Well, Sen. Sessions, this is the issue that comes up over and over again, the rise in health care costs and how much that plays into people filing bankruptcy. Do you accept that that's a big factor now and how would this deal with it?

SEN. JEFF SESSIONS:

It's certainly a factor for some, but the numbers just don't justify that. The U.S. Trustees who are involved in 48 of our bankruptcy states, state courts and federal court bankruptcies in our 48 states, they have done a survey of the files.

And they found that 54 percent of the filers did not list any medical debts, that only 5 percent of the debts that were listed were medical debts. Most of the debts were other form of debt. But look, they still can wipe 'em out.

If you make below median income and 80 percent of the filers make below median income, you can still wipe out all those debts, not pay your doctor, not pay your hospital, not pay any medical bills at all. If you make above that, this bill says, why not pay some? We think you should. You should be responsible if the court finds you're able to pay.

JEFFREY BROWN:

Sen. Sessions, though, what I think some have wondered is would it not be possible to distinguish between those who have legitimate health care costs that lead to their bankruptcy and those that go into bankruptcy, for example, for other things, for overspending on consumer items?

SEN. JEFF SESSIONS:

No, I think these are all debts that you owe, and if you receive several thousand dollars of hospital benefit and you make $80,000 or $100,000 a year and you didn't have insurance, maybe you should, after reducing all those debts and under Chapter 13, why not pay some of it back? Why should a person like that get off scot-free?

But, remember, if you make below median income, you still could wipe out all those medical debts. So I really think this is an issue that has tried to bring in the health care debate in a way that's not relevant to this bill, which simply says "this is how you handle the process of eliminating debts or reducing debts in bankruptcy court."

JEFFREY BROWN:

Sen. Durbin, what's wrong with that? Where would you draw the line, particularly when you're talking about the health care costs component of bankruptcy filing?

SEN. DICK DURBIN:

I would disagree with Jeff on that point. We've had a Harvard Law and Medical School study which shows that some 46 percent of the cases being filed in bankruptcy court involve substantial medical bills.

And it stands to reason fewer people have health insurance. The health insurance they have isn't as good anymore. People can be swamped with medical debt even when they think they have health insurance and they're protected.

My concern is this: I'm worried about the cheaters and the grafters and those that go into this court to try to take advantage of it, but overwhelmingly, even by the estimate of the commission itself that took a look at those who cheat the system, 97 percent of the people go in there and deal with it honestly.

And yet we're creating new hurdles and new obstacles. The difficulty I have is this: If a person is overwhelmed with medical bills, for goodness sakes, we ought to give them some slack and give them some help. Just minutes ago on the floor of the Senate, two amendments by Sen. Kennedy to help people facing medical crises in their family were overwhelmingly defeated on largely partisan roll calls.

Sen. Kennedy tried to protect a person's right the save their home if they have medical bills that really wiped them out, and yet that too was defeated. There is just no sympathy on the floor of the United States Senate for consumers and families who have no place to turn when they're swamped with medical bills.

SEN. JEFF SESSIONS:

Could I just respond?

JEFFREY BROWN:

Yes, please.

SEN. JEFF SESSIONS:

Remember now, these medical bills don't have to be paid. Eighty percent of the people who file bankruptcy fall below median income. They won't have to pay any of these bills.

If they make above that, they'll only have to pay a small — what proportion the judge finds that they can pay. And frankly, this study that he's cited is not nearly as accurate as a much more extensive US Trustee analysis of what is really happening in bankruptcy courts.

JEFFREY BROWN:

All right. Sen. Sessions, let's me turn to another issue that's been raised, that's the criticism of the credit card companies and the banks, that they play a role in giving out too many cards and extending too much — too many loans to people and that nothing is done in this bill that would curtail that or limit that side of the equation. Why not?

SEN. JEFF SESSIONS:

Well, first of all, credit card debt is a problem for a lot of people. I don't believe it's necessarily the credit card company's fault that somebody takes that card and runs up a lot of bills on it. They lose because they don't get repaid.

So I don't really — I think the credit card issue is a red herring. This bill primarily deals with what happens when you have debts and you want to wipe them out, start fresh, end lawsuits, not have to have harassing phone calls and go through court and handle that.

The problem with credit card companies, and we need to continue to look at it, is to make sure that they have good notice, that the debtors do, that they fully understand the conditions that they're operating under, and that's a different problem that I think is probably not well-suited to be handled in bankruptcy, although we do have some provisions in this bill that tighten up regulations on credit cards.

JEFFREY BROWN:

Sen. Durbin, I take it you'd like the see tougher provisions.

SEN. DICK DURBIN:

If your viewers are watching this program at home while they're opening their mail, it's likely they're opening another credit card offer as they listen to this broadcast. We're swamped with credit card solicitations. And these solicitations reach children and people who shouldn't be offered credit cards, and no business with an additional credit card and more debt.

Now come the credit card companies, after sinking people deep into debt and say, in bankruptcy court, we want to make sure at the final analysis, the last chapter, you'll walk out of court still in debt to the credit card companies. That is the driving force behind this bill.

They've been very quiet, low profile, but the credit card industry and major financial institutions are behind this move to reform the bankruptcy bill. So this morning, and I agree with Sen. Sessions, we ought to hold the credit card companies accountable. Sen. Akaka said, "shouldn't the credit card statement each month at least tell you if you make a minimum payment how long it will take, how much it will cost?"

Defeated again on a partisan roll call, with the overwhelming majority of Republicans voting against holding the credit card companies to that minimum standard; it's clear now the credit card companies are ruling this debate.

JEFFREY BROWN:

Sen. Durbin, just a brief response, if you could. As we said, this has been around for a number of years. Where do you think it goes this time? Might it pass this time?

SEN. DICK DURBIN:

Well, the Republican party has a lock on the White House and Congress, and it's likely they'll pass this and have it signed by the president. I'm afraid it's not going to contain any consumer protection.

The amendment I offered to protect Guard and Reserve families that face bankruptcy because of activations and deployments was defeated on party line vote. Efforts to protect those with overwhelming medical bills, defeated on a party line vote. It looks like the credit card industry is in for a big win.

JEFFREY BROWN:

Sen. Sessions, you see it the same way?

SEN. JEFF SESSIONS:

I think the bill is in good shape. We had 83 votes last time. It passed in the Senate 83-15. Yes, I think we have broad bipartisan support. A lot of the amendments that he mentioned, such as the Guard and Reserve amendment, that I offered an amendment I think that dealt with what Sen. Durbin was most concerned about, had at least six Democratic votes for it.

So I think we've got a good bipartisan bill. I do believe it will become law this time. It's the fourth time the Senate will have voted on it. It's time to make it law. I believe we will.

JEFFREY BROWN:

All right. Senator Sessions and Durbin, thank you both very much.

SEN. DICK DURBIN:

Thank you.