Justice Department officials yesterday asked the Supreme Court to delay the effective date of its ruling invalidating the nation's bankruptcy system after the lame-duck Congress failed to enact a new bankruptcy bill.
The department sought the delay until March 25 reluctantly, and only after receiving a specific request from Senate Majority Leader Howard H. Baker Jr. (R-Tenn.) and assurances from congressional leaders that the new bill will be a priority item for Congress when it reconvenes.
The court must act before Dec. 25 to forestall what some see as total disruption of a system designed to bring some order to the management of both private and business financial crises.
Lawyers say that its "limbo" status would mean, among other things, that banks would not make loans to some failing businesses and people could be put out of work.
It was the second delay the department has requested since the bankruptcy law was declared unconstitutional in June.
"I am deeply concerned," Attorney General William French Smith told congressional leaders on Dec. 10, "that the judiciary and the nation might conclude that, in the view of Congress, judicial decrees concerning constitutionality are not to be taken seriously."
The failure was "irresponsible and borders on the criminal," Rep. M. Caldwell Butler (R-Va.) said in an interview.
"We spent time in the lame-duck session on bills going down an endless road to nowhere--domestic content, jobs, immigration, cruise ships, love boats and any number of unanimous consent requests for the innocuous. Yet we couldn't find 40 minutes to consider this bill."
Businesses in trouble, ordinary private debtors, creditors and consumers are all dependent on the bankruptcy system to manage financial crises when they arise, and the system is used to protect failing companies during periods of reorganization.
The current problem began last spring when the justices said a new bankruptcy system, designed to streamline the process, unconstitutionally gave too much power to bankruptcy judges without giving them the life tenure and other protections that insulate the rest of the federal judiciary from political pressure.
The court stayed its ruling until Oct. 4 to give Congress time to act. When Congress missed that deadline, the Justice Department won another extension until Dec. 24. This week, Congress failed to meet that deadline.
One proposal, backed by Rep. Peter W. Rodino Jr. (D-N.J.), chairman of the House Judiciary Committee, would make full federal judges out of the bankruptcy judges.
The potential windfall for the administration -- 227 new plum judgeships -- brought objections from some Democrats and lobbying from the White House, reportedly including presidential adviser Edwin Meese III.
The judiciary, jealous of its elite status, fought the proposal as unnecessary, and proposed that decisions of bankruptcy adjudicators simply be ratified when necessary by existing federal judges. Chief Justice Warren E. Burger became involved in the fray.
The consumer credit industry, and dozens of other groups, all of whom make substantial campaign contributions, took the opportunity to demand their special interest amendments totally unrelated to the constitutional questions.
Included among the proposals was one that would level debtors to the poverty line before giving them a fresh start after declaring bankruptcy.
The credit industry tried to take the bill "hostage," said Jonathan Rose, assistant attorney general for the Office of Legal Policy. "I think the industry shot itself in the foot," Rose said, noting that the department has received assurances from House Speaker Thomas P. (Tip) O'Neill Jr. (D-Mass.) that when Congress reconvenes the House Judiciary Committee will consider no special interest amendments before acting on the new bankruptcy system.
All the parties to the bankruptcy controversy question the intentions of the others. Some in the judiciary and on the Democratic side of Congress charge that the White House and Justice Department have "politicized" the issue because of the judgeships involved.
Some administration officials, in addition to attacking the consumer credit industry, suggest that the judiciary is simply trying to preserve its prerogatives.