Movement in Congress on Bankruptcy Issues

We have an update from Congress on a couple of bankruptcy-related issues on which the BBA has a formal position.

First, two members of Congress have introduced a bipartisan bankruptcy-venue reform bill. While H.R. 4421 is new to the current 116th session of Congress, it’s substantially similar to legislation that the BBA has previously endorsed.

The proposed law eliminates the place of incorporation in favor of filing where the debtor’s principal place of business or principal assets are located, thus making it more likely that local bankruptcy cases will be decided at home.

Current law provides a loophole that allows troubled companies to flee their home states and seek bankruptcy protection in remote jurisdictions, disenfranchising creditors, employees, pensioners, and other interested local parties.

Bertucci’s, Filene’s, City Sports, Friendly’s, and the Boston Herald are just a few examples of Massachusetts-based firms that have filed in Bankruptcy Court elsewhere since 2009. H.R. 4421 would put a stop to this forum-shopping — a practice that results in the vast majority of major bankruptcies being filed in either Delaware or the Southern District of New York, creating a hardship for local stakeholders.

This is one of those instances when you may be able to help advance the issue: The sponsors of H.R. 4421 (Representatives Zoe Lofgren of California and Jim Sensenbrenner of Wisconsin) are interested in gathering additional support, so if you have a moment to contact your own Representative in Congress, please give them a call or send an e-mail, urging them to sign on.

The second issue has to do with the treatment of Veterans’ Administration benefits to individuals in bankruptcy. You may recall that, this past June, the BBA endorsed legislation to protect those veterans by closing a loophole that excludes Social Security disability benefits, but not veterans’ disability benefits, from the calculation of disposable income when a debtor files for bankruptcy. 

The HAVEN Act was introduced in Congress to rectify this imbalance by excluding veterans’ disability benefits from that calculation of income, and then-President Jon Albano sent a letter to the Massachusetts Congressional delegation, expressing the BBA’s support of it.

Since then, the measure passed both the House and Senate by voice vote and was signed into law.

We thank our own Bankruptcy Section for their work in identifying, researching, and presenting these issues to the BBA Council for their consideration and ultimate endorsement.

—Michael Avitzur
Government Relations Director
Boston Bar Association