The House, rushing to meet an Oct. 4 deadline set by the Supreme Court, is expected to begin consideration next week of a bill that would give President Reagan the power to appoint 227 life-tenured federal judges to administer the country's bankruptcy laws.
The legislation, if it passes, would increase the number of fully empowered federal judges by 44 percent and give Reagan an unprecedented number of judicial appointments.
Chairman Peter W. Rodino Jr. (D-N.J.) of the House Judiciary Committee introduced the bill after a June 28 ruling by the Supreme Court finding the current system of nontenured bankruptcy judges unconstitutional. The court stayed its decision until Oct. 4 to give Congress time to act.
If Congress does not resolve the problem by then and the court does not extend the deadline, some bankruptcy experts predict that the system could be thrown into chaos.
But the bill faces heavy opposition from the U.S. Judicial Conference, a group of federal judges headed by Supreme Court Chief Justice Warren E. Burger that monitors the federal court system. And if it reaches the Senate, it faces possible killer amendments and a filibuster.
The crisis was precipitated when the high court ruled that a bankruptcy court, in dealing with a complex business bankruptcy case, exceeded its authority by deciding issues beyond the strict scope of the bankruptcy laws.
Since a bankruptcy system reform in 1978, judges have routinely decided all the issues in bankruptcy cases, whether or not they fall under the narrow bankruptcy code. The problem found by the high court is that the bankruptcy courts are run by special judges who serve 14-year terms and whose salaries are subject to change by Congress.
Full federal judges, once appointed by the president and confirmed by the Senate, have life tenure and a guarantee of no salary reduction. Those safeguards help prevent any undue influence by Congress or the president, guaranteeing the separation of powers between the branches of government.
The court found that when the special bankruptcy court went beyond the strict limits of the bankruptcy statute, it violated the Constitution. That ruling has been interpreted to mean Congress should either elevate bankruptcy judges to full status or restrict their powers.
Rodino argued in 1978 that the bankruptcy courts should be run by full federal judges and warned that the Supreme Court could find the bankruptcy system unconstitutional.
His current bill is being opposed by the Judicial Conference on grounds that it is too expensive and too extreme.
The Congressional Budget Office has estimated that the main costs would be for judges' pay raises, which would total $1.7 million annually by 1987, and funding for court reporters, which would range from $2 million to $6 million yearly depending on how many judges had full-time court reporters.
The conference has proposed dividing bankruptcy jurisdiction so that aspects of a case not strictly falling under the bankruptcy code would be referred to federal district court. But Rodino's supporters say this is too complicated and would lead to a logjam in district court.
Rep. M. Caldwell Butler (R-Va.), a member of the Judiciary Committee and supporter of the Rodino bill, called the Judicial Conference's objections "basically a turf problem . . . . It's been a matter of honor with the fully tenured judges, particularly the chief justice, that they would not dilute the prestige of their office by elevating bankruptcy judges to the same status."
Prof. Vern Countryman, a bankruptcy expert from Harvard Law School, added: "They like the pecking order under which they have the bankruptcy judges under them. It's very childish behavior."
Senate sources say that if the House approves the bill, Senate Finance Committee Chairman Robert J. Dole (R-Kan.) has a "Christmas tree" package of other bankruptcy legislation to add.
"It looks like they took a vacuum cleaner and attached it to the computer, and anything that had bankruptcy on it went into" the package, Butler said.
One part of that package is a controversial bill supported by the consumer credit industry to provide for individuals who declare bankruptcy to repay a portion of their debts if the judge believes they can afford it. The individual and his family could be required to live at the official poverty level for five years with a payment schedule set up to pay a portion of his debt.
Countryman complains that the bill has no payback provisions for businesses, and that there is no provision to hold the credit industry responsible for irresponsible extension of credit.
One congressional bankruptcy expert added that a person repaying his debts under a five-year plan would have to go back to court for any change in his life. "If he got divorced or married, or even if his car broke down, he'd have to go back to change the repayment plan or he could be held in contempt."
Senate staff members say that Sen. Howard M. Metzenbaum (D-Ohio) will filibuster the bill if it contains the provision dealing with a threshold income at which to require repayment of debts. Staff members also say that if the provision is added in the Senate, Rodino will allow the bill to die in the House.
Members of both parties say they want a compromise. If not, said Butler, "It will be chaos. It's something the banking system of the United States cannot handle . . . .
"There are those who suggest the district courts could assume jurisdiction but they're already overcrowded. How could they take on 600,000 additional problems? It would be chaos."
As the U.S. economy has worsened, the bankruptcy court's caseload has increased. A report released yesterday by the Supreme Court indicated there were 527,342 filings during the year that ended June 30, an increase of 1.7 percent. This followed huge increases of 44 percent in 1981 and 59 percent in 1980.