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110th Congress                                                   Report
                        HOUSE OF REPRESENTATIVES
 2d Session                                                     110-726

======================================================================



 
             NATIONAL GUARD AND RESERVISTS DEBT RELIEF ACT 
                                OF 2008

                                _______
                                

 June 20, 2008.--Committed to the Committee of the Whole House on the 
              State of the Union and ordered to be printed

                                _______
                                

    Mr. Conyers, from the Committee on the Judiciary, submitted the 
                               following

                              R E P O R T

                        [To accompany H.R. 4044]

      [Including cost estimate of the Congressional Budget Office]

  The Committee on the Judiciary, to whom was referred the bill 
(H.R. 4044) to amend the Bankruptcy Abuse Prevention and 
Consumer Protection Act of 2005 to exempt from the means test 
in bankruptcy cases, for a limited period, qualifying reserve-
component members who, after September 11, 2001, are called to 
active duty or to perform a homeland defense activity for not 
less than 60 days, having considered the same, reports 
favorably thereon with amendments and recommends that the bill 
as amended do pass.

                                CONTENTS

                                                                   Page
The Amendments...................................................     2
Purpose and Summary..............................................     3
Background and Need for the Legislation..........................     4
Hearings.........................................................     7
Committee Consideration..........................................     7
Committee Votes..................................................     8
Committee Oversight Findings.....................................     8
New Budget Authority and Tax Expenditures........................     8
Congressional Budget Office Cost Estimate........................     8
Performance Goals and Objectives.................................     9
Constitutional Authority Statement...............................     9
Advisory on Earmarks.............................................    10
Section-by-Section Analysis......................................    10
Changes in Existing Law Made by the Bill, as Reported............    11

                             The Amendments

  The amendments are as follows:
  Strike all after the enacting clause and insert the 
following:

SECTION 1 SHORT TITLE.

  This Act may be cited as the ``National Guard and Reservists Debt 
Relief Act of 2008''.

SEC. 2. AMENDMENTS.

  Section 707(b)(2)(D) of title 11, United States Code, is amended--
          (1) in clauses (i) and (ii)--
                  (A) by indenting the left margin of such clauses 2 
                ems to the right, and
                  (B) by redesignating such clauses as subclauses (I) 
                and (II), respectively,
          (2) by striking ``if the debtor is a disabled veteran'' and 
        inserting the following:
``if--
          ``(i) the debtor is a disabled veteran'',
          (3) by striking the period at the end and inserting ``; or'', 
        and
          (4) by adding at the end the following:
          ``(ii) while--
                  ``(I) the debtor is--
                          ``(aa) on, and during the 540-day period 
                        beginning immediately after the debtor is 
                        released from, a period of active duty (as 
                        defined in section 101(d)(1) of title 10) of 
                        not less than 90 days; or
                          ``(bb) performing, and during the 540-day 
                        period beginning immediately after the debtor 
                        is no longer performing, a homeland defense 
                        activity (as defined in section 901(1) of title 
                        32) performed for a period of not less than 90 
                        days; and
                  ``(II) if after September 11, 2001, the debtor while 
                a member of a reserve component of the Armed Forces or 
                a member of the National Guard, was called to such 
                active duty or performed such homeland defense 
                activity.''.

SEC. 3. GAO STUDY.

  (a) Comptroller General Study.--Not later than 2 years after the 
effective date of this Act, the Comptroller General shall complete and 
transmit to the Speaker of the House of Representatives and the 
President pro tempore of the Senate, a study of the use and the effects 
of the provisions of law amended (and as amended) by this Act. Such 
study shall address, at a minimum--
          (1) whether and to what degree members of reserve components 
        of the Armed Forces and members of the National Guard avail 
        themselves of the benefits of such provisions,
          (2) whether and to what degree such members are debtors in 
        cases under title 11 of the United States Code that are 
        substantially related to service that qualifies such members 
        for the benefits of such provisions,
          (3) whether and to what degree such members are debtors in 
        cases under such title that are materially related to such 
        service, and
          (4) the effects that the use by such members of section 
        707(b)(2)(D) of such title, as amended by this Act, has on the 
        bankruptcy system, creditors, and the debt-incurrence practices 
        of such members.
  (b) Factors.--For purposes of subsection (a)--
          (1) a case shall be considered to be substantially related to 
        the service of a member of a reserve component of the Armed 
        Forces or a member of the National Guard that qualifies such 
        member for the benefits of the provisions of law amended (and 
        as amended) by this Act if more than 33 percent of the 
        aggregate amount of the debts in such case is incurred as a 
        direct or indirect result of such service,
          (2) a case shall be considered to be materially related to 
        the service of a member of a reserve component of the Armed 
        Forces or a member of the National Guard that qualifies such 
        member for the benefits of such provisions if more than 10 
        percent of the aggregate amount of the debts in such case is 
        incurred as a direct or indirect result of such service, and
          (3) the term ``effects'' means--
                  (A) with respect to the bankruptcy system and 
                creditors--
                          (i) the number of cases under title 11 of the 
                        United States Code in which members of reserve 
                        components of the Armed Forces and members of 
                        the National Guard avail themselves of the 
                        benefits of such provisions,
                          (ii) the aggregate amount of debt in such 
                        cases,
                          (iii) the aggregate amount of debt of such 
                        members discharged in cases under chapter 7 of 
                        such title,
                          (iv) the aggregate amount of debt of such 
                        members in cases under chapter 7 of such title 
                        as of the time such cases are converted to 
                        cases under chapter 13 of such title,
                          (v) the amount of resources expended by the 
                        bankruptcy courts and by the bankruptcy 
                        trustees, stated separately, in cases under 
                        title 11 of the United States Code in which 
                        such members avail themselves of the benefits 
                        of such provisions, and
                          (vi) whether and to what extent there is any 
                        indicia of abuse or potential abuse of such 
                        provisions, and
                  (B) with respect to debt-incurrence practices--
                          (i) any increase in the average levels of 
                        debt incurred by such members before, during, 
                        or after such service,
                          (ii) any indicia of changes in debt-
                        incurrence practices adopted by such members in 
                        anticipation of benefitting from such 
                        provisions in any potential case under such 
                        title; and
                          (iii) any indicia of abuse or potential abuse 
                        of such provisions reflected in the debt-
                        incurrence of such members.

SEC. 4. EFFECTIVE DATE; APPLICATION OF AMENDMENTS.

  (a) Effective Date.--Except as provided in subsection (b), this Act 
and the amendments made by this Act shall take effect 60 days after the 
date of the enactment of this Act.
  (b) Application of Amendments.--The amendments made by this Act shall 
apply only with respect to cases commenced under title 11 of the United 
States Code in the 3-year period beginning on the effective date of 
this Act.

  Amend the title so as to read:

    A bill to amend title 11 of the United States Code to 
exempt for a limited period, from the application of the means-
test presumption of abuse under chapter 7, qualifying members 
of reserve components of the Armed Forces and members of the 
National Guard who, after September 11, 2001, are called to 
active duty or to perform a homeland defense activity for not 
less than 90 days.

                          Purpose and Summary

    The Bankruptcy Abuse Prevention and Consumer Protection Act 
of 2005 (the 2005 Bankruptcy Act) was signed into law by 
President George W. Bush on April 20, 2005.\1\ The 2005 
Bankruptcy Act is the most comprehensive overhaul of bankruptcy 
law in more than 25 years, particularly with respect to 
consumer bankruptcy. These consumer bankruptcy amendments 
included, for example, the establishment of a means testing 
mechanism to determine a debtor's ability to repay debts. Under 
this test, a chapter 7 bankruptcy case is presumed to be an 
abuse if it appears that the debtor has income in excess of 
certain thresholds.
---------------------------------------------------------------------------
    \1\Pub. L. No. 109-8, 119 Stat. 23 (2005).
---------------------------------------------------------------------------
    H.R. 4044, the ``National Guard and Reservists Debt Relief 
Act of 2008,'' would exempt certain qualifying National Guard 
members and reserve component members of the Armed Services 
from the means test's presumption of abuse. This bipartisan 
legislation responds to the fact that some who serve in the 
National Guard and the Reserves encounter financial 
difficulties during or in the wake of their service and that 
they merit relief from the additional proof requirements of the 
means test.

                Background and Need for the Legislation

                               BACKGROUND

    Chapter 7 is a form of bankruptcy relief by which an 
individual debtor may discharge his or her personal liability 
for certain debts in exchange for relinquishing the debtor's 
nonexempt assets to a bankruptcy trustee for liquidation and 
distribution to creditors. A discharge under chapter 7 
contrasts with the ``conditional discharge'' of chapter 13, a 
form of bankruptcy relief by which a debtor commits to repay 
some portion of his or her financial obligations in exchange 
for retaining nonexempt assets and receiving a broader 
discharge of debt than is available under chapter 7.
    As originally enacted in 1978, the Bankruptcy Code provided 
that a chapter 7 case could only be dismissed for ``cause.'' In 
1984, it was amended to permit a court to dismiss a chapter 7 
case for ``substantial abuse.''\2\ This provision, codified in 
section 707(b) of the Bankruptcy Code,\3\ was added ``as part 
of a package of consumer credit amendments designed to reduce 
perceived abuses in the use of chapter 7.''\4\ It was intended 
to respond ``to concerns that some debtors who could easily pay 
their creditors might resort to chapter 7 to avoid their 
obligations.''\5\ In 1986, section 707(b) was further amended 
to allow a United States Trustee to move for dismissal.\6\
---------------------------------------------------------------------------
    \2\Bankruptcy Amendments and Federal Judgeship Act of 1984, Pub. L. 
No. 98-353, Sec. 312, 98 Stat. 333, 335 (1984).
    \3\11 U.S.C. Sec. 707(b) (2007).
    \4\6 Alan N. Resnick & Henry J. Sommer, Collier on Bankruptcy 
Sec. 707.LH[2], at 707-61 (15th ed. rev. 2007).
    \5\Id. at Sec. 707.04, at 707-25.
    \6\Bankruptcy Judges, United States Trustees, and Family Farmer 
Bankruptcy Act of 1986, Pub. L. No. 99-554, Sec. 219, 100 Stat. 3088, 
3101 (1986). The United States Trustee Program is responsible for 
overseeing the administration of bankruptcy cases and private trustees. 
28 U.S.C.A. Sec. Sec. 581-89a (2007). The Program is overseen by the 
Executive Office for United States Trustees, which provides policy and 
management direction to United States Trustees. The Program operates 
through a system of 21 regions nationwide, except for North Carolina 
and Alabama. Bankruptcy Judges, United States Trustees, and Family 
Farmer Bankruptcy Act of 1986, Pub. L. No. 99-554, 28 U.S.C.A. Sec. 581 
n. (2007). With respect to North Carolina and Alabama, the bankruptcy 
system is administered by a bankruptcy administrator appointed by the 
Judicial Conference. Id.
---------------------------------------------------------------------------
    As amended by the 2005 Bankruptcy Act, section 707(b) 
permits a court, on its own motion, or on motion of the United 
States trustee, a private trustee, a creditor, or another party 
in interest, to dismiss a chapter 7 case for abuse if it was 
filed by an individual whose debts are primarily consumer 
debts. Alternatively, the chapter 7 case may be converted to a 
case under chapter 11 or chapter 13 on consent of the debtor. 
The Act replaces the prior law's presumption in favor of the 
debtor with a mandatory presumption of abuse under the Act's 
means test provisions,\7\ which presumption can be rebutted 
under limited circumstances.\8\
---------------------------------------------------------------------------
    \7\As amended, section 707(b) of the Bankruptcy Code requires a 
court to presume that abuse exists if the amount of the debtor's 
remaining income, after certain expenses and other specified amounts 
are deducted from the debtor's current monthly income (a defined term). 
11 U.S.C. Sec. 707(b)(2)(A)(I) (2007).
    \8\11 U.S.C. Sec. 707(b)(2)(B) (2007). Where the mandatory 
presumption of abuse does not apply or has been rebutted, the court, in 
order to determine whether the granting of relief under chapter 7 would 
constitute an abuse, must consider: (1) whether the debtor filed the 
chapter 7 case in bad faith; or (2) whether the totality of 
circumstances of the debtor's financial situation (including whether 
the debtor seeks to reject a personal services contract and the 
financial need for such rejection) demonstrates abuse. 11 U.S.C. 
Sec. 707(b)(3) (2007).
---------------------------------------------------------------------------
    The Act's means test provisions establish an income/expense 
screening mechanism for the purpose of determining a consumer 
debtor's ability to repay debts. If a chapter 7 debtor has the 
ability to repay debts and has no special circumstances, the 
filing of the debtor's case is presumed to be an abuse and 
therefore subject to dismissal or conversion. The means test 
takes into consideration the debtor's income and various 
specified expenses, some of which are determined under Internal 
Revenue Service expense standards.\9\ The debtor's income, for 
purposes of the means test, is typically determined by 
calculating the amount of average monthly income the debtor 
received during the 6-month period preceding the filing of the 
bankruptcy case.\10\
---------------------------------------------------------------------------
    \9\11 U.S.C. Sec. 707(b)(2)(A) (2007).
    \10\11 U.S.C. Sec. 101(10A) (2007).
---------------------------------------------------------------------------
    To determine whether the presumption of abuse applies under 
the means test, a chapter 7 debtor must complete Official Form 
22, a form that requires the debtor to supply substantial 
financial information and supporting documentation.\11\ The 
form requires the debtor to: disclose monthly income from all 
sources, determine the applicable median family income, 
calculate his or her current monthly income, determine the 
applicable Internal Revenue Service expense standards, identify 
any other applicable expenses, calculate deductions for debt 
payments, determine whether the presumption of abuse applies 
based on ability to repay, and describe any additional expense 
claims. The form must be signed by the debtor under penalty of 
perjury. The Bankruptcy Code currently includes a limited 
exception to the means test for a disabled veteran\12\ if his 
or her indebtedness was primarily incurred during a period when 
the debtor was on active duty or performing a homeland defense 
activity.\13\
---------------------------------------------------------------------------
    \11\Official Bankruptcy Form 22A--Chapter 7 Statement of Current 
Monthly Income and Means-Test Calculation (Jan. 2008).
    \12\The term is defined by reference to 38 U.S.C. Sec. 3741(1) 
(2007), which provides as follows:

      The term ``disabled veteran'' means (A) a veteran who is 
      entitled to compensation under laws administered by the 
      Secretary for a disability rated at 30 percent or more, or 
      (B) a veteran whose discharge or release from active duty 
---------------------------------------------------------------------------
      was for a disability.

38 U.S.C. Sec. 3741(1) (2007).
---------------------------------------------------------------------------
    \13\11 U.S.C. Sec. 707(b)(2)(D) (2007).
---------------------------------------------------------------------------

                        NEED FOR THE LEGISLATION

    Between September 11, 2001 and November 30, 2007, 254,894 
members of the National Guard and 202,113 Reservists have been 
deployed to Iraq and Afghanistan.\14\ It is estimated that 
``[m]oney problems related to deployment'' may affect up to 26 
percent of National Guard soldiers.\15\ For example, the 
Subcommittee on Commercial and Administrative Law last May held 
an oversight hearing on the second anniversary of the enactment 
of the 2005 Bankruptcy Act, during which a chapter 13 debtor 
described the impact of her husband's activation as a member of 
the Army reserve on their family's financial circumstances.\16\ 
She explained that after her husband 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.\17\
---------------------------------------------------------------------------
    \14\Michael Waterhouse & JoAnne O'Bryant, National Guard Personnel 
and Deployments: Fact Sheet, Congressional Research Report for 
Congress, RS22451, at 5 (Jan. 17, 2008).
    \15\Marilyn Elias, Iraq War Takes Unique Toll on National Guard, 
USA Today, Aug. 20, 2007; see, e.g., Lizette Alvarez, Iraq Looms Closer 
for 13,000 National Guard Soldiers, N.Y. Times, Apr.10, 2007 (``In some 
cases, families face financial hardship when a soldier deploys. In 
others, the soldiers wind up making more money.'').
    \16\Second Anniversary of the Enactment of the Bankruptcy Abuse 
Prevention and Consumer Protection Act of 2005: Are Consumers Really 
Being Protected Under the Act?: Hearing Before the Subcomm. on 
Commercial and Administrative Law of the H. Comm. on the Judiciary, 
110th Cong. (2007) (prepared statement of Shirley Jones Burroughs).
    \17\Id.
---------------------------------------------------------------------------
    Some servicemembers experience financial distress after 
they leave active service and resume civilian life.\18\ 
Although the Servicemembers Civil Relief Act\19\ enacted in 
2003 accords certain protections from some creditor collection 
efforts for a servicemember who is no longer in active duty 
status for 90 days,\20\ this temporary relief can be inadequate 
for various reasons. Returning servicemembers, for instance, 
can encounter difficulty obtaining employment upon their return 
to civil life.\21\ According to a recent Department of Veterans 
Affairs survey, ``Transitioning back into employment, 
education, and/or training after completing military service 
can be challenging for some military personnel[.]''\22\ 
Specifically, the study found an 18 percent unemployment rate 
for military personnel discharged in the past 3 years.\23\ In 
addition, it is estimated that up to one-fifth of 
servicemembers returning from Iraq and Afghanistan ``report 
symptoms of post-traumatic stress disorder or major 
depression,'' and a ``little more than half of them have sought 
mental health treatment,'' according to a report released 
earlier this year by the RAND Corporation.\24\
---------------------------------------------------------------------------
    \18\See, e.g., Kimberly Hefling, VA Estimates Fewer Homeless Vets, 
Wash. Post, Mar. 6, 2008 (reporting that the ``Veterans Affairs 
Department estimates that on any given night last year, 154,000 
veterans were homeless''); Bina Venkataraman, Help Lags for Homeless 
Female Veterans--About 8,000 Women Lack Permanent Shelter. Need is 
Likely to Rise as More Women Return from War, Christian Science 
Monitor, July 18, 2007.
    \19\Pub. L. No. 108-189, 117 Stat. 2835, 2842 (2003) (codified in 
scattered sections of 50 U.S.C. app.).
    \20\See, e.g., 50 U.S.C. app. 522(a)(1) (2007).
    \21\See, e.g., Stephen Barr, Veterans Return to Bleak Job Market, 
Wash. Post, Apr. 1, 2008, at D1.
    \22\Id.
    \23\Id.
    \24\Lizette Alvarez, Nearly a Fifth of War Veterans Report Mental 
Disorders, a Private Study Finds, N.Y. Times, Apr. 18, 2008. According 
to the New York Times, this 500-page study ``is the first exhaustive, 
private analysis of the psychological and cognitive injuries suffered 
by service members.'' Id.
---------------------------------------------------------------------------
    Although the means test has been generally criticized for 
instituting hurdles that debtors must navigate to receive 
relief under chapter 7,\25\ it can present particular issues 
for servicemembers who seek chapter 7 relief shortly after 
leaving service. While serving in Iraq or Afghanistan, 
servicemembers often receive higher compensation, in the form 
of combat pay, and incur fewer expenses. When they return to 
the United States, these servicemembers no longer receive 
combat pay. 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 
actual, current income.\26\
---------------------------------------------------------------------------
    \25\Second Anniversary of the Enactment of the Bankruptcy Abuse 
Prevention and Consumer Protection Act of 2005: Are Consumers Really 
Being Protected Under the Act?: Hearing Before the Subcomm. on 
Commercial and Administrative Law of the H. Comm. on the Judiciary, 
110th Cong. (2007) (prepared statement of Henry Sommer, President, 
National Association of Consumer Bankruptcy Attorneys).
    \26\11 U.S.C. Sec. Sec. 101(10A), 521(a)(1)(B)(ii) (2007); Official 
Bankruptcy Form 6--Schedule I, Current Income of Individual Debtor(s) 
(Dec. 2007).
---------------------------------------------------------------------------
    To avoid having his or her chapter 7 case dismissed for 
abuse, the servicemember must demonstrate ``special 
circumstances.''\27\ Although special circumstances includes 
``a call or order to active duty in the Armed Forces,'' the 
debtor must nevertheless demonstrate that this situation 
``justif[ies] additional expenses or adjustments of current 
monthly income for which there is no reasonable 
alternative.''\28\ To prove special circumstances, the debtor 
must:
---------------------------------------------------------------------------
    \27\11 U.S.C. Sec. 707(b)(2)(B)(i) (2007).
    \28\Id.

        (1) Litemize each additional expense or adjustment of 
---------------------------------------------------------------------------
        income;

        (2) Ldocument such expense or adjustment to income;

        (3) Lprovide a detailed explanation of the special 
        circumstances that make such expenses or adjustment to 
        income necessary and reasonable;

        (4) Lattest under oath to the accuracy of any 
        information provided to demonstrate that additional 
        expenses or adjustments to income are required;\29\ and
---------------------------------------------------------------------------
    \29\11 U.S.C. Sec. 707(b)(2)(B)(ii), (iii) (2007).

        (5) Lestablish that such additional expenses or 
        adjustments to income cause the product of the debtor's 
        monthly income to be less then the threshold 
        substantiating abuse.\30\
---------------------------------------------------------------------------
    \30\11 U.S.C. Sec. 707(b)(2)(B)(iv) (2007).

    Alternatively, some debtors have tried to deal with this 
problem by utilizing Bankruptcy Code section 101(10A),\31\ 
which allows the court itself to calculate a debtor's current 
monthly income if the debtor does not file a statement of 
current income as required by Bankruptcy Code section 
521(a)(1)(B)(ii).\32\ In effect, this alternative would require 
a debtor to file a motion to obtain the court's approval 
excusing him or her from the requirement to file the income 
schedule.
---------------------------------------------------------------------------
    \31\11 U.S.C. Sec. 101(10A)(A)(ii) (2007); see, e.g., In re Ingram, 
Case No. 06-02714-8-DD (Bankr. E.D.N.C. Nov. 26, 2006).
    \32\11 U.S.C. Sec. 521(a)(1)(B)(ii) (2007).
---------------------------------------------------------------------------
    Still other debtors try to delay filing their bankruptcy 
cases in order to avoid having to pursue either of these 
cumbersome procedures. Nevertheless, not all debtors have the 
luxury of time, particularly if a creditor is imminently 
executing on a judgment or a home foreclosure sale is pending.
    On November 1, 2007, Representative Janice Schakowsky (D-
IL) with 28 original bipartisan cosponsors introduced H.R. 
4044. The bill currently has 66 bipartisan cosponsors.

                                Hearings

    The Committee's Subcommittee on Commercial and 
Administrative Law held on April 1, 2008, 1 day of hearings on 
H.R. 4044. Testimony was received from Representatives Janice 
Schakowsky (D-IL) and Dana Rohrabacher (R-CA); Raymond C. 
Kelley, National Legislative Director of AMVETS; Professor Jack 
Williams on behalf of the American Bankruptcy Institute; and Ed 
Boltz, Esq. on behalf of the National Association of Consumer 
Bankruptcy Attorneys.

                        Committee Consideration

    On April 24, 2008, the Subcommittee on Commercial and 
Administrative Law met in open session and ordered the bill, 
H.R. 4044, favorably reported, with an amendment, by voice 
vote, a quorum being present. On April 30, 2008 and on June 11, 
2008, the Committee met in open session and ordered the bill, 
H.R. 4044, favorably reported on June 11, 2008, with an 
amendment, by voice vote, a quorum being present.

                            Committee Votes

    In compliance with clause 3(b) of rule XIII of the Rules of 
the House of Representatives, the Committee advises that there 
were no recorded votes during the Committee's consideration of 
H.R. 4044.

                      Committee Oversight Findings

    In compliance with clause 3(c)(1) of rule XIII of the Rules 
of the House of Representatives, the Committee advises that the 
findings and recommendations of the Committee, based on 
oversight activities under clause 2(b)(1) of rule X of the 
Rules of the House of Representatives, are incorporated in the 
descriptive portions of this report.

               New Budget Authority and Tax Expenditures

    Clause 3(c)(2) of rule XIII of the Rules of the House of 
Representatives is inapplicable because this legislation does 
not provide new budgetary authority or increased tax 
expenditures.

               Congressional Budget Office Cost Estimate

    In compliance with clause 3(c)(3) of rule XIII of the Rules 
of the House of Representatives, the Committee sets forth, with 
respect to the bill, H.R. 4044, the following estimate and 
comparison prepared by the Director of the Congressional Budget 
Office under section 402 of the Congressional Budget Act of 
1974:

                                     U.S. Congress,
                               Congressional Budget Office,
                                     Washington, DC, June 19, 2008.
Hon. John Conyers, Jr., Chairman,
Committee on the Judiciary,
House of Representatives, Washington, DC.
    Dear Mr. Chairman: The Congressional Budget Office has 
prepared the enclosed cost estimate for H.R. 4044, the National 
Guard and Reservists Debt Relief Act of 2008.
    If you wish further details on this estimate, we will be 
pleased to provide them. The CBO staff contact is Leigh Angres, 
who can be reached at 226-2860.
            Sincerely,
                                           Peter R. Orszag,
                                                  Director.

Enclosure

cc:
        Honorable Lamar S. Smith.
        Ranking Member
H.R. 4044--National Guard and Reservists Debt Relief Act of 2008.
    CBO estimates that implementing this bill would have no 
significant impact on the federal budget. Enacting H.R. 4044 
could affect the collection of offsetting receipts (a credit 
against direct spending) and revenues; however, CBO estimates 
that any net effect would be insignificant.
    H.R. 4044 would exempt National Guard members and active 
reservists from meeting certain income requirements to qualify 
for Chapter 7 bankruptcy protection. This exemption would apply 
to cases filed within three years of the bill's enactment. 
Under current law, a debtor's income, less certain expenses, 
must fall below a certain threshold relative to the outstanding 
debt to qualify for protection under Chapter 7 of the 
bankruptcy code. Those who do not qualify can file under 
Chapter 13. Disabled veterans are not required to satisfy this 
means testing. The bill would extend this benefit to members of 
the National Guard and reservists that are called to active 
duty for at least 90 days.
    Because H.R. 4044 would exempt National Guard members and 
active reservists from means testing for Chapter 7 bankruptcy 
filings, CBO expects that enacting this legislation would 
enable some individuals to file for bankruptcy that would not 
do so under current law. Fees collected from those individuals 
would increase revenues and offsetting receipts to the federal 
government.
    CBO also expects that, under the bill, some reservists that 
would apply for Chapter 13 bankruptcy under current law would 
instead apply under Chapter 7. Based on information from the 
Government Accountability Office and the Administrative Office 
of the United States Courts, CBO estimates that National Guard 
members and active reservists make up about one-tenth of one 
percent of all bankruptcy filers, and that fewer than 500 
people who would otherwise file for Chapter 13 protection would 
file for Chapter 7 under this bill. Because filing fees for 
Chapter 7 are lower than those for Chapter 13, a shift of cases 
from Chapter 13 to Chapter 7 would slightly reduce the amount 
of revenues and offsetting receipts received by the federal 
government. CBO estimates that this reduction would 
approximately equal the increase in revenues and offsetting 
receipts that would result from new filers under the bill--
resulting in no significant net effect on the federal budget.
    H.R. 4044 contains no intergovernmental or private-sector 
mandates as defined in the Unfunded Mandates Reform Act and 
would impose no costs on State, local, or tribal governments.
    The staff contact for this estimate is Leigh Angres, who 
can be reached at 226-2860. The estimate was approved by 
Theresa Gullo, Deputy Assistant Director for Budget Analysis.

                    Performance Goals and Objectives

    The Committee states that pursuant to clause 3(c)(4) of 
rule XIII of the Rules of the House of Representatives, H.R. 
4044 eases the burden on certain qualifying members of reserve-
components of the Armed Forces and members of the National 
Guard to obtain bankruptcy relief under chapter 7 by exempting 
them for a limited period, from the application of the means-
test presumption of abuse under chapter 7.

                   Constitutional Authority Statement

    Pursuant to clause 3(d)(1) of rule XIII of the Rules of the 
House of Representatives, the Committee finds the authority for 
this legislation in article I, section 8, clause 4 of the 
Constitution.

                          Advisory on Earmarks

    In accordance with clause 9 of rule XXI of the Rules of the 
House of Representatives, H.R. 4044 does not contain any 
congressional earmarks, limited tax benefits, or limited tariff 
benefits as defined in clause 9(d), 9(e), or 9(f) of Rule XXI.

                      Section-by-Section Analysis

    The following discussion describes the bill as reported by 
the Committee.
    Sec. 1. Short title. Section 1 sets forth the short title 
of the bill as the ``National Guard and Reservists Debt Relief 
Act of 2008.''
    Sec. 2. Amendment. Section 2 amends Bankruptcy Code section 
707(b)(2), which sets out the grounds for which a chapter 7 
case may be presumed to be an abuse. Section 707(b)(2)(D) 
currently provides a limited exception to the presumption of 
abuse for certain disabled veterans. Section 2 of the bill 
amends Bankruptcy Code section 707(b)(2)(D) to exempt a debtor 
from the presumption of abuse if he or she is on active 
duty\33\ or is performing a homeland defense activity\34\ for 
at least 90 days as a member of a reserve component of the 
Armed Forces or as a member of the National Guard, if such 
service commenced after September 11, 2001. In addition, 
section 2 temporarily exempts such debtor for a 540-day period 
following the date on which his or her service terminates.
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    \33\The term, ``active duty,'' is defined by reference to section 
101(d)(1) of title 10 of the United States Code. Section 101(d)(1) of 
title 10 defines ``active duty'' as follows:

      The term ``active duty'' means full-time duty in the active 
      military service of the United States. Such term includes 
      full-time training duty, annual training duty, and 
      attendance, while in the active military service, at a 
      school designated as a service school by law or by the 
      Secretary of the military department concerned. Such term 
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      does not include full-time National Guard duty.

10 U.S.C. Sec. 101(d)(1) (2007).
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    \34\Section 1 defines a ``homeland defense activity'' by reference 
to section 901(1) of title 32 of the United States Code, which provides 
as follows:

      The term ``homeland defense activity'' means an activity 
      undertaken for the military protection of the territory or 
      domestic population of the United States, or of 
      infrastructure or other assets of the United States 
      determined by the Secretary of Defense as being critical to 
      national security, from a threat or aggression against the 
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      United States.

32 U.S.C. Sec. 901(1) (2007).
    Sec. 3. GAO Study. Section 3(a) of the bill directs the 
Comptroller General to complete and transmit to the Speaker of 
the House of Representatives and the President pro tempore of 
the Senate a study of the use and effects of the amendments 
effectuated by the Act. The study must address:

        (1) Lwhether and to what degree members of reserve 
        components of the Armed Forces and members of the 
        National Guard avail themselves of the benefits of the 
        Act;

        (2) Lwhether and to what degree such members sought 
        bankruptcy relief because of factors that were 
        substantially related to their service;

        (3) Lwhether and to what degree such members sought 
        bankruptcy relief because of factors that were 
        materially related to their service;

        (4) Lthe effects that use of Bankruptcy Code section 
        707(b)(2)(D), as amended by this Act, has on the 
        bankruptcy system, creditors, and such members' debt-
        incurrence practices.

    Subsection (b)(1) provides that a bankruptcy case is to be 
considered to be substantially related to the service of such 
member if more than 33 percent of the aggregate amount of debts 
in such case was incurred as a direct or indirect result of 
such service.
    Subsection (b)(2) provides that a bankruptcy case is to be 
considered to be materially related to the service of such 
member if more than 10 percent of the aggregate amount of debts 
in such case was incurred as a direct or indirect result of 
such service.
    Subsection (b)(3)(A) provides that the term ``effects'' 
with respect to the bankruptcy system and creditors means:

        (1) Lthe number of bankruptcy cases in which members of 
        reserve components of the Armed Forces and members of 
        the National Guard avail themselves of the benefits of 
        Bankruptcy Code section 707(b)(2)(D), as amended by 
        this Act;

        (2) Lthe aggregate amount of debt in such cases;

        (3) Lthe aggregate amount of debt discharged in such 
        cases under chapter 7;

        (4) Lthe aggregate amount of debt in such cases if and 
        when they are converted from chapter 7 to chapter 13;

        (5) Lthe amount of resources expended by the bankruptcy 
        courts and by bankruptcy trustees, stated separately, 
        in bankruptcy cases where such members avail themselves 
        of Bankruptcy Code section 707(b)(2)(D), as amended by 
        this Act; and

        (6) Lwhether and to what extent there is any indicia of 
        abuse or potential abuse of such provisions.

    Subsection (b)(3)(B) provides that the term ``debt-
incurrence practices'' means:

        (1) Lany increase in the average levels of debt 
        incurred by such members before, during, or after such 
        service;

        (2) Lany indicia of changes in debt-incurrence 
        practices adopted by such members in anticipation of 
        benefitting from Bankruptcy Code section 707(b)(2)(D), 
        as amended by this Act, in any potential bankruptcy 
        case; and

        (3) Lany indicia of abuse or potential abuse of such 
        provisions reflected in the debt-incurrence of such 
        members.

    Sec. 4. Effective Date. Application of Amendments. Section 
4(a) provides that the amendments made by the Act take effect 
60 days after the Act's date of enactment.
    Subsection (b) provides that the amendments made by the Act 
apply to cases commenced under title 11 of the United States 
Code during the 3-year period beginning on the Act's effective 
date.

         Changes in Existing Law Made by the Bill, as Reported

  In compliance with clause 3(e) of rule XIII of the Rules of 
the House of Representatives, changes in existing law made by 
the bill, as reported, are shown as follows (existing law 
proposed to be omitted is enclosed in black brackets, new 
matter is printed in italics, existing law in which no change 
is proposed is shown in roman):

              SECTION 707 OF TITLE 11, UNITED STATES CODE

Sec. 707. Dismissal of a case or conversion to a case under chapter 11 
                    or 13

  (a) * * *
  (b)(1) * * *
  (2)(A) * * *

           *       *       *       *       *       *       *

  (D) Subparagraphs (A) through (C) shall not apply, and the 
court may not dismiss or convert a case based on any form of 
means testing, [if the debtor is a disabled veteran] if--
          (i) the debtor is a disabled veteran (as defined in 
        section 3741(1) of title 38), and the indebtedness 
        occurred primarily during a period during which he or 
        she was--
                  [(i)] (I) on active duty (as defined in 
                section 101(d)(1) of title 10); or
                  [(ii)] (II) performing a homeland defense 
                activity (as defined in section 901(1) of title 
                32)[.]; or
          (ii) while--
                  (I) the debtor is--
                          (aa) on, and during the 540-day 
                        period beginning immediately after the 
                        debtor is released from, a period of 
                        active duty (as defined in section 
                        101(d)(1) of title 10) of not less than 
                        90 days; or
                          (bb) performing, and during the 540-
                        day period beginning immediately after 
                        the debtor is no longer performing, a 
                        homeland defense activity (as defined 
                        in section 901(1) of title 32) 
                        performed for a period of not less than 
                        90 days; and
                  (II) if after September 11, 2001, the debtor 
                while a member of a reserve component of the 
                Armed Forces or a member of the National Guard, 
                was called to such active duty or performed 
                such homeland defense activity.

           *       *       *       *       *       *       *