Bankruptcy Reform - The Flying Dutchman of the Legislative World? (October, 2004)

           Over the last decade much ink has been spilled, substantial time and energyinvested, and major money spent on a concept known as “Bankruptcy Reform”.  The target of bankruptcy reform legislation has been  the existing consumer bankruptcy system.  Such legislation attempts a  major overhaul, with the result being a radical limitation on the ability of individual debtors to fully discharge debt through the current chapter 7 process.  Additionally, proposed reform has sought to limit the discretion of judges in chapter 11 cases by establishing unalterable deadlines for plan filing, plan confirmation, and assumption of leases, regardless of the nature or complexity of the case.  The sponsors of bankruptcy reform legislation have been a coalition of credit card issuers, auto finance companies, and commercial banks.   Opponents have included, for the most part,  the organized  bankruptcy world, including bankruptcy judges and scholars, and the leading interest organization of bankruptcy judges and professionals, the American Bankruptcy Institute.

            The peak years for the attempted  legislation were 1998 and 2001.  In 1998, the legislation passed, but a veto by then President Clinton killed it, and proponents lacked sufficient votes to override the veto.  In 2001,  both houses of Congress passed the legislation, but a legislative “perfect storm”, consisting of  the House and Senate’s inability to form a conference committee, coupled with 9/11, and a weak economy resulted in the legislation stalling out and never becoming law.  Since 2001, the sponsors have attempted to revive the legislation, but without success.  Thus, bankruptcy reform appears to be the legislative version of the Flying Dutchman,  the legendary ship that endlessly sailed the seas, under a curse,  never to reach port.