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FOR IMMEDIATE RELEASE: March 3, 2005

SCHUMER: SECRET LEGAL LOOPHOLE ALLOWS WEALTHY TO SHIELD MILLIONS WHILE DECLARING BANKRUPTCY UNDER CURRENT LAW

Schumer Targets ‘Millionaires’ Loophole,’ Bankruptcy Bill Amendment Would Strip Ability of Wealthy to Cheat System

‘Million Dollar Bankruptcy Baby’ Deserves Oscar for Best Legal Loophole for the Wealthy

SCHUMER PREPARED STATEMENT:
Mr. President, I rise today to offer an amendment to the Bankruptcy Abuse Prevention and Consumer Protection Act to close an ugly loophole that protects millionaires while it punishes among others, veterans’ families and sick people with mountains of medical bills.

The front page of the Business Section in yesterday’s New York Times ran a story on a shocking loophole in bankruptcy law that is a windfall for the wealthy – the “Millionaire’s Loophole.”

Here’s the problem: In five states, Alaska, Delaware, Nevada, Rhode Island and Utah, millionaires and billionaires can stash away their assets – mansions, racing cars, yachts, investments, and suitcases full of cash – in a special kind of trust, so that they can hold onto that windfall even after filing for bankruptcy.

When these fat cats file for bankruptcy, creditors would not be able to reach anything in those trusts.

While the bill tries to address the infamous homestead exemption by attaching a $125,000-ceiling to it, the bill does nothing to prevent Enron’s Ken Lay or any super-wealthy individual from using these brimming bank accounts and trusts to cheat the system.

As one legal expert said, with this loophole the rich “won’t need to buy houses in Florida or Texas to keep their millions.” So if anyone is manipulating the system, it’s these guys.

This “Million Dollar Bankruptcy Baby” deserves an Oscar for best legal loophole for the wealthy. This millionaires’ loophole is so bad, it must be knocked out before this fight is over.

There is no question that without this amendment, the bankruptcy laws will continue to make it easier for millionaires to keep their millions than for poor people to simply stay afloat.

I hope Republicans join in support of my amendment, which closes this ugly millionaire’s loophole by forcing the cheating millionaires and billionaires to protect only as much as $125,000 in assets held in these trusts and not a penny more.

And just to clarify, this amendment does not adversely affect retirees who have saved for a lifetime to build a retirement nest egg.

This solution is straightforward and is written in the spirit of the bill.

In fact, when looking at statements made by some of this bill’s greatest champions, you would think they would have no problem accepting this amendment into the bill.

For example, the bill’s sponsor, Sen. Grassley said to one of his state’s local papers:

Filing for chapter 7 bankruptcy “was not intended to be a convenient financial planning tool where deadbeats can get out of paying their debt scott-free while honest Americans who play by the rules have to foot the bill.”

That is the essence of my amendment today to eliminate this millionaires’ loophole.

Deadbeats exist in all tax brackets. I hope my friends on the other side of the aisle aren’t protecting wealthy deadbeats from the same punishment they are doling out to those who are not so financially fortunate.

I have listened to my Republican friends and their concerns about the abuse of our bankruptcy system by gamblers, hustlers, and cheaters for a number of years. Frankly, I share those concerns.

I hope my colleagues will come to the floor to vote for my amendment, which will end this egregious millionaires’ loophole.

We can’t let a few bad apples evade the system by cutting and running on their debts.

But this bill, I’m afraid, doesn’t just go after the bad apples. It actually labels the whole bushel of bankruptcy filers -- “rotten.”

This bill makes no distinction between the reckless high roller and the single working mother, the sick, the elderly, or the spouses of soldiers called to serve their country overseas.

That is wrong. We need to make sure this bill targets the nation’s cheats and not it’s cheated. I urge my colleagues to vote for my amendment to close the “millionaires’ loophole.”

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