Magazine article American Banker

Senate Bankruptcy Bill Altered in Banks' Favor

Magazine article American Banker

Senate Bankruptcy Bill Altered in Banks' Favor

Article excerpt

WASHINGTON -- The banking and financial services industry dodged a bullet last week in the Senate debate over bankruptcy reform, and ended up with a bill that lenders said would help them considerably in dealing with debtors.

The House Judiciary Committee is expected to take up its own version of bankruptcy reform this summer and could move quickly once work begins.

House Acted Quickly in '92

Two years ago, when the House last considered bankruptcy reform, "they moved from hearings to a markup to the floor in little more than a month," said Jay Harris, a lobbyist for Savings and Community Bankers of America.

Mr. Harris added that he is optimistic legislation will pass this year.

The most worrisome of the provisions dropped by the Senate was one sponsored by Sen. Howard Metzenbaum, D-Ohio, that would have given retiree benefit programs first claim on any new loans advanced to companies in bankruptcy.

Lenders said the provision would have made it impossible for companies to obtain the credit they need to work their way out of bankruptcy.

"If you say to lenders that the first several million you loan the company is going to go to retirees, and not to the company itself, they're not going to make the loans," said Philip Corwin, a lobbyist for the American Bankers Association.

Lenders were also pleased that the Senate dropped a provision that would have tested a new bankruptcy code chapter designed for small businesses. Bankers feared the provision would have given debtors too much leverage in dealing with creditors.

In its place, the Senate amended Chapter 11 in the code. These provisions, Mr. Corwin said, amount to "some procedural streamlining" that would make bankruptcy proceedings less expensive for all parties.

The bill would make it more difficult for individuals and businesses to use bankruptcy proceedings to avoid repaying debts, responding to a long-felt concern of lenders. …

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