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Without objection, the chair is authorized to declare recess at any time. We welcome everyone to today's hearing on bankruptcy law and potential legislative reforms. I will now recognize myself for an opening statement. Today's hearing will examine the effectiveness of the bankruptcy system and help determine if narrowly tailored legislative updates are warranted to ensure that the bankruptcy system continues to work as intended. The bankruptcy system in this country is designed to provide debtors with a fresh start. Entrepreneurs and small businesses are the lifeblood of the economy, and the calculated risks they take are responsible for so much of the innovation in this country. These risks are often funded by debt, and while many entrepreneurs and small businesses succeed, some of them fail. Instead of being perpetually saddled with the unsustainable levels of debt, the bankruptcy system allows debtors to enter bankruptcy, reorganize their debts, maybe discharge some of it, and exit bankruptcy in a position to continue to innovate and take additional risks. The same is true for consumers. Some consumers get themselves in an unsustainable financial position, and the bankruptcy system throws them a lifeline. While bankruptcy can greatly benefit debtors, creditors are also entitled to repayment. Therefore, the bankruptcy system must strike a balance between preserving the rights of creditors to receive repayment and the opportunity for debtors to start fresh. We have proposals before this committee that will change how the bankruptcy system works in the future. and nearly 30 temporary bankruptcy judgeships will begin expiring in 2026. And while judges will not be kicked out of their seats, certainly, new judges cannot be appointed when a judge's term expires. We must determine whether those judgeships remain necessary, and we will hear testimony from two sitting bankruptcy judges to help inform our decision.
Also, the pay per case for Chapter 7 trustees has not been increased in over 30 years. Chapter 7 trustees play a critical role in our bankruptcy system, liquidating a debtor's assets, dispersing funds to creditors, and ensuring that the only eligible debtors enter Chapter 7 bankruptcy. We also must determine whether to increase the debt limit for subchapter 5 cases. In 2020, shortly after enactment, Congress increased the debt limit for subchapter 5 cases to $7.5 million. Last July, this increased debt limit expired and reverted to around $3 million. We must determine whether we should allow that number to remain or whether the cap should again be raised, either temporarily or permanently, to ensure small businesses can continue to seek their average avenue for reorganization. We must also figure out what, if anything, we should do about student loans in bankruptcy
As a result, we saw the number of student loans discharged in bankruptcy increased by 330%. While the cost of education has skyrocketed, something the subcommittee has already begun to examine, American taxpayers should not be on the hook for someone who took out loans to get a potentially useless undergraduate degree from a private university and now cannot pay it back.
We should have robust debates and if proven necessary, enact narrowly tailored changes to the bankruptcy code to make sure that the system works better for small businesses, consumers, and creditors alike. I want to thank ranking member of the subcommittee, Mr. Nadler, for agreeing to hold a bipartisan hearing today. I think that working together on bankruptcy reform will greatly benefit the American people. I also want to thank the witnesses for appearing here today. We have assembled a large panel of bankruptcy experts, who are well equipped to answer all our questions, and I look forward to hearing what each of them has to say today. I want to now recognize the ranking member, Mr. Nadler, for his opening statement.
Thank you, Mr. Chairman, and thank you for holding this bipartisan hearing. Thank you as well to our distinguished panel of witnesses for contributing their time and expertise to assist the committee in its efforts to streamline and improve our bankruptcy system. I am pleased that we have come together in a bipartisan fashion today to consider a variety of proposals to make our bankruptcy system more accessible to individuals and businesses in financial distress. These reforms can ensure that the Bankruptcy Code is more efficient and beneficial for debtors and creditors alike, and will help businesses, especially small businesses, restructure in the face of potential financial disaster. One important issue that our hearings will touch on is increasing the debt limit under Subchapter 5 of Chapter 11 of the Bankruptcy Code. In 2020, eligibility for Subchapter 5 bankruptcy treatment was temporarily increased to $7.5 million from approximately $3 million, allowing a significantly greater number of businesses to access relief under this part of the code, which generally provides debtors an efficient and successful restructuring plan. Unfortunately, this provision was allowed to lapse in June of last year. Data shows that the debt limit increase was a clear success. While it was in effect, Subchapter 5 cases had double the plan confirmation rate and a 20% lower dismissal rate in relation to non-Subchapter 5 Chapter 11 cases. This means that small businesses were able to keep their doors open and their employees on staff while ensuring that their creditors were fairly compensated. I hope we can work together to reinstate this important provision.
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