Mr. KOHL. Mr. President, I urge my colleagues to oppose the Hutchinson/Brownback ``opt-out'' amendment, then vote for the Kohl/Sessions/Grassley $100,000 cap. Let me tell you why; an opt-out doesn't change a thing. A few states have already basically ``opted out'' of reasonable homestead exemptions and that's a problem. This amendment would let these states continue to go on like nothing happened. The Kohl-Sessions-Grassley amendment, on the other hand, will stop this abuse, pure and simple.
You can not support our cap and also support an opt-out: It's either one or the other, Mr. President.
They say this is really just about states' rights. Nothing could be farther from the truth. Anyone who files for bankruptcy is choosing to invoke federal law in a federal court to get a ``fresh start,'' which is a uniquely federal benefit. In these circumstances, it's only fair to impose federal limits.
And don't take my word for it: just listen to one of Texas' leading newspapers, the Austin American-Statesman. It recently editorialized that: ``The U.S. Constitution gives the federal government supremacy over the states in bankruptcy matters, so arguments that the federal government should let states do as the wish on this particular fact of bankruptcy law make little sense.'' The editorial goes on to urge Congress to limit the homestead exemption.
Besides, we're only capping the homestead exemptions in states like Florida and Texas as they apply to bankruptcy and not for other purposes. That is, if you lose a multi million-dollar lawsuit in Texas and can't ``pay-up,'' you can still keep your expensive home if you don't file for bankruptcy. While that may not seem right, what state courts do is a matter of state law--and we do not touch it. On the other hand, anyone who wants to take advantage of the federal bankruptcy system should live with a federal $100,000 cap.
Now let's turn to why our proposal is so important to effective bankruptcy reform. Our proposal closes an inexcusable loophole that allows too many debtors to keep their luxury homes, while their legitimate creditors--like children owed child support, ex-spouses owned alimony, state governments, small businesses and banks--get left out in the cold. Last year, the full Senate unanimously went on record in favor of the $100,000 cap and emphasized that ``meaningful bankruptcy reform cannot be achieved without capping the homestead exemption.''
Curently, a handful of states allow debtors to protect their homes no matter how high their value. And all too often, millionaire debtors take advantage of this loophole by moving expensive homes in states with unlimited exemptions like Florida and Texas, and declaring bankruptcy--and then continue to live in style. Let me give you a few of the literally countless examples:
The owners of a failed Ohio S&L, who was convicted of securities fraud, wrote off most of $300 million in bankruptcy claims, but still held on to the multi-million dollar ranch be bought in Florida.
A convicted Wall Street financier filed bankruptcy while owning at least $50 million in debts and fines, but still kept his $5 million Florida home--with 11 bedrooms and 21 bathrooms.
And just last year, movies star Burt Reynolds wrote off over $8 million in debt through bankruptcy, but he still held into his $2.5 million Florida estate.
Unfortunately, those examples are just the tip of the iceberg. We asked the GAO to study this problem and, based on their estimates, 400 homeowners in Florida and Texas--all with over one hundred thousand dollars in home equity--profit from this unlimited exemption each and every year. While they continue to live in luxury, they wrote off annually an estimated $120 million debt owned to honest creditors.
Mr. President, this is not only wrong, I believe it is not acceptable. Without our amendment, the pending bill falls far short. Instead of a cap, it only imposes a 2-year residency requirement to qualify for a State exemption. And while that is a step, it will not deter a savvy debtor who plans ahead for bankruptcy, and it won't do anything about instate abusers such as Burt Reynolds. This $100,000 cap will stop these abuses without affecting the vast majority of States.
Let me make one final point. Some opt-out supporters have circulated misleading information about how many States would be affected by this cap. While a few States would be impacted, they are mistaken about eight States in particular; they are: Alabama, Colorado, Louisiana, Michigan, Mississippi, Nebraska, Oregon, and Rhode Island. We asked the Congressional Research Service to take a look, and CRS concluded that our cap would have ``no effect'' on these States.
I ask unanimous consent that the memorandum from CRS be printed in the RECORD.
There being no objection, the material was ordered to be printed in the RECORD, as follows: [Page: S14483]
Memorandum To: Sen. Subcommittee on Antitrust, Business Rights, and Competition. Attention: Brian Lee. From: Robin Jeweler, Legislative Attorney, American Law Division. Subject: Effect of proposed amendments to S. 625 on selected state homestead exemptions.
This responds to your request for a legal opinion on the effect of language that may be offered as an amendment to S. 625, 106th Cong., 1st Sess. 1999, the Bankruptcy Reform Act of 1999.
The proposed language would add a new subsection (n) to 11 U.S.C. §522 governing bankruptcy exemptions to provide that the aggregate value of homestead exemptions in op-out states may not exceed $100,000 in value.\1\ \1\ Specifically, proposed subsection (n)(1) states:
Except as provided in paragraph (2), as a result of electing under subsection (b)(3)(A) to exempt property under State or local law, a debtor may not exempt any amount of interest that exceeds in the aggregate $100,000 in value in-- (A) real 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. You have asked what effect this provision, if enacted, would have on the homestead exemptions in Alabama, Colorado, Louisiana, Michigan, Mississippi, Nebraska, Oregon and Rhode Island. For the reasons discussed below, we conclude that the proposed federal cap on state homestead exemptions would have no effect in these states. Several of these states provide for the possible exemption of a substantial amount of real property, for example, up to 160 acres of land, which could theoretically exceed $100,000 in value. In each case, however, the scope of the exemption is limited by a monetary cap on its aggregate value:
Alabama Code §6-10-2 (1993): homestead ``with the improvements and appurtenances, not exceeding in value $5,000 and in area 160 acres[.]''
Colorado Rev. Stat. §38-41-20 (1997): homestead shall be exempt ``not exceeding in value the sum of thirty thousand dollars in actual cash value in excess of any liens or encumbrances.]''
Louisiana Rev. Stat Ann., Title 20, §1 (West. 1999 supp.): homestead consists of ``a tract of land or two or more tracts of land with a residence on one tract and a field, pasture, or garden on the other tract or tracts, not exceeding one hundred sixty acres........This exemption extends to fifteen thousand dollars in value[.]''
Michigan Comp. Laws. Ann. §600.6023 (West 1999 supp): ``A homestead of not exceeding 40 acres of land and the dwelling house and appurtenances.......not exceeding in value $3,500.''
Mississippi Code Ann. §85-3-21 (West 1999): ``[A] householder shall be entitled to hold exempt.......the land and buildings owned and occupied as a residence by him, or her, but the quantity of land shall not exceed one hundred sixty (160) acres, nor the value thereof, inclusive of improvements, save as hereinafter provided, the sum of Seventy-five Thousand Dollars ($75,000.00[.]''
Nebraska Rev. Stat. §40-101 (1997 supp.): ``A homestead not exceeding twelve thousand five hundred dollars in value shall consist of the dwelling house in which the claimant resides.......not exceeding 160 acres of land[.]''
Oregon Rev. Stat. Ann. (1998 supp., part 1) §23.240, -250: ``The homestead mentioned in ORS 23.240 shall consist, when not located in any town or city laid off into blocks and lots, of any quantity of land not exceeding 160 acres, and when located in any such town or city, of any quantity of land not exceeding one block. However, a homestead under this section shall not exceed in value the sum of $25,000 or $33,000, whichever amount is applicable under ORS 23.240.''
Rhode Island Gen. Laws §9-26-4.1 (1998 supp.): In addition to exempt property, ``an estate of homestead to the extent of one hundred thousand dollars ($100,000) in the land and buildings may be acquired[.]''
Although several of the state provisions cited above couch their exemptions in terms of acreage, in all cases, the monetary cap is a limitation which qualifies the value of the land permissibly exempted. With the exception of Rhode Island, the state laws cited above have monetary caps substantially less than the proposed federal cap of $100,000.
Several states, such as Florida, Iowa, Kansas, South Dakota, and Texas define their homestead exemptions by reference to quantities of land or acreage without a monetary cap. But those states which define the exemption in terms of land and value do so conjunctively, not disjunctively. Hence, a federal cap of $100,000 on the value of a homestead exemption would not appear to have any effect on the extant state exemptions cited above.
