The last chance for Congress to meet a deadline of Friday to reform the bankruptcy law faded in the House yesterday when the Democratic leadership refused to bring legislation to the floor.
Unless the Supreme Court -- which set the Christmas Eve deadline for reforming the system -- gives Congress another extension, the system could be mired in chaos.
On June 28 the court ruled unconstitutional parts of a 1978 law authorizing bankruptcy judges to adjudicate all issues arising from bankruptcy petitions filed by persons and businesses. The court said that only judges whose life tenure is guaranteed could exercise those powers. The 1978 law appointed judges for 14-year terms and made them subject to removal.
The court gave Congress an Oct. 4 deadline, later extended to Dec. 24, to restructure the system. The Senate never considered the issue, and Majority Leader James C. Wright Jr. (D-Tex.) said yesterday the Democratic leadership would not bring up a Judiciary Committee bill.
Unless the Supreme Court acts, the bankruptcy system will revert to its pre-1978 referee status. Under that system, cases often were shuttled from court to court in a costly and cumbersome process. The reversion would come at a time when bankruptcy filings are higher than at any time since the Depression.
The result, according to Rita Hauser, a bankruptcy attorney with Stroock, Stroock & Levan, would be chaos. Anything a bankruptcy court does without having the jurisdiction would be open to future legal challenge, she said; as a result, all current cases in the bankruptcy courts could be put in limbo until the new Congress gets around to restructuring the system.