Bankruptcy Reform 98 Can We Talk
While anything is possible, I don’t think we will see a major bankruptcy reform bill pass the Congress this year. To put it in NCAA tournament terms, major bankruptcy reform is Valparaiso; the status quo is Kentucky or North Carolina.
First there is the issue of timing. There are less than 60 actual legislative days remaining in the 105th Congress and, although the House and Senate Judiciary Committees have been on a breakneck pace of hearings and planned mark-ups, the clock is likely to run out before the end of the session in very early October.
The press of other legislative priorities also will crowd time for a major bankruptcy bill, especially one that will be controversial and require several days of floor debate, a potentially contentious House-Senate conference on the differences between the versions, and the unavoidable reconsideration of the new conference report in both chambers, before finally heading to the White House. The institutional peculiarities of each chamber are also a key factor. In the majoritarian House, a creditor-backed bill with leadership support (e.g., H.R. 3150) can pass easier than in the counter-majoritarian Senate, where the rules permit any small group of Senators to offer non-germane killer amendments and otherwise delay action at any time.
Consider also that 25 years ago, the House Judiciary Committee had its evaluation of bankruptcy reform (after receiving the 1973 Commission Report) interrupted by the all-consuming matter of impeachment of the president. Whether it takes five years to get back on track, as it did in the ‘70s, bankruptcy reform will clearly take a back seat if impeachment hearings are held this summer.
On matters more substantive, the odds for passage are equally long. Bankruptcy reform usually succeeds when it flies just under radar. Today it is high profile. Reform has typically been grounded in a bipartisan consensus not present today.
The creditor and debtor camps are solidly dug in, defending their respective views of the causes and consequences of the rise in consumer filings. The consumer creditors have invested substantial sums in the lobbying effort, and the debtor/consumer groups have responded by skillfully changing the subject from the alleged permissiveness of the Code to lender conduct —both pre-bankruptcy (e.g., lender underwriting practices) and post-bankruptcy (e.g., reaffirmations and litigation abuses). Bankruptcy reform has now taken on some of the look of other hotly contested policy disputes involving the budget, taxes, crime, welfare, etc., suggesting how difficult the road to a Rose Garden signing ceremony will be.
All this adds up to the status quo as the likely outcome. In consumer bankruptcy, the status quo seems to favor debtors, but so far this hasn’t led creditors to seek out a compromise. In the legislative process, the perfect is always the enemy of the good. As a matter of legislative strategy, settling for a compromise means the creditors will necessarily have to defer for now on more global reform. Incrementalism means you are likely to lose the issue, at least for several years. But the consumer credit industry has been there and done that. They recall that they "declared victory" in 1984 with the addition of §707(b) after a long legislative fight, but the section has proven to be little more than an ink blot in most districts. Accordingly, the compromise scenario is not likely to emerge.
Some small pieces of bankruptcy reform still have a good chance at final passage: a bill to permanently extend chapter 12 and a bill to permit the practice of tithing in consumer cases. The former bill is driven in part by a hard deadline, since chapter 12 will expire on October 1. The bill is a priority of Sen. Charles Grassley, a key member of the Senate Judiciary Committee up for reelection in 1998. The tithing bill, protecting contributions to charitable organizations and churches from the reach of trustees in chapter 7 and 13 cases, has broad support across the entire ideological spectrum. (Ironically, a more modest tithing proposal was rejected by the National Bankruptcy Review Commission last year).
Sen. Grassley and Rep. Gekas also want to pass small business and single asset reforms, along with other consensus items from the NBRC Report. They are to be commended for the extraordinary time invested in making a record on these issues. Their efforts are likely to be rewarded down the road, but not this year. I could, of course, be wrong. How did Valparaiso do, anyway?