Boating and Aviation Operation Safety Act : hearing before the Subcommittee on Commercial and Administrative Law of the Committee on the Judiciary, House of Representatives, One Hundred Fourth Congress, first session, on H.R. 234, to amend Title 11 of the United States Code to make nondischargeable online

Mr. Gekas. It would be so accepted, without objection.

Mr. O'DoNNKLL. In summary, the association's position on that
is that any exception to that broad discharge provision of chapter
13 is to be discouraged. We are well aware of the fact that the con-
gressional caution in the 1994 Reform Act stated, in part, that it
is not contemplated that an individual who committed a heinous
crime would be able in good faith to use chapter 13 solely as a
means of discharging a civil obligation owing to a harmed party.
Yet, we continue to emphasize that if it ain't broke, don't fix it. And
we feel that the Congress gave to the courts that right or that obli-
gation, supposed obligation, to determine whether or not that chap-
ter 13 plan that it is going to approve for repayment to the credi-
tors is, in fact, filed in good faith.

Certainly there are circumstances where there would be a hei-
nous crime committed, but given a similar offense, certain facts
may mitigate that. That is where the bankruptcy court, then, en-
ters its discretion to determine whether or not that, in fact, is a
good-faith filing that could be approved and would be satisfactory
not just for the benefit of that debtor, so that he could go on with
his life, but also for the benefit of the creditors that are being dealt
with in that plan.

We encourage you to leave the process to the courts and forgo
any further carving out of exceptions to the 1328(a) discharge.

I would also comment that Congressman Ehlers indicated the
courts' interpretation had been adverse or at least had indicated
that these were only vehicle matters, and there are cases that have
been reported, two in particular, one out of the district court in
Austin, TX, and another out of the district court in Florida, and we
have cited those in our prepared text, which have in fact held that
the motor vehicle interpretation does cover boat drunk driving
charges.

Thank you for letting me have the opportunity to address you.

[The prepared statement of Mr. O'Donnell follows:]

Prepared STATEME^^^ of Gerald M. O'Donnell, President, NACTT, Alexandria,
VA, ON Behalf of the National Association of Cil\pter 13 Trustees

The National Association of Chapter 13 Trustees is an organization composed of
more than a thousand consumer bankruptcy practitioners and trustees that are in-
volved in the consumer bankruptcy and Chapter 13 process. The NACTT provides
educational and training services for trustees and practitioners. Because the NACTT
is focused on the bankruptcy process itself, the organization has as its members
trustees, creditors' representatives and debtors' attorneys: a broad spectrum of all
interests in the consumer bankruptcy system. The NACTT docs not advocate on be-
half of creditors or debtors and attempts to provide the judiciary, members of Con-
gress and its staff as well as its members with an unbiased and objective view that



17

pending legislation may have upon consumer bankruptcy in this country. In that ca-
pacity, the NACTT is pleased to submit this statement in connection with this Com-
mittee's consideration of H.R. 234.

Chapter 13 is a bankruptcy system whereby an individual with relatively small
levels of debt can formulate a repayment plan, subject to approval of the bankruptcy
court, whereby these individuals may restructure their obligations, dedicate all of
their available disposable income for a period of at least three to a maximum of five
years and repay some, if not all, of their debts. The Chapter 13 bankruptcy process
contrasts sharply with Chapter 7 liquidation whereby any individual or business en-
tity must surrender their non-exempt assets to a trustee who then liquidates such
assets and distributes the proceeds to unsecured creditors. Because most debtors
that file for Chapter 7 relief do not have any significant non-exempt assets, the
Chapter 7 process often results in a discharge of indebtedness with little, if any, dis-
tribution to unsecured creditors.

Chapter 13, in contrast, can provide significant dividends to unsecured creditors
over the life of a plan. Congress has long viewed Chapter 13 as offering a more de-
sirable result for debtors and creditors than the Chapter 7 liquidation option. Con-
gress has struggled to encourage consumer debtors to voluntarily elect Chapter 13
which, by law, must pay more to the unsecured creditors than a Chapter 7 liquida-
tion would. {See, e.g., 130 Cong. Rec. S 8894 (Daily Ed. June 29, 1984)). As recently
as the enactment of the Bankruptcy Reform Act of 1994, Congress recognized the
general benefits to be obtained from encouraging the use of Chapter 13 as opposed
to Chapter 7. See, e.g., 140 Cong. Rec. H 10764 (Daily Ed. Oct. 4, 1994).

Chapter 13, recognizing the significant efibrts that many consumer debtors under-
take in an effort to repay indebtedness, contains a broader discharge than is avail-
able for the quick Chapter 7 liquidation. For those debtors who successfully com-
plete a plan that is approved by the bankruptcy court, a discharge is available of
all claims provided for by the Chapter 13 plan except for long-term debts in which
maintenance payments only are made under Chapter 13, support and alimony obli-
gations, nonaischargeable government-guaranteed student loans, restitution or
criminal fines included in a sentence on a debtor's conviction of a crime, and obliga-
tions incurred for death or personal injury caused by the debtor's operation of a
motor vehicle if the operation was unlawful because the debtor was intoxicated from
using alcohol, drug or other substance. Although H.R. 234 seeks to modify only Sec-
tion 523(a)(9) of Title 11, this section which lists those debts non-dischargeable
under Chapter 7, by operation of 11 U.S.C. § 1328(a), the obligation would also be
non-dischargeable under Chapter 13.

The NACTT has consistently cautioned Congress against removing the incentives
for the repayment of debts under Chapter 13. By filing and proposing a Chapter 13
plan, a consumer debtor is seeking the fresh start bankruptcy often provides, but
this fresh start is conditioned upon the willingness and the ability of the debtor to
commit all disposable income for a three-to-five-year period. Any effort to weaken
the incentive of that fresh start will inevitably result in, to some limited extent, an
election by a debtor to select the Chapter 7 remedy as opposed to the Chapter 13.
Consistently since the enactment of the Chandler Act in 1935, Congress has sought
to encourage the use of Chapter 13.

The NA(5TT must recognize, however, that Chapter 13 is not intended to be a har-
bor for individuals that have committed serious criminal acts or inflicted intentional
harm. In fact, in a section-by-section analysis of the provisions of the Bankruptcy
Reform Act of 1994, Congress cautioned the courts:

Creditors generally benefit when a debtor elects Chapter 13. Notwithstand-
ing the fee increases in Chapter 13 cases, the Committee does not intend
for debtors to be able to utilize Chapter 13 as an office solely to obtain dis-
charge from certain liabilities. For example, it is not contemplated that an
individual who committed a heinous crime would be able in good faith to
use Chapter 13 solely as a means of discharging a civil obligation owing to
a harmed party.

Under current law, the simple proposal of a plan by a debtor does not assure its
confirmation. A bankruptcy court must determine that a debtor has proposed the
plan "in good faith." This congressional statement seems to indicate that tne nature
of an offense against another party, whether criminal or civil, is a factor which must
be considered by the bankruptcy court to determine whether a particular Chapter
13 plan should be confirmed. It is impossible for Congress to draft a single law
which covers all of the various facts which are faced by a debtor. While a certain
civil ofiense may be heinous in one case, a similar type of offense may be strongly
mitigated by the facts in another. Giving to the bankruptcy court the discretion to



18

make the determination on a case-by -case basis strengthens the ability of a debtor
to utilize Chapter 13, if appropriate.

In a brief attempt by the NACTT to prepare for this hearing, the organization has
failed to uncover any case in which the ope»-ation of an aircraft or boat by an intoxi-
cated party was discharged as a result of a confirmed Chapter 13 plan after objec-
tions were made to the bankruptcy court at a confirmation nearing. The Committee
should also be aware that at least in one case, a bankruptcy court has determined
that the provisions of 11 U.S.C. §523(aX9) already encompass injuries resulting
from the wrongful operation of a motorized water crafl. See, Matter of Greenway,
180 B.R. 179 (W.D. Tex. 1995). As a consequence, we believe that the impact of this
legislation on Chapter 13 may well be minimal. We encourage Congress, however,
to strengthen the role given to the bankruptcy court confirmation process under 11
U.S.C. § 1325 as opposed to carving out exceptions to the discharge of the indebted-
ness under 1328(a).

The NACTT wishes to express appreciation for the ability to express its views on
this important topic.

Mr. Gekas. Mr. O'Donnell, you are aware that another case goes
just exactly the opposite.

Mr. O'Donnell. I greatly admire Judge Roger. He is one of the
best judges on the bench, but it is a very strict interpretation.

Mr. Gekas. What puzzles me is that you are not advocating
changing the bankruptcy proceedings either in chapter 13 or in
chapter 7 with respect to motor vehicle accidents that cause death
or injury; are you?

Mr. O'Donnell. No, sir.

Mr. Gekas. If the thrust of this legislation is simply to add
"watercraft" as part of the definitional part of the Bankruptcy
Code, what is the big worry on the part that Mr. O'Donnell and Mr.
Case in

Mr. O'Donnell. There is so minimal impact in a chapter 13 pro-
ceeding, Congressman, that it really does pale, and I admit that to
you. I have been a chapter 13 trustee in Alexandria for 27 years
and I have yet to see a chapter 13 debtor with an airplane.

Mr. Gekas. Mr. Case, your answer?

Mr. Case. There is appended to our prepared statement alter-
native proposed legislative language which would include the addi-
tion of the words "watercraft" and "aircraft," but would add the
same language that is now in section 523(a)(15), that would give
the judge discretion on whether to give the debtor a discharge or
not. So we do advocate some modification of the existing law.

Mr. Gekas. I am not persuaded by the fact that the number of
cases might be minimal when we know the potential is becoming
greater and greater every day. Mr. Gilmore.

Mr. Gilmore. Mr. Chairman, if I may address the point that was
raised by you and also by the sponsor; the way I would answer the
issue of what effect this may have is, and I did not make it clear
in my oral statement, any legislation or any policy that the Govern-
ment can encourage sober boating should be commended.

There is a cumulative effect. If this bill passes, one of the things
that my agency will do will be to incorporate the passage of this
legislation into those materials and public outreach efforts that we
make to persuade people to boat sober. Not only is there a moral
obligation and a health obligation, but there is a prudent financial
consideration.

Most boaters are not wealthy. Most boaters will never be affected
by the bankruptcy laws. Some will. And if we touch only a few who
may say to themselves the Federal laws and the State laws have



19

now reached the point where there is no differentiation between
automobile operation and vessel operation insofar as impairment or
intoxication are concerned, then I think that that is a laudable
public policy goal and one that is commendable.

I do not know the intricacies of bankruptcy law. I certainly would
defer to my colleagues here today on that score, but I think that
the committee would do well if it would at least give some consider-
ation to the possible public policy good that could come from this.

Mr. Gekas. Mr. Case in his hypothetical was pitiably describing
the gentleman who was making $400 a week, who went down to
the waterfront to try to assuage his troubles, but if he had chosen
a motorcycle or a high speed automobile, what difference would
have been made with respect to the adverse consequences?

Mr. Case. Your question is correct, Mr. Chairman, and we be-
lieve that the existing law should be amended to give the courts
discretion.

Could I offer briefly this observation? Since the modern era of
Federal bankruptcy legislation in the 1930's, the community of pro-
fessionals that live with the Bankruptcy Code every day has looked
to and admired the House Judiciary Committee, Chairman Celler,
Chairman Rodino, Chairman Brooks, as an extraordinarily commit-
ted, highly professional organization which has year in and year
out thoughtfully considered bankruptcy legislation and consistently
delivered one of the most outstanding statutes on the Federal stat-
ute books. The issue here is less a little fine-tuning about
watercraft and motorcraft; the issue is fair bankruptcy policy and
sensible bankruptcy policy, which is decent to the overwhelmed
debtor.

If you go to Colonial Williamsburg, they still have a debtor's pris-
on down there. Our system is much better. We are anxious at every
opportunity and appreciate being heard by this committee for the
opportunity to defend the great traditions which your committee
has consistently applied in enacting bankruptcy law.

Mr. Gekas. But isn't it just as much our duty not to be cavalier
about the creditors who, like the insurance company that paid off
the $250,000 in your hypothetical and then everybody is left
stranded because of the debtor? Should we not also be considering
the line of recovery of damages or shall we just write it off as an
insurance payoff in the hypothetical you gave and say the poor
debtor should be left off the hook? Should that be done automati-
cally or should it be left to the discretion of the court? We have
creditors too in this world.

Mr. Case. One of the problems, Mr. Chairman, with discharging
everybody else except the insurance company, in addition to the
pain suffered by our poor hard working man, is that the telephone
company, the credit card company, and the uncle get a few cents
on the dollar, and the insurance company over time will collect a
lot of cents on the dollar.

One of the other great policies defended by this committee over
many decades has been the policy of equal distribution to creditors.
And why should the insurance company get more out of the man's
bankruptcy than should the telephone company?

Mr. Gekas. Is it equal or proportional?

Mr. Case. It is pro rata.



20

Mr. Gkkas. Pro rata. Well, so that the premium payers for the
insurance company and the stockholders of the insurance company
and the public-at-large will write off that $250,000 that you are
talking about, and will discharge the debtor because it happens to
be a large claim.

Mr. Cask. He is bankrupt. He owes more than he has. And so
the trustee will take his assets and sell them and if he can raise
$25,000 he will pay every creditor 10 cents on the dollar, roughly,

Mr. Gkkas. The gentleman from Rhode Island.

Mr. Reed. Thank you, Mr. Chairman.

I want to thank all of the witnesses for their excellent testimony,
and just as a preliminary point to get an idea of the different types
of bankruptcy filings, on the Chapter 13 that would be an individ-
ual and limited to less than $250,000 in debts; is that roughly

Mr. O'DoNNELL. Two hundred fifty thousand dollars in unse-
cured and 750 in secured, yes.

Mr. Reed. So, typically, if it was a serious accident, and the
claims would be in the hundreds of thousands of dollars, they
would not be seeking relief in chapter 13?

Mr. O'DoNNELL. Typically, if the judgment were in excess of the
$250,000, they would not.

Mr. Reed. That would drive them into chapter 7. Mr. Case, in
chapter 7 bankruptcy proceedings, is there anything left after the
bankruptcy? Is there anything protected?

Mr. Case. It is a complicated subject. Yes, the debtor is able to
keep his exempt assets.

Mr. Reed. Which would be his home?

Mr. Case. It varies. The Federal statute has its own set of ex-
emptions. For instance, you can keep several hundred dollars
worth of tools of the trade. But Federal statute in another provision
of the bankruptcy laws that we oppose allows States to opt out. So
that, what is it, 30 States or so have opted out, I think.

So it is impossible to give a simple answer to your question.

Mr. Reed. One of the more egregious examples of abuse would
be if someone was the $500,000 a year executive driving a speed-
boat crashing into someone else, we are switching roles now, the
victim becomes the $400 man that cannot work any more, et
cetera, and yet that person sort of gleefully, I don't want to be pejo-
rative, discharges through 13 or 7. If it is a large claim, on that
order, it wouldn't be a chapter 13 proceeding. If it was a chapter
7 proceeding, could someone literally walk away with most of their
assets and kind of thumb their nose at society?

Mr. Case. I don't believe under the Federal exemptions the
$500,000 a year executive would keep very much, unless he owned
a home in Florida or Texas, which would be protected under the
existing opt-out provisions.

Mr. Reed. The other issue that comes up, and I noticed that at
least from your perspective, Mr. Case, you have a consistent policy
view that these exemptions for both automobiles and boats should
be the same; i.e., there should be discretion with the judge.

Mr. Case. Yes, sir.

Mr. Reed. You would urge a change even in the existing, and
Mr. O'Donnell, you are not urging a change in the existing, you are
simply saying don't expand it; is that correct?



21

Mr. O'DoNNELL. I think it is in the purview of the judge at this
time and I think they are doing a good job with it.

Mr. Case. Excuse me, I think he is saying there is a good-faith
test for confirmation in chapter 13 which gives the discretion there
but it is not there in chapter 7.

Mr. Reed. So that the legal difference, which is important — what
you are saying is in chapter 13, the judge has the discretion to say
you are avoiding a valid claim by seeking chapter 13 and you are
trying to frustrate the insurance company would you be in favor of
clarifying that more in terms of specifying?

In the language I see here, in the statute, it is a heinous crime.
I do not know if negligent operation of a boat would be a heinous
crime.

Mr. O'DoNNELL. It may or may not be a heinous crime, given the
circumstance of a particular circumstance, and I think that is once
again to be addressed in the discretion of the court in looking at
that particular case. Under these circumstances, in this case, is
this the type of thing that should be discharged in bankruptcy pro-
ceedings?

Mr. Reed. It just strikes me that the point that Mr. Ehlers is
trying to get at in his legislation is not so much a heinous crime
but gross negligence, reckless conduct, et cetera, which a judge,
being a very good judge and very literal, would say that is not a
heinous crime. I deplore it, but someone is using the system to
avoid a legitimate claim.

And I am wondering in terms of proceeding here, perhaps we
might provide guidance to the judge's discretion, which I think we
do occasionally, or perhaps in the context of giving him discretion.
I think this would be similar to Mr. Case's point, if we give the
judge discretion but specifically point out that we consider as a
public policy matter reckless boating while you are intoxicated to
be wrong.

Mr. O'DONNELL. I have read Mr. Case's prepared statement and
his recommendation. I am not opposed to the changes he is indicat-
ing, my major opposition is to taking another bite at the discharge,
which this Congress gave to the chapter 13 debtor in order to en-
courage him to be in chapter 13 and repay his debts rather than
to discharge them in a chapter 7.

Mr. Reed. I want to raise two points, if I may, just in a moment,
Mr. Chairman.

First of all, there has been discussion about the deterrent effect
of changing the Bankruptcy Code, and I must say I think it is so
attenuated from the average person's reality that it is probably not
the most direct way you can deter reckless conduct on a boat or in
a car.

I am wondering if there is any evidence that you have accumu-
lated, Mr. Gilmore, or your colleagues throughout the country, that
something like this does have a deterrent effect. And since we have
not really broached the issue of watercraft, in the area of auto-
mobiles, whether there is any credible evidence that Bankruptcy
Code changes have deterred drunk driving or that, in fact, drunken
drivers who get in accidents are using the Bankruptcy Code in an
abusive way to frustrate a legitimate claim.



22

I would raise that issue and ask any one of the panelists. At this
point I would yield back to the chairman, but if there is any evi-
dence whatsoever that is out there we would very much — I person-
ally would like to see that evidence in the context of an automobile
or of watercraft. Thank you.

Mr. Gekas. The gentleman from Illinois.

Mr. FluANAGAN. Thank you, Mr. Chairman. I have no question
other than to urge Mr. Case to include Chairman Hyde in his list
of appellations in the future for his comments about the Judiciary
Committee. I yield back, Mr. Chairman.

Mr. Gekas. There being no further questions, we will consider
the witnesses' testimony, as has been the history of our subcommit-
tee, very carefully.

I want to end by saying I do not see any deterrent value at all
in the work that we are doing, because deterrence means wide pub-
lication, despite Mr. Gilmore's feeling that at least in the brochures
and the pamphlets and so forth another element in the cumulative
effect will have been added, and I agree with that. But what I am
trying to say is that I am not going to proceed to enter my opinion
into this case on the basis of deterrence, but rather on balancing
the equation as it were on the question of motor vehicles that now
appears in the bankruptcy court laws. So we will see what hap-
pens.

We thank the panel, and we adjourn this hearing.

[Whereupon, at 10:50 a.m., the subcommittee adjourned.]



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