Sen. Robert Dole (R-Kan.) said yesterday that he will use Monday's Supreme Court decision limiting the power of federal bankruptcy judges to tighten the consumer credit provisions of the 1978 U.S. Bankruptcy Act.
The court's ruling that Congress must act by Oct. 4 to correct flaws in the law "provides an opportunity for Congress to enact other bankruptcy reform measures which have been pending in the House and Senate for some time," Dole said.
Among those measures are a grain elevator bankruptcy bill sponsored by Dole and a host of proposals to put tougher restrictions on debtors seeking to liquidate all outstanding debts under Chapter 7 of the 1978 code.
Dole, chairman of the Senate Judiciary subcommittee on courts, said he would "act immediately" to push through legislation accommodating the Supreme Court's decision on bankruptcy judges. The senator also said he is "especially optimistic" that the other changes sought by the nation's farmers and creditors could be inserted into a revised law.
The catalyst was the court's 6-3 ruling Monday that the nation's 193 federal bankruptcy judges were granted unconstitutional powers under the 1978 act. The court said the law violates Article III of the Constitution, which specifies the kinds of cases and the kinds of judges who can hear those cases in federal court. The 1978 law allows bankruptcy judges to hear cases once restricted to federal courts, but fails to give bankruptcy judges the lifetime tenure and salary protections awarded to other federal magistrates, the court said.
Congress either can limit the power of the bankruptcy judges or upgrade their status by giving them the perquisites of their peers, the court said, emphasizing that its ruling was not retroactive. The court said its decision will not become final until Oct. 4 "to afford Congress an opportunity to reconstitute the bankruptcy courts or to adopt other valid means of ajudication."
Therein lies the bit of legislative serendipity that Dole and other critics of the 1978 law were smiling over yesterday. For nearly two years, they have argued that the law--by increasing the number and value of items debtors may hold exempt from confiscation by creditors in bankruptcy proceedings--has encouraged debtors to file for bankruptcy. Many of those debtors actually could afford to pay their bills, the critics say.
The critics want to establish an "eligibility threshold," based on a debtor's ability to pay a portion of his or her debts out of future income, for persons seeking relief under Chapter 7. Several bills that would meet this goal have been floating around Congress for a while. But they have met stiff opposition, especially from House Judiciary Committee Chairman Peter W. Rodino Jr. (D-N.J.). Rodino has argued that the proposed income test would create a kind of indentured servitude for debtors who legitimately seek Chapter 7 protection.
Some Capitol Hill sources speculated yesterday that Rodino and other opponents of the income test idea will fight to keep any revisions affecting bankruptcy judges separate from the consumer credit matter. Even lobbyists who want to tighten the consumer credit provisions admit that the proposed Chapter 7 changes and the judges are different issues.
But the Supreme Court action "is a vehicle, a horse," said Robert B. Evans, senior vice president and general counsel of the National Consumer Finance Association, a national creditors' group that has been leading the fight for Chapter 7 revisions. The ruling and the Oct. 4 deadline for congressional action "creates activity, and activity is the biggest thing" in making any gains on Capitol Hill, Evans said.