Dear Representative Nadler: Thank you for your letter of March 4, 1999, to the President regarding bankruptcy reform. He has asked me to respond on his behalf. The President appreciates your kind words about the role that he and the First Lady played during last year’s debate on bankruptcy reform. He also appreciates your continued dedication to this issue. Web posted and Copyright © March 24, 1999, American Bankruptcy Institute.

EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503

March 23, 1999

The Honorable Jerrold Nadler
Subcommittee on Commercial and Administrative Law
Committee on the Judiciary
U.S. House of Representatives
Washington, DC 20515

Dear Representative Nadler:

Thank you for your letter of March 4, 1999, to the President regarding bankruptcy reform. He has asked me to respond on his behalf. The President appreciates your kind words about the role that he and the First Lady played during last year’s debate on bankruptcy reform. He also appreciates your continued dedication to this issue.

As you know, the President supports responsible bankruptcy reform that is balanced, would reduce abuses of the bankruptcy system, and would require debtors and creditors alike to act responsibly. The President was disappointed that the last Congress failed to produce legislation that he could support. He remains hopeful that bipartisan consultation and compromise will result in legislation that he can enthusiastically sign this year.

Last year the Administration expressed its strong opposition to the House-passed version of H.R. 3150. We encouraged passage of the Senate bill "as an important step toward balanced bankruptcy reform," but noted that the Administration would support its enactment "only if the essential reforms incorporated by the Senate managers’ amendment [were] preserved and strengthened and the unbalanced and arbitrary elements of the current House bill [were] omitted." Although we thought that the Senate bill could be further improved, we believed that the extraordinary bipartisan support for the Senate bill was an endorsement of balance and moderation. We were disappointed that the Conference Report failed to include key provisions of the Senate bill, thus failing the test of balance. In my letter to Congressional leadership dated October 9, 1998, I noted that the President’s senior advisors recommended that the President veto the Conference Report. Our position from last year has not changed.

During this year’s debate, the Administration will continue to encourage Congress to find an appropriate balance. Among the issues that must be addressed are:

• Access to Chapter 7: Any "means test" imposed should deny access to Chapter 7 only to those who genuinely have the capacity to repay a portion of their debts successfully under a Chapter 13 repayment plan. Thus, debtors affected by a means test must be given a meaningful opportunity to have their specific circumstances considered by bankruptcy courts with discretion to determine whether they genuinely have the capacity to repay a portion of their debts. In addition, the time periods and thresholds used in any means test should be set to ensure that only those debtors with a strong likelihood of success are denied access to Chapter 7.
• Nondischargeable Debts: It is generally inappropriate to make post-bankruptcy credit card debt a new category of nondischargeable debt. The Bankruptcy Code makes debts nondischargeable only where there is an overriding public purpose, as with debts for child support and alimony payments, education loans, tax obligations, or debts incurred by fraud. We remain skeptical that the current protections against fraud and debt run-up prior to bankruptcy are ineffective and that the additional debts made nondischargeable by this bill meet the standard of an overriding public purpose. If new categories of nondischargeable debt are to be created, however, they should be narrowly tailored and limited to situations where the debtor is clearly abusing the system, such as when the debtor: (1) incurred the debt to pay nondischargeable debt with an intent to avoid the debt in bankruptcy; and/or (2) incurred the debt on the eve of bankruptcy for goods and services that are not reasonably acquired to support the debtor's household.
• Coercive Credit Practices: Particularly if we are to provide new opportunities for creditors to challenge debtors' use of the bankruptcy system under the 707(b) abuse test, it is imperative that we adequately limit prevalent abusive creditor practices such as coercive reaffirmations and violations of the automatic stay. While the Senate bill initially took laudable steps in this direction, the Conference Report rolled back existing consumer protections by denying consumers an effective means for remedying the harm from such practices and eliminating the current authorization for penalties for intentional violation of debtor rights.
• Consumer Information and Protection: The challenge posed by the unprecedented level of bankruptcy filings requires us to ask greater responsibility of both debtors and creditors. Credit card companies must give consumers more and better information so that they can understand and better manage their debts.
• Homestead Exemptions: At the same time that we are creating a system that will deny certain moderate-income Americans access to the traditional "fresh start," we should also close the loopholes that allow the wealthy to shield hundreds of thousands of dollars of wealth from their creditors.

We look forward to working with you and your colleagues on both sides of the aisle to address these and other important concerns and to produce responsible, balanced bankruptcy reform.

Sincerely,

Jacob J. Lew
Director

Identical Letter Sent to the Honorable John Conyers, Jr.