I would like to thank Senator Gramm and the other Senators on the Banking Committee for
inviting me to testify on this important issue.
I had hoped the critical banking provisions included in last session's Bankruptcy Reform
Conference Report would be included in this year's Senate Bill as well. They provided strong
and balanced consumer protections. I would urge the Senate to reconsider its omission of those
provisions in this year's Bill.
Bankruptcy reform is of urgent importance. The astronomical rate of increase of consumer
bankruptcy filings that we have witnessed over the last few years is startling. Specifically, since
the enactment of the bankruptcy code in 1978, consumer bankruptcy filings have increased from
little more than 182,000 to 1.4 million in 1998, a 750% increase. Dramatic increases have
occurred particularly in the last few years, when filings increased by 29% between 1995 and
1996 and then went up another 20% from 1996 to 1997. The fact that these increases occurred
during a time of strong economic growth, wage growth and a high-octane economy, is quite
I believe that this dramatic increase in the number of consumer bankruptcies demonstrates some
fundamental problems with the bankruptcy code. For example, many of the factors that may
logically explain such a dramatic increase in the number of bankruptcies divorce, high medical
bills or high unemployment, are not present here. In fact, even some of the factors that
opponents of bankruptcy reform seek to use to explain this dramatic increase in bankruptcies,
such as high debt-to-income ratios, have not increased as dramatically as the increase in
bankruptcy filings. Further, most of the increase in these ratios occurred as a result of bigger
mortgages, which are now more affordable because of lower interest rates, rather than higher
credit card debt.
No, it seems that the cause of the problem may actually lie with the bankruptcy code itself, and
the way that it gives high income debtors the ability, and some would even call it the incentive, to
shelter their assets and declare bankruptcy, letting them simply walk away from their debts,
leaving the rest of us holding the bag.
Last year, the House and Senate took fairly divergent approaches to reforming the bankruptcy
system. In the Conference, both sides showed a strong willingness to compromise. In fact, I
believe that we in the House demonstrated a remarkable willingness to accede to the Senate's
wishes and we were happy to do so! What emerged was a balanced bill that protects low
income debtors, retains significant discretion for Bankruptcy Judges, fairly takes a debtor's
individual circumstances into account, and, for the first time, requires high-income filers who
have an ability to pay back a portion of their debts to do so.
That compromise, which received 300 votes on the Floor of the House last year, has become the
basis for the House bankruptcy reform bill this year. This compromise already has amassed the
Cosponsorship of 67 Members, 44 Republicans and 23 Democrats, including Leadership from
both sides of the aisle.
I hope that we can forge ahead in that spirit on this year's Bankruptcy Reform effort. The Senate
has provided great leadership on Bankruptcy Reform, and I hope that this body remains fully
committed to a strong bill.
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