Occassional reflections of a moderate (hey at least I think I am)

Tuesday, April 12, 2005

Bankruptcy Reform

Jane Galt writes about the pending bankruptcy reform measures and mentions, in passing, a point which I have thought about. Namely the scarcity of attention drawn to the benefits which could be gained from reforming bankruptcy provisions as they relate to the corporate side. Because she mentions it in passing I do not know exactly what she has in mind when she talks about "the corporate side of puzzle" so I will not venture a guess on her position on that topic.

In my prior job I had the opportunity to work with crediotr committees on a number of corporate bankruptcies and from what I saw, it is a minor miracle that any companies ever emerge from bankruptcy. You take a company that had various fiscal problems then foist upon it a whole cadre of professionals (consultants to run the company, new accountants for the company, accountants for the creditors, three [or more] sets of lawyers). I seriously wonder if most bankruptcies would not yield better results to the creditors by having an immediate auction of the company's assets as soon as it was determined that the company needed bankruptcy protection.

A couple of other random thoughts on the current bankruptcy measures. While I think that most of the liberal wailing and gnashing of teeth has been overblown about how there are too many ways for the wealthy to protect assets, I do think that more efforts should have been taken to reduce the ability to use the "homestead exemption" as a way to shield assets.

Finally, it will be interesting to see when credit card companies begin reducing their interest rates. I do believe that (apart from credit card companies) the biggest beneficiaries of the proposed changes are those who do not seek bankruptcy. By my way of thinking, the interest rates should come down fast and hard.


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