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Senate Passes Bankruptcy Reform Bill

This article was edited and reviewed by FindLaw Attorney Writers | Last reviewed March 26, 2008

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On February 2, 2000, by a vote of 83-14, the Senate passed the Bankruptcy Reform Act of 2000, H.R. 833 EAS. Ending the impasse that has prevented passage of bankruptcy reform legislation in each of the last two sessions of Congress, the Senate has now evinced an intent to complete the major overhaul of title 11 of the United States Code (the Bankruptcy Code) that Congress has been considering for the past two years. The Senate bill will be sent along with H.R. 833, the companion bill passed by the House of Representatives by a vote of 313-108 in May, 1999, to a joint Senate/House Conference Committee to reconcile the differences between the two bills. Although there are some significant differences between the House and Senate bills, substantial similarity between numerous provisions in both versions of the bill should facilitate their reconciliation.

The product of the Conference Committee, the conference report, cannot be the subject of a Senate filibuster, nor will it be subject to further amendment; instead, it will have to be accepted or rejected in its entirety. Given the wide majorities that passed the bankruptcy reform bills in the Senate and House, the administration will have limited ability to obtain changes in the legislation while it is in the Conference Committee. Moreover, the bill that Congress ultimately sends to the President is expected to be veto-proof due to the wide margin of support for each of the bills in the separate houses of Congress.

If enacted, the Bankruptcy Reform Act will bring about substantial changes to the Bankruptcy Code, affecting both the business and consumer provisions of the Code. While we will keep you informed as to the progress of the legislation and will report on the bill in depth after it emerges from the Conference Committee, some of the most significant proposed amendments to the Bankruptcy Code's business provisions are listed below:

Exclusivity:

  • The exclusive periods during which the debtor may file and solicit acceptances for a chapter 11 plan would be limited to 18 and 20 months after the petition date, respectively, with no provision for judicial discretion to extend these periods. (House and Senate)

Executory Contracts and Unexpired Leases:
  • The time during which a debtor/lessee could assume or reject an unexpired lease of nonresidential real property would be limited to 120 days. (House and Senate) The Senate Bill would permit an extension only uponthe lessor's request. The House Bill would permit one 120-day extension on a request by the debtor for cause, with any additional extension only with the lessor's consent.
  • A debtor's ability to assume a contract would not be dependent on whether the debtor could assign the contract. (House)
  • A debtor could assume an executory contract or an unexpired lease, other than an intellectual property contract, without having to cure defaults based on certain non-monetary obligations. (House)
Preferences:
  • The ordinary course of business exception to a preferential transfer would be expanded to except transfers made either in the ordinary course of business of the debtor and the creditor or according to ordinary business terms. (House and Senate)
Utilities:
  • A utility would be permitted to discontinue service to a chapter 11 debtor if it does not receive security in a form satisfactory to the utility within 20 days after the filing. A utility also could set off obligations against a prepetition security deposit without court approval. The provision does not specify whether the debt that may be set off is a prepetition or postpetition obligation. (Senate)
Conversion or Dismissal:
  • The grounds for the conversion or dismissal of a case, or for the appointment of a trustee or examiner in chapter 11, would be expanded. (House and Senate)

Small Business Provisions:
  • The cap on the total amount of debt held by an entity that wishes to be treated as a small business debtor would be increased from the current $2 million limit. The House Bill would increase the cap to $4 million. The Senate Bill would increase the cap to $3 million.
  • The House Bill would limit the time for a small business debtor to file a plan and disclosure statement (if necessary) and to obtain plan confirmation to 90 days and 150 days, respectively. Extensions of time for filing and for confirmation each would be limited to 60 days. The Senate Bill also would change these time periods, but drafting errors creating internal inconsistencies make the Senate's proposal unclear.
  • The court could waive the requirement for filing of a disclosure statement and could combine the hearing on the disclosure statement with the confirmation hearing. (House and Senate)
Asset-backed Securitizations:
  • Certain eligible prepetition transfers of property from the estate of the debtor intended to be transferred in connection with an asset-backed securitization would be excluded from property of the debtor's estate. (House and Senate)

Venue:
  • A corporate debtor would be required to file where its principal place of business is located rather than being able to choose to file where it was incorporated. (House)

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