Did the big bankruptcy reform miss the boat?

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A total of 140 carriers have sought Chapter 11 bankruptcy in the US since 1978. Today, four of the Big Seven are still under the protection of the courts

The big bankruptcy reform which takes effect one month from today makes it much harder for individuals to file bankruptcy. It requires, among other things, that debtors meet with a credit counselor six months before filling, making it almost impossible for people to use bankruptcy to save their homes from foreclosure.

Meanwhile, corporate bankruptcy is so much used it’s almost “normal” for a company to declare Chapter 11 every few years. Not only are creditors left in the lurch, but stockholders and pension obligations are completely shafted. Of course, the stockholders are the owners, but they are absentee owners relying on the good faith and competence of management – good faith and competence that seem to be missing. And there seems to be no consequence for management that engages in bankruptcy after bankruptcy. Donald Trump, worshipped as a savvy, competent businessman by the fawning masses – of business leaders – had bankruptcies of his businesses in 1990 and 2004 and still has no problem securing financing for his latest deals. Imagine an individual with two bankruptcies going to the same twice burned banker and saying “I need a car loan.”

Clearly the losses to lenders, to investors, to pensioners, from corporate bankruptcies dwarf the losses from impoverished individuals who seek the protection of the courts, in audacity if not in dollars. Bankruptcy reform that didn’t address this, providing penalties for managers who receive huge bonuses prior to filing, for example, completely missed the boat.

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