Washington, D.C. – House Judiciary Chairman Jerrold Nadler (D-NY) delivered the following opening statement at a Subcommittee on Antitrust, Commercial, and Administrative Law hearing on “Oversight of Bankruptcy Law and Legislative Proposals”:

“I thank the Chair for holding today’s hearing—the first hearing in the 116th Congress on the very important subject of bankruptcy reform. 

“The Bankruptcy Code, either directly or indirectly, affects millions of Americans, and all types of businesses, from the largest to the smallest.  When it works properly, it offers a second chance to individuals and businesses in financial distress.  But various reforms are necessary to ensure that it reaches its full potential.

“We are fortunate to be joined today by 4 Members who have introduced legislation to address certain deficiencies and unfairness in the Code.  I am pleased that this undertaking is largely bipartisan, which I hope will help facilitate enactment of these needed reforms.   

“I am especially appreciative that Senator Durbin is here today to share his thoughts on legislation that both he and I introduced earlier this year, the ‘Student Borrower Bankruptcy Relief Act.’  Our legislation would address head-on the manifest unfairness that student loans—unlike every other unsecured debt, such as credit cards or auto loans—are effectively nondischargeable in bankruptcy.

“This Subcommittee last considered such relief more than 10 years ago and, unfortunately, the problem of crushing student loans has only worsened.  Currently, 45 million Americans owe student loan debt estimated at a total of $1.5 trillion, an amount that exceeds outstanding credit card and auto loan debt combined.

“Some of this debt is attributable to for-profit education mills that promise much, but deliver little.  Some of this debt is also the result of predatory lending practices that target young Americans desperate to improve their lives and contribute to society, but who do not fully understand the terms of the loans they take on.  And, some of this debt is disparately borne by minorities who, on average, owe more than their white counterparts, and who are more often the targets of such predatory lending practices.

“There is no reason that this one category of debt should be singled out for special treatment that makes relief under the bankruptcy code virtually impossible.  I thank Senator Durbin for joining me in attempting to put an end to this injustice.

“But the problem of student loan debt is just one of the many issues we must address.

“As today’s witnesses will explain, we also need to address two important provisions affecting those who serve our country in the military.  According to a 2018 lifestyle survey of servicemembers and veterans, financial issues was the top lifestyle stressor and, unfortunately, bankruptcy is sometimes the best answer for those in financial distress.

“Under current law, National Guard members and reservists who serve on active duty are, like other active servicemembers, exempt from the Bankruptcy Code’s means test, which determines whether a debtor’s income is too high to have all of his or her debts erased in bankruptcy .  But this critical protection for National Guard members and reservists must be extended before it expires at the end of the year. 

“In addition, although Social Security benefits are not treated as income for purposes of the means test, veterans’ disability benefits do constitute income under this test.  Fortunately, bipartisan legislation addressing this inequity has been introduced in both the House and the Senate.

“We must also ensure that family farmers in financial distress are eligible for Chapter 12 of the Bankruptcy Code, the specialized form of bankruptcy relief specifically intended for family farmers.  I am pleased that the Gentleman from New York, Mr. Delgado, is here today to discuss his bipartisan legislation that will accomplish this vital goal.

“In addition to these concerns, further reforms are necessary to better effectuate the financial reorganization of small business debtors.  Experience since the enactment of the 2005 amendments to the Bankruptcy Code shows that provisions intended to streamline the bankruptcy process for these debtors failed to address certain fundamental concerns, such as the ability to cramdown dissenting creditors who object to a debtor’s reorganization plan.  I thank the Gentlemen from Virginia, Mr. Cline, for his leadership on this issue.

“And, finally, Congress should consider the need to promote greater transparency and integrity with respect to the ongoing financial reorganization of Puerto Rico.  In response to dire fiscal issues facing Puerto Rico at the time, Congress passed the ‘Puerto Rico Oversight, Management, and Economic Stability Act’ or ‘PROMESA’ in 2016.  That legislation established the Financial Oversight and Management Board with control over Puerto Rico’s budget, laws, financial plans, and regulations and the authority to retain professionals to assist the Board in executing its responsibilities.    

“Although largely patterned on Chapter 11 of the Bankruptcy Code, PROMESA did not incorporate all facets of Chapter 11 and other relevant provisions of the Code, including, for example, the Code’s mandatory disclosure requirements regarding actual or potential conflicts of interest that professional persons seeking to be retained in a bankruptcy case must make to the court prior to their retention.          

“Fortunately, our colleague from New York, Ms. Velázquez, is with us today to discuss her legislation that addresses this shortcoming in PROMESA.

“In addition to our colleagues who will be testifying, we have a distinguished panel of other witnesses who will share their perspectives on the important issues under consideration today.  Accordingly, I look forward to hearing from all of today’s witnesses, and I yield back the balance of my time.”

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