History of Bankruptcy – Part 10

Written by: Robert DeMarco
United States Bankruptcy Laws – The Chandler Act and the Bankruptcy Reform Act of 1978
The Bankruptcy Act of 1891, while amended from time to time, was not substantially revised until the passage of the Chandler Act of 1938. The Chandler Act replaced § 77B of the Bankruptcy Act of 1898 with Chapter X corporate reorganizations, and added chapters XI (arrangements and compositions for corporations, partnerships, and individuals), XII reorganization procedures for non-corporate entities engaged in real estate, and XIII (wage earner plans). The purpose of the Chandler Act was to encourage and facilitate bankruptcy reorganization in order to avoid unnecessary or premature liquidations.
The Bankruptcy Act of 1891 was not repealed until the passage of the Bankruptcy Reform Act of 1978. The Bankruptcy Reform Act of 1978, as amended, serves as the basic structure for the Bankruptcy Code of today. Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2549, amended by Bankruptcy Amendments and Federal Judgeship Act, Pub. L. No. 98-353, 98 Stat. 333 (1984), and by Bankruptcy Judges, United States Trustees and Family Farmer Bankruptcy Act, Pub. L. No. 99-554, 100 Stat. 3088 (1986), and by the Bankruptcy Reform Act of 1994, Pub. L. No. 103-394, 108 Stat. 4106. When the current Bankruptcy Code was passed in 1978, it became the first such statute to be passed in Congress that was not in a direct response to a financial crisis or panic
The Bankruptcy Reform Act of 1978 remains similar to the Bankruptcy Reform Act of 1891, although improvements have been made. The Bankruptcy Reform Act of 1978 resulted in a complete overhaul of the administrative functions of bankruptcy. Bankruptcy Courts were created in lieu of referees, The Office of the United States Trustee was established and the structure of the Bankruptcy Code was altered to reflect a more streamlined process. The reorganization chapters of the Bankruptcy Reform Act of 1978 were condensed to form the current chapter 11, chapter XIII has become chapter 13 and liquidations (or straight bankruptcies) are now addressed under chapter 7.
The Bankruptcy Reform Act of 1978 also seeks to encourage greater use of Chapter 13, the mode of relief allowing for the readjustment of the debts of individuals with regular income (the old “wage-earner” chapter expanded – chapter XIII). Congress had hoped that creditors would receive greater dividends under a Chapter 13 plan than they would under a chapter 7 liquidation. Congress also hoped that debtors would emerge with better credit. In so doing, Congress rejected any form of compulsory Chapter 13, but offered lieu certain enticements to the chapter 13 debtor (the old carrot on the stick approach that resulted in the first discharge in 4 & 5 Anne, c. 4, sec. VIII (1705)) such as: (1) the “super discharge” of some debts that would not be dischargeable in under chapter 7; and (2) the protection of co-debtors from joint creditors. Subsequent amendments have made Chapter 13 less favorable to debtors by weakening the discharge and requiring compliance with a “disposable income” test as a prerequisite to plan confirmation. Moreover, Bankruptcy Courts may dismiss a Chapter 7 case where it is determined that the granting Chapter 7 relief would be a “substantial abuse” of the liquidation process, thereby leaving the debtor with the choice of dismissal or chapter 13.
DATED:  July 10, 2013
1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | 11