Professor Edward Janger Testifies at Senate Hearing on Small Business Bankruptcy

Edward Janger, the David M. Barse Professor of Law and co-director of the Center for the Study of Business Law & Regulation, testified before the Senate Subcommittee on Oversight, Agency Action, Federal Rights and Federal Courts on March 7 in the session on Small Business Bankruptcy: Assessing the System.

In prepared testimony, Janger—a nationally recognized scholar on bankruptcy issues and resolution of systemically important financial institutions—shared perspective on small business bankruptcies and, in particular, the American Bankruptcy Institute Commission Report on Chapter 11 and various recommendations of the National Bankruptcy Conference relating to small businesses and financial institutions. His remarks focused on proposals for reform of Chapter 11 regarding small businesses, proposals to make bankruptcy work better for financial institutions, and student loans.

Janger addressed student loans first, calling them “a bankruptcy matter of crucial importance both for our financial system and society” and “the most broad-based program through which we, as a country, invest in human capital.” He questioned the current system in which student loans are virtually non-dischargeable and, calling the approach “misguided,” suggested bankruptcy laws should potentially be revised.

“Student loans encourage young Americans to take a gamble on upward mobility—to take out a loan so that they can join the middle class. Because of student loan non-dischargeability, where that gamble fails, we treat this decision more harshly than other credit decisions,” said Janger in his testimony. “To make matters worse, the effect is regressive. It hits the poorer student borrowers harder than those with more resources…there are good reasons to consider revising the current bankruptcy rules regarding discharge of student debt to specify with greater clarity the situations under which they might be discharged.”

In his remarks about reform of Chapter 11 for small business, Janger cited the difficulty of streamlining the bankruptcy process to suit the needs of small businesses, which have found compliance to be burdensome and expensive. He outlined the attributes of rules that would help address these issues and said that proposals offered by the National Bankruptcy Commission (NBC) and the American Bankruptcy Institute were promising. “The differences between the two proposals are instructive. Both include useful features and offer a way forward. The differences reflect important legislative choices,” he said.

On the third topic of financial institution bankruptcy, Janger said it was a complex issue that required more detailed treatment than the hearing allowed. However, he told the subcommittee that he agrees with the position taken by the NBC, “that bankruptcy courts are not a congenial first instance forum for resolving systemically important financial institutions.”

Janger writes in the areas of bankruptcy law, commercial law, consumer credit, and data privacy. He recently moderated the Barry L. Zaretsky Roundtable Discussion on Bankruptcy M&A and led a symposium examining the market for corporate control of insolvent companies—both forums for academics and practitioners with expertise in bankruptcy and corporate law.

Janger is the past chair of the Association of American Law Schools’ Section on Commercial and Consumer Law, and a member of the American College of Bankruptcy, the International Insolvency Institute and the American Law Institute. He has also served as consultant to the Business Bankruptcy Subcommittee of the Federal Bankruptcy Rules Advisory Committee.

Read Professor Janger’s testimony here.
Watch the Senate Subcommittee hearing here.