Bankruptcy/Debtor-Creditor Rights Blog

CHAPTER 14 BANKRUPTCY

Posted March 5, 2010

Author: Alex T. Gray

Introduced by Rep. Spencer Bachus (R-AL) on July 23, 2009, H.R. 3310 has been dubbed the “Consumer Protection and Regulatory Enhancement Act.”  The bill seeks to amend the Bankruptcy Code by creating a new Chapter 14 under which a troubled “non-bank financial institution,” (i.e., Lehman Brothers, AIG, etc.) can seek to negotiate its outstanding debts more effectively before having to reorganize or liquidate.  The new chapter would require the non-bank financial institution to take part in a pre-petition consultation “in order to attempt to avoid the need for the non-bank financial institution’s liquidation or reorganization in bankruptcy, to make any liquidation or reorganization of the non-bank financial institution under this title more orderly, or to aid in the nonbankruptcy resolution of any of the non-bank financial institution’s components under its nonbankruptcy insolvency regime.”

While the bill would not affect consumer bankruptcy laws, it would prevent non-bank financial institutions from obtaining credit from the federal government (i.e., another bailout).  The bill effectuates this idea through amending §364 of the Bankruptcy Code by adding a new subsection (g) to provide that “the trustee may not, and the court may not authorize the trustee to, obtain credit, if the source of that credit either directly or indirectly is the United States.”  However, the discretional use of the word “may” leaves the possibility of another bailout wide open.

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