Involuntary Bankruptcy: BAPCPA Amendment to § 303 (b) Needs to Be Revoked

Purpose and History of § 303(b) The purpose and history of § 303(b) shed light on this present situation.7 The purpose of involuntary bankruptcy is to provide a method for creditors to protect their rights against debtors who are not meeting their debts.8 Bankruptcy in general, and § 303 in particul...

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Bibliographic Details
Published inAmerican Bankruptcy Institute journal Vol. 43; no. 9; pp. 12 - 52
Main Author Swanson, Donald L
Format Journal Article
LanguageEnglish
Published Alexandria American Bankruptcy Institute 01.09.2024
Subjects
Bankruptcy laws
Consumer protection
Credit bureaus
Disputes
Liability
Personal bankruptcy
United Kingdom > UK
United States > US
England
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Summary:Purpose and History of § 303(b) The purpose and history of § 303(b) shed light on this present situation.7 The purpose of involuntary bankruptcy is to provide a method for creditors to protect their rights against debtors who are not meeting their debts.8 Bankruptcy in general, and § 303 in particular, encourage group action by creditors and discourage a "race to the courthouse" by individual creditors for their separate benefit.9 The Bankruptcy Code's initial version of § 303(b) did not contain a "bona fide dispute" limitation on creditor eligibility; the only such limitation was that the creditor's claim not be "contingent as to liability." Yet, even under that initial version, courts disagreed on whether a disputed claim would qualify as a basis for a petitioning creditor's eligibility.10 Congress then enacted the Bankruptcy Amendments and Federal Judgeship Act of 1984 (BAFJA) in response to the U.S. Supreme Court's 1982 Northern Pipeline Construction Co v. Marathon Pipe Line Co. decision.11 The BAFJA added the "bona fide dispute" eligibility requirement to § 303(b)(1).12 The legislative record for the "bona fide dispute" addition includes this explanation from Sen. Max Baucus (D-Mont.) about its purpose: [...]bankruptcy law should ban pro se involuntary petitions. "22 Based on this evidence, it is hard to understand how Congress could conclude that involuntary bankruptcy filings are out of control and need to be limited, except for involuntary cases filed by pro se petitioners. [...]the same study also argued that involuntary bankruptcy cases are not only a good thing ... they should be encouraged!
ISSN:1931-7522