Sen. John Cornyn (R-Tex.) -- bowing to pressure from fellow Republicans and to possible retaliation from Democratic Sen. Joseph R. Biden Jr. of Delaware -- yesterday said he no longer plans to offer an amendment that threatened to stall bankruptcy legislation being debated in the U.S. Senate.
The amendment would have required corporations to file for bankruptcy protection in the state where their primary business operations are located. Now, companies can file either where they operate or where they are incorporated, which for a majority of corporations is Delaware and New York, states many executives think favor company interests over those of shareholders, creditors and employees.
Cornyn defended the merits of his amendment but said he knows if it's adopted, it might cost key votes for the legislation, including two from Democrats -- Biden and Delaware's other senator, Thomas R. Carper. The loss could shift the balance in what both sides say is a close vote for the legislation that, if passed, would be the most significant change to bankruptcy law in nearly three decades. The Senate has 55 Republicans, 44 Democrats and one independent. Republicans need 60 votes to thwart any attempt by a majority of Democrats to block it with a filibuster.
Delaware gets substantial revenue from bankruptcy filings: 58 percent of Fortune 500 companies and 51 percent of all publicly traded firms are incorporated in the state, according to a spokesman for the state. In recent years, as many as 20 percent of companies that could file in Delaware did so, a Biden spokesman said. Each bankruptcy judge in the state has a caseload five times heavier than the national average, according to federal courts statistics.
Yesterday, word leaked that if Cornyn offered his amendment, Biden would respond by offering one that Cornyn would have trouble supporting, namely a provision to sharply curtail the amount of money wealthy debtors could shield through homeownership. Texas and a handful of other states allow residents filing for bankruptcy to shield millions of dollars through so-called homestead exemptions, and many Texas politicians think influential voters consider that ability sacrosanct.
Though backing down, Cornyn said he might offer his amendment again as the bankruptcy bill continues to be debated. It would depend, he said, on which other amendments are offered.
A spokesman for Biden would not comment on whether the senator was close to offering an amendment that would impose greater restrictions on homestead exemptions but did say that Biden has always favored such limits.
Supporters of the bankruptcy legislation, including its sponsor, Sen. Charles E. Grassley (R-Iowa), had urged Cornyn not to offer the amendment because it would put Republicans in the difficult position of supporting a provision they agree with in principle but that could imperil the legislation. Grassley and other supporters of the bill argue that any substantive amendment at this point could undo the bill because it would upset carefully crafted compromises on homestead exemptions and other issues that have been worked out over several years.
The credit card industry has been pushing Congress to pass the legislation for more than eight years. The industry argues that a spike in bankruptcy filings in the past decade shows that many consumers are misusing the system to avoid repaying debt they could afford to shoulder. Consumer groups and most Democrats oppose the bill, saying it is overly harsh to consumers thrown into financial difficulty because of health care bills, divorce or unemployment.
As both sides expected, Senate Republicans, joined by a few Democrats and one independent, defeated several Democratic proposals, including one to give elderly people more protection to keep their homes during bankruptcy and another to require credit card companies to spell out the extra interest charged to consumers who make only minimum payments.
Democrats will try various tactics to stall the bill in coming days, including trying to attach a controversial minimum-wage amendment to it, congressional aides said yesterday. But the real showdown, now that Cornyn's amendment has been tabled, will come when Sen. Charles E. Schumer (D-N.Y.) offers an amendment that that would bar people from using bankruptcy to avoid paying court-imposed fines for unlawful acts, including those against abortion clinics. Schumer's amendment has killed the bill in previous sessions of Congress.
Business issued its own warnings yesterday to lawmakers who hold up the bill. The National Retail Federation, for example, said it would highlight to its members any lawmaker's vote for an amendment that would "undermine the legislation."