(Continued from January Podium Post)
Christine J. Flores, CBA
Our review of the development of current bankruptcy laws continues with The Bankruptcy Reform Act of 1978. In 1970 Congress created the Commission on the Bankruptcy Laws of the United States to study the then existing bankruptcy law and report on recommended changes. The Commission’s report led to the passage of the Bankruptcy Reform Act of 1978.
Under the 1978 Act, bankruptcy judges instead of referees in bankruptcy preside over bankruptcy cases and no longer are involved in the administration of the estate. Bankruptcy courts are granted expanded jurisdiction. The 1978 Act, with some later amendments, is the bankruptcy law in effect today in the United States. Eligible debtors may commence bankruptcy cases under Chapters 7, 11, 12, 13, or 15. Certain creditors may commence involuntary bankruptcy cases under some of the chapters. A trustee is always appointed in Chapter 7, 12 and 13 cases and may be appointed in Chapter 11 cases. Debtors may obtain a discharge of debts to gain a “fresh start” upon meeting certain requirements, with exceptions. Individual debtors can claim federal law exemptions, or alternatively State law exemptions if permitted by State law. Each class of creditors must accept a chapter 11 plan by a majority in number and at least two-thirds in amount of claims, subject to cramdown provisions that allow confirmation of a plan over a dissenting class of creditors.
In 1982 the United States Supreme Court curtailed bankruptcy court jurisdiction in by ruling that the 1978 Act unconstitutionally gave powers reserved to Article III judges to non-Article III judges. This decision made bankruptcy judges in each judicial district a unit of the United States district court for that judicial district, vested bankruptcy jurisdiction in the district court. A new section was added to the Bankruptcy Code relating to the rejection of collective bargaining agreements.
In 1986 Congress enacted the Bankruptcy Judges, United States Trustees and Farmer Act of 1986. This created a new chapter 12 for “family farmers” and made the United States Trustee System permanent (except in Alabama and North Carolina).
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”) made substantial amendments to the 1978 Act, particularly for consumer and international bankruptcy cases. For individual debtors, credit counseling is a condition for relief; requires financial management training for Chapter 7 and 13 debtors to obtain discharge; creates the role of consumer privacy ombudsman; establishes a means test to determine eligibility for filing a Chapter 7 petition; introduces automatic dismissal of a bankruptcy case if required documents are not filed timely; curtails the Chapter 13 “super discharge,” contains limitations a debtor filing multiple bankruptcy cases; and adds provisions on reaffirming debts.
BAPCPA amendments also allow direct appeals to the court of appeals in certain circumstances; add family fisherman to chapter 12, make Chapter 12 permanent, and create a new Chapter 15 for cross-border insolvencies.
It seems that these recent amendments would make it harder for one to file a bankruptcy petition. Yet many individuals and companies have sought the protection of the Bankruptcy Court to discharge their debts entirely or to establish a way to pay their debts over time. Below are a few more examples of celebrities who have gained a fresh start financially.
Cyndi Lauper, a singer, filed bankruptcy in 1981 after splitting up with her band, Blue Angel, and being sued by her manager for breach of contract. In 1985, she released her successful hit “Girls Just Want To Have Fun.”
Jerry Lee Lewis, the famous rock ‘n’ roll star who sang “Great Balls of Fire,” filed for bankruptcy in 1988 because of huge tax debts. The Internal Revenue Service seized his cars, furniture, and baby grand piano. Agents even showed up at his concerts to collect ticket sales. He continued to perform after filing for bankruptcy.
MC Hammer (Stanley Burrell), a musician and entertainer, sold 18 million copies of “Please Hammer Don’t Hurt’ Em.” He won three Grammy awards and earned more than $50 million in the 1990s. However, in April 1996, he filed for Chapter 11 bankruptcy because he did not have the income to support his lavish lifestyle and defend all the lawsuits that were filed against him.
Willie Nelson is a country music singer-songwriter, as well as an author, poet, actor, and activist. Nelson went broke as a result of owing millions to the IRS in back taxes. The IRS seized most of his assets to pay this debt and he declared bankruptcy. Nelson released an album titled “The IRS Tapes: Who’ll Buy My Memories?” to pay what he owed. He repaid his debt in three years. Nelson was inducted into the Country Music Hall of Fame in 1993 and received the Kennedy Center Honors in 1998.
Tom Petty, a musician, was part of the group Tom Petty and the Heartbreakers. In 1979, when he filed for Chapter 11 bankruptcy, he was $500,000 in debt. He declared bankruptcy to get out of his contract with Shelter Records and negotiate a very lucrative new deal with MCA Records.
Categorized in: General
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