Rotarian Jane Pack talks with Volk

January 15, 2008

Rotarians today heard Frank W. Volk, an attorney with the US District Court for southern West Virginia, review the history and practice of bankruptcy in the United States.

The view of bankruptcy varies widely between attorneys who represent creditors and those who represent debtors, he said. "But before 1978, no law firm practiced bankruptcy law as a specialty."

The Bankruptcy Reform Act of 1978 (PL 95-598) changed all that, said Volk. "In the past twenty-five years, there has been a five-fold increase in bankruptcy filings."

The 1978 legislation added Ch. 11 to the Code, provisions which allowed for reorganization. There was an understanding that the public would be better served by enabling corporations and individuals to continue in operation rather than by liquidating their businesses. A schedule could be set for payment of debts, and creditors would fare better than if debtor businesses were dissolved and sold off.

But Congress passed a new law in 2005 (PL 109-8) to amend some of the more liberal provisions of the Code. The new reform was signed in April of that year to go into effect four months later. Between October 1 and October 17th, the effective date of the legislation, there were 600,000 filings under the old 1978 law by people trying to beat the change.

Bankruptcy law has a checkered history, Volk told the group. In Tudor England, prunishment for debtors ranged from incarceration to capital punishment.

But "sitting in debtors' prison doesn't do anyone good."

Some notable persons have faced bankruptcy, he said. There was, for example, the case of Robert Morris, who pledged his personal credit to enable Washington to move troops from New York to Yorktown during the American Revolution.

The main purpose of a bankruptcy code is to grant a fresh start to the honest but unfortunate debtor, he said, and to provide something for creditors.