Florida Bankruptcy Attorney Speaks About Problems With Certain Bankruptcy Laws

Mr. MANN. Mr. Speaker, today I am introducing legislation to address an inequity in our bankruptcy laws that allows wealthy individuals to wipe away all of their debts and at the same time keep their mansions, expensive jewelry, and thoroughbred horse collections.

The problem with our Bankruptcy Code is that a small number of States abuse the power of States to set the value of the homestead exemption for individuals who file for bankruptcy. The homestead exemption is the value in home equity that a debtor may exclude from bankruptcy proceedings. In the State of Florida a person can exclude his or her residence including up to 160 acres of realty no matter what the value. In Texas up to 200 acres plus a dwelling on the land is placed beyond the reach of creditors, again even if the property is worth millions. In Ohio, by contrast, the limit is $5,000.

The unlimited exclusions in Florida and Texas make these two States havens for debtors. Debtors can buy million dollar estates and get absolution for all their other debts. A favorite trick of wealthy debtors is to establish residency in Florida or Texas and then declare bankruptcy. Meanwhile, middle-class Americans work hard to pay their bills and pay higher prices for merchandise in order to make up for the debts not paid by the millionaires living in their mansions in the few States that make a mockery of our bankruptcy system.

In November, the program `60 Minutes' reported on three cases in Florida. One involved Marvin Warner, a former Cincinnati resident, who was convicted and served time in jail because of his involvement in the savings and loan debacle in the 1980's. Warner established his residency in Florida in 1985, paid $3 1/2 million in cash for a 400-acre horse farm and a collection of thoroughbred horses, and then filed for bankruptcy in 1987. Because he was in Florida he was able to keep his farm and his horses and be absolved from more than $70 million in debt.

The same `60 Minutes' episode interviewed a Florida bankruptcy attorney who said he gets five calls a week from lawyers around the country who are forum shopping for their clients with money they want to shelter. And they can shelter the money by pouring it into a residence in a State with an absurdly high homestead exemption and filing for bankruptcy there.

Mr. Speaker, the bill I am introducing today adds a fair but necessary provision to the Federal Bankruptcy Code. The Abolition of Bankruptcy Havens Amendments of 1994 establishes a cap on the State homestead exemption. The cap is a reasonable $50,000. This is more than is allowable under current law in more than two-thirds of our States. This is not a bill meant to benefit creditors alone. This is a bill that is meant to provide a fair playing field for all Americans so that the machine tool builder in Cincinnati and the executive who gets rich on Wall Street and then moves to Florida are both expected to pay their bills. This is an anti-deadbeat bill. I encourage your support for the legislation.