Senate, House negotiators clear major Enron-related issue on bankruptcy bill
Wednesday, April 24th 2002, 12:00 am
By: News On 6
WASHINGTON (AP) _ Lawmakers say they have cleared a major hurdle on a long-stalled bankruptcy bill, aiming directly at Enron executives a measure to block wealthy debtors from using luxury homes to shield assets from creditors.
With the Enron provision out of the way, House and Senate negotiators say they have only one more difficult issue to tackle, a provision to ban people who attack or block access to abortion clinics from declaring bankruptcy to avoid paying court-ordered fines. Senate Democrats want that added to the bill, and abortion foes don't.
Lawmakers say they've never been this close to having a final product in the four years the bill to overhaul federal bankruptcy laws has been stuck in Congress. ``I believe we have come too far and have made too much progress to quit now,'' said Rep. James Sensenbrenner, R-Wis., the negotiators' chairman. ``A final resolution is within reach.''
The compromise cemented Tuesday will stop wealthy debtors from using the bankruptcy laws to hide their money, lawmakers said.
Texas, Florida, Iowa, Kansas and South Dakota have unlimited homestead exemptions. Some famous and wealthy people, including actor Burt Reynolds, have written off in bankruptcy courts millions in debt while keeping mansions in Florida.
``Abuse of this provision has taken place for years, but the Enron collapse raises new concerns,'' noted Sen. Herb Kohl, D-Wis., who spearheaded the language change.
Lawmakers frequently used former Enron executive Kenneth Lay as an example of why they think the homestead exemption portion of the bill is needed, even though Lay has not filed for bankruptcy and has not been charged with wrongdoing. Lay was the politically connected chairman and chief executive of the Houston-based energy company when it began its descent last year into the nation's largest bankruptcy.
``Under the homestead exemption in Texas law today, for example, Ken Lay of Enron infamy could file for bankruptcy and retain his $7 million penthouse apartment and shield it from his creditors, who include Enron employees and investors in Enron stock,'' said Sen. Patrick Leahy, D-Vt. Many employees and shareholders suffered financial ruin in the collapse.
Under the House-Senate compromise, debtors trying to hide their money by putting it in property will have capped at $125,000 the amount of home equity they can keep out of the reach of creditors in court proceedings if they have committed a crime, caused serious injuries or death or owe a debt because of a crime like securities fraud.
The most home equity that debtors could shield by relocating would be $125,000 until they have owned homes in the shelter states for at least 40 months, lawmakers said.
``Our new proposal is designed to identify the worst abusers like ... Enron executives and prohibit them from cheating the system,'' Kohl said.
The House did not want the $125,000 homestead cap, preferring to apply existing state limits in most cases. House negotiators relented in exchange for Senate agreement to change the relocation requirement from five years to a little over three.
The legislation applies a new standard for determining whether people filing for bankruptcy should be forced to repay their debts under a court-approved reorganization plan rather than having them dissolved. If a debtor is found to have sufficient income to repay at least 25 percent of the debt over five years, or has at least the median income for his or her state, a reorganization plan generally would be required.