What Happened to the Bankruptcy Reform Act?

by David M. Reeder

The Bankruptcy Reform Act of 2001 (the "Act") was passed by both houses of Congress in early 2001. The bankruptcy world prepared for sweeping changes in the law. The only variable was exactly when the law would be signed by President George Bush, and become final.

The act, however, was slowed by the legislative process and the events of September 11, 2001. When the House and Senate passed their respective versions of the Act, there was sufficient difference to require the formation of a Conference Committee.   Very little progress was made toward resolution. The events of September 11 put the Act far in the background as Congress dealt with more pressing matters. Congress adjourned in December, 2001 without the Act being any closer to becoming law.

During the 2002, the bill made substantial progress, only to become terminally bogged-down over a provision regarding whether claims incurred in protesting legal activities (read abortion clinic demonstrations) would de non-dischargeable in bankruptcy.  Although supporters tried to rescue the bill from the swirling abortion controversy, Congress adjourned, and supporters went home empty handed again. 

To further complicate matters, the far-reaching effects of high-profile cases such as Enron, WorldCom, and Adelphia, and an economy which continues to give mixed signals, have both proponents and opponents of the legislation pondering their next move. Given the ripple effect of a cases like Enron, the severe restrictions put on business cases and individual cases by the Act may not have the appeal that they had during more stable and prosperous times.

Now that the 2003 session of Congress is underway, the proponents are going to take another run at the bankruptcy system with their legislative battering ram.   The House passed a version of the act.  The path through the Senate will be more difficult as the optimism of the proponents is already flagging due to concerns about bankruptcy being dwarfed by the war and its aftermath.  Stay tuned for further developments.