Small Business

No Help for the Bankrupt-Bound


Small-business owners thought they would be getting some help from the last Congress when it comes to bankruptcy proceedings. But President Clinton waited until Dec. 19 -- after the lawmakers had adjourned -- to veto a bankruptcy bill. Now its backers have no opportunity to attempt an override.

While the bulk of the bill concerned consumer bankruptcies, it also contained some provisions that would have affected small businesses. Most important, it would have changed the way commercial leases are handled during bankruptcy proceedings. The current law allows tenants 60 days to settle on leases. But tenants are often able to get extensions -- and even maintain the use of property without paying rent -- as their bankruptcy trudges through the courts. The bill would have allowed tenants 120 days to settle leases, though only one 90-day extension would have been allowed.

The bill also tried to outlaw eviction on the basis of "nonmonetary" defaults that don't lend themselves to cash compensation. A nonmonetary default can be triggered when a tenant violates a lease provision that doesn't concern actual payment, such as one barring the posting of a "going out of business" sign. While such a sale could help a tenant raise much-needed cash, the landlord could claim that the sign devalues his property. Once the sign is posted, the landlord had no good way to recoup or even measure lost value.

Chapter 7 filings, the most common form of consumer bankruptcy filings, fell 9.2% in 2000, to 870,805 from 959,291 in 1999. Since 1993, business filings have declined by 44%, to 36,065 from 64,857, according to the American Bankruptcy Institute. However, those numbers are expected to increase next year as borrowers feel the effects of higher interest rates. By Kimberly Weisul in New York


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