LEXIS-NEXIS® Congressional Universe-Document

LEXIS-NEXIS® Congressional

March 16, 1999, Tuesday

SECTION: CAPITOL HILL HEARING TESTIMONY

LENGTH: 819 words

HEADLINE: TESTIMONY March 16, 1999 DAVID A. SKEEL, JR. PROFESSOR UNIVERSITY OF PENNSYLVANIA HOUSE JUDICIARY COMMERCIAL AND ADMINISTRATIVE LAW BANKRUPTCY REVISION

BODY:
statement of David A. Skeel, Jr. Professor of Law University of Pennsylvania Bankruptcy in U.S. History: The Past and Its Implications I would like to give a brief overview the history of bankruptcy law over the last one hundred years. I will focus in particular on the influence that bankruptcy lawyers have had on bankruptcy law, and its implications for the current deliberations. Although Congress passed several bankruptcy laws during the nineteenth century, America did not have a permanent bankruptcy law until 1898. The driving force behind the 1898 Act was creditors. Business organizations such as chambers of commerce and local boards had begun to form in the late 19th century and, under the auspices of an umbrella group they called the "National Convention of Commercial Bodies of the United States," creditors pushed for a federal bankruptcy law throughout the 1880s and 1890s. Business groups wanted a federal bankruptcy law because they believed that state laws enabled debtors to discriminate against out-of-state creditors. Creditors were fiercely opposed by a group of lawmakers, many of whom represented southern and western states, who feared that federal bankruptcy laws would hurt farmers, and that the administration of bankruptcy would require a vast new federal bureaucracy. The 1898 Bankruptcy Act represented a compromise between these two perspectives. The law was passed, but the law also made it relatively easy for debtors to discharge their debts; and pared down the administrative structure to an absolute minimum. Perhaps the most important effect of the 1898 Act was that its scaled down administrative structure created an enormous need for a bankruptcy bar. In striking contrast to English bankruptcy law, the U.S. system was run by the parties-rather than a governmental official (the judges, called "referees" were part-time officials and had only limited powers) , and each of the parties relied on lawyers. The next major movement to reform bankruptcy law commenced in 1929, with an extensive investigation that led to the Donovan Report in 1931, and to proposed legislation the following year. The Report expressed concern with the behavior of bankruptcy lawyers and-- in term's that sound much like the current debate- worried that bankruptcy law did not do enough to encourage debtors to pay their debts. To remedy these concerns, the investigators called for Congress to appoint administrators to examine debtors, as in England, and suggested that discharge should be postponed in some cases-- in effect, an earlier version of means testing. The most strident opposition to these proposals came from bankruptcy lawyers. Speaking on behalf of groups such as the Commercial Law League and the Bankruptcy Committee of the American Bar Association, bankruptcy lawyers attacked the proposals, claiming that there was no need to overhaul existing practice. Their opposition appears to have been an important reason that the' principal reforms were abandoned. The influence of the general bankruptcy bar was further evident several years later, in the most important New Deal bankruptcy reform, the Chandler Act of 1938. Although the Chandler Act completely reformed the reorganization procedures for large corporations, the reformers deterred to the proposals of the bankruptcy bar with respect to the rest of bankruptcy practice. Bankruptcy lawyers are only one of the many groups with an interest in bankruptcy law, of course. Creditors continue to vigorously promote their interests, as we have also seen in recent years. But bankruptcy lawyers have proven disproportionately influential for several reasons. First, bankruptcy lawyers have an ongoing interest in bankruptcy law that is as great, or greater, than that of any other constituency. Creditors, for instance, can pass on some of the costs of bankruptcy to their customers. Second, bankruptcy is extraordinarily complicated some might even say boring. Bankruptcy lawyers are the experts, and this expertise gives them substantial influence over the shape of the technical details of bankruptcy. Many of the amendments that bankruptcy lawyers have supported over the years seem quite desirable. But bankruptcy lawyers (even those who represent creditors) have a strong interest that there be many bankruptcies rather than few. The two most striking trends in bankruptcy over the course of this century are that the scope of the bankruptcy laws has continually expanded, and that proposals that would reduce the need for bankruptcy lawyers often fail. I provide a more detailed discussion of each of the issues I have mentioned in two articles that I would like to submit for inclusion in the record: "Bankruptcy Lawyers and the Shape of American Bankruptcy Law," 67 Fordham Law Review 497 (1998); and "The Genius of the 1898 Bankruptcy Act, Bankruptcy Developments Journal (forthcoming, 1999).

LOAD-DATE: March 17, 1999