Bankruptcy

New Bankruptcy Chapter Proposed by Congress

By Chris Kramer

A new amendment to the U.S. bankruptcy code could help troubled financial institutions reorganize their debts more effectively and eliminate the status of "too big to fail" that has prompted government intervention over the past two years.

H.R. 3310, introduced by Rep. Spencer Bachus (R-AL), is called the Consumer Protection and Regulatory Enhancement Act, and would create a Chapter 14 bankruptcy under which institutions to file bankruptcy without disrupting the nation's financial stability.

The bill is in response to the government's inconsistent reaction to the collapses of financial holding companies such as Lehman Brothers, Bear Stearns and AIG.

At the American Bankruptcy Institute's 2009 Legal Symposium in Washington, D.C., this week, Congressional staffer Daniel Flores spoke on a panel about the need for the new chapter, according to Reuters.

"No one trusts the bankruptcy bar and the courts. That's the problem," said Flores. "We don't need to abandon bankruptcy, we need to abandon government intervention that can seem inconsistent and panicky."

Most importantly for taxpayers, he bill would completely remove the option for government bailouts, leaving troubled businesses with no other safety net besides bankruptcy.

Rep. Bachus' bill, which is currently under committee consideration, would have no effect on consumer bankruptcy laws.

If passed it would be the first amendment to U.S. bankruptcy laws since the Bankruptcy Abuse Prevention & Consumer Protection Act of 2005.

Full post as published by The Bankruptcy Blog on November 18, 2009 (boomark / email).