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S 1301 -- 09/17/98

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Office of Management and Budget


September 17, 1998

S. 1301 - Consumer Bankruptcy Reform Act of 1998
(Grassley (R) Iowa and Durbin (D) Illinois)

The Administration encourages Senate passage of S. 1301 as an important step toward balanced bankruptcy reform; however, the Administration ultimately would support enactment of bankruptcy legislation only if the essential reforms incorporated by the Senate managers' amendment are preserved and strengthened and the unbalanced and arbitrary elements of the current House bill are omitted.

The Administration supports bankruptcy reform that asks both debtors and creditors to act more responsibly. Debtors who genuinely have the ability to repay a portion of their debts should remain responsible for those debts. But creditors must also be responsible for treating debtors fairly, recognizing creditors' superior information and bargaining power.

As reported from Committee, S. 1301 focused heavily on perceived debtor abuse, with little to curtail abuses by creditors. However, if changes incorporated in the manager's amendment are adopted, the Senate bill will take significant steps to address abusive practices by both debtors and creditors. Essential changes included in the managers' amendments include: (1) new disclosure requirements to ensure that credit card companies provide consumers with the information about their accounts that they need to manage their budgets; (2) procedural protections to avoid inappropriate and unwise reaffirmations of unsecured and certain secured consumer debts; and (3) modifications made to the nondischargeability provisions in the bill so that the bill no longer inappropriately puts credit card debt in competition with child support, alimony, and other societal priorities like educational loans and taxes.

The Administration also strongly prefers the discretionary approach to limiting access to Chapter 7 used in S. 1301 over the rigid and arbitrary approach in the House bill. We support changes made by the Senate bill to ensure that those debtors denied access to Chapter 7 under Section 707(b) of the Bankruptcy Code are those that have a strong likelihood of successfully completing a Chapter 13 plan.

More can and should be done to produce a truly balanced bill. The bill must address the potentially coercive effect of allowing creditors to bring 707(b) motions based on any allegation of abuse and strengthen the protections against coercive reaffirmations.

The Administration also supports financial contract netting provisions in the bill, which are important to reducing systemic risk in our financial markets and are based on a proposal from the President's Working Group on Financial Markets.

The Administration supports Senate passage of the "Omnibus Patent Act of 1998" as an amendment to S. 1301 because that bill supports American innovation through needed patent law reforms. While the Administration is disappointed that the bill does not include all of the performance based organization reforms it proposed, the provision's inclusion of the annual performance agreement is welcome.

Finally, the Senate is expected to vote on an amendment to raise wages of 12 million Americans and help ensure that parents who work hard and play by the rules do not have to raise their children in poverty. Two years ago, the President signed into law a moderate increase in the minimum wage. The results of that action are clear: it raised the wages of the lowest paid workers and did not cost jobs. Now we must continue to take actions to ensure that all Americans are benefitting from our prospering economy. That is why the Administration strongly supports raising the minimum wage by $1 over two years.

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