[House Hearing, 110 Congress] [From the U.S. Government Publishing Office] NATIONAL GUARD AND RESERVISTS DEBT RELIEF ACT OF 2008 ======================================================================= HEARING BEFORE THE SUBCOMMITTEE ON COMMERCIAL AND ADMINISTRATIVE LAW OF THE COMMITTEE ON THE JUDICIARY HOUSE OF REPRESENTATIVES ONE HUNDRED TENTH CONGRESS SECOND SESSION ON H.R. 4044 __________ APRIL 1, 2008 __________ Serial No. 110-175 __________ Printed for the use of the Committee on the Judiciary Available via the World Wide Web: http://judiciary.house.gov ---------- U.S. GOVERNMENT PRINTING OFFICE 41-581 PDF WASHINGTON : 2009 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC 20402-0001 COMMITTEE ON THE JUDICIARY JOHN CONYERS, Jr., Michigan, Chairman HOWARD L. BERMAN, California LAMAR SMITH, Texas RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr., JERROLD NADLER, New York Wisconsin ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina MELVIN L. WATT, North Carolina ELTON GALLEGLY, California ZOE LOFGREN, California BOB GOODLATTE, Virginia SHEILA JACKSON LEE, Texas STEVE CHABOT, Ohio MAXINE WATERS, California DANIEL E. LUNGREN, California WILLIAM D. DELAHUNT, Massachusetts CHRIS CANNON, Utah ROBERT WEXLER, Florida RIC KELLER, Florida LINDA T. SANCHEZ, California DARRELL ISSA, California STEVE COHEN, Tennessee MIKE PENCE, Indiana HANK JOHNSON, Georgia J. RANDY FORBES, Virginia BETTY SUTTON, Ohio STEVE KING, Iowa LUIS V. GUTIERREZ, Illinois TOM FEENEY, Florida BRAD SHERMAN, California TRENT FRANKS, Arizona TAMMY BALDWIN, Wisconsin LOUIE GOHMERT, Texas ANTHONY D. WEINER, New York JIM JORDAN, Ohio ADAM B. SCHIFF, California ARTUR DAVIS, Alabama DEBBIE WASSERMAN SCHULTZ, Florida KEITH ELLISON, Minnesota Perry Apelbaum, Staff Director and Chief Counsel Sean McLaughlin, Minority Chief of Staff and General Counsel ------ Subcommittee on Commercial and Administrative Law LINDA T. SANCHEZ, California, Chairwoman JOHN CONYERS, Jr., Michigan CHRIS CANNON, Utah HANK JOHNSON, Georgia JIM JORDAN, Ohio ZOE LOFGREN, California RIC KELLER, Florida WILLIAM D. DELAHUNT, Massachusetts TOM FEENEY, Florida MELVIN L. WATT, North Carolina TRENT FRANKS, Arizona STEVE COHEN, Tennessee Michone Johnson, Chief Counsel Daniel Flores, Minority Counsel C O N T E N T S ---------- APRIL 1, 2008 Page THE BILL H.R. 4044, the ``National Guard and Reservists Debt Relief Act of 2008''......................................................... 3 OPENING STATEMENT The Honorable Linda T. Sanchez, a Representative in Congress from the State of California, and Chairwoman, Subcommittee on Commercial and Administrative Law.............................. 1 The Honorable Trent Franks, a Representative in Congress from the State of Arizona, and Member, Subcommittee on Commercial and Administrative Law............................................. 6 WITNESSES The Honorable Janice Schakowsky, a Representative in Congress from the State of Illinois Oral Testimony................................................. 9 Prepared Statement............................................. 14 The Honorable Dana Rohrabacher, a Representative in Congress from the State of California Oral Testimony................................................. 17 Prepared Statement............................................. 19 Mr. Raymond C. Kelley, National Legislative Director, AMVETS, Lanham, MD Oral Testimony................................................. 31 Prepared Statement............................................. 33 Mr. Jack F. Williams, Scholar-in-Residence, American Bankruptcy Institute, Alexandria, VA Oral Testimony................................................. 38 Prepared Statement............................................. 40 Mr. Edward C. Boltz, the Law Offices of John T. Orcutt, P.C., Durham, NC, on behalf of the National Association of Consumer Bankruptcy Attorneys Oral Testimony................................................. 49 Prepared Statement............................................. 51 LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING Prepared Statement of the Honorable Chris Cannon, a Representative in Congress from the State of Utah, and Ranking Member, Subcommittee on Commercial and Administrative Law...... 7 Material submitted by the Honorable Janice Schakowsky, a Representative in Congress from the State of Illinois.......... 10 Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, Chairman, Committee on the Judiciary, and Member, Subcommittee on Commercial and Administrative Law........................... 26 APPENDIX Material Submitted for the Hearing Record Answers to Post-Hearing Questions from the Honorable Janice Schakowsky, a Representative in Congress from the State of Illinois....................................................... 64 Answers to Post-Hearing Questions from the Honorable Dana Rohrabacher, a Representative in Congress from the State of California..................................................... 66 Answers to Post-Hearing Questions from Raymond C. Kelley, National Legislative Director, AMVETS, Lanham, MD.............. 68 Answers to Post-Hearing Questions from Jack F. Williams, Scholar- in-Residence, American Bankruptcy Institute, Alexandria, VA.... 71 Answers to Post-Hearing Questions from Edward C. Boltz, the Law Offices of John T. Orcutt, P.C., Durham, NC, on behalf of the National Association of Consumer Bankruptcy Attorneys.......... 104 NATIONAL GUARD AND RESERVISTS DEBT RELIEF ACT OF 2008 ---------- TUESDAY, APRIL 1, 2008 House of Representatives, Subcommittee on Commercial and Administrative Law, Committee on the Judiciary, Washington, DC. The Subcommittee met, pursuant to notice, at 2:08 p.m., in rom 2141, Rayburn House Office Building, the Honorable Linda T. Sanchez (Chairwoman of the Subcommittee) presiding. Present: Representatives Conyers, Sanchez, Delahunt, Watt, Keller, Feeney, and Franks. Staff present: Susan Jensen-Lachmann, Majority Counsel; Daniel Flores, Minority Counsel; and Adam Russell, Majority Professional Staff Member. Ms. Sanchez. This hearing of the Committee on the Judiciary, Subcommittee on Commercial and Administrative Law, will now come to order. Without objection, the Chair will be authorized to declare a recess of the hearing at any time. I will now recognize myself for a short statement. Since September 11, 2001, nearly half a million members of the National Guard and Reserve have been called to serve in Iraq and Afghanistan. As you might imagine, these lengthy and often unanticipated deployments not only disrupt the lives of these service members and their families, but can also lead to financial hardship. It is estimated, for example, that up to 26 percent of National Guard members who are deployed experience money problems as a direct result of their deployment. You may also recall the very poignant testimony that we received at our hearing last May from a Chapter 13 debtor about her financial circumstances. She explained how after her husband, a member of the Army Reserve, was called to active duty and deployed to Iraq, the family income decreased by more than $1,000 per month, which, among other reasons, caused her and her husband to seek bankruptcy relief. One would think that our bankruptcy law would honor the special contributions of these brave men and women who make so many sacrifices to protect our Nation. Sadly, it does not. Exactly 3 years ago this very month, President Bush signed into law the Bankruptcy Abuse Prevention and Consumer Protection Act which contains some of the harshest changes in consumer bankruptcy law in more than 25 years. One of the more draconian changes is the so-called means test, which requires debtors to prove their inability to repay their debts through a complex bureaucratic maze at the risk of having their cases dismissed for being an abuse of the system. The means test is particularly unfair to National Guard and Reserve members both as a matter of principle and practice. Here is just one example: Service members, while serving in Iraq or Afghanistan, typically receive higher compensation in the form of combat pay, while they incur fewer living expenses. When they return to the United States, however, they receive less pay, and their expenses increase. The means test, nevertheless, requires a debtor to calculate his or her income based on the average monthly income that he or she received during the 6-month period preceding the filing date of the bankruptcy case rather than the debtor's current income. As a result of the means test, a service member could appear to have higher net income and, therefore, be at risk of having his or her case dismissed for abuse. To overcome this presumption, a service member must then demonstrate special circumstances which can oftentimes be a burden to undertake. This is not the way our consumer bankruptcy laws should work. Our service members deserve better. Today, we are examining a proposed legislative remedy for this issue. H.R. 4044 would amend the Bankruptcy Code and create a narrow exception for the means test for a National Guard or Reserve member if he or she is on active duty or performs a homeland defense activity after September 11, 2001, for at least 60 days and for the first 6 months after completion of such service. [The bill, H.R. 4044, follows:] [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Ms. Sanchez. Accordingly, I very much look forward to hearing from our witnesses. In particular, I commend my colleagues, Representative Schakowsky and Representative Rohrabacher, for their leadership on this issue. At this time, I would now like to recognize my colleague, Mr. Franks, for any opening remarks that he may have. Mr. Franks. Well, thank you, Madam Chair. And I want to welcome our witnesses. I especially would like to extend a warm welcome to our colleagues, Mr. Rohrabacher and Ms. Schakowsky. As the Committee is all too aware, the regular Ranking Member, Mr. Cannon, is not here at this moment--he may be here a little bit later--he could not be, and so I am going to do my best to try to reflect his perspective here, if I can. Madam Chair, the legislation that we are considering here today reflects what I believe is a bipartisan effort to do something which I think we all sympathize with. It is an effort to support our troops. Now the legislation seeks to help our Reservists and National Guardsmen affected by our wars in Iraq and Afghanistan. Reservists and Guardsmen pay a particular and very practical sacrifice when they are called to duty. Unlike most of our troops, they have to come off the civilian pay scale and adopt--or I should say adapt--to the lower military scale in most cases. There are reports that some of these patriotic men and women, especially those whose savings may be low when they report to duty in the first place, can be pushed over the financial brink when they take that pay cut. Strangely, they may have to consider bankruptcy in the wake of reporting for service. I think that is something we could all collectively say that we are very concerned with. H.R. 4044 responds by seeking to lift the means test in Chapter 7 bankruptcy, making it easier for hard-pressed Reservists and Guardsmen to wipe their debt slates clean and start over again. I applaud that concern, and I applaud the concern that has actually produced the proposal. But I want to sound a few notes of caution about the issues that I think we have to explore today and that may give us reason to ask whether we ought to propose some different responses. For example, I question whether or not we should make bankruptcy easier for these noble men and women instead of making it easier for them to stay out of bankruptcy in the first place. And I also want to highlight that service men who are teetering on the brink of bankruptcy may not lose just their personal assets. They may lose their security clearances according to the Department of Defense press release, and if we help them go into bankruptcy instead of helping them stay out of it, we may create an actual national security problem, increasing numbers of Reservists and Guardsmen serving in the war on terror without the security clearances they need to fight that war. When we consider relaxing the means test for these service men, we should also ask ourselves if, in so doing, we might also undermine other provisions of the laws affecting them, such as the Soldiers and Sailors Relief Act, which exists to protect service men. I raise these questions not necessarily in opposition to the bill, but to perform the vital role that only this Subcommittee can fulfill, and that is to make sure that before enacting legislation affecting the Bankruptcy Code that we are sure what we are doing is necessary, number one; number two, that it will not unduly undermine other important interests; and, finally, that it will work because bankruptcy, as we all know, Madam Chair, should always be a last resort, and I think that is true in the minds of the service men themselves as well. And finally, I raise a note of caution because the means test is at the heart of the consumer bankruptcy reforms we enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. I think we should be especially vigilant of attempts to undo that. I think it is imperative that we ask today the kinds of questions I am proposing. Our country and our service men deserve no less than the most honest and diligent effort that we can deliver in this proposal or any other to make their lives better and to help them. Madam Chair, with that, I thank the witnesses, look forward to your testimony, and yield back my time. Ms. Sanchez. Thank you, Mr. Franks, and I appreciate you filling in for Mr. Cannon today. Without objection, other Members' opening statements will be included in the record. [The prepared statement of Mr. Cannon follows:] Prepared Statement of the Honorable Chris Cannon, a Representative in Congress from the State of Utah, and Ranking Member, Subcommittee on Commercial and Administrative Law Thank you Madam Chair and welcome to our witnesses. I'd like to extend a particularly welcome to our colleagues, Mr. Rohrabacher and Ms. Schakowsky. The legislation we are considering today reflects a bipartisan effort to do something with which I think we all sympathize. That is, to support our troops. The legislation seeks to help our reservists and National Guardsmen affected by our wars in Iraq and Afghanistan. Reservists and guardsmen pay a particular and very practical sacrifice when they are called to duty. Unlike most of our troops, they have to come off of the civilian pay scale, and adapt to the often lower military pay scale. There are reports that some of these patriotic men and women-- particularly those whose savings may have been low when they report for duty--can be pushed over the financial brink when they take that pay cut. Strangely, they may have to consider bankruptcy in the wake of reporting for service. I suspect we all agree that is something we should be concerned with. H.R. 4044 responds by seeking to lift the means test in Chapter 7 bankruptcy, making it easier for hard-pressed reservists and guardsmen to wipe their debt slates clean and start over again. I applaud the concern that produced this proposal. But I want to sound several notes of caution about issues that I think we must explore today, and that may give us reason to ask whether we ought to propose a different response. For example, I question whether we should be making bankruptcy easier for these fine men and women, instead of making it easier for them to stay out of bankruptcy. I also want to highlight that servicemen who are teetering on the brink of bankruptcy may not lose just their personal assets. They may lose their security clearances according to Department of Defense precedents. If we help them get into bankruptcy, instead of help them stay out of it, we may create a real national security problem-- increasing numbers of reservists and guardsmen serving in the War on Terror without the security clearances they need to fight that war. When we consider relaxing the means test for these servicemen, we also should ask ourselves if, in doing that, we might also undermine other provisions of the law affecting them, such as the Soldiers' and Sailors' Relief Act, which exist to protect servicemen. I raise these issues, not necessarily in opposition to the bill, but to perform the vital role that only this Subcommittee can fulfill. That is to make sure that before enacting legislation affecting the Bankruptcy Code, we are sure that what we are doing is necessary, will not unduly undermine other important interests, and will work. Because bankruptcy, as we all know, should always be a last resort. Finally, I raise a note of caution because the means test is at the heart of the consumer bankruptcy reforms we enacted in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005. I think we should be especially vigilant of attempts to undo it. I think it is imperative that we ask today the kinds of questions I am posing. Our country and our servicemen deserve no less than the frankest, most fair assessment we can deliver of this proposal to help them. I yield back the remainder of my time. Ms. Sanchez. I am now pleased to introduce the witnesses for our first panel for today's hearing. Our first witness is Congresswoman Jan Schakowsky. She represents the Ninth Congressional District of Illinois. Ms. Schakowsky was first sworn in as a Member of the House of Representatives in 1998 and, since then, has continued her fight for economic and social justice, improved quality of life for all, and a national investment in health care, public education, and housing needs. Ms. Schakowsky serves on the Steering and Policy Committee, the House Select Committee on Intelligence, and the House Energy and Commerce Committee as Vice Chair of the Subcommittee on Commerce, Trade, and Consumer Protection. She is also a Member of both the Subcommittee on Health and the Subcommittee on Oversight and Investigations of the House Energy and Commerce Committee. Ms. Schakowsky is the sponsor of H.R. 4044. Our second witness is Congressman Dana Rohrabacher who represents the 46th District of California. Elected to Congress in 1988, Mr. Rohrabacher champions human rights and democracy. He serves as the Ranking Member of the Investigations and Oversight Subcommittee of the House Committee on International Relations and as a Member of the House Committee on Science. Mr. Rohrabacher is an original co-sponsor of H.R. 4044. I want to thank you both for your willingness to participate in today's hearing. Without objection, your written statements will be placed into the record, and we would ask that you limit your oral testimony to 5 minutes. You will note the lighting system. I am sure you are both familiar with it. When your time begins, you will get the green light. Four minutes in, you will receive a yellow light, letting you know that you have a minute to finish your testimony, and we will hit the red light when the time expires. We, of course, will allow you to finish any concluding thoughts before moving on to our next witness. After each witness has presented his or her testimony, Subcommittee Members will be permitted to ask questions subject to the 5-minute limit. With that, I would invite Ms. Schakowsky to please proceed with her testimony. TESTIMONY OF THE HONORABLE JANICE SCHAKOWSKY, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF ILLINOIS Ms. Schakowsky. Thank you very much, Chairwoman Sanchez, Mr. Franks, and the rest of the Subcommittee. I appreciate so much your holding the hearing today for the members of the National Guard and Reserve who face bankruptcy when they return from service. Let me depart from my written statement and reply just briefly to Mr. Franks. You know, when Congress first passed in 2005 the new Bankruptcy Act, Congress did have the wisdom to exempt disabled veterans from the means test, and so we see this as a very narrow addition to that at the Guard and Reserve as well. And I could not agree with you more that we should do all that we can to prevent the situation from these heroes having to face bankruptcy in the first place, but having said that, we know that some will, and so this is to address those, and we do not know how many, although we know, as the Chairwoman said, since 9/11, more than 460,000 Reservists and Guardsmen have been called to active duty in Iraq and Afghanistan, and a quarter of those more than once. These men and women have left their jobs and families to answer the call often with little or no notice. Service members who own and operate small businesses put their businesses on hold, sometimes sacrificing them altogether, while they serve their country. Many service members face unexpected extended tours of 15 months or longer, leaving them with almost no way to prepare financially. You mentioned, Mr. Franks, those who lose money when they go on active duty, but it also works the other way, too. The means test for veterans who file for bankruptcy has a particularly adverse income on some of them because, again, as the Chairwoman mentioned, combat pay of soldiers in Iraq or Afghanistan may be higher than their salaries at home, and they have fewer expenses when they are overseas so that when they return home, these individuals face lower incomes and higher expenses, and because the means test factors in a person's income and expenses for the 6 months preceding bankruptcy filing, sometimes a veteran's income is artificially inflated, and their expenses seem unduly low, and as a result, they risk failing the means test and facing Chapter 11 or Chapter 13. So our bill would simply allow the National Guard and Reservists to file for bankruptcy without the burden of the means test. We have 46 cosponsors, including 14 Republicans. It is a bipartisan piece of legislation, and it would only apply to the heroes who have served in the armed forces for more than 60 days since September 11, 2001, and would exempt them from the test for up to 180 days after they return home. I would love to be able to tell you how widespread the problem is. The Veterans Administration reports that veterans have difficulties finding a job in the first 2 years after they return home, and that they are more likely to earn lower wages. Today's Washington Post ran a front-page article in their business section on how bleak the market is--18 percent of veterans recently back from tours of duty are unemployed, and of those who have been able to find work, 25 percent earn less than $22,000 a year. There are also currently 1,500 veterans of the wars in Iraq and Afghanistan who are homeless, and thousands of veterans return from the war with physical and mental injuries which make returning to work difficult or impossible. The Illinois Department of Veterans Affairs assists many veterans who face financial hardship, and I would like to ask unanimous consent, Madam Chairwoman, to insert statements into the record from caseworkers who, too often, assist veterans facing financial collapse, if I could put those into the record? Ms. Sanchez. Without objection, so ordered. [The information referred to follows:] Material submitted by the Honorable Janice Schakowsky, a Representative in Congress from the State of Illinois [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Ms. Schakowsky. Our legislation would help returning service men like Jeremy W., a hero from my State, who was deployed from March 2006 to 2007, June of 2007. He is a member of the National Guard and, like many others, asked not to be identified because of the stigma surrounding financial problems. After he returned, he did not want to be away from his family. He decided not to return to his previous job as a truck driver, instead opting to take a lower-paid job. He now works 6 days a week to pay his bills and is teetering on the brink of losing his house. The men and women who will risk their lives to protect us deserve protection in return. These selfless individuals should not face harsh bankruptcy procedures if they are in financial distress when they return home, even after we have tried to help them, and so when changes are made to the bankruptcy laws, they work for the disabled veterans, we hope that we will do the same for the Reservists and National Guard. Thank you. [The prepared statement of Ms. Schakowsky follows:] Prepared Statement of the Honorable Janice D. Schakowsky, a Representative in Congress from the State of Illinois [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Ms. Sanchez. Thank you, Ms. Schakowsky. We appreciate your leadership on this issue and your taking the time to testify before the Subcommittee today. At this time, I would invite Mr. Rohrabacher to please begin his testimony. TESTIMONY OF THE HONORABLE DANA ROHRABACHER, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF CALIFORNIA Mr. Rohrabacher. Thank you very much, Chairwoman Sanchez, Representative Franks, and other Members of the Subcommittee. We thank you for holding this hearing on H.R. 4044, a bipartisan bill that I originally introduced in the 109th Congress with the co-sponsorship of Representative Schakowsky, and it was reintroduced by Representative Schakowsky this year and myself as a co-sponsor. Let me note that this change was first proposed by Representative Schakowsky as a motion to recommit in the original bankruptcy reform bill. I was misinformed by the Republican leadership on the floor of the House at that time. I was told that this motion to recommit was redundant to changes that already existed in the law, and I was very upset when I found out that I had been misinformed and had voted the wrong way. At that time, I pledged myself to work with Representative Schakowsky to correct that situation, and that is what this bill is all about, correcting what should have been a no- brainer to begin with, except that politics got in the way. This bill makes a very small and targeted change to the current bankruptcy law and places our National Guard and Reservists veterans under the bankruptcy law in place prior to 2005. Let me note at this time that I am a strong supporter of the Bankruptcy Reform Act that passed. Unfortunately, this should have been in that bill. As members of the National Guard and Reservists return from their tours of duty in Afghanistan and Iraq, they can face a new battle at home, which we have just heard. Quite often, these patriots will face financial hardship as they left better paying jobs to serve our country. For those members of the National Guard and the Reserves who deal with mounting bills during their time away and face bankruptcy upon their return, H.R. 4044 provides that these heroes will be treated under the prior system, which did not require them to repay all of their debts accumulated as a result of their service. This bill has been written to provide a small and targeted change to the bankruptcy law for a select group of people who deserve it the most. It is important to note that this bill will not apply to the entirety of the armed forces, as we just heard. The fact is many of those in the regular armed forces do not have the same problem. It is just for the members of the National Guard and Reserves who have been called on to disrupt their lives at home and to serve lengthy tours overseas. Prior to 9/11 and the Iraq war, these veterans could have been relatively assured that they would have a regular schedule; they would not face this disruption in their life for long periods of time. That has changed since 9/11, and now, quite often, we throw the Reserves and National Guard into economic and personal chaos as we call them up to defend their country. National Guard members and Reservists now have very little idea how long they must be away from home, and when they return, they may be called up again. So these veterans do not know exactly what their economic situation is going to be, and for this reason, they need to be treated in a special way. It is for this reason the National Guard and Reservists deserve this change. These heroes have made tremendous sacrifices for the sake of this Nation, and this bill will simply ensure that these heroes will not face bankruptcy and face a negative outcome for the fact of their service to the country. So I wholeheartedly support this amendment, and I certainly commend my fellow Representative for the hard work that she has put into this from the very beginning, since the day that we passed the bankruptcy bill when the Republicans were in the majority, when this should have been in that bill in the first place, and some of us who wanted to vote for it were misinformed as to whether or not this was actually being taken care of. So thank you very much, and I would ask my Republican and Democratic colleagues to support this reform. [The prepared statement of Mr. Rohrabacher follows:] Prepared Statement of the Honorable Dana Rohrabacher, a Representative in Congress from the State of California [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Ms. Sanchez. Thank you. I want to thank the first panel for their testimony. I know that Ms. Schakowsky has an Energy and Commerce Committee commitment, so if you need to be excused, you may leave at any time. I personally do not have any questions for the witnesses. Does any---- Mr. Watt. Madam Chair? Could I just encourage both of my colleagues to look at the title to this bill, which I think is very misleading? Actually, the means test is the only thing that was worth having in the bankruptcy reform bill. So when you say exempt people from the means test, that is not what you are doing, and I do not think that is what the language of the bill actually does. It actually gives service people, regardless of their prior income, the benefit of having a means test. It does not exempt them from the means test because the means test itself is a positive thing. It is about the only thing that was positive in the bankruptcy reform bill when you get right down to it. So I think your bill is misnamed, is the point I am making, and I hope you all will take a look at that. Ms. Sanchez. Does the gentleman yield back his time? Mr. Rohrabacher. Thank you for that analysis. I appreciate that. Ms. Sanchez. Any other Members have questions? Mr. Franks is recognized for 5 minutes. Mr. Franks. Well, thank you, Madam Chair. I guess, Ms. Schakowsky, I will address it to you first, and then Mr. Rohrabacher can respond as well. Is there a possibility that the service men would be exempted already and qualify for relief under the circumstance already because we put a special circumstances provision in the legislation, and is that provision not applied or not adequate to the task that you are trying to accomplish here? Ms. Schakowsky. It is not adequate to the test, and, actually, that was the intention of this amendment, was to make sure that these individuals were covered, and that was the information that you were told, that they were covered, but they are not. Mr. Franks. And just for clarity, I mean, this is really the only issue you are trying to address here, not down the road that there would be an additional expansion of this? This is the only thing? Ms. Schakowsky. No. No. As Mr. Rohrabacher stated, this is a very narrow, targeted bill, something I had tried initially to have as part of the bankruptcy bill, just like the disabled veterans, and this is it. Mr. Franks. Mr. Rohrabacher, is there anything you want to add to that? Mr. Rohrabacher. There should be no doubt at all after this bill what the intent is, and from the people who I have spoken to, there is doubt as to the way it is now. Mr. Franks. Madam Chair, I just would applaud the attitudes and the motivations of both of the Members there. Obviously, they are trying to do something that they believe is important to the cause of helping our service men and women. So, with that, I yield back. Ms. Sanchez. The gentleman yields back the balance of his time. Any other Members seek to be recognized? Mr. Delahunt. Madam Chair? Ms. Sanchez. Mr. Delahunt is recognized for 5 minutes. Mr. Delahunt. I wonder if our colleagues would consider, rather than 6 months, a longer period of time. I think what we are discovering is when the men and women return from active duty, just the readjustment, if you will, to civilian life--in some cases, their ability to come back into the workplace is a difficult transition. In 6 months, to us, while we sit here in Washington and have discussions about what is happening in Iraq, Afghanistan, and elsewhere in the world, the reality, I think, that these men and women face is something entirely different. And I wonder how quickly that readjustment back into civilian life, what all of that entails, might require more than 6 months. I was just discussing with the former Ranking Member here, Mr. Watt, the possibility of a friendly amendment about a year or something along those lines. But I just put it out to---- Ms. Schakowsky. Let me just say that I would certainly see that amendment as a friendly amendment to the legislation. Mr. Rohrabacher. I would not rule it out. I would suggest that we need to, you know, make a decision of what that date is and move forward. Ms. Sanchez. The gentleman yields back? The gentleman yields back his time. Any other Members? Mr. Keller? Mr. Keller. Thank you, Madam Chairwoman. I see Mr. Rohrabacher and Ms. Schakowsky co-sponsoring the bill. I am wondering if both of you have read it here. You seem such polar opposites philosophically, but you have come together on a good cause here. Ms. Schakowsky. Actually, we are best friends. Mr. Keller. Well, good deal. Do you agree with that characterization? Mr. Rohrabacher. Oh, yes, I do. And, in fact, I remember talking to a particular Republican leader on the floor and saying, ``Why are we opposing this? This is a no-brainer.'' Mr. Keller. Yes. Mr. Rohrabacher. And then being assured, ``Well, do not worry. This is all redundant, and that is just a political maneuver on their part,'' and the fact is I believe that it was a political maneuver on the part of that Republican leader, unfortunately. Mr. Keller. Well, I saw Rohrabacher scribbling on a piece of paper ``Schakowsky BFF,'' and I wondered what that meant. Now I know. You are best friends forever. Let me ask you this, Mr. Rohrabacher. I could tell you were impassioned. You are a little upset. You felt you were misinformed about the motion to recommit that Ms. Schakowsky offered by you being told by someone that it was redundant. I am guessing--because I was not there--that they probably suspected that Ms. Schakowsky's concerns were already covered by these special circumstances provisions. I know that you feel that that provision is not adequate. Could you just elaborate on that? Mr. Rohrabacher. Well, I just, frankly, had my staff look this up and do an analysis for me, and they came to that conclusion that, no, they are not covered and they are not part of that category. Let me put it this way. When I got that report back, I was devastated. Mr. Keller. Right. What are you hearing--and this is to both of you--from your constituents about Reservists and Guardsmen being forced into bankruptcy by their call to active service? Ms. Schakowsky, maybe we will start with you. Ms. Schakowsky. Yes, we do hear about the financial problems of our service men and women. You know, we wanted to have veterans' service organizations to testify. We wanted to have that. But you know what? We identified some, and it is embarrassing. They felt embarrassed to come and talk about their personal financial problems. But there is no doubt that they exist, and, as I said, if you look at the front page of The Washington Post business section today, it talks about just how tough it really is for our returning National Guard and Reservists. Mr. Keller. So the problem is, in your observation, more widespread than most of us know because of the embarrassment that a lot of these folks do not come out and say how this is impacting them because they are---- Ms. Schakowsky. Well, the other reason is because no records are actually being kept of that. So, while we know anecdotally and the veterans' service organizations know about it and our Department of Veterans Affairs knows about it, we actually do not have hard data to tell us that. So, you know, we do not know if it is 1,000 or 10,000. We know who these people are. Ms. Sanchez. Will the gentleman yield? Mr. Keller. Sure. Ms. Sanchez. In sort of setting up the two panels for today's hearing, we came to understand that when a debtor files for bankruptcy, there is no box that you check to identify yourself as a service member or not. So there is no particular way currently to keep those kinds of records, and I think, therefore, it is difficult for anybody to know how many people are affected. But we will be hearing from witnesses on the second panel much testimony about the members that it actually does affect. Mr. Keller. Right. Thank you. Mr. Rohrabacher. Well, if I could answer your question---- Mr. Keller. Yes. Mr. Rohrabacher [continuing]. As well---- Mr. Keller. And I will ask you what you are hearing anecdotally or statistically, whatever you heard. Mr. Rohrabacher. Right. Los Alamitos Reserve Center is in my district. Or, actually, it is on the edge of my district. It used to be in my district before redistricting. And many of the troops in Southern California, Reserves and National Guard troops, that have been away serving our country either deploy from Los Alamitos, or they come back to Southern California to Los Alamitos. I have made it my personal mission to go and see off every National Guard and Reserve unit that leaves from there that I can possibly do--it is part of my schedule if I am back there and not here in Washington--and to welcome them home as well, and so I have had a lot of interaction with Reserves and National Guard, and more than anything, you know, I have received the frustration of some of these people who are away from their families and while they are gone that their economic house is put in total disarray and they come back confused. They are frightened. They are frightened they are going to lose their home. Their whole life is different than it was a year before only because they have gone off and served their country, and just over and over again, I was told about this fear that they have, and that is why, as I say, when this motion to recommit came up originally--and there should be no doubt whether or not these people are put in an exceptional category. They should not be. And what is wrong with reaffirming if, indeed, they already are covered, which I do not believe they are? But if they are, if somebody says, ``Well, it can be argued that they are,'' well, let's just reaffirm it. What is the problem? And as I say, that motion to recommit should have been accepted because if it was redundant, why not reaffirm it? Just like today, there is no reason not to reaffirm it because these people need to know that we care about them, and they need to know when they are coming back and their total life is in chaos compared to 2 years before that they are not going to have a hammer come down on their head, and whether it is 6 months or a year, we can talk about that, but that came to me. That was the most spoken not complaint, but concern of these people who were leaving and coming back, and as I say, I must have done this 30 times over the last 5 years. Mr. Keller. Well, Madam Chairman---- Ms. Sanchez. The time of---- Mr. Keller [continuing]. I know my time has expired, but if you would just indulge me for a few seconds, I just want to commend both of my colleagues for working on this very worthy task to protect the Reservists and Guardsmen and their families, and I appreciate your bipartisan spirit and will yield back the balance of my time. Ms. Sanchez. Okay. The gentleman yields back. Are there any other Members who wish to be recognized? Mr. Feeney? Mr. Feeney is recognized for 5 minutes. Mr. Feeney. I think I just have one question. Is there a time limit for a Reservist under your bill in terms of their ability to take advantage of the provisions of your bill, and what is it, a year or 5 years? Ms. Schakowsky. Actually, it is only 180 days, which was the essence of what Mr. Delahunt was saying, that, in his view, it may be too short. You know, it was written rather modestly, but they would be exempt from the test only in our bill for 180 days, and so, you know, I actually would concur and it is certainly worth considering that when they come back, getting everything in order, 6 months may be, in fact, too short. Mr. Feeney. Well, I thought Mr. Delahunt's question--maybe I misunderstood it--went to the length of time of the 6-month average income requirement. Maybe I misunderstood. Ms. Schakowsky. Yes. No, I think he was referring to--am I right about that--how long a Reservist or National Guardsman coming back could avail himself of this kind of protection. Mr. Watt. If the gentleman would yield, that is what he intended, as he discussed with me before he left. Mr. Feeney. Well, that is what you get for asking questions that are over our head down here, but that is the only question I had. Thank you. Ms. Sanchez. The gentleman yields back his time. Does the gentleman---- Mr. Franks. Let me indulge to just ask one very brief question. Ms. Sanchez. Procedurally, does the gentleman from Florida yield back the balance of his time? Mr. Feeney. I would yield to the Ranking Member, Mr. Franks. Ms. Sanchez. Thank you. Mr. Franks? Mr. Franks. Thank you, Mr. Feeney. Thank you very much. Just to touch briefly on the statement that I made related to the national security clearance, I am wondering if one or both of you might look into that to see if there is any way that we might make sure that we at least consider that possibility so that it does not do the harm that Mr. Cannon was concerned about. The concern is that---- Mr. Rohrabacher. Certainly. And I do not know if that would be considered specifically germane to the bill or not because it might be from a different Committee or something like that. It might force this into another Committee. Ms. Sanchez. It is probably within the jurisdiction of the Armed Services Committee and not the Commercial and Administrative Law Subcommittee. Ms. Schakowsky. And the other thing about this is, look, those people who are forced into bankruptcy now are doing it under more adverse circumstances, but they are still being forced into bankruptcy. So they are losing their security clearance regardless under current circumstances. So this does not really change that in any way or exacerbate it any more than that. But, you know, so I think it is not necessarily relevant to this particular bill. Mr. Franks. Thank you, Madam Chair. I guess the only other thing that I would reiterate then is just it is difficult, but maybe we ought to talk about ways that we could work once again to help these service people in ways that might not, you know, include bankruptcy, but to still address the financial issue, and I know that the both of you are certainly inclined to that direction. Mr. Rohrabacher. I would certainly support any piece of legislation that you might want to bring up on that, and it probably would complicate this particular legislation because it would be sending it to different Committee jurisdictions. Mr. Franks. All right. Thank you, Madam Chair. I yield back. Mr. Johnson. Madam Chair---- Ms. Sanchez. The gentlemen---- Mr. Feeney. And I yield---- Ms. Sanchez. The gentleman from Florida yields back his time. And at this time, the gentleman from Georgia, Mr. Johnson, is recognized. Mr. Johnson. Thank you, Madam Chair. I have been asked by the Chairman of the full Committee, the Honorable John Conyers, Jr., to have his written statement inserted into the record. Ms. Sanchez. Without objection, so ordered. [The prepared statement of Chairman Conyers follows:] Prepared Statement of the Honorable John Conyers, Jr., a Representative in Congress from the State of Michigan, Chairman, Committee on the Judiciary, and Member, Subcommittee on Commercial and Administrative Law [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Mr. Johnson. Thank you. I yield back. Ms. Sanchez. The gentleman yields back his time. I would like to thank our first panel of witnesses for their hard work on this very important piece of legislation. We appreciate your time and your staying to answer questions. And at this time, we will excuse our first panel, and we will take a brief recess to allow the second panel to come forward to the table. [Recess.] Ms. Sanchez. I am now pleased to introduce the witnesses for our second panel for today's hearing. Our first witness is Raymond Kelley. Mr. Kelley is the national legislative director for American Veterans, known as AMVETS, at the AMVETS National Headquarters in Lanham, Maryland. He is responsible for the planning, coordination, and implementation of AMVETS' relations with the United States Congress and Federal departments and agencies and other organizations. He develops and executes AMVETS Washington agenda in areas of budget, appropriations, health care, veterans' benefits issues, national security, and foreign policy. Mr. Kelley's work also includes building relationships with other non-profit organizations and developing plans to promote veteran transitions to civilian life after their service. Mr. Kelley served 6 years in the United States Marine Corps, he also served in the Army Reserve, and in April of 2006, he was deployed to Iraq as the Psychological Operations Team leader. Mr. Kelley serviced for 12 months in the base of the Sunni-Shiite triangle and continues to serve in the Army Reserve. Welcome to you, Mr. Kelley. Our second witness is Jack Williams. Professor Williams serves as the Robert M. Zinman Resident Scholar at the American Bankruptcy Institute and was also the inaugural ABI Resident Scholar when the ABI endowment fund created the program in 2001. As the ABI Resident Scholar, Professor Williams assists ABI with its educational programming and in its role as the authoritative source of bankruptcy information for the Congress, media, and public. Professor Williams teaches at Georgia State University College of Law. He instructs an assortment of courses on bankruptcy and taxation. He also teaches at the New York Law School LLM program in taxation, the New York University School of Law continuing professional education program, the Internal Revenue Service, and the Federal Law Enforcement Training Center. Welcome to you, Mr. Williams. Our final witness is Ed Boltz who appears on behalf of the National Association of Bankruptcy Attorneys, NACBA. Mr. Boltz is a member of the law offices of John T. Orcutt, P.C., where he represents clients in not only Chapter 13 and Chapter 7 bankruptcies, but also in related consumer rights litigation, including fighting abusive mortgage practices. In addition to serving on the board of directors for NACBA where he is jointly responsible for directing the State chair program, Mr. Boltz serves on the Bankruptcy Council for the North Carolina Bar Association and previously served as the bankruptcy chair for the North Carolina Association of Trial Lawyers. Mr. Boltz moderated the panel Military Members Deep in Debt at the 2007 convention of NACBA. I would like to welcome you all here today. And at this time, I would invite Mr. Kelley to begin his testimony. TESTIMONY OF RAYMOND C. KELLEY, NATIONAL LEGISLATIVE DIRECTOR, AMVETS, LANHAM, MD Mr. Kelley. Thank you, Madam Chair, Members of the Subcommittee. Thank you for inviting AMVETS to present our views today. Ms. Sanchez. Pardon me, Mr. Kelley. Is your microphone on? Mr. Kelley. Yes, ma'am. Ms. Sanchez. Can you move that a little bit closer? Mr. Kelley. Is this better? Ms. Sanchez. That is much better. Thank you so much. We will restart your time. Mr. Kelley. Thank you. Thank you, Madam Chair, Members of the Subcommittee, for holding this hearing today, and thank you for inviting AMVETS to present our views concerning H.R. 4044. I want to start by saying AMVETS wholly supports H.R. 4044, but it was not until after we had a long debate within our office on the substance of this bill. But, at the end of the day, we decided that it was better for the veterans, so we had to do it. My first reaction when I read this piece of legislation was: What does this say about our priorities as a Nation when the women and men of our National Guard and Reserve must have a provision enacted that will allow them to more easily file for bankruptcy if they have served on active duty? Why aren't we paying them enough to sustain their financial wellbeing? It was the basis of our debate. But, at the end of the day, we must do everything we can for our veterans and ease the pains of these noble citizens. Currently, there are 18,252 National Guard and 8,288 Reserve members serving in Iraq, Afghanistan, and along our southern border in Operation Jump Start; 500,000 Guard and Reserve members have served in Iraq and Afghanistan since 2001, with 25 percent of those serving multiple tours. The Guard and Reserve was not developed to sustain this type of TEMPO, and it has only placed a greater burden on those who have served. In my written testimony, I have provided a couple of tables to provide insight on the income deficits that the National Guard and Reserve face, and I put in there what Reserve members would receive if they lived in Illinois in the Springfield area and they deployed to Iraq, and it was about $47,000 a year. Now that did not include the combat pay and the tax breaks that they receive, which ends up being about $4,700 per year. But, at the end of the day, it is still about $10,000 less than what a person in Illinois would make on average with the same amount of time and service as in their civilian employment. So we are still $5,000 to $6,000 short on that deficit. And those who serve stateside in support roles and those who are serving along the southern border do not receive the benefit of that combat pay or the incentive of the tax exemption. This adds only to the financial hardship. The fact is that these 1-year tours generally end up being 16 months to 24 months, and during the time that they are mobilizing, they do not receive that combat pay or the tax incentive. I will use myself as an anecdotal case. I served in Iraq. I started in April of 2006, but I started training to go to Iraq in November of 2005. So 5 months prior, I was committed to serving with the Army Reserve before I left and did not receive the incentive pay. And if I had to redeploy today, I would have to take an equity loan on my home to make sure that my family stayed at the same financial status and paid their bills, to sustain their way of life. This financial hardship does not stop when they return. Many of these National Guard and Reservists are either full- time or part-time students and are trying to support a family, and when they leave to go on active duty, they have to disenroll from school and leave these part-time jobs, and when they return, they have to find new jobs and re-enroll to unsympathetic universities and employers. So it sets them back. These members have to pay to re-enroll to the same school that they were in, and then they have to reapply for the G.I. bill which can take 3 months before they start getting paid again. And many employers do not understand or adhere to the USERRA laws, making it difficult for Guard and Reserve members to return to the jobs that they have left. USERRA is in place to protect Guard and Reserve members from discrimination while they serve, but a 2002 report showed that USERRA violations increased by 35 percent in 2002 and each year subsequent after that, there has been a 10 percent increase. It is important to do everything we can to protect and support our Guard and Reserve, and that is why AMVETS asks this Subcommittee to act positively on H.R. 4044. And that concludes my testimony. I will be happy to answer any questions. [The prepared statement of Mr. Kelley follows:] Prepared Statement of Raymond C. Kelley [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Ms. Sanchez. Thank you, Mr. Kelley. We appreciate your testimony. At this time, I would invite Professor Williams to proceed with his testimony. Can you---- Mr. Williams. Excuse me. Thank you very much. Ms. Sanchez. There we go. TESTIMONY OF JACK F. WILLIAMS, SCHOLAR-IN-RESIDENCE, AMERICAN BANKRUPTCY INSTITUTE, ALEXANDRIA, VA Mr. Williams. Madam Chair, Members of the Subcommittee, my name is Jack Williams, and it is a pleasure and honor to be here before you all today. As mentioned, I am a professor of law at Georgia State University College of Law in Atlanta, Georgia, and also the Robert M. Zinman American Bankruptcy Institute Scholar-in-Residence. Today's subject is not new to me. For over 20 years now, I have devoted time to military personnel issues, including debt, payday loans, credit counseling, bankruptcy, and security clearance issues. Along with a colleague of mine, Susan Seabury of BDO Seidman, and a number of volunteer law students, I have represented on a pro bono basis several service members, mostly from the Georgia and the Southeastern Region, with serious and pressing financial issues. Recently, along with Ms. Seabury, I completed a research project and report on Debt, Bankruptcy and the Servicemember Civil Relief Act, which will be published by Norton's Annual Survey of Bankruptcy Law. What I would like to do today is use my time to describe the scope of the legislation that is pending, how the bankruptcy process works with service members without the legislation, how it would work with the legislation, and then talk very briefly on some of the consequences of financial distress that our service members experience, including things like the potential possibility of criminal sanctions under the Uniform Code of Military Justice where the loss of security clearance is associated with not aggressively managing one's financial situation. When we look at the scope of the legislation, we see that it is targeted, specific, and quite modest. In fact, it is very much an extension of what already exists under section 707 of the Bankruptcy Code. In particular, we already exempt from the presumption of abuse disabled veterans, but we would be essentially extending that exemption from the presumption of abuse of the bankruptcy process, which we commonly refer to as the means test. We would exempt that presumption of abuse in the context of activated Reservists and National Guardsmen, clearly the citizen soldiers of this country that we are talking about today, and there is a very short time window, a 6-month time window from their leaving active duty, that they could take advantage of this particular provision. So we are talking about in the language itself very limited scope in its application, modest and targeted to address a particular issue, as the financial distress that is caused in part by activation of citizen soldiers for an extended period of time. The other point I would like to make is that based on the most recent data, which would be about 2004 in a study by the Department of Defense, we see about 16,000 service member bankruptcy filings a year. That number has not been rolled forward to the present time period, but if one were to use the percentages that existed in 2004 and rolled it forward, we would probably be looking at somewhere between 18,000 to 20,000 bankruptcy filings by active duty service members. Of that amount, there would be a smaller amount that would probably refer to Reservists and National Guardsmen, and we could estimate somewhere between 2,000 to 2,500 members that might be affected, Reservists and National Guardsmen, that may seek relief under this particular provision. And we might think that is not a very big number in the scheme of things, but, as my father taught me, sometimes it is the quality and not the quantity, that it is magnitude and not the quantity, and so there is a question of numbers that in the absolute or even relatively speaking might be very small, nonetheless, would be very important. Now the way the means test works right now is that if someone's income is below the median income for that State, the means test will not apply. If it does apply, however, then the burden is upon the service member to rebut that presumption. If he rebuts that presumption, he has to do it usually in sworn testimony based on the facts and circumstances. What this legislation would do is change that. The presumption would be not of abuse. The presumption would be that they would be eligible for the relief they sought, and if abuse was present, then the United States Trustee or another watchdog could challenge it and, ultimately, based on the facts and circumstances of each individualized case, can make a determination of whether the service member has abused the bankruptcy process. That does not change by the enactment of this particular bill. I see I am out of time. Thank you very much. [The prepared statement of Mr. Williams follows:] Prepared Statement of Jack F. Williams [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Ms. Sanchez. Thank you for your testimony. At this time, I would invite Mr. Boltz to proceed with his testimony. TESTIMONY OF EDWARD C. BOLTZ, THE LAW OFFICES OF JOHN T. ORCUTT, P.C., DURHAM, NC, ON BEHALF OF THE NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS Mr. Boltz. Chairwoman Sanchez and Members of the Subcommittee, I thank you for inviting me to speak before you on H.R. 4044, which would exclude Reservists and military National Guard members serving on active duty from the means test under the Bankruptcy Code. As a consumer bankruptcy attorney in North Carolina, I have the privilege of representing military service members from the Fort Bragg area as well as Reservists and National Guards throughout serving from North Carolina. I have also had the privilege of speaking on military matters previously and have some acquaintance with the security issue that Mr. Franks has raised also. The means test, as enacted by the Bankruptcy Abuse and Consumer Protection Act of 2005, enacts some mechanical calculation of a debtor's ability to repay their debt and whether they are entitled to a discharge in Chapter 7 and, if they are in a Chapter 13 bankruptcy, how much they are required to pay to their creditors in that case. The starting point for this mechanical calculation is what is called their current monthly income. This is a historical amount which looks at the 6 months preceding the filing of the bankruptcy to determine what the debtor's income is going forward for their bankruptcy case, either Chapter 7 or Chapter 13. Because of the nature of military service, upon returning from overseas, a service member is likely to face not only a loss of their military income, which is heightened in cases where they served in a combat zone by not only their imminent hazard pay, but also by a family separate allowance, and also basically a cashout for a per diem allowance for their daily pay of about $3.50 over a 15-month period of time. That is almost $1,600, however. These amounts heighten a debtor's current monthly income which bears no relation to their actual income upon return home which may be less, it may be more, it may be nothing based on their work situation. They, nonetheless, face difficulties with the bankruptcy. They would be subject to a presumption of abuse or a requirement that they pay that money which does not actually exist in the Chapter 13 case. In some cases, this has caused clients of mine to have to wait for a period of as long as 6 months to file a bankruptcy. In some circumstances, this involves just gritting their teeth and getting through 6 months of phone calls and collection attempts from their creditors. Where the debtor is facing foreclosure, repossession, or garnishment of their wages, this is time that they cannot wait, however, and the peculiarities of the means test are not something they can wait to sort themselves out. This is particularly true for those in the military who not only face the normal debt collection difficulties, but they face possible court martial under the Uniform Code of Military Justice for dishonorably failing to pay their debt and also threats of loss of security clearance. These are problems that exist regardless of the bankruptcy and, in many instances, the bankruptcy prevents these problems. Routinely, we have soldiers--and I say soldiers, but this would true for all branches of the military--where their commanding officers have, in fact, advised them to file bankruptcy to avoid prosecution or other disciplinary problems. We believe that H.R. 4044 is a very narrow and modest approach to this problem. It is similar to the approach taken for disabled veterans that Representative Rohrabacher mentioned previously, and military Reservists would still be subject to court review under a totality of the circumstances, tests in the Bankruptcy Code, and in a Chapter 13, they would still be s subject to a good faith test that their case was filed in good faith and they were making an attempt to repay their debt in an appropriate manner, returning them, in effect, to the pre-2005 statue. Lastly, at a time of war, H.R. 4044 would further the laudable and important goals of the Servicemembers Civil Relief Act, which provides for strengthening and expediting the national defense, by removing this as a distraction for our service members and removing it from the calculus in deciding whether they can afford to serve. Thank you for your time. [The prepared statement of Mr. Boltz follows:] Prepared Statement of Edward C. Boltz [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Ms. Sanchez. Thank you, Mr. Boltz. We will now begin with questioning, and I will begin by recognizing myself for 5 minutes. Mr. Kelley, we tried to have a member of the National Guard or the Reserve to testify at today's hearing, but we encountered a high degree of reluctance to do so. Can you explain to us why that was so? Mr. Kelley. I ran into the same problem. After I found out that your office was having a difficult time finding someone, I put a search out, and I think you would find it in any segment of society, it is not just exclusive to people in the military, that admitting your financial difficulty in a public forum is very difficult, and you do not want that to be part of the public record. I would assume that you would want to secretly put all of this behind you and try to move forward. So rehashing it or making it on a public forum would be very difficult. Ms. Sanchez. Right. We actually encountered in another hearing that we did on USERRA in another Subcommittee that I serve--the difficulty of people not wanting to malign the military or say anything that might be construed as maligning the military and a huge degree of reluctance on the part of service members who are experiencing financial difficulty to actually talk in an open forum about it. Professor Williams, Bankruptcy Code section 707(b)(2)(D) already provides an exception to the means test for a disabled veteran whose indebtedness was primarily incurred while on active duty, and as you stated, H.R. 4044 would just add a further limited exception for certain qualifying members of the National Guard and the Reserve. Do you see any reason why this further exception could be problematic by extending it to these Reservists? Mr. Williams. No. The proposal is a modest extension of existing law and would be consistent with the general structure of the means test and the presumption of abuse, the totality of circumstances test, and finding abuse would be consistent and in harmony with most provisions of the Bankruptcy Code as well as the Servicemembers Civil Relief Act. Ms. Sanchez. And because we are dealing with presumptions, there still is discretion on the part of a bankruptcy judge to look at a case and find that there is, in fact, any kind of abuse, even though this exemption would exist presumably if we enacted it. Mr. Williams. Absolutely. In fact, failing the means test that otherwise would not apply could be a factor that a court considers under the totality of the circumstances. It just means that the presumption is not a presumption against the service member. The presumption would be the presumption in favor of the service member seeking relief, and it would be incumbent on any party and interest to challenge the debtor's eligibility to proceed under Chapter 7. Ms. Sanchez. Thank you. Mr. Boltz, you assert that the means test presents particular difficulties for members of the military who have received combat pay. Why can't the service member simply explain that his or her temporary receipt of a higher income is a special circumstance? Mr. Boltz. Chairwoman Sanchez, they can do that. One of the difficulties with that is that it is both an unpredictable outcome and a costly outcome. It is unpredictable in terms that the service member would have the burden of rebutting the presumption which is not something taken lightly by courts and would place the burden on someone who has already borne a burden overseas for this Nation. And it would be costly both in terms of additional costs for paying their attorney for this representation and also in terms of their time spent in the hearings that would ensue on this. In special circumstances, the case law that has developed since 2005 on this has held that it is a very high standard for special circumstances, not something that can be rebutted easily, and this would entail, in my experience, a hearing that would last the better part of a day for a debtor which, again, dovetails with what Mr. Kelley previously testified, which also carries with it the stigma and embarrassment that someone would have. When people file for bankruptcy, one of the main things they look to me as their attorney for is to tell them what is going to happen, and, right now, when it comes to this sort of thing, I can tell them, you know, ``You are throwing yourself on the mercy of a court,'' which is not a palatable answer. Ms. Sanchez. Not a very pleasant thing to do. H.R. 4044 is the bill that has been proposed, and it is limited to members of the National Guard and the Reserve. Do you think it should apply to other members of the military? Mr. Boltz. I do think that other members of the military who have returned from combat duty face similar difficulties with this. So I would urge the Committee to consider that. That would be a vast expansion of what is right now a pretty narrow bill because, again, upon returning from active combat duty in Iraq or Afghanistan or other combat zones, a regular military service member would face a reduction in their income, and for a period of 6 months, that would prejudice them in a bankruptcy proceeding, but, you know, with this narrow bill as it is, I believe it is appropriate. Ms. Sanchez. Thank you, Mr. Boltz. My time has expired. At this time, I would recognize the gentleman from Arizona, Mr. Franks, for 5 minutes. Mr. Franks. Well, thank you, Madam Chair. I thank all of you for being here today. Mr. Boltz, I am really impressed with your knowledge here. All of you. But I do not even think you read your statement, did you? Mr. Boltz. No, I did not, sir. Mr. Franks. Yes, sir. Well, some of us have to have a script for everything. Some argue that the means test already gives a break to those who are earning less than the applicable State median income and those in special circumstances. If that is the case, isn't this bill potentially aimed at benefiting the wealthier Reservists and the Guardsmen who do not present special circumstances, like the colonels and not the privates, and do we take that into account. And, Mr. Boltz, I will---- Mr. Boltz. Mr. Franks, it is true that in a Chapter 7 proceeding, those who are below the State median income are not subjected to the means test. They are still subjected to the totality of the circumstances abuse case which would be the same following this amendment. However, in a Chapter 13 proceeding, debtors are subject to the means test whether they are above or below the median income because this means test is what is used to determine how much a debtor has to pay to their unsecured creditors in a Chapter 13 case. And for many service members who are returning, if they are facing foreclosure or repossession of a car, Chapter 7 does not stop those proceedings, would not save their home or their car, and they are forced to turn to Chapter 13. And that is where more and more debtors, particularly in the current economy, including military debtors, are forced to go, and even when they are below that median income, the amendment would protect them from having to pay income that they no longer have. Mr. Franks. Sometimes, you know, we forget to ask a salient question. If you were trying to improve this legislation or if you could do one thing to address the underlying purpose of the legislation, what would you do to make it better? Do you have any thoughts about how we could either improve this legislation or to address the soldiers' issues in a better way? And, Professor Williams, I might ask you first and let the others address it as they will. Mr. Williams. Thank you, Mr. Franks. We should recognize that any bankruptcy answer is the second best solution, that it only applies after service members are in financial distress--and serous financial distress--so that any modification to the Bankruptcy Code only solves a very small problem of what is a much larger problem. The much larger problem here is military personnel debt load, and we are talking about a very large problem. Fifty-six percent of enlisted military personnel report difficulty with family finances, and 47 percent of service members say they are in over their head with their own expenses. Now this is a modest proposal, but I would suggest that we think broader at some particular point in time and look at the overall problem that service members face in regard to financial debt. Congress has done a number of things, amending the Servicemembers Civil Relief Act, capping the interest rate on payday loans, a number of things, and is moving, I think, to a more holistic and robust view. I would applaud what Congress has done in the past and suggest that that is the appropriate road and the long-term road to resolve the issues of financial distress and the negative consequences, not only the human toll, but the toll on one's profession because there are serious security clearance consequences associated with financial distress in the military that may foreclose one's career and service in the military as well. Mr. Franks. Mr. Kelley, do you have any thoughts there? Mr. Kelley. Yes. About the first question, I do not think anybody in the military would abuse this because of the fact of what we mentioned about the security clearances and how it will affect their career. And the only people that could really abuse it, in my estimate, are officers and higher enlisted people who have decided to make this a career. So they would, in essence, be ending their career to file for bankruptcy, especially if it was unneeded. To improve this bill, I think the only thing that I would consider, because I like the narrow scope of it, is active duty military personnel who have been extended to go to Iraq or Afghanistan, and when they come back, they are immediately separated. So they are, in essence, unemployed when they return to the United States and have not had a chance to look for employment, look to get into a college, to do all the things that the rest of us do to network when we move from one career field to another. That opportunity is not afforded to them. So I would consider adding those who are separated immediately from active duty to this bill. Mr. Franks. Thank you, Madam Chair. Thank you, all of you. Ms. Sanchez. Mr. Boltz, did you want to respond to that question? Mr. Boltz. I would just second Mr. Delahunt's suggestion that perhaps it be extended from 180 days to 1 year for both technical reasons. Strictly speaking, the means test does not look at the last 6 months. It looks at the last 6 months preceding the filing. So if you file a case on the last day of a month, say you filed yesterday, it would not look at 6 months before March 31, it would look at February, January, December and back for 6 months. And also for practical reasons, someone, as was just stated, leaving the military, it takes a little while to get back on your feet and get, I guess, your land legs back under you under civilian law. Ms. Sanchez. Yes, I noticed some head-shaking. Mr. Kelley and Mr. Williams, do you agree with the suggestion of extending that to 1 year? Mr. Kelley. AMVETS would agree. Mr. Williams. Personally, I would agree with that suggestion. Ms. Sanchez. Thank you. The gentleman's time has expired. At this time, I would recognize Mr. Johnson for 5 minutes for questions. Mr. Johnson. Thank you, Madam Chair. Professor Williams, last October, this Subcommittee conducted an oversight hearing on the United States Trustee program, and according to Director Cliff White's testimony, approximately .63 percent of consumer cases are ultimately dismissed for abuse under the new means testing criteria. This means that well less than 1 percent of Chapter 7 cases are dismissed for abuse, even though proponents of these reforms claimed that the percent was likely to be 10 times higher. Given the complexity and cost of implementing the means test, what value does it actually provide? Mr. Williams. As a general question, it provides, I think, two things. Primarily, it is a statement to the government that those who have the ability to pay substantial amounts of future income to reduce the significant portion of debt should do so and that the government has identified that as a good. And, second, it suggests to those who are contemplating bankruptcy that may tend toward abuse that this will not be a welcome forum or venue and, therefore, the number, although it may be perfectly accurate, may actually undercount potential abusers who believe that they will be ferreted out and caught if they file a bankruptcy petition and purport to abuse the system. Whether that, in fact, outweighs the increased level of complexity and cost that a large number of people have to incur is another question, and whether government should in drafting legislation of a remedial nature should presume for any section of its citizenry abuse is also another question. But I think there are some advantages, there are some benefits, to a means testing mechanism. Whether this is the right way is subject to debate based on its complexity and increased costs and the results that you have identified. Mr. Johnson. Mr. Boltz, what would be your response? Mr. Boltz. In regards to the benefits that the means test provides? Mr. Johnson. Yes. Mr. Boltz. From my clients' point of view and from mine, the main benefit that has resulted from the means test is that most of my clients, again, look to me for predictability, and this provides a means where I can tell them, you know, largely what will happen to them in their bankruptcy case by using a standardized mechanical test. It is harsh on many people who do not fit that test, and it also requires people not to be able to file perhaps when they need to. They may have to wait for after a deployment or after their unemployment has lasted a period of time. Mr. Johnson. It actually increases the attorneys' fees that are charged to people who would otherwise be looking to file a Chapter 7, and it thrusts probably more people into pro se status trying to file Chapter 7s. Would you agree to that? Mr. Boltz. I would agree. I would agree with both the attorney fees and, anecdotally, I will say there are more people who file pro se Chapter 7s, yes. Mr. Johnson. And do you agree, Professor Williams, as well? Mr. Williams. Yes, I do on both points. Mr. Johnson. Yes. How long would it take a pro se debtor to complete means test form 22, which consists of 52 sections? Mr. Boltz. Well, with the assistance of counsel, you---- Mr. Johnson. Well, I mean, a pro se---- Mr. Boltz. A pro se debtor---- Mr. Johnson. A pro se without assistance. Mr. Boltz. Without assistance, I would honestly say that many would not be able to complete it. For me to do it, it requires a computer program because the numbers shift as they adjust. So, for a pro se debtor, it would take probably 10 to 12 hours, I would expect, to gather the information and complete that based on the amount of time it takes with my assistance. On every case, we probably spend upward of two to 3 hours completing it. Mr. Johnson. Okay. Professor Williams? Mr. Williams. I would agree with that assessment. It is a complex process. Mr. Johnson. So, given the fact that only 1 percent or less than 1 percent of the filings result in a dismissal based on abuse, it just appears that this means test may not be a good thing, especially for our service men and women who are both active duty as well as Reserve and National Guard who come back and are separated and then encounter financial problems based on their being deployed. So I know we are not going that far with this limited proposal here, but this limited proposal seems to certainly provide some relief to a key constituency that needs protection. So thank you. Ms. Sanchez. The time of the gentleman has expired. Mr. Keller is recognized for 5 minutes for questions. Mr. Keller. Thank you, Madam Chairwoman. Professor Williams, you teach bankruptcy law. Is that right? Mr. Williams. That is correct. Mr. Keller. Mr. Boltz, you are a practicing bankruptcy lawyer? Mr. Boltz. That is correct. Mr. Keller. Were you both here for the testimony of Congressman Rohrabacher? Mr. Boltz. Yes. Mr. Williams. Yes. Mr. Keller. You may recall him saying that he felt he was misinformed when he was told by someone that essentially the provisions that this bill has are not needed because they are redundant, and I imagine what he meant by that is it was already covered by the special circumstances provision. Do you recall that? Mr. Boltz. That is what I understood him to say. Mr. Keller. Well, as a practicing bankruptcy lawyer and a bankruptcy professor--and we will start with the lawyer--give us on this Committee an idea as to why the service men exempted by this legislation do not already qualify for relief under the means test special circumstances provision. Mr. Boltz. Under the means test special circumstances provision that would be used by someone in a Chapter 7 case to rebut the presumption of abuse that had arisen because they had failed the means test in essence under 707(b)(2), the difficulty that that presents is that it, as I said earlier, again turns that case back to the bankruptcy judge on a subjective basis to determine the military debtor's circumstances and what their ability to pay would be based on their previous income. Mr. Keller. You are concerned that the judge would not rule favorably for the Reservists or Guardsmen under this objective test? Mr. Boltz. In my experience, the bankruptcy judges I appear in front of in North Carolina, which are several, have obviously shown a great deal of deference and concern for military debtors in the past. They are a heroic segment of our society, and they have gotten that deference. But even if there were a finding that there were special circumstances that justified a bankruptcy discharge, it is nonetheless a grueling proceeding. Generally, I have not faced one on this issue because we have---- Mr. Keller. You say a grueling procedure, like a day-long evidentiary hearing? Mr. Boltz. A day-long evidentiary hearing and also substantial pretrial discovery on this. And the court officials who are in essence the prosecutors, whether it is the U.S. Trustee or North Carolina where we have the bankruptcy administrators, they do not generally just stick to the issue of you are in the military. They dig into every aspect of the debtor's finances. Mr. Keller. So, while the Reservists or Guardsmen may ultimately prevail in front of a sympathetic bankruptcy judge, they would incur substantial litigation costs and attorneys fees by going through the process of proving that they qualify for the special circumstances? Mr. Boltz. Yes. And, again, both the litigation costs and the time for themselves, which, again, as they are trying to get back on their feet and find their way back into civilian society is something that they can ill afford. Mr. Keller. I see. Professor Williams, do you have anything to add as to why the special circumstances provision is inadequate under the circumstances to protect the Reservists and Guardsmen? Mr. Williams. I would add that from a descriptive perspective that these situations present themselves while a Reservist or a Guardsman is actually on active duty. That would require, in some instances, courts conducting a telephonic hearing with service members stationed in Iraq or Afghanistan or other areas across the world. That adds to the complexity of the determination under the totality of circumstances test, notwithstanding the special exception. Mr. Keller. Okay. Mr. Kelley, do you have a sense of how many Reservists and Guardsmen are facing insolvency by their calls to active service? Mr. Kelley. The National Guard put out an estimate that 40 percent of all Guardsmen are in some sort of financial hardship. To what degree, they do not describe, but---- Mr. Keller. Let me fire off a quick question before my time expires to you again, Mr. Kelley. I heard you mention something about concerns about veterans coming back from Iraq and Afghanistan being able to go to college and having other similar opportunity. Is it your view that we should somehow update or expand the G.I. bill to provide for more generous college opportunities, and if that is your view, do you want to tell us any specific bills or proposals you think that Congress should put on the front burner? Mr. Kelley. Yes. AMVETS wholly supports S. 22, Senator Webb's post-9/11 G.I. bill reform. Mr. Keller. Thank you, Mr. Kelley. My time has expired. Ms. Sanchez. The time of the gentleman has expired. Mr. Watt is recognized for 5 minutes for questions. Mr. Watt. Thank you, Madam Chair. And let me start by just saying to Mr. Kelley, I can understand the vexing that AMVETS had to go through about this. We share those concerns that service people should not be in the position of having to deal with this, but, unfortunately, that is not currently the case. So I applaud your decision to, after going through that debate internally, provide your support for the bill. In addition to Mr. Delahunt's comment about extending the term to a year at least or more or something longer than 6 months, certainly, the one concern I expressed about the bill was that it does not seem appropriately titled. I hope that Professor Williams and Mr. Boltz will take a close look at the way the bill is described. I do not think it was the actual body of the bill itself accomplishes what I think was intended, but the way it is described to create an exemption from the means test I do not think is the appropriate thing that we are doing because the means test is a good thing and we are not trying to exempt people from it. We are trying to give them a benefit of it, regardless of their income levels, as I understand it. So we need a better description for the bill in the preamble, I guess, it would be or in the title to the bill, and I hope you will give us some suggestions on that. I do not expect you to do that. I know you did not come to talk about the packaging today. You came to talk about the substance, but it does need to be packaged correctly, too, and titled correctly, and both Mr. Rohrabacher and Ms. Schakowsky acknowledged, after I raised the issue with them, that they do not have a good title for the bill, and so if you all could help us with that, I think that would be non-controversial in a markup of the bill, as might extending the term from the 6- month term to 12 months. Other than that, I think the bill is fine and appreciate your all's support and input, and I am hopeful that this is something that we can do on a bipartisan basis and help our service people. And then we can turn our attention to the real problem, which is trying to solve their financial issues that will prevent them and others from getting into situations where they have to pursue this last resort, bankruptcy. I heard Professor Williams' comment that when you are here, you have already reached the end of the road and we need to try to prevent more people from being here and reaching the end of the road, service people and non-service people, and we are trying to address a number of those issues as we go forward. So thank you. I did not ask any questions. I just made my opening statement, I guess. But if you all have got a question that you want to answer, I will give you the rest of my time to answer it or I will yield it back. Ms. Sanchez. Any takers? Mr. Watt. In that case, I yield back. Ms. Sanchez. The gentleman yields back the balance of his time. I want to thank the witnesses for their testimony today. Without objection, Members will have 5 legislative days to submit any additional written questions which we will forward to the witnesses and ask that you answer as promptly as you can so that they can be made a part of the record. Without objection, the record will remain open for 5 legislative days for the submission of any additional materials. Again, I want to thank everybody for their time and their patience, and this hearing of the Subcommittee on Commercial and Administrative Law is adjourned. [Whereupon, at 3:34 p.m., the Subcommittee was adjourned.] A P P E N D I X ---------- Material Submitted for the Hearing Record Answers to Post-Hearing Questions from the Honorable Janice Schakowsky, a Representative in Congress from the State of Illinois [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Answers to Post-Hearing Questions from the Honorable Dana Rohrabacher, a Representative in Congress from the State of California [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Answers to Post-Hearing Questions from Raymond C. Kelley, National Legislative Director, AMVETS, Lanham, MD [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Answers to Post-Hearing Questions from Jack F. Williams, Scholar-in- Residence, American Bankruptcy Institute, Alexandria, VA [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT] Answers to Post-Hearing Questions from Ed Boltz, the Law Offices of John T. Orcutt, P.C., Durham, NC, on behalf of the National Association of Consumer Bankruptcy Attorneys [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]