May 2001
The end of easy bankruptcy relief
New bankruptcy legislation making its way through the US Congress
may have unintended consequences that could cause it to backfire on
the banking industry.
Reform of bankruptcy legislation in the US has been widely
expected and indeed much lobbied for by banks over the past five
years. The new bill, which among other measures would have the
effect of making personal bankruptcy under Chapter 7 much more
difficult, now looks as if it will get through the final obstacles
of the Senate. President George W Bush has indicated that he will
not veto the bill if it is passed in its present form. However,
with a deteriorating economy the proposed changes to the bankruptcy
regime may hurt US banks, especially if debtors rush to declare
bankruptcy before the laws harden against them.
Historically, the US has always been a comparatively
debtor-friendly jurisdiction for individual bankrupts. Far more
leniency is typically shown...
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