SUBCOMMITTEE ON COMMERCIAL AND
ADMINISTRATIVE LAW
COMMITTEE ON THE JUDICIARY
U.S. HOUSE OF
REPRESENTATIVES
OVERSIGHT HEARING ON
THE NATIONAL BANKRUPTCY REVIEW
COMMISSION REPORT
Thursday, October 13, 1997
Room 2237 Rayburn Building, 1:00
PM
Ceccotti Testimony
Statement of Commissioner Babette A. Ceccotti
Before the Subcommittee on Commercial,
and Administrative Law
House Committee on the Judiciary
November 13, 1997
The Commission's broad charge to study the bankruptcy
system and recommend changes led us to develop an ambitious agenda
covering every aspect of bankruptcy practice from the smallest
consumer cases to the largest transnational insolvencies. We
quickly learned that the bankruptcy system is not a subject that
suffers from indifference among those who are familiar with it.
During our two-year tenure, we heard from bankruptcy practitioners
who rescued businesses and saved jobs, from individuals who rescued
themselves and their families, from those who administer the system
at all levels, and from academics who study the system. We heard
from many people who were frustrated by the legal workings of the
system and a few who felt they were cheated by it. No one failed
to impress upon us, in one way or another, that the bankruptcy law
contains powerful tools that directly or indirectly affect
commercial relationships in significant ways and carry out
important social goals.
My own views about the workings of the bankruptcy system
have broadened over the course of the last two years. As someone
who represents benefit plans and labor organizations, I have been
reluctantly drawn into bankruptcy cases to fend off attempts to
eliminate pension and health insurance obligations, change labor
contracts, and reduce employee wage claims. I have not changed my
opinion regarding these kinds of activities. But it is clear that
bankruptcy cases involve a complex balance of many different and
competing interests and important outcomes. A successful business
bankruptcy case will save good jobs, keep customers supplied, which
helps to save more jobs, and so on. Consumer bankruptcy saves
people from misfortune, catastrophe, bad judgment--the full range
of human adversity. It allows people to overcome their financial
problems and resume productive lives, pay their taxes, and avoid
recourse to other social safety nets.
In short, because these systems are already complex and
comprised of deliberately balanced interests, significant change
should be approached with caution. Reforms--particularly those
advertised with sweeping goals--should not be driven by the best
lobbyists, or the most attention-getting headlines, or even an
alarming statistic. Certainly, no one wants either system,
business or consumer, to become a refuge for the cynical disposal
of individual and business obligations. But I think you will find
that the best of our recommendations--at least among those that
have been getting all the press-- are those that attempt to address
problems that were credibly described to us and that could be
approached with tailored solutions that were not overbroad.
I would like to talk more specifically about some of the
recommendations that were developed in the three subject matter
working groups in which I participated. You have here today the
three members of the Consumer Bankruptcy Working Group. These are,
of course, the proposals that have generated the most attention,
the most discussion and the most controversy, including our own
internal debates.
Our work on consumer bankruptcy exposed deeply divided
views about that system and whether and to what extent changes were
necessary. We heard from hundreds of people, many of whom with
seemingly irreconcilable points of view. Ultimately, it became
evident that compromise on a number of issues was essential if we
were going to present the Congress with anything useful. We
considered and debated a number of consumer proposals as a package
in the hopes of increasing the chances of adopting a proposal with
broader support. The proposals have already been described as
shifting the balance to creditors, and, at the same time, too pro-debtor. I suppose that may indicate some measure of
success.
With all that we heard, I did not believe a case had been
made that the system suffers from widespread abuse by consumer
debtors necessitating broadly applicable and extreme measures, such
as those directed at so called "abusive Chapter 7 filings,"
exemplified by H.R. 2500. Recognizing that perfect answers were
not possible, my own view on this issue was that limited measures
should be devised to address specifically identified problems. Our
proposal to allow courts to issue in rem orders barring future
applications of the automatic stay to property under certain
instances is one such example. Another recommendation aimed at
curbing abuse is our proposal to set an upper limit on the amount
of the homestead property exemption that would apply nationwide.
We have also proposed an audit program to address repeated concerns
expressed over a lack of confidence in the documents filed with
bankruptcy petitions. Unlike the "needs based bankruptcy" bill
introduced by Congressman McCollom, the more incremental
recommendations in the Commission's report focus on discrete
problems that we could identify and remedy with some confidence
that the cure would not be worse than the disease.
All of the consumer bankruptcy issues we faced were
considered against the backdrop of the reported increases in
consumer filings over the past couple of years, a phenomenon which
we could not fully address given our limited term. It is apparent
that there are no simple explanations for the filing statistics
that dominated the news from time to time over the past 18 months.
Why so many people have amassed so much debt, and what caused so
many of them to file bankruptcy cases, is a question about which we
heard many theories. As I listened to this debate, it became
apparent that there is no easy answer: there are macroeconomic
forces that work over time, there are regional "legal culture"
issues, and, most basically, there are the individual circumstances
of people's lives. The question is far too complex for broad
legislative remedies. Until there has been more thorough study and
a better understanding of these issues, I believe the best
legislative approach is to proceed with caution and narrowly drawn
measures. For this reason, H.R. 2500, which proposes a cumbersome
and methodologically flawed mechanism for limiting Chapter 7 cases
in the absence of a problem demonstrably related to such filings,
exemplifies exactly the wrong approach.
I urge you to read the consumer bankruptcy
recommendations and the dissent. You will find a number of areas
where the dissenters shared, at least in concept, the view of the
majority that an issue deserved attention even if there were
differences in approach. I hope our recommendations will not be
discounted merely because the votes were divided. We produced a
nationwide debate on difficult issues in consumer bankruptcy. In
addressing these issues, it is important that the interested
parties advance to a level of discussion beyond polemics, and on
many issues we were able to do that. I hope that the future debate
on these issues will be productive and will not be reduced to sound
bites and slogans.
I also participated in Working Groups on Chapter 11
issues and Mass Torts and Future Claims. These topics also
involved intense work on a wide range of issues. Here again, we
endeavored to consult those with varied interests and views for
their opinions and insights. We heard from those who differ on a
philosophical basis about the benefits of Chapter 11. Their views
gave us thought-provoking alternatives to consider. But the more
consistent message we heard from those who have worked in the
system was that Chapter 11 should not undergo fundamental
change.
Instead, the Commission's recommendations focus on making
the system more efficient and more business-like in its approach to
business reorganization. One of our principal concerns was to
eliminate time-consuming and expensive litigation over issues
disputed in the courts, such as whether and under what
circumstances non-debtor parties can obtain a release, whether
courts can review creditors' committee appointments, and what rules
should apply to post-confirmation plan modifications. These are
perhaps issues that only practitioners and judges can get excited
about. They do not have the press appeal of the consumer cases.
But resolving discrete questions such as these does help to make
the system function more smoothly. The participants in the system
will know what the rules are, and therefore avoid wasteful
litigation. Those who are familiar with my background will not be
surprised to find one or two proposals crafted to address the
interests of employees affected by their employer's bankruptcy: one
aimed at protecting employee wage deductions and another to make
the Chapter 11 process system more accessible to employees and
their representatives.
The mass torts and future claims recommendation provides
a more comprehensive proposal for a limited group of cases--those
where a business suffers a product-driven calamity that has given
rise to numerous lawsuits by victims seeking recoveries. The mass
future claims recommendations attempt to accommodate the elements
of a business bankruptcy case to mass, product-based liabilities so
that companies can resolve those liabilities and provide meaningful
recoveries to both present and future victims.
The business bankruptcy system--particularly in larger
cases-- accommodates a range of interests and competing policy
choices. My own view is that where there are significant,
competing policy choices, as there often are, caution is the better
course of action. A number of our proposals are not as broad as
some wanted: the mass future claims proposal, for example, offers
a next step, after Congress took the first step in the asbestos
amendments enacted in 1994, but does not try to embrace all
possible future contingencies a company may conjure up. A number
of the chapter 11 proposals are similarly narrow in scope. I
believe these proposals achieved our goals and yet reflect a
measured approach to expanding the uses of the system.
While it is obvious the Commission's more controversial
proposals will further debate, I hope that you will begin the
process of implementing the large number of recommendations that
were adopted with a strong consensus, particularly the more limited
and technical recommendations for which there was wide support not
only among ourselves, but with whom we consulted. I would like to
close with a short note of thanks and tribute to our staff.
The ambitious scope of the Commission's review and the
pace at which we worked imposed burdens on everyone. Our dedicated
staff worked under incredible pressures, both in putting together
our meetings over the past two years and, most recently, in
preparing the Report. They should be recognized and commended for
their extraordinary efforts and their professionalism in making it
possible for us to present a Report that is comprehensive in scope
and as detailed and thorough as it is.
BABETTE A. CECCOTTI
Home Address:
1004 Park Avenue
Hoboken, N.J. 07087
Tel. No.: (201) 217-1166
Office Address:
Cohen, Weiss and Simon
330 West 42nd Street
New York, NY 10036
Tel. No.: (212) 563-4100
Fax No.: (212) 695-5436
Professional Affiliation:
Partner, Cohen, Weiss
and Simon.
Cohen, Weiss and Simon is a
37-lawyer firm specializing in the
representation of labor
organizations and employee
benefit plans.
The firm is general counsel to
Air Line Pilots Association
International (AFL-CIO); National
Association of Letter
Carriers (AFL-CIO); American
Federation of Television and Ration
Artists (AFL-CIO), and a
number of intermediate and local
labor organizations. The firm is
Chief Outside Counsel to the
International Brotherhood of
Teamsters.
Cohen, Weiss and Simon has also
served as Special Counsel to various
labor organizations
and
employee benefit plans in matters
involving bankruptcy and
restructuring.
Relevant Bankruptcy
Experience:
(1995-1997) Member,
National Bankruptcy
Review Commission
(1983-present)
Represented
labor organizations and employee
benefit plans, including
participation on
(or counsel
to client representative) the
Official Unsecured Creditors
Committees, in
significant
Chapter 11 proceedings in the
airline, trucking, steel,
entertainment and
shipping
industries.
Personal:
Born May 20, 1995
Education:
New York Law School, New York, NY
J.D., 1983
Professor Ivan B. Soubbotitch Award for Excellence
in Poverty Law and Civil Rights
Clark University, Worchester, MA
B.A., Cum Laude, 1977
Publications:
Editor:
"Representing Employees in
Bankruptcy Court," Employee
and Union Member Guide to
Labor Law (Clark
Boardman Callaghan 1997)
Co-author:
"Protecting Union Interests in
Employer Bankruptcy," Labor Law
and Business Change,
(Estreicher and Collins,
eds.), Quorum Books, 1988;
"Protecting Retiree Benefits in
Bankruptcy," Proceedings,
New York University 41st Annual
National Conference on
Labor, 1988.
Professional
American Bar Association, New York State
Bar
Associations:
Association, New Jersey Bar
Association
Admitted:
Court of Appeals for the Second and
Fifth Circuits, U.S. District Court
for the Northern,
Southern
and Eastern Districts of New York,
U.S. District Court for the District
of New
Jersey, U.S. District
Court in the Eastern District of
Michigan
Judiciary
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