CHAPTER 4: OTHER RECOMMENDATIONS AND ISSUES
The fourth chapter of this report reflects the diversity of issues that must be
addressed in any comprehensive review of the bankruptcy system. Some issues do
not fit easily within the consumer bankruptcy / business bankruptcy / jurisdiction and
procedure categories that describe much of the bankruptcy system. In this chapter,
the Commission provides its recommendations for municipal bankruptcies and farm
bankruptcies, as well as a more detailed view of the relationship between the Internal
Revenue Code and the Bankruptcy Code. Perhaps most importantly, the Commission
introduces this Chapter with a series of proposals that has far-reaching implications.
It recommends procedures for better data collection and dissemination to help inform
decision-making about the next 100 years of bankruptcy.
The legislation adopted late in 1994 that created the National Bankruptcy
Review Commission directed it "to investigate and study issues and problems"
involving the Bankruptcy Code. While the statute's legislative history pointedly
notes that Congress was "generally satisfied" with the law, the U.S. Senate's Report
made several specific suggestions for study, including the interaction between the
Bankruptcy Code and the Internal Revenue Code. The Commission adopted that
suggestion, and the result is almost certainly the most comprehensive analysis ever
done on the relationship between the tax law and the bankruptcy system. The
following analysis, written by Professor Jack Williams of Georgia State University
College of Law, is based on the work of the Commission's tax advisory group.
This chapter also includes the Commission's recommendations for improving
Chapter 9, which permits municipalities to restructure their debts, and Chapter 12 -
those provisions of the law that, for 10 years, have provided protection for family
farmers. Indeed, Chapter 12 is one of the Bankruptcy Code's uncontested success
stories, and the Commission recommends that Congress make it a permanent feature
of the law by eliminating the "sunset" provision that will end its benefits for both
farm debtors and creditors by the end of the next year. The recommendations also
would change the eligibility requirements for Chapter 12 to reflect inflation since the
law's enactment in 1986. For Chapter 9, municipal bankruptcy, the Commission has
drawn on the experience of judges, practitioners, and others who have faced the
unique problems of a local government in financial distress, whether a utility district
in rural Colorado or Orange County, California. The recommendations in this area
should make the process more efficient and effective.
This chapter presents the Commission's report on data compilation and
dissemination. Early in the Commission's work, it became apparent that there were
many important questions for which there were no ready statistical answers or no
statistical answers at all. How long is the "average" Chapter 11 reorganization
proceeding? How many businesses with annual revenue or debt under $5 million file
for bankruptcy? In consumer bankruptcy, what is the average income of families that
file for Chapter 7? What is the amount paid, on average, to unsecured creditors?
How many cases involve reaffirmation agreements and to what extent?
The bankruptcy courts have an on-line computer system, called PACER, that
provides electronic access to court dockets for the public, and the statistical
summaries released quarterly by the Administrative Office of U.S. Courts are widely
respected and reported. Yet, there remain many problems in the bankruptcy system
for which the development of any "solution" lies, at least in part, in a better
understanding of the impact and the operation of the system today, an understanding
that should be informed by reliable statistical data.
The Commission asked Professor Lynn LoPucki of the Cornell Law School
to begin looking at the question of data compilation and dissemination. His initial
report, which appears in the Appendix, provided a framework for the Commission's
review of the issue led by Commissioner John A. Gose and Stephen H. Case, one of
the Commission's senior advisers. In addition, one of the Commission's volunteer
staff attorneys had written about the accuracy of bankruptcy data. Mr. Gose met
frequently with the representatives of the Administrative Office of the U.S. Courts
responsible for its data compilation and with the Executive Office for U.S. Trustees,
which also compiles and disseminates bankruptcy data. While each agency already
had undertaken its own assessment of the challenges presented by bankruptcy data,
collection and dissemination, their co-operation and enthusiasm helped frame the
Commission's report and recommendations in this area.
It is appropriate to conclude with a thoughtful review of data collection and
dissemination. Throughout this report, the Commission has paused to note that it has
had inadequate information to make some assessments. Some of the Commission's
recommendations -- in the area of single asset real estate cases, for example --
specifically call for more detailed study of the effects of a proposed change in the
statute. Although bankruptcy policymaking involves both empirical observations and
policy judgments, the two are rarely distinguished and the empirical assumptions are
rarely tested. Yet, inaccurate factual assumptions can result in policies that are at
best ineffective in accomplishing their policy goals and, at worst, exacerbate the
problems they attempt to correct.
This Commission has proceeded, whenever possible, on a sound factual basis,
but hard information has been elusive. The recommendations should be judged
systematically with the best empirical data available. The final recommendations of
this Commission are that Congress create the tools so that policymaking in this vital
area can proceed with as much information as possible.