NCBJ 2021: Legislative Wish Lists and Realities

This is a combination of two programs. One of the NCBJ plenary sessions offered a Shark Tank like program where three lawyers pitched their proposals to reform the Bankruptcy Code. Meanwhile, at the ABI luncheon, Bill Brandt and Robert Keach offered their prognostications as to what might actually change in the Code. Since both programs involved legislation, I have chosen to combine them here. As you read through this article, you should note that the first part contains the idealism of would-be reformers while the second part contains the realpolitik. 

Shark Tank

Student Loans

In the first program, John Rao of the National Consumer Law Center offered his proposal to amend 11 U.S.C. Sec. 523(a)(8) to rollback dischargeability of student loans to the law as it existed in in 1998 when student loans could be discharged after seven years or on a showing of undue hardship.  He said that the seven-year period deals with the concern that people can come straight out of school and file bankruptcy. He said it's not a complete solution. He said we still need to deal with cost of higher education. 

To make the case for change, he gave the illustration of Karen in Arkansas. She borrowed $10,000 thirty years ago. She never used her degree. Over thirty years, she paid $20,000 but still owed $106,000. Mr. Rao said that there is something fundamentally broken with a system if that is how we treat our debtors. Now the federal student loan creditors can garnish her Social Security and tax refunds and even the Earned Income Tax Credit. There is no statute of limitations on federal student loans so her debts will only disappear when she dies. 

Why did Congress change the law?  (Congress changed the law in 2005 to add some private student loans to the list of non-dischargeable debts and eliminate the ability to discharge student loans after seven years). He pointed out that there was not a single Congressional hearing or GAO report on abuse. He characterized the change in law as a Congressional gimmick to balance the budget. 

Mr. Rao was asked if his proposal would protect the public fisc. There are $1.7 trillion in federal student loans. Why not require payment of disposable income over period?

Mr. Rao responded that most debts are performing. Only about 10% in default. There is no evidence that denying discharge increases revenues to government. Instead, the federal government can capitalize the interest and seek returns that would make a predatory lender blush. The problem with requiring debtors to complete a chapter 13 is that about 50% of Chapter 13 debtors never get a discharge.

Mr. Rao was asked about his proposal to leave undue hardship in in his proposal. He was asked whether it be better to have objective criteria for undue hardship. Mr. Rao said that objective criteria would help but we already have a workable standard for undue hardship in connection with reaffirmation agreements and it would make sense to use that standard. However, he pointed out that the debtors who need relief the most can't afford to litigate. 

He was asked whether his proposal would roil the markets. Wouldn't lenders increase the price to address the risk? He pointed out that the pricing only affects private lenders. When private loans were made non-dischargeable in 2005 there was either no decrease in rates or an actual increase based on different studies.

President Biden has proposed cancelling some student loan debt. Doing this would be a stimulus to economy according to Moody's as more people would be able to buy homes and have children. However, requiring bankruptcy to get that cancellation would avoid the moral hazard of general cancellation. 

KERPs

 

Metta Kurth pitched a proposal to close loopholes to BACPA's limitations on "pay to stay." She called her proposal "stop the heist." In 2005, BAPCPA limited Key Employee Retention Programs ("KERPs") by requiring that a company demonstrate three things: that the person receiving the KERP has received a better offer, that their services are essential and that the amount of the KERP is either not more than 10 times the mean amount paid to non-management employees for similar purposes or, if no similar amounts were paid out in the prior year, it did not exceed 25% of any similar payment made to an insider during the prior year. 11 U.S.C. Sec. 503(c).     

Some companies shifted away from KERPs and went to "keeps," incentive payments to be earned for meeting certain benchmarks. Ms. Kurth said that "keeps" had a greater sense of integrity. However, other companies made an end run around the KERP rules by simply making these payments pre-petition. She gave the example of JC Penney which paid out $7.5 million to four executive five days before the petition. 

Ms. Kurth proposed to amend 11 U.S.C. Sec. 548 in three ways:

(a) Existing Sec. 548(a)(1)(B)(ii)(IV) states that insider compensation given for less than reasonably equivalent value and outside of the ordinary course of business can be recovered as a fraudulent transfer. She would extend this to apply to all insider compensation given during the 90 days before bankruptcy.

(b)  She would also add a provision that insider compensation would be presumed to be for less than reasonably equivalent value if it was greater than the normal pre-bankruptcy compensation and did not meet the requirement for a KERP; and

(c)  Make non-dissenting directors who approve compensation in violation of this provision liable similar to state laws applicable to illegal dividends. 

She was asked if companies would just give out insider bonuses 91 days before bankruptcy if her proposal was adopted. She answered that the petition date is often fluid and that 90 days will catch most abuse. 

She said that her proposal would motivate companies to use a "keep" or stay within guardrails for KERPs during the runup to the petition.

She acknowledged that her proposal would not fix the imbalance in executive compensation. 20 years ago, executives earned 70 times the wage of their typical worker while today that ratio is now 200 times.

She said that she was not trying to fix entire system, just the perception of abuse.

(Ed.: While I admire Ms. Kurth's enthusiasm, her proposal would continue the trend of making the Bankruptcy Code resemble the Tax Code in its complexity. The problem with ever more specific prohibitions is that ever more clever lawyers will find ways around them. To be very clear, she had identified a very real and very serious problem. My quibble is with the specifics of her proposal rather than the need for it)

The Means Test

Eric Brunstad proposing the means test as the gateway for determining substantial abuse. He proposed going back to the standard existing before BAPCPA when Bankruptcy Judges had discretion to find substantial abuse based on the circumstances of the case rather than a statutory presumption. 

He said that the means test was a solution in search of a problem that never existed and a bad solution at that.

He said that judges know abuse when they see it and have ample tools to address it when it actually arises.

He asked the rhetorical question of where did the means test come from? He said it came from the history of credit card underwriting. At one time, credit card underwriting was done on an individual basis. Then it went to a portfolio underwriting system. The model predicted 4% default rate. As time went on, credit cards became less profitable. He said that the credit card companies wanted to squeeze a couple more bucks out of the system by making bankruptcy more difficult and expensive to pursue. (Ed. Prof. Ronald Mann described this as the "sweatbox" in an influential paper). 

He said that the means test was a very inefficient solution. If you are $1 above the test, you are deemed to be a substantial abuse. 

Prof. Brunstad said that the empirical data said abuse was not out there. He also said that a one size fits all test was not useful. He quoted Tolstoy who said, "All happy families are alike; each unhappy family is unhappy in its own way.” He said that by analogy, every abusive debtor is abusive in its own way. 

He stressed that there was not a problem with too many people filing bankruptcy. According to Sen. Elizabeth Warren, 43 million people were in financial distress after the Great Recession, but only 1.5 million filed bankruptcy.  He said that people do not file for bankruptcy willy-nilly

He repeated the proverb that you can't get blood out of stone and then described the means test as a very expensive blood test for the stone.

He said that this kind of discretionary thing (i.e., ferreting out abuse) is what bankruptcy judges are paid to do.

He also said that there is a huge externality problem. He asked who gets the benefit and who bears the cost? The credit card companies reap the benefit from debtors who continue to pay because they cannot afford to file bankruptcy. The cost is borne by higher fees paid by debtors. He said that if a debtor is required to file chapter 13, it is like a 25% tax. 

In the end, the audience voted to invest in all three proposals. Unfortunately, legislative reform depends on a dysfunctional Congress, not what bankruptcy judges and professionals would like to see. That offer a nice segue into the second legislative program I watched.

ABI's Program on Legislative Likelihoods

The three proposals contained in the Shark Tank program were each thought provoking. However, when the American Bankruptcy Institute put on a program on likely changes to legislation, it focused on different proposals altogether. Bill Brandt and Robert Keach are both ABI members who have been active in proposing legislation. Although ABI does not take positions on legislative as a group, its individual members have been active in lobbying Congress. I want to stress that the very opinionated and outspoken Mr. Brandt and Mr. Keach were speaking for themselves rather than for the ABI as an institution. 

SubChapter V

Mr. Brandt started the conversation off with discussion of SubChapter V. He said that when it was passed, the debt limit of $2.7 million was too low. Shortly after it was passed, they were able to increase the limit to $7.5 million but only on a temporary basis. Now he said that the goal would be to increase the limit to $20 million. However, at higher limits, SubChapter V would take on more of a hybrid nature. He said that U.S. Trustee fees would need to kick in at somewhere between $7.5 million to $10.0 million to keep the program funded. He also said that legislation would likely give courts the option to have a creditors' committee beginning at $12-$15 million.

He said that if the debt limit was increase to $20 million, it would cover 95% of Chapter 11 cases. He said that this would take the wind out of the venue issue, which he described as "our abortion issue."

This raises two very interesting questions. Was he assuming that mega SubChapter V cases would not be forum shopped? If the law allows forum shopping and litigants see an advantage to doing so, why would they stop? Also, it wouldn't address the problem of the large public companies seeking out favorable venues to the detriment of smaller creditors, employees, retirees and other constituencies. Also, as a Texan, I am very familiar with the emotions triggered by abortion. On the one hand are those with moral certainty about the importance of lives as yet unborn while on the other there is the moral certainty of those who want to control their own bodies. Abortion stirs the outrage of moral certainty in its combatants. Is bankruptcy venue really that divisive or was Mr. Brandt merely engaging in hyperbole?

 Mr. Keach acknowledged that he had lost the debate over having a facilitating trustee in SubChapter V and that it was good that he lost. He described the trustee as one of the reasons why the Small Business Reorganization Act has worked so well.

Mr. Brandt said that raising the SubV debt limit could make its way into a reconciliation bill because it would raise fees. He also explained that because the support of Sen. Grassley was critical that SubChapter V was intentionally made similar to Chapter 12.

Venue

Mr. Brandt had a very cynical view on venue reform. He said that with this President and Rep. Nadler chairing the House Judiciary Committee, venue would be a non-starter. He said that venue was a good way for Sen. Cornyn and Sen. Warren to raise a lot of money but that it would not be a factor for the balance of this decade.

Mr. Keach said that the option to allow affiliate filings was designed to placate New York bankruptcy lawyers but "no one in New York believes that."

(Ed.: Dissenting Opinion here. For the last three years, Sens. Cornyn and Warren have worked together on a venue bill. This year bills have been introduced into the Senate and House at an earlier stage with more co-sponsors than before. As cases like Purdue Pharma draw national outrage, bankruptcy venue will continue to build momentum. However, I must acknowledge that our scrappy, grass-roots crusade has very determined and well-organized opposition). 

Mr. Brandt said that there was a study that concluded that the bankruptcy industry had the same effect for the Delaware economy as having a minor league baseball team would have. He also said that having increased debt limits for SubChapter V would be a pretty good second choice for the venue reformers. 

Mr. Brandt noted that the fire for venue reform has weakened as the New York-Delaware duopoly has expanded to include Houston and Virginia. (Ed.: Dallas, TX, Corpus Christi, TX and Charlotte, N.C. have also been the recipients of recent attempts at forum shopping. Will forum shopping become so widespread as to draw a collective "meh" from the bar? As the blogger, I get to ask the questions, but I honestly don't have an answer).

He said that 10-15% of the Senate will always oppose venue reform making it an uphill battle. 

He also said that another needed reform would be to allow a single asset real estate debtor to be a SubV debtor if it was a landlord to a small business debtor.

Third Party Releases

Mr. Keach mentioned that when Jon Oliver did a program on third party releases, he had a researcher spend an hour with Mr. Keach. He said that Mr. Oliver gave the issue a very serious presentation. He then said that the issue was not going anywhere. He characterized it as a solution in search of a problem. He said that it was not the bankruptcy system that was broken but the tort system. He said that bankruptcy delivers money to victims faster and more efficiently than the tort system. He said that it is easy to forget that what we are about is compensating people. He said that if you want to punish people, prosecute them. "If you can't prosecute them, then shut up."

Mr. Brandt said that legislation barring third party releases even with an opt out were going nowhere. He said it was a chance for Democrats to say that they voted against Darth Vader. 

Student Loans

Mr. Brandt said that the Fresh Start Bill proposed by Sen. Dick Durbin is the closest bill that might actually achieve passage. It would reinstate dischargeability after ten years and is close to the ABI Commission's proposal. However, he said it was "probably not a this year thing." He added that bankruptcy reform always starts out with consumer provisions. He indicated that it would not be this Congress. Probably the next Congress or the one after that and it would be part of a bill with lots of ornaments on it.

He said that one problem with achieving bankruptcy reform is that there is not an association of past and future debtors but that student loan borrowers vote. Unfortunately, they cannot afford campaign contributions. 

Mr. Keach said that the purveyors of private student loans hired really good lobbyists in the past but that maybe the problem is becoming too significant to ignore.

Final Thought: I really appreciated the fact that Mr. Brandt and Mr. Keach didn't pull any punches. I may not have agreed with them, but they certainly gave their unvarnished opinions without resorting to polite euphemisms. 

ABI Commission Unveils Chapter 11 Recommendations

The ABI Commission to Study the Reform of Chapter 11 unveiled a summary of its recommendations at the Winter Leadership Conference on December 4 in La Quinta, California.   The full report will be released on December 6 and contains 240 recommendations in a report spanning four hundred pages and twelve hundred footnotes. The Report was adopted unanimously by the eighteen commissioners suggesting that the group placed a high value on consensus and compromise.  

Introduction

Commission Co-Chairman Al Togut stated that “with some changes this Code can work better” and that “for the most part Chapter 11 is a very good statute.”   Commission Reporter Michelle  Harner sounded a slightly different note stating that “we need an effective and robust business bankruptcy system” but that the current regime is not working effectively for most parties.    In particular, she noted the “grave concern” that small and medium-sized companies seek to avoid chapter 11 at all costs.   

Co-Chairman Robert Keach sounded a defensive note, stating that there is something called the internet and that it has “a lot of stuff out about what we will do.”   He said that the “idea that we will be shutting down credit markets” was to be discounted.   He said that the witnesses who testified before the Commission did not support the proposition that their proposed reforms would negatively affect credit markets.     (Note:   This blog has not speculated about the outcome of the Commission’s Report and certainly has not sounded a Chicken Little alarm.).

According to the Commission, its recommendations follow four key themes:

• Reduce barriers to entry
• Facilitate certainty and more timely resolution of disputed matters
• Enhance exit strategies for debtors
• Create an effective alternative restructuring scheme for small and medium-sized firms.

From a more structural side, the Commission’s recommendations stressed reducing opportunities for obstruction and granting more flexibility to bankruptcy judges.

The recommendations include many novel ideas such as:

• Eliminating the existing small business bankruptcy procedures and replacing them with new procedures for both small and mid-market cases;
• Creating new rules for sale of substantially all assets of a business under proposed section 363X; and
•  Creating a new entity called an estate neutral which would be a cross between an examiner and a trustee and could be structured to meet the needs of specific cases.  

SME Reforms

One topic highlighted by the Commission members were the proposed reforms for Small and Medium Sized Business Entities or SMEs.    The proposed rules would replace the existing small business rules and would mandatorily apply to businesses with assets or liabilities under $10 million and could be invoked for companies with assets or liabilities up to $50 million.   However, they would not apply to Single Asset Real Estate Entities.

According to Co-Chairman Keach, 80-90% of chapter 11 cases filed would be SMEs.  Co-Chairman Togut said that from a philosophical view, these cases have an enormously great impact.   He said that the very vibrancy of the American economy depends on the entrepreneurs starting businesses and that bankruptcy should offer a vehicle for entrepreneurs who run into trouble.   However, he said that the current Bankruptcy Code is a deterrent to filings by this class of businesses because “the owners who created it are likely to lose it.”   He said that the Code should eliminate the deterrent effect so that companies would file earlier.   He analogized distressed businesses to cancer patients who need to file earlier in order to have a better chance at surviving.    Mr. Keach said that the absolute priority rule is “a real impediment” in SME cases and that it results in “excluding the people most interested in the reorganization.”

Among the more creative proposals was eliminating the absolute priority rule so long as unsecured creditors received 85% of the value of the reorganized company, requiring a “classic debt for equity swap.”   However, the equity the creditors received would be largely non-voting except for items such as insider compensation, dividends and selling the business.   

In order to reduce costs, creditors’ committees would not be the norm and would only be allowed on motion in SME cases.

The Commission is also proposing that section 1129(a)(10) and the section 1111(b) election be eliminated in SME cases.   Commissioner Jim Markus said that SME cases should focus on the trinity of feasibility, viability and valuation rather than encouraging legal maneuvering and erecting barrier after barrier to confirmation.    (While he said this, I could just hear Judge Richard Schmidt and the band singing “I Can’t Get to Confirmation.”).   

Confirmation Standards in Other Cases

Commissioner Ken Klee reported on several proposed changes to confirmation requirements in non-SME cases.    The Commission recommended eliminating the section 1129(a)(10) requirement for large cases as well.    They recommended retaining the ability to designate ballots as cast in bad faith which would be clarified and broadened.    They also suggested that debt purchasers only be allowed to count all of their claims as a single vote in determining numerosity.    

The Commission also recommended that gifting between senior and junior classes be expressly condemned.   

The Commission suggested adopting the standards for third party releases contained in In re Master Mortgage Investment Fund, Inc., 168 B.R. 930 (Bankr. W.D. Mo. 1994):

(1)   There is an identity of interest between the debtor and the third party, usually an indemnity relationship, such that a suit against the non-debtor is, in essence, a suit against the debtor or will deplete assets of the estate.

(2)   The non-debtor has contributed substantial assets to the reorganization. 

(3)   The injunction is essential to reorganization. Without the it, there is little likelihood of success. 

(4)   A substantial majority of the creditors agree to such injunction, specifically, the impacted class, or classes, has "overwhelmingly" voted to accept the proposed plan treatment. 

(5)   The plan provides a mechanism for the payment of all, or substantially all, of the claims of the class or classes affected by the injunction.

The Commission also recommended allowing exculpation clauses “as is customarily done.”   I was not clear as to whether they meant that exculpation is something which is generally done and should be allowed or that it should only be allowed to the extent customarily done.

The Commission recommended retaining the absolute priority rule in large cases but including a provision where out of the money creditors could retain an “option value” which would apply if the company went up in value within some period after the plan was confirmed.   They also proposed to codify the new value corollary to the absolute priority rule.

They also recommended that valuation standards be clarified.  The value to be subject to adequate protection would be “foreclosure value,” a new concept which would be much more nuanced than fire sale value.   However, in the context of a plan, the secured creditor would be entitled to reorganization value.

The Commission recommended rejecting the Till interest rate standard for large chapter 11 cases.  Instead, they recommended a market based standard or, if there was not a market, a risk adjusted rate including traditional standards to evaluate risk.   They mentioned a case which illustrated this approach but I didn't get it in my notes.

 Reducing the Cost of Chapter 11/Creative Compensation Procedures

According to Commissioner Jack Butler, proposals to reduce the cost of chapter 11 are contained across the Commission’s 240 recommendations.   He said that the “cost of chapter 11 is increasingly cost prohibitive.”    He proposed to give more flexibility to courts and resolving circuit splits to achieve uniformity and avoid litigation costs.

Mr. Butler said that the Commission recommended that all payments of professionals from estate funds, including those to professionals employed by creditors, be transparent and subject to approval as reasonable.   

He recommended separating out ordinary course professionals from bankruptcy professionals.  He pointed out that the costs of bankruptcy are overstated when costs attributable to professionals the debtor would have employed independently of bankruptcy are lumped in with bankruptcy professionals.

He said that the Commission encouraged innovation and approaches other than the billable hour.   He said that given a sufficient evidentiary record on the front end, alternative fee arrangements would not be subject to challenge on the back end.   He said that the Commission wished to “empower the judiciary and estate professionals to bring the best market creativity to the courtroom” in terms of compensation arrangements.

IP Reforms

Commissioner Deborah Williamson discussed proposals on intellectual property.   She said that IP should be “all in” including trademarks and foreign intellectual property.   She said that the Commission proposed to eliminate the “angels dancing on the head of a pin” discussion of whether an IP license could be assumed based on whether it was the actual debtor or a hypothetical debtor.     She also said that all intellectual property should be freely assignable unless assignment was sought to a competitor of the IP owner.

Labor Reforms

Commissioner Bill Brandt discussed the Commission’s labor reforms.   He said that provisions relating to labor contracts should encourage “rehabilitation and consensus.”

He said that the Commission would recommend that debtors no longer need permission to pay employee wages so long as they were within the priority wage claim, eliminating a common first day motion.  He said that the Commission proposed to increase the priority for wage claims to $25,000 and eliminate the 180 day limitation.   He also said that the new higher threshold would include all forms of benefit payments.    

Estate Neutrals

Commissioner Bettina Whyte discussed the new concept of an “estate neutral.”   She pointed out that in one study of over 500 cases where an examiner could have been appointed, the request was only made 87 times and granted 39 times.   She said that courts had experimented with examiners with expanded powers or trustees with limited powers to try to get around the rigid categories under current law.  

She said that the Commission proposed mandatory appointment of an estate neutral where the amount in controversy and best interests of creditors warranted it.    She said that the Court would define the powers of the estate neutral, including duration and cost, and that the U.S. Trustee would appoint the actual person.   She said that estate neutrals could help to “facilitate resolutions” and “increase the speed of the process.”  Co-Chairman Keach stressed that the estate neutral would be defined on a case by case process.    From what I heard, the new estate neutral would be a cross between an examiner, a trustee and a mediator.

363 Sales

Commissioner James Sprayregen spoke about the new proposed section 363X.   He said there would be a moratorium on sales of substantially all of the debtor’s assets for 60 days after filing.   Mr. Sprayregen said that today many chapter 11 cases end in 363 sales with some occurring quite quickly.   He expressed the concern that some of these sales were rushed through for strategic or tactical reasons.    He said that often there was not sufficient discovery and that valuations were not as robust as they could be.

   

While the new proposal would allow a relief valve for sales that were true emergencies, the evidentiary standard would be clear and convincing evidence.   

Co-Chairman Keach added that post-petition financing motions could not be used to lock a debtor into a forced sales process during the initial 60 days either.   He described it as giving judges “permission to say no” and said that the provisions would allow relief in “genuine rather than creative emergencies.”

Trade Creditor Issues

Commissioner Geoffrey Berman stressed that the Commission had given serious concern to trade creditor issues, holding a field meeting with the National Association of Credit Managers.   He said that the Commission recommended retaining section 503(b)(9) and opposed adding service providers to its provisions.   However, in return, these creditors could not take advantage of critical vendor status.   Additionally, section 503(b)(9) would apply in lieu of existing reclamation procedures.  

 

He said that the credit managers wanted to see preferences eliminated but that “sorry, that’s not going to happen.”   Instead, the Commission recommended that the minimum floor for a preference claim be increased to $25,000 and that claims under $50,000 would have to be brought in the defendant’s home venue.   

Mr. Berman said that the Commission would require a good faith effort to review preference claims before filing and would ensure that the pleading requirements of Iqbal and Twombly be enforced.   

 

 What the Commission Did Not Recommend

Commissioner Ken Klee summarized a list of topics that the Commission did not recommend, including:

• A mandatory surcharge on the collateral of secured creditors where the case is being run primarily for their benefit
• Eliminating adequate protection
• Significantly curbing post-petition financing
• Eliminating the ability to sell substantially all of a company’s assets
• Eliminating credit bidding
• Eliminating claims trading
• Eliminating the financial safe harbor provisions
• Requiring more disclosure by creditors (presumably with regard to acquisitions of claims)
• Eliminating in pari delicto except as applied to a chapter 11 trustee
• Eliminating creditors’ committees
• Eliminating section 503(b)(9)
• Changing the deadline for assuming or rejecting unexpired leases of real property
• Extending exclusivity
• Adopting the Till interest rate
• Changing the venue rules.

(In fairness to Commissioner Klee, I should point out that he gave his “no” list toward the beginning of the presentation and I moved it to the end of my post.  As a result, his no list, which is also impli-cated by many of the yes recommendations, was not redundant at the time he delivered it).

Venue

In response to a question from this author, several Commissioners spoke about the decision not to recommend a change in the bankruptcy venue rules.    Co-Chairman Keach said that an important statistic for the Commission members was that 75% of motions to transfer venue in Delaware and New York are granted such that there is already an “effective mechanism” for dealing with venue and that courts were “doing a good job.”   He also said that another reason for not tackling venue was that there was a “tremendous amount of debate” with strong positions on both sides such that they didn’t feel that making a recommendation would make a difference.   As a result, he said that “not taking a position was the thing to do.”

Commissioner Bill Brandt stated that “the debate is abroad in the land” and that the debate has been fully exhausted.   

Commissioner Deborah Williamson said that by eliminating circuit splits as recommended by the Commission, there would be less reason for attorneys to fear malpractice liability if they did not file in a certain forum.   

While I am a strong proponent of reforming the venue rules (and have said so in this blog), I think that Co-Chairman Keach has a point when he says that most venue transfer motions are granted.   While I am a little skeptical about the 75% figure, the fact is that most venue abuses are not challenged by the parties.   If tactical venue filings were challenged on a regular basis, then either the percentage of transfer motions granted would drop precipitously (in which case reform would be shown to be needed) or they would continue to be granted in which case the problem would likely resolve itself.   

Where Does It Go From Here?

One topic that the Commission did not talk about Saturday was what they would do with their report.    There have been several notable studies on reforming insolvency law.   One helped bring up the Bankruptcy Code of 1978.   On the other hand, the National Bankruptcy Conference’s 1994 report titled Reforming the Bankruptcy Code was notable in that Congress ultimately adopted legislation diametrically opposed to its recommendations some eleven years later. 

 

In these days of Congressional gridlock, it will be difficult to get Congress interested in something as technical as large-scale bankruptcy reform.  Because the Commission’s report consists of a large number of very specific changes, it is possible that only a handful will receive serious legislative consideration.

However, in the absence of strong champions on Capitol Hill, this report will generate a lot of debate among professors, professionals and bloggers, but little action.   Now that the Commission has generated its report, the real work begins.   As an eternal optimist, I hope that the issues raised by the report, if not the specific recommendations, will receive bipartisan attention from legislators interested in making the laws that we have function more efficiently.