Bankruptcy Abuse Prevention and Consumer Protection Act of 2005

BANKRUPTCY ABUSE PREVENTION AND CONSUMER PROTECTION ACT OF 2005 -- (Senate - March 01, 2005)

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Mr. DURBIN. Mr. President, I will go to this amendment in a moment, and it is one I hope all Members will listen to carefully because it is an effort to protect our military from the provisions of this bill, particularly in light of the activation of Guard and Reserve units across America and the financial hardship it has created. I will speak to that amendment after I address this bill a few moments more.

I thank my colleague from Alabama. We see this issue differently, but there are some things on which we agree. I think my colleague from Alabama is doing the right thing on the homestead exemption because if you could walk into bankruptcy court having just bought a multimillion-dollar mansion in Florida and then say, I don't want to be held responsible for my debts, and then the court says, Of course, your home you can keep, your home is your castle, and that home is worth millions of dollars, you have just defrauded the system, as far as I am concerned. Here you are with a multimillion-dollar home and these debts and you do not pay your debts, and the States of Florida, Texas, Kansas, and a few others say whatever your home is worth, it is exempt.

It is a loophole in the law. If we are talking about just and right conduct in this situation, then clearly we would change the homestead law. I salute my colleague from Alabama because he has been a leader on this issue. It is unfortunate that we have been unable to reach a better agreement as we go forward on this bill.

Mr. SESSIONS. Will the Senator yield for a brief question?

Mr. DURBIN. I yield for a question without yielding the floor.

Mr. SESSIONS. I don't think the Senator would deny that this new bankruptcy reform bill makes it more difficult than current law to abuse the homestead exemption.

Mr. DURBIN. Yes. I would not.

Mr. SESSIONS. We didn't go as far as we would like to go, but we did make some progress.

Mr. DURBIN. I think the Senator from Alabama is correct. The bill makes an improvement, but it doesn't reflect the combined wisdom of the Senator from Wisconsin and the Senator from Alabama, an amendment I was more than happy to support.

So here is this bankruptcy bill, and we are talking about ordinary Americans going into bankruptcy court. We did a survey. We took a look at 1,900 bankruptcies across the United States and said: What brought you to court? Why did you finally have to file for bankruptcy?

More than half of them said medical bills. Three-fourths of the people who filed for bankruptcy because the medical bills had swamped them, three-fourths of those people had health insurance when they were diagnosed but they didn't have enough. It did not cover enough. Or they lost their job and then they couldn't keep up with it.

Is there one of us--I guess there are some, but is there one of us who believes that we are invulnerable when it comes to medical debt? You know better. You go to the doctor's office thinking everything is just fine and you are diagnosed with a serious illness which results in surgeries, chemotherapy, and long hospital stays. Who among us can say, I'll just write a check; I will cover the difference in my health insurance? Not many. Maybe a handful of people but not many.

So what happens? You go to the hospital. You get treated. When all is said and done you try to get well and go back to work, and there is this huge shadow over your life. They call and they say: We want you to pay.

You pay some, but you can't pay enough and the next thing you know you are consumed with paying this debt, but you just can't do it; it is way beyond your means. What do you do? You do what you can legally do in America today. You go to a court and say: I have to file bankruptcy. I don't have enough assets. I will never be able to pay off this debt.

The court may decide you will never be able to pay off this debt. If they think you can, they may put you on a schedule to make certain payments for a period of time. But say you are a waitress at a diner. You went through breast cancer, surgery, and treatment. You have $50,000 in debt, and what are your assets, $20,000? This will never work. You will never get out from under this debt so you can file for bankruptcy. You can clean the slate. You can start over.

That is the law. It is embarrassing. People don't like to go through it, but they are forced into it.

What this bill says, for those people who get in those circumstances, is we are going to make it tougher for you. Let me give you one little illustration of how they make it tougher.

Imagine you have this huge medical debt hanging over your head. The creditors are not only calling you at home, they are calling your kids at home. The kids are crying, saying: How many more phone calls do we have to take, Mom?

You get to go to bankruptcy court, but you just discovered something. You don't have enough money on hand. You have barely enough to get from paycheck to paycheck, and the attorney says: I will represent you, but there is a $209 filing fee to go into bankruptcy court, and I am going to need at least $500 to start this proceeding as your attorney.

What am I going to do? I have a credit card. I am going to go ahead and take cash out of my credit card to pay the filing fee and to get $500 for the lawyer so I can go to court. If I do that within 70 days of filing bankruptcy, they declare this as a fraudulent transaction that cannot be discharged in bankruptcy. That credit card debt for $740-plus within 70 days of filing is with me forever. The credit card company has me forever until I pay it off.

Some people will say: We have to hold these people to a high moral standard: Pay back your debts, be responsible.

I agree with that. But the law has said for decades that there are some people who can't do that. They reach a point where they cannot physically do it. They are not making enough money and they never will. So you know what I did in the Judiciary Committee? I said to my colleagues in the Judiciary Committee, if this is about your moral responsibilities, let's talk about some of the corporate CEOs that we have heard so much about recently and their moral responsibilities. I used as an illustration Kenneth Lay, CEO of Enron. Mr. Lay took $81 million in loan advances from Enron before the company declared bankruptcy. Do you remember what happened when it declared bankruptcy? Not only did the shareholders lose, the employees lost, the retirees at Enron lost, and retirees across America who had investments in Enron lost, too.

So I said to my friends on the Judiciary Committee: If we are going to hold this woman with her medical bills, who just took a cash advance of $740, to high moral standards, shouldn't we hold Mr. Lay to high moral standards? Shouldn't we look back and see what his corporate activity was?

They said: No. We are just interested in the woman with breast cancer. We don't want to talk about Kenneth Lay.

How about Dennis Koslowski, Tyco chief executive? Do you remember his situation? He had Tyco pay for a $30,000 shower curtain; $30,000 paid by the corporation, and he took a total of $135 million out of the corporation in loans and company payments for his personal use and then went right into bankruptcy. I said to my friends on the Judiciary Committee: How about that? Here is a situation, this corporate executive fleeced his company, pushed them into bankruptcy, hurting millions of people, shouldn't we look back and hold him accountable?

No, we are not interested in Dennis Koslowski, nor WorldCom CEO Bernie Ebbers, who took $408 million. We are interested in the woman, single mother with two kids, who is a waitress, who can't pay her bills for breast cancer. That is who we are interested in.

That tells you what this bill is all about. This bill is all about the bankruptcies of ordinary Americans, ordinary Americans who are seeing their jobs outsourced, ordinary Americans who are seeing their health insurance downsized if they are lucky enough to have it, downsized every year, ordinary Americans who have seen their real wages decline, ordinary Americans who are not even being paid a minimum wage that reflects the cost of getting by in America, ordinary workers who are losing overtime pay because this administration is restricting the rules for eligibility on overtime. These are the people we are after. We are not after those corporate CEOs. We will save them for another day. Right. Don't hold your breath.

Isn't it interesting at a time when health care in America is so hard to come by and so expensive, when the Government is talking about cutting back on Medicaid, when we have no proposals to help people with their health care insurance, when we know it is driving people deeper and deeper into debt and more vulnerability, that we come up with a bill that is going to make it tougher for those who cannot pay their medical bills? It tells you about this Congress and its priorities.

This is our second bill. This is our second highest priority in this session: Do something about that woman with breast cancer. She is going to that bankruptcy court, and it is not morally right.

The credit card industry is pushing this bill big time. I told you earlier in the year 2003 the credit card industry had $30 billion in profit. They don't acknowledge the obvious. If there are abuses in the bankruptcy system there are sections to cover it; 707(b) allows the bankruptcy court to deal with substantial abuses of the rules. That is already in the law. If a bankruptcy judge suspects a person is going to walk on the debts he can pay, the judge orders a trustee to investigate, and if the trustee says the person is hiding assets, the judge can tell the person: I will not discharge your debts.

That is already in the law, and that is the way it should be.

Last year, they investigated over 3,000 cases where they suspected somebody was cheating the bankruptcy system, and it ordered the petitioners to pay their debts in over 95 percent of them.

The system is working. The credit card companies don't need new laws to catch deadbeats. The credit card companies want this law so they can squeeze every last dollar out of decent, hard-working, play-by-the-rules people who have already been devastated economically by traumatic events such as job loss, divorce, and, increasingly, medical problems.

We had a hearing on this bill: 2 hours and 15 minutes. Senator Hatch said, at one point, if this hearing went any longer, it would have cost him his sanity. I won't comment on that. But I think we could have taken a few more minutes on this bill, even invited or subpoenaed the credit card companies to come up and explain why they need this so desperately.

I think we understand what is going on here. The Harvard law and medical schools did a study, the first indepth study of the medical causes of bankruptcy. It is an indepth examination of the records in 1,900 bankruptcy cases filed in five different bankruptcy courts across America, including one in Illinois. It showed that half of the bankruptcies in this country are because of high medical bills.

Listen to these statistics. Two million Americans each year are driven into bankruptcy by medical debt. Three-quarters of them had health insurance when they first got sick. Most of them lost their insurance when they got fired because they were too sick to work anymore, or they were bankrupted by out-of-pocket expenses that policies didn't cover. Are these morally flawed people? Are these irresponsible people who got sick? They are good people who had the misfortune of illness.

Harvard law professor Elizabeth Warren, one of the authors of the study, said:

These are hard-working, ``play by the rules'' people who have health insurance and have discovered that they were just one bad diagnosis away from financial disaster. I think that's the real heart of the story. This is about people who thought they were all safe. Accountants, lawyers, teachers, police officers, airline mechanics, members of the National Guard who get sent to Iraq for a year, the family next-door--that is who is going bankrupt in America, families who spend nearly every dollar they earn, not on luxuries but on necessities and basics: childcare, health care, a decent home, and a safe neighborhood. They have very little savings. They are not doing that well. They dip into their savings when they have to. They may even try to take their money out of their 401(k). Maybe they take out a second mortgage. When that money is gone, they turn to credit cards for basics such as food, gas, and doctors' bills. They have done their level best to raise their kids right and honor their obligations. According to Professor Warren, the average American filing for bankruptcy spends more than a year struggling with debts before filing. This is not an impulsive thing. Four out of ten people she interviewed said they had their phones shut off in the 2 years before they filed. More than half skipped doctor or dental appointments because of the cost. More than 40 percent had failed to fill a prescription, and more than one in five had gone without food--without food--because of the cost. By the time they finally gave up and went to bankruptcy court, the average family owed more than a year's salary in debt, other than their mortgage. Getting the last pound of flesh from these families, that is what the bill is all about.

What is the incidence of abuse? We can almost agree on it.

The American Bankruptcy Institute is a nonpartisan research and education organization that says 3 percent of the people who file for bankruptcy could afford to repay--3 percent. This is about 1.1 million who file each year. The rest don't have two nickels to rub together. The credit card industry says it is 10 percent. Even if you accept their own figure, that means 90 percent of the people who file for bankruptcy are flat broke. They should be left alone.

Under current law, these 90 or 97 percent of bankruptcy petitioners show a bankrupt judge how much they owe and how much they earn. It is a simple process. You could fit the paperwork on a single sheet of paper and have room left over.

If the judge agrees the person cannot afford to pay all of his or her debts, the petitioner can file for chapter 7 bankruptcy, and the credit card debt, medical bills, and other unsecured debts can be discharged, wiped away. Bankruptcy is still financially and emotionally draining, but at least the person can stop at zero.

The bill we are considering assumes that the majority of people are out to cheat the system. Despite the fact that even the credit card industry says 90 percent of the people are not, this bill assumes they are.

We create a means test--a means test that adds complication to the process, greater legal bills, and greater legal costs for the person in bankruptcy who is trying to get out from under the problem with the means test.

The way the law works now, bankruptcy judges have the authority and discretion to look at how much debt a person has and how they acquired the debt. Then the judge decides: Is this someone who is trying to game the system? Is this someone who has been dealt some hard blows in life? Is this debt brought on by buying a plasma screen television, or taking that cruise, or is it a desperate effort to pay doctors' bills and buy groceries and not see the house foreclosed on?

The means test in this bill wipes out the judge's discretion. The judge can't look at a real person. The judge looks at numbers on paper. The means test isn't really meant to screen out cheaters. There is already a provision in the law for that. It is designed to trip people up, add legal expenses, and force more families into chapter 13.

This isn't a balanced bill. Unfortunately, the scandals I have talked about at Enron, Tyco, and WorldCom are the subject of a good bankruptcy bill. We are not going to consider that. We don't deal with corporate bankruptcies here, that is over the line. We deal with the bankruptcies of ordinary individuals.

Let me tell you about the amendment I am offering because the people I am offering it on behalf of are far from ordinary. They are mothers, fathers, Americans in our country today. These are the men and women in uniform. I have seen them and you have, too. You have seen them on the news--risking their lives in Iraq, Afghanistan, Korea, and around the world. I have seen them in Illinois, as we send our troops to go serve overseas--in Litchfield, IL, about a month ago. There was not a dry eye in the house. About 100 of them were infantry, activated, standing at attention in the Litchfield High School gymnasium. There we sat with the stands filled with families praying for their safe return. We watched them file by and we shook hands with every one of them, saying: Godspeed. We are on your side. We won't forget you. You are in our thoughts and prayers.

Here comes this bankruptcy bill. Do you know what happens? You end up with men and women in uniform--activated Guard and Reserve, and other active military--sent to battle, sent to combat, where every day their life is at stake, and meanwhile many of them are facing extraordinary hardships at home. They and their families have lost their life's savings which they cannot deal with because they are defending our country.

Military service always involves sacrifice. In times of war, those sacrifices multiply. Extended deployment means long difficult separations. Military service means extraordinary financial hardships.

I asked the GAO to look into issues affecting the economic security of our troops; in other words, what is happening to families' finances when they serve our country and go overseas. There isn't a lot of data. They went back to the 1999 Defense Department survey. In that survey, they found 16,000 Active-Duty members of the military had filed for bankruptcy in the preceding 12 months. That was 1999, 6 years ago.

We know the economic stress on military families has increased dramatically since then. We are at war with 150,000-plus in Iraq and thousands in Afghanistan.

Since September 11, 2001, more than 469,000 National Guard members and Reserves from the Army, Marines, Navy, and Air Force have been called up for combat in Iraq and Afghanistan--the largest deployment of U.S. Guard and Reserve forces in 50 years. Reservists' tours of duty can last up to 24 months today. The Pentagon is considering extending that time limit.

I have a pie chart I would like to show you which demonstrates some of the problems facing the military.

In 2002, the Department of Defense conducted a survey of military spouses. Here is what they found.

Thirty percent--almost one-third--of all military families reported a loss of family income when the spouse was deployed; almost one out of three.

Part-time military--National Guard and Reserve members--were especially hard hit; 41 percent of Guard and Reserve families lost income when a spouse was deployed--41 percent.

Let me just say parenthetically my salute to all of the companies, all of the units of government that have stood behind the men and women in uniform and have said: We will protect your pay while you are gone. We will make sure you don't get penalized. How embarrassing it is to stand here today and tell you that our Federal Government does not stand behind the men and women in the Federal workforce who are activated. We don't make up the difference.

So 41 percent of those Guard and Reserve activated who have lost income include a lot of Federal employees. The average income varied by branch, ranging from an average of $600 lost for Air National Guard members, to $3,800 for Marine Corps reservists.

Senior officers lost an average of $5,000 in lost income and $700 per enlisted member.

Reservists who own their own businesses are especially hard hit. Fifty-five percent of self-employed reservists lost money when they were activated. The average income loss for these families is $6,500.

For reservists with specialized degrees and training, the income loss was even greater. Doctors and registered nurses who are mobilized report an average loss of $9,000. Doctors in private practice lose an average of $25,000. The list goes on.

Many of these families manage to scrape by using their savings and relying on relatives and friends. Some families do all of these things, but their financial problems still become so severe that they have no choice but to file for bankruptcy.

They are the people we are talking about in this bankruptcy bill. We are not talking about someone in a distant State in a circumstance we can't understand. We are talking about an activated member of the Guard and Reserve deployed for a year or 2 years who loses his business and has to file for bankruptcy. The law we are going to pass is going to make it more difficult for that person to file for bankruptcy.

Senator EVAN BAYH is one Member who supports this amendment. He calls it the ``patriot penalty.'' We are penalizing those serving our country by making it tough for them when they become bankrupt because they have lost all of their income serving America.

Let me give you an example.

Ray Korizon is from Schaumburg, IL. Before the Persian Gulf war in 1991, he owned a construction company that employed 26 employees. He lost his business when his Reserve unit was deployed for 6 months. Today, he works for the Federal Government.

Some of the self-employed reservists who have been called to duty in this war are facing similar financial hardships. Army Reserve SGT Patrick Kuberry is one of them. He and a business partner--an Army Reserve colonel--used to own two small restaurants in Denver. Like most owners of small restaurants in Denver, CO, they both worked long hours. They didn't make a lot of money, but they made enough to support their families. Then came 9/11 and the economic downturn. They had to close one of the restaurants. In April 2003, his partner was called up and sent to Afghanistan. In June 2003, Sergeant Kuberry's unit was called up. He spent 11 months in Africa. That was the last blow. Without either man home to work, the remaining restaurant went under. Sergeant Kuberry and his partner were forced to file for personal bankruptcy.

Another story: Rick Parsons and Dave Young are both Army Reserve majors from Rochester, NY. In civilian life, Rick Parsons is a veterinarian in private practice and Dave Young is an accountant. They were shipped out with their unit to Afghanistan for a year. They were nearly wiped out financially. Rick Parsons couldn't find another vet on short notice to run his practice. He earned $70,000 during his year in Afghanistan, but he had to take out a loan for the same amount to save his practice. He figures he was within a month of having to go file for bankruptcy when he got home. Dave Young's wife and father were able to keep the small accounting firm going during the year he was in Afghanistan.

The other units were not so lucky. Another ended up with a mountain of medical bills after developing malaria.

Let me tell you about another person filing for bankruptcy. Kathy Cruz is a bankruptcy attorney in Hot Springs, AR. The State is home to the 39th Infantry Division of the Arkansas National Guard. In October 2003, the division shipped out for 18 months, including 12 months in Iraq. Six months later, the division deployed, the first Guard families began showing up at Kathy Cruz's office desperate for a way to hold on to their homes and avoid bankruptcy. One of her clients, a family with four teenagers, owned a combination gas station and convenience store. The father was a reservist medic. With him in Iraq, there was literally no one to mind the store. So they closed the store. When they got into serious financial trouble, they gave their home back to the mortgage company so it wouldn't be repossessed. Then things got worse.

Is this irresponsible conduct of these people activated to serve America, to risk their lives in combat? While they are risking their lives, everything they own is at risk.

Things got so much worse, the soldier's parents had cosigned the loan for the business, trying to save it. While this soldier was overseas serving America, they had to declare bankruptcy or they would lose their home and the whole family would be on the street. The grandfather is disabled. The grandmother has gone back to work to try to keep the family afloat financially. The whole family recently came to Ms. Cruz in her office in Hot Springs. This is how she described the visit of this family.

You've got three generations sitting in front of you, scared out of their wits.

Ms. Cruz says she expects to see more such families in the future. In her words, ``This is the tip of the iceberg.''

Most families try to desperately avoid bankruptcy because of the stigma, the connotation of personal failure and their own moral code that says you pay back what you owe. Many military members and families try doubly hard to avoid it because of the mistaken belief that bankruptcy alone can be grounds for a dishonorable discharge. They are encouraged to believe that, in many cases, by payday lenders that cluster around military bases and communities who are going to let people know inside the base if the soldiers don't pay off.

Let me tell you about loan sharks. Payday lenders are legal loan sharks that offer small, short-term loans at interest rates of 100, 500, even 1,000 percent. When the borrower can't pay back the loan, the payday lender offers them another loan, and then another loan. In fact, a recent study in Iowa found that customers typically roll over interest.

Payday lenders specifically target military members because they know they have a steady source of income, many are young and inexperienced, they have family obligations, they are strapped for cash, and they are easy to find. And, most offensive, payday lenders target military members because they know these are people who are hard working and honest and who believe in personal responsibility and integrity.

Operations like these and others employ former military personnel to solicit soldiers. They use gimmicky, misleading names such as Force One Lending, Armed Forces Loans, Military Financial, and American Military Debt Management Services.

Let me show you this chart of payday lenders in the State of Georgia.

Military loan: Here is an example of one of them. This is what you see on highways and roads leading into many military bases and communities: Store-front pawn dealers, payday loan shops, and ``debt consolidation'' operations, all trying to lure military members and their families with the promise of fast, easy money which they can never pay off.

This is a store-front payday loan store in King's Bay, GA, just across the State line from a military base in Florida. Note the name of this operation, ``Pioneer Military Loans.''

Here is another operation on the same highway, ``T&C Pawn.'' Isn't it appropriate that right next door is a unit known as Fleet Cleaners. You get to go to the cleaners in both places.

Retired Navy veteran Peter Kahre made the mistake of taking out a loan with a business like this more than a decade ago when he was stationed at Jacksonville Naval Air Station. He is still haunted by it. When Kahre was deployed in 1996, the ``basic sustenance'' portion of his military pay was cut by $197 a month because his food was now being prepared onboard. That pay cut, plus the arrival of a new baby, put his family in a bind. So Kahre borrowed $100 from a payday lender.

When he could not repay that loan, he took out another, and another, until he had loans with 10 different payday lenders. He estimates he paid back $20,000 on loans for which he received a total of not more than $3,000, before he was finally forced to file for bankruptcy.

Let me show you some of the ads from the payday lenders in the Army Times to give you an idea what these folks are after. This one is for our men and women in uniform: ``INSTANT CASH.'' ``Advanced Pay Loans.'' ``How we beat the competition:'' ``Bankruptcies OK.'' They cannot wait to lure the men and women in uniform into these outrageous loans. ``Bankruptcy no problem!'' In other words: We will lend you money even though we know you probably cannot afford to pay it back.

There is another kind of predatory lender that clusters around military communities. They lend money in exchange--listen to this--for military members and veterans signing over their pension benefits. Imagine, if you will--I have read the case that was reported in the news--a sergeant had married a young woman in the Philippines. He could not afford to bring her to the United States. He went in and pledged his military retirement as collateral for one of these loans.

``Cash now!'' Look at this one: ``Lump sum paid for pensions, VA disability, VSIs. Credit problems OK!'' These are the people we talk about who end up getting snared into these outrageous, usurious loans they will never be able to pay back.

The National Consumer Law Center released an excellent report in May 2003. Every Member of the Senate ought to read it. In it you will find story after story of military members and veterans who have suffered serious financial problems because of predatory lenders.

Now let me tell you about the amendment I am offering. Whether the person is career military or Guard or Reserve, the men and women of our Armed Forces make extraordinary sacrifices to defend our Nation. They put their lives on the line, their comfort, their freedom, their time with their families. They sacrifice their health, even their lives. Many of them make major financial sacrifices.

Today, I am offering an amendment that will give military members who have been forced into bankruptcy because of income loss connected to their service the hope of a second chance.

My amendment does not grant military members any favors. It is not a ``get out of debt free'' card. The members of the military I have met would not want that kind of special treatment. They are men and women of integrity who want to pay their debts and honor their obligations. This amendment simply protects the people who protect us from the possibility of spending the rest of their lives in a figurative debtor's prison.

Let me show you a chart in reference to the amendment. It has four basic elements. My amendment protects three groups of people: service members, military veterans, and spouses of service members who die in military service.

We protect them in bankruptcy with four provisions.

First, we prevent unscrupulous payday lenders from using bankruptcy courts to fleece military members, veterans, and spouses of service members who die in military service. Any claims based on debt they owe that require payment of interest, fees, or other charges in excess of 36 percent would not be collectible in bankruptcy proceedings.

Second, my amendment exempts members of the armed services, veterans, and spouses of service members who die while in military service from the onerous means test provisions of this bill. Again, this is not a ``get out of debt free'' card. It simply allows the bankruptcy judge--not an arbitrary and inflexible formula--to determine whether a military member, a veteran, or a surviving spouse of a service member who dies while serving America deserves the protection of chapter 7. It is left to the judge's discretion in these cases when it comes to the military.

Men and women who volunteer to go to war should not have to wage war against the mountain of paperwork this bill creates.

Third, service members face a problem that most other bankruptcy petitioners do not. They do not choose where they live. They are sent on assignment by the military. That can have major economic consequences.

I have a chart that shows some of the homestead exemptions. In other words, when you go to bankruptcy, you can usually protect your home, but every State is different. So if you are assigned, for example, to a base in Florida, there is unlimited protection for your home, if you file bankruptcy while you are in the military. In Ohio, it is $5,000. That is all that is protecting your home. In Nevada, it is $200,000. In Illinois, it is $7,500. If you are stationed in New Jersey, there is no protection at all, no homestead exemption.

So what we have done is to establish a basic homestead exemption. It would say that the members of the military are going to be allowed a $75,000 homestead exemption, or they can choose the exemption in the State in which they file.

There is another portion of this amendment which relates to the personal property that someone could exempt from bankruptcy. That exemption is different from State to State. For my State of Illinois, I remember from when I dealt with bankruptcy law, you can exempt your tools from being taken from you in bankruptcy--a reasonable idea. But for those sorts of things, every State is different.

So what happens to the member of the military who files and happens to be stationed in the State where they file for bankruptcy? We establish a Federal personal property exemption. I think it is reasonable so that the individual serving in the military has that protection.

Let me conclude. I know several Members are here to speak. We say all the time that we owe the men and women who defend our Nation a debt of gratitude we can never repay. That is true. But we can show that we honor their service by protecting them from spending the rest of their lives in a debtor's prison if their service obligations or serious illness or a string of bad breaks forces them to have to file for bankruptcy.

The credit card industry may argue my amendment is not needed because few military members and their families seek bankruptcy protection. No one knows that for sure. But if it is a small number, the protections of my amendment will not hurt this multibillion dollar industry.

Some may say that military members and their families do not deserve the protections of my amendment because they are somehow morally deficient--I cannot wait to hear that argument on the floor--the same charge supporters of the underlying bill make about all people seeking bankruptcy. Well, if opponents of my amendment think members of the U.S. military are lacking in moral fiber, they need to spend a couple afternoons with troops, maybe visit some of our injured soldiers, or go to the veterans hospitals across America. Talk to some of these soldiers struggling to learn to walk on new legs, begging to go back into battle with their units. Tell me they need a lesson in personal responsibility.

This amendment is about the men and women who protect us getting protection from the possibility of a lifetime of debt. It is about giving to those who risk their lives so our children can grow up in freedom the possibility of a second chance for their own lives. We cannot repay the debt we owe these men and women, but we can protect them from having to spend the rest of their lives in debt. That is what my amendment would do. I urge my colleagues--and I hope on a bipartisan basis--to support this amendment.

I yield the floor.

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AMENDMENT NO. 16, AS MODIFIED

Mr. DURBIN. Mr. President, I thank the Senator from Alabama for offering to work with me. It would be my wish and hope that we could find a bipartisan agreement on this issue. Either he or someone who is distributing information on the floor has raised I think a very valid issue about our reference to the term ``veteran'' in my amendment. What we were thinking of was a situation where some of our active-duty soldiers who are seriously wounded and transferred to hospitals, such as Walter Reed, find themselves needing to be discharged quickly so they can go into the veterans health system. So we included the term ``veteran'' so it would apply to them as well.

But someone has observed, correctly, by using the term ``veterans'' we have opened this up very broadly. So I send a modification to my amendment to the desk.

The PRESIDING OFFICER. The Senator has that right. The amendment is so modified.

The amendment, as modified, is as follows:
(Purpose: To protect servicemembers and veterans from means testing in bankruptcy, to disallow certain claims by lenders charging usurious interest rates to servicemembers, and to allow servicemembers to exempt property based on the law of the State of their premilitary residence)

On page 13, between lines 13 and 14, insert the following:

``(D) Subparagraphs (A) through (C) shall not apply, and the court may not dismiss or convert a case based on any form of means testing, if--

``(i) the debtor or the debtor's spouse is a servicemember (as defined in section 101 of the Servicemembers Civil Relief Act (50 App. U.S.C. 511(1)));

``(ii) the debtor or the debtor's spouse is a veteran (as defined in section 101(2) of title 38, United States Code) and the indebtedness occurred in whole or in part while they were on active military duty; or

``(iii) the debtor's spouse dies while in military service (as defined in section 101(2) of the Servicemembers Civil Relief Act (50 App. U.S.C. 511(2))).

On page 67, between lines 18 and 19, insert the following:

SEC. 206. DISALLOWANCE OF CLAIMS FILED ON HIGH-COST PAYDAY LOANS MADE TO SERVICEMEMBERS.

(a) In General.--Section 502(b) of title 11, United States Code, is amended--

(1) in paragraph (8), by striking ``or'' at the end;

(2) in paragraph (9), by striking the period at the end; and

(3) by adding at the end the following:

``(10) such claim results from an assignment (including a loan or an agreement to deposit military pay into a joint account from which another person may make withdrawals, except when the assignment is for the benefit of a spouse or dependent of the debtor) of the debtor's right to receive--

``(A) military pay made in violation of section 701(c) of title 37; or

``(B) military pension or disability benefits made in violation of section 5301(a) of title 38; or

``(11) such claim is based on a debt of a servicemember or a dependent of a servicemember that--

``(A) is secured by, or conditioned upon--

``(i) a personal check held for future deposit; or

``(ii) electronic access to a bank account; or

``(B) requires the payment of interest, fees, or other charges that would cause the annual percentage rate (as defined by section 107 of the Truth in Lending Act (15 U.S.C. 1606)) on the obligation to exceed 36 percent.''.

(b) Conforming Amendment.--Section 523 of title 11, United States Code, is amended by adding at the end the following:

``(f) Notwithstanding paragraphs (2), (4), and (6) of subsection (a), a debt is dischargeable in a case under this title if it is based on an assignment of the debtor's right to receive--

``(1) military pay made in violation of section 701(c) of title 37; or

``(2) military pension or disability benefits made in violation of section 5301(a) of title 38.''.

On page 132, between lines 5 and 6, insert the following:

SEC. 234. PROTECTION OF SERVICEMEMBERS' PROPERTY IN BANKRUPTCY.

(a) In General.--Section 522(b) of title 11, United States Code, as amended by section 224, is further amended--

(1) in paragraph (1), as redesignated, by striking ``either paragraph (2) or, in the alternative, paragraph (3) of this subsection'' and inserting ``paragraph (2), (3), or (4)'';

(2) by redesignating paragraph (4), as added by this Act, as paragraph (5); and

(3) by inserting after paragraph (3), as redesignated, the following:

``(4) If the debtor is a servicemember or the dependent of a servicemember, and the date of the filing of the petition is during, or not later than 1 year after, a period of military service by the servicemember, property listed in this paragraph is--

``(A) property that is specified under subsection (d), notwithstanding any State law that prohibits such exemptions; or

``(B) property that the debtor could have exempted if the debtor had been domiciled in the State of the debtor's premilitary residence for a sufficient period to claim the exemptions allowed by that State.''.

(b) Definitions.--Section 101 of title 11, United States Code, is amended--

(1) by inserting after paragraph (13A), as added by this Act, the following:

``(13B) `dependent', with respect to a servicemember, means--

``(A) the servicemember's spouse;

``(B) the servicemember's child (as defined in section 101(4) of title 38); or

``(C) an individual for whom the servicemember provided more than 50 percent of the individual's support during the 180-day period immediately before the petition;'';

(2) by inserting after paragraph (39A), as added by this Act, the following:

``(39B) `military service' means--

``(A) in the case of a servicemember who is a member of the Army, Navy, Air Force, Marine Corps, or Coast Guard--

``(i) active duty (as defined in section 101(d)(1) of title 10); and

``(ii) in the case of a member of the National Guard of the United States, service under a call to active service authorized by the President or the Secretary of Defense for a period of more than 30 consecutive days under section 502(f) of title 32, for purposes of responding to a national emergency declared by the President and supported by Federal funds;

``(B) in the case of a servicemember who is a commissioned officer of the Public Health Service or the National Oceanic and Atmospheric Administration, active service; and

``(C) any period during which a servicemember is absent from duty on account of sickness, wounds, leave, or other lawful cause;'';

(3) by inserting after paragraph (40B), as added by this Act, the following:

``(40C) `period of military service' means the period beginning on the date on which a servicemember enters military service and ending on the date on which the servicemember--

``(A) is released from military service; or

``(B) dies while in military service;''; and

(4) by inserting after paragraph (51D), as added by this Act, the following:

``(51E) `servicemember' means a member of the uniformed services (as defined in section 101(a)(5) of title 10;''.

On page 191, between lines 11 and 12, insert the following:

SEC. 322A. EXEMPTION FOR SERVICEMEMBERS.

Section 522 of title 11, United States Code, as amended by sections 224, 308, and 322, is further amended by adding at the end the following:

``(r) If the debtor or the spouse of the debtor is a servicemember (as defined in section 101 of the Servicemembers Civil Relief Act (50 U.S.C. App. 511(1))) or a veteran (as defined in section 101(2) of title 38, United States Code) if the indebtedness occurred in whole or in part while they were on active military duty or the spouse of the debtor dies while in military service (as defined in section 101(2) of the Servicemembers Civil Relief Act (50 U.S.C. App. 511(2))), and the debtor or the spouse of the debtor elects to exempt property--

``(1) under subsection (b)(2), the debtor may, in lieu of the exemption provided under subsection (d)(1), exempt the debtor's aggregate interest, not to exceed $75,000 in value, in--

``(A) real property or personal property that the debtor or a dependent of the debtor uses as a residence;

``(B) a cooperative that owns property that the debtor or a dependent of the debtor uses as a residence; or

``(C) a burial plot for the debtor or a dependent of the debtor; or

``(2) under subsection (b)(3), and the exemption provided under applicable law that may be applied to such property is for less than $75,000 in value, the debtor may, in lieu of such exemption, exempt the debtor's aggregate interest, not to exceed $75,000 in value, in any property described in subparagraph (A), (B), or (C) of paragraph (1).''.

Mr. DURBIN. Mr. President, I want to explain briefly so the Senator from Alabama understands. We amended the term ``veteran'' in the amendment so it only applies to the situation where the veteran's indebtedness in whole or in part occurred during active duty. We were referring to veterans in general, and one person said: What if you were a veteran of World War II many years ago and your indebtedness had nothing to do with it? We have clarified it with this modification that it would be veterans whose indebtedness was incurred in whole or in part during their term of active duty.

I might also say to my colleague from Alabama, we have a legitimate dispute about the Servicemembers' Civil Relief Act. I would like to join with him to find out which one of us is correct because we have been told that this Civil Relief Act does not apply to debts incurred after military service begins. The most significant limitation is that its primary protections apply only to obligations entered into before a person is called to active duty.

So, ironically, it does not protect military families when they need it the most when additional debt is incurred to help make ends meet during active duty. Rather than belabor this point, I would like to join the Senator from Alabama and get to the bottom of it and find out who is right. It is an important point.

I yield the floor.

The PRESIDING OFFICER. The Senator from Wisconsin.

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