Mr. Chairman and Senator Sarbanes, thank you for the opportunity to appear before you and Members of the Senate Committee on Banking, Housing and Urban Affairs. I was pleased to join with Representative Gekas and my friends and colleagues Representative Bill McCollum and Rep. Jim Moran in introducing the "Bankruptcy Reform Act of 1999." This legislation is intended to ensure that our bankruptcy laws operate fairly, efficiently and free of abuse. Our legislation is virtually identical to last year's conference report which was the product of nearly two years of hearings, mark-ups, deliberation and compromise. I am hopeful that the passage of bankrutpcy reform legislation will be one of the first bipartisan exercises in the 106th Congress.
In an era where disposable incomes are growing, unemployment rates are low, and the economy is strong, consumer bankruptcies should be rare. Contrary to this expectation, in 1998 there were more than 1.4 million bankruptcies, a 40% increase from 1996 when the number of filings reached 1 million for the first time.
Bankruptcies of convenience are driving this increase. Bankruptcy was never meant to be used as a financial planning tool, but it is becoming a first stop rather than a last resort as many filers who can repay a substantial portion of what they owe use the complete liquidation provision of Chapter 7 rather than the court supervised repayment plan of Chapter 13. Our legislation will direct more filers into Chapter 13 plans.
This is a consumer protection measure. The typical American family pays a hidden tax of $500 each year arising from increased costs of credit and the increases in prices for goods and services occasioned by the discharge of $50 billion in consumer debt in bankruptcy proceedings each year.
By requiring that people who can repay a substantial part of this debt do so in Chapter 13 plans, we will lesson that hidden tax.
Another key point should be made about the provisions of our bill. The alimony and child support recipient is clearly better off under our bill than under current law. At the present time, she stands 7th in the rank of priority for the payment of claims in a bankruptcy proceeding. She is behind farmers making claims against grain elevators. She is behind fishermen making claims against warehouses.
Under our bill the child support and alimony recipient will have priority number one. Her claim will be first in line for payment. Other provisions also make it easier for her to execute against the assets of the bankrupt's estate than under current law.
Last year, this measure when considered as a conference report received 300 votes on the floor of the House reflecting a broad bipartisan agreement that this reform is necessary.
I look forward to working with you Mr. Chairman and the members of this Committee as well as my House colleagues Mr. Gekas, Mr. McCullom and Mr. Moran to obtain early approval of our bipartisan bankruptcy reform legislation.
The enactment of this reform should be one of the early successes of the 106th.
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