Effectuating the Purposes of Chapter XIII of the Bankruptcy Act

The United States Congress is presently considering a bill sponsored by the National Bankruptcy Conference. This proposal would alter certain sections of chapter XIII of the Bankruptcy Act. Included in the proposed general revision are major changes in two provisions central to the operation of the statute. These provisions, contained in sections 6524 and 614, were originally intended as the mechanisms with which bankruptcy courts were to resolve the basic conflict between the overall purposes of chapter XIII and the rights of secured creditors. As recently as 1969, in Terry v. Colonial Stores Employee's Credit Union of Atlanta, a court affirmed the view that a referee could not confirm a plan over the objection of a secured creditor when the plan proposed monthly payments less than those called for by the contract. The referee was also held to have abused his powers under section 614 by denying a reclamation petition submitted by the secured creditor. The Conference bill rejects the approach taken by Terry, and by the majority of courts, toward the powers of a bankruptcy court. The new legislation eliminates the language of section 652(1), which has led to the majority interpretation, and substitutes a substantially more flexible standard for courts to follow when considering the rights of secured creditors. This flexibility is also expressly incorporated into section 614. In fact, the bill takes an approach to the implementation of the purposes of chapter XIII which is more liberal than that taken by cases not followed by Terry. One of those cases, Cheetham v. Universal C.I.T. Credit Corp., is particularly suitable as a vehicle for describing the operation of chapter XIII in its unamended form, and for analyzing the problems sought to be remedied by the Conference bill. Following an analysis of Cheetham, this note will examine the bill in light of the purposes of chapter XIII. Of immediate concern are the rights of secured creditors under chapter XIII, but a question that must also be answered is whether the Conference bill adequately advances the purposes of chapter XIII.