Well-- the bankruptcy bill has been used by folks on this list for two years as the example of Democratic subservience to corporate interests. Yet the darn thing never seems to quite become law due to various Democratic maneuvers. -- Nathan Newman
Bill to Change Bankruptcy Reconsidered New York Times
In the wake of the bankruptcy filing by the Enron Corporation (news/quote), some Democrats in the Senate are weighing whether provisions of a bill to overhaul the bankruptcy code should be reconsidered. They are also looking at changes that would make the bill friendlier to consumers. Enron was clearly monitoring the bill before it filed for bankruptcy protection in December. The company lobbied the House on the matter, according to data gathered by the Center for Responsive Politics.
The Senate and House each passed a version of the bankruptcy bill last March, but a conference to reconcile the two versions, scheduled for Sept. 12, was canceled. The first meeting of the conference committee was in November, but it was too late to push the bill through before Congress adjourned. Any changes by Democrats to the Senate bill will slow efforts to reconcile the versions and finally pass legislation.
Among the provisions being re- examined is a section in both versions that deals with certain asset- backed securities. As written, the bill would make it impossible for assets shifted off a company's balance sheet to a separate entity to be pulled back into a company's estate in a bankruptcy.
"If this goes through, the incentive for corporations will be to move more and more transactions off the books," said Elizabeth Warren, a professor at Harvard Law School and an expert on bankruptcies. Enron made use of similar financings, she said, to raise cash without the loans appearing on its books.
A letter critical of the section, signed by 35 law professors, including Professor Warren, was sent yesterday to Senator Patrick J. Leahy, the Vermont Democrat who is chairman of the Senate Judiciary Committee, and to F. James Sensenbrenner Jr., the Wisconsin Republican who is chairman of the House Judiciary Committee.
"Congress seems poised to adopt, as part of the proposed bankruptcy legislation now in conference committee, a `technical' amendment that would institutionalize and encourage one of the practices that has led to Enron's failure and its harsh consequences," the letter said. "Especially in this economy, with Enron only the latest example of what can happen when a company and its auditors do not make full public disclosure of financial circumstances, the Congress should not adopt this proposal."
The provision would give lenders an incentive to make loans to off- balance-sheet vehicles, knowing that their collateral would be protected in a bankruptcy filing, Professor Warren said. Without the benefit of the assets, some companies could go out of business.
Recently, a bankruptcy judge ruled that the LTV Corporation (news/quote), the steel company, could retrieve inventory and receivables it appeared to have sold to special purpose vehicles. Without these assets, the judge said, LTV would be "forced to shut its doors and cease operations."
David Carle, a spokesman for Mr. Leahy, said the senator might hold a hearing to look at the section. "If a hearing would help the additional examination of the provisions and of the lessons to be learned from the Enron experience," Mr. Carle said, "then Senator Leahy has indicated he might call one."
Another element of the bankruptcy bill that has new relevance in the aftermath of the Enron filing is a provision in both the House and Senate versions that limits the ability of individuals filing for bankruptcy to shield their homes from creditors. Five states - Florida, Iowa, Kansas, South Dakota and Texas - have homestead exemptions that cover the value of the home. Given that Enron is based in Houston, the possibility exists that executives could use the exemption to shield assets if they filed for bankruptcy.
With differences in the House and Senate approaches, the homestead exemption is expected to be a crucial topic for the conference committee.
Senator Herb Kohl, Democrat of Wisconsin, who sponsored the Senate's homestead amendment, has urged Mr. Leahy to hold a hearing on the Enron links to the bankruptcy bill "in which the homestead exemption would likely be one of the key issues," Lynn Becker, a spokeswoman for Mr. Kohl, said.
Democrats, led by Mr. Leahy, are also considering changes to the bankruptcy bill that they say would make it friendlier to consumers.
The bill is viewed by some lawyers and its opponents in Congress as biased toward lenders like credit card companies and tough on consumers, who may be more likely to file for bankruptcy during the economic downturn.
The bill would make it more difficult for individuals to file under Chapter 7 of the bankruptcy code, which permits consumers and businesses to shed most of their unsecured debts. Instead, more individuals would be forced to file under Chapter 13, which requires debtors to come up with a plan to pay off at least a part of their debts, usually over three to five years.
"The bill is pretty darn embarrassing in its present form, especially in the context of an economic downturn," said Senator Paul Wellstone, Democrat of Minnesota, who opposed the bill.
Among possible changes Democrats could make, Senate staff members said, could be a predatory-lending amendment, offered by Senator Richard J. Durbin, Democrat of Illinois, that was defeated by one vote. The amendment would disallow a lender's claim if that lender had violated the Truth in Lending Act.
With so many potential changes to the bill under consideration, lawyers and lobbyists said bankruptcy reform could be delayed another year. "I think the odds are 50-50 right now," said David Goch, a legal consultant for the Commercial Law League of America, which represents bankruptcy lawyers. "Anything happening quickly is unlikely."
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