Bankruptcy Deadline Bill Wins Lender Endorsements

A House bill aimed at shortening bankruptcy court delays - a growing problem for commercial real estate lenders - has been endorsed by trade groups representing mortgage bankers and insurance companies.

The bill, introduced by Rep. Steven Schiff, would tighten deadlines for filing reorganization plans in Chapter 11 bankruptcies involving only one real estate asset.

The New Mexico Republican stressed that it is pointless to delay the inevitable while a property's value declines, taking with it a bank's prospects for recovery.

"At least three-quarters of these entities that go into Chapter 11 never emerge," he said.

Losses Put at $2 Billion

Proponents of his bill say lenders have lost $2 billion in the past six years because of developers who skirt foreclosure by filing for reorganization under Chapter 11 of the bankruptcy law.

Although this amount is just a minor aspect of the real estate debacle, bankers fear that the problem could impede the recovery if bankruptcies multiply.

Besides, principle is involved. In the case of real estate assets involving only one property, "There is nothing to reorganize," Rep. Schiff asserted.

90-Day Deadline

His bill would require bankrupt entities to file a plan of reorganization within 90 days or show the judge a good reason why an extension is needed.

But some experts said the bill would not solve the problem. More specific criteria for extending the deadline beyond 90 days must be included, they said, or the bill would be little improvement over the current law - which has become a problem precisely because it allows extensions.

What's more, critics of the bill said, government must address the problem of an overburdened court system, which also contributes to delay.

"The best solution is more judges," said Edward D. Mannino, a lawyer in Philadelphia. He noted that his city has had the same number of bankruptcy judges - two - since 1948.

ABA on the Fence

Officials of the American Bankers Association said it is hard to say how much the delays cost banks.

"I do know I'm hearing more and more complaints from bankers," said Philip Corwin, director of operations in retail banking for association.

The ABA has not formally endorsed the bill, he said, but "I've just gotten hold of it. It appears to be something attractive."

Deadline Idea Criticized

Mr. Mannino said he thought setting a deadline is the wrong approach, however. He argued that creditors can avoid delay by taking an aggressive approach to the proceeding - filing motions to end the "period of exclusivity" during which debtors has the right to formulate their own plans.

He also questioned the congressman's premise about the simplicity of single-asset reorganizations. In today's difficult market, he said, 90 days may be too little time to reposition an office building with many tenants.

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