Banks Preparing for a Rejection of Bankruptcy Bill
Lieberman, Robert B., American Banker
WASHINGTON -- While Congress haggles over a measure that would save bankruptcy courts, the banking industry is slowly coming to grips with the possibility that the bailout won't happen.
"They [banks] want to know what their status is if the courts go under," says Brian J. Evans, federal counsel for retail banking at the American Bankers Association.
Congress agreed last week to extend the authority to existing bankruptcy judges by 30 days while it decides whether companies filing for bankruptcy should be able to cancel union contracts.
"Banks won't be happy if the labor amendment leads to the death of this bill," warns Drew Tidwell, general counsel of Consumer Bankers Association.
Before last week's extension, banks were confident that Congress would pass legislation giving them greater protection in bankruptcy cases while saving the bankruptcy court system.
The Senate leadership is holding the House-passed bill until a consensus is reached on the labor contract amendment. Specifically, the measure, sponsored by House Judiciary Committee Chairman Peter W. Rodino, D-N.J., would:
* Allow a bankruptcy judge to dismiss a consumer bankruptcy case if it represents a "subtantial abuse of the bankruptcy code."
* Require a borrower to use all income not needed for "necessities" to pay creditors through a repayment plan.
* Discourage debtors from buying luxury items in anticipation of filing for bankruptcy.
* Prevent lenders from going after a codebtor's assets unless the first debtor fails to devise a repayment plan.
* Limit the household items that could be confiscated as collateral by lenders.
Currently, thousands of people filing for bankruptcy have their debts erased by courts, leaving creditors to mull over their losses.
"Those that can afford to pay off their debts should be required to do so," Mr. Tidwell says in support of the bankruptcy reform provisions.
A reorganization of bankruptcy courts became necessary in 1982 when the Supreme Court told Congress to pass witin six months legislation giving bankruptcy judges life tenure -- a condition for their remaining on benches. The deadline expired, and the court gave Congress another year to comply with its wishes.
Congress last week extended the deadline again, leaving creditors, consumers, and businesses to speculate whether it will ever pass a reorganization bill. …