LEGISLATION to reorganize the nation's bankruptcy courts certainly doesn't arouse the public interest as much as a debate on nuclear war or a discussion of the morality of certain members of Congress. But if you are a debtor, a creditor, a lawyer or judge who deals regularly with such matters, you should be concerned about congressional delay in resolving a problem created by a Supreme Court decision more than a year ago.
In June 1982, the court invalidated a law enacted four years earlier to reorganize the bankruptcy courts. Congress, said the court, could not give broad powers to bankruptcy judges unless it treated them like those federal judges whose offices are created by Article III of the Constitution and who have life tenure and protection against salary reductions. The court delayed the effective date of its decision for six months so that new legislation, clarifying the role of bankruptcy judges, could be passed. The deadline came and went without action by Congress.
In the absence of a statute to govern their operation the bankruptcy courts have had to improvise. A model rule drafted by the U.S. Judicial Conference-- the policy-making arm of the federal judiciary--has been adopted; it provides that simple bankruptcy matters that do not involve any other legal issues can continue to be settled by bankruptcy judges, but any other substantive legal questions such as contractual rights or antitrust issues can be taken by any party to a federal district court judge. So far the system has been operating reasonably well, and very few cases have required the attention of district judges. But the procedure has been challenged a number of times in appeals to higher federal courts, and while it has been approved by three different circuits, the Supreme Court has not ruled on the validity of the interim procedure. Until Congress passes a new law, therefore, there remains something of a cloud over all bankruptcy actions taken since last December.
There are two ways to approach the dilemma: take away some of the powers granted to bankruptcy judges by the 1978 act, or elevate them to the status of Article III federal judges. The Senate has taken the first course, passing a bill that gives primary authority to district court judges and allows them to refer matters to bankruptcy judges appointed by members of the judiciary. A bipartisan group of House members has offered a similar bill, but the House Judiciary Committee has reported a measure favoring the alternative solution. This bill would create 227 new Article III judges with primary responsibility for bankruptcy but with authority to hear other matters as well. No action on either proposal has been scheduled by the Rules Committee.
There are also peripheral and complicated issues here--the political problems involved in giving this president the power to appoint a large number of new federal judges, the pressures to make bankruptcy more difficult for potential high earners-- but they should not delay a resolution. Until that has been accomplished, a disturbing and potentially dangerous situation exists in the bankruptcy courts.