Bankruptcy Attorneys

The announcement that Congress was considering a moratorium for soldiers and sailors caused much comment among real estate interests yesterday. Only recently a moratorium was proposed on all real estate mortgages for the duration of the war.

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By the indictment of Samuel Rosenberg, a lawyer, whose specialty is bankruptcy cases, and six others who were associated with him in bringing involuntary bankruptcy proceedings against Isidor Blumenfeld, a silk merchant of 1,329. Fifth Avenue, United States District Attorney Wise yesterday began a work which he has planned to reform the methods of the Bankruptcy Court.

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Henry A. Seymour, one of the partners of Seymour, Johnson Co., stock brokers of 71 Broadway, who failed in May last, filed a petition in bankruptcy yesterday, both individually and as a partner in the firm, so as to put the affairs of the firm into bankruptcy. He requested David Webster to join in the petition, but the latter refused.

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Lenin, speaking at the Third All-Russian Congress of Water Transport Workers in March, 1920, is reported in Izvestia to have said:

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When Daniel J. Sully stepped out of his office yesterday afternoon, leaving receivers in possession of all his property, his light jolly manner had disappeared and had given way to a feeling of bitterness, anger, and disappointment. The knowledge that those who had benefited from his advice had betrayed him he had been able to bear, but the belief that some of his friends had proved treacherous was too much for him.

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Two media bidders raised their multimillion-dollar offers for FNN yesterday in a bankruptcy court auction of the troubled cable television business-news channel.

There were signs, however, that regardless of which bid Judge Francis G. Conrad of the Federal Bankruptcy Court in Manhattan selects, FNN’s ownership will remain unresolved for a while. The judge said he would study the matter overnight and rule on which offer he would accept, possibly as early as today. Antitrust Challenges

One bidder, a team of Dow Jones & Company and the Westinghouse Broadcasting Corporation, and at least one state attorney general, from Pennsylvania, filed antitrust suits in Federal court even as the bankruptcy hearing was under way.

They challenged any sale of the Financial News Network to the other bidder, NBC’s Consumer News and Business Channel. NBC plans to merge its cable business network with FNN if its bid succeeds. The Dow Jones-Westinghouse team plans to preserve FNN as the main rival to CNBC.

The auction had been viewed as a duel of two of the nation’s biggest media empires. Peter Kann, Dow Jones’s president and publisher, and Robert Wright, chairman of NBC, were both present, reflecting the importance they attached to the outcome.

A month ago, Judge Conrad accepted CNBC’s $115 million cash offer and disqualified the Dow Jones-Westinghouse offer at the same price. But Dow Jones appealed, and Judge Conrad’s decision was overturned, sending the case back to him.

As the auction got under way, the Dow Jones-Westinghouse team raised its offer to $167.1 million, comprising $125 million in cash, $9.3 million in assumed liabilities and $32.8 million in projected revenues over three years. If the revenue goals are not met, Dow Jones-Westinghouse promised to pay a minimum of $10 million in 1995, for a total price of $144.3 million.

CNBC countered with an offer of $135 million in cash. Then it raised the offer further to $140 million in cash and $6.1 million in assumed liabilities.

Before ending the hearing, Judge Conrad asked the creditors and FNN management which bid they preferred. A lawyer for the creditors said a committee of his clients preferred the CNBC offer because it provided more cash up front.

Lawyers for FNN supported the Dow Jones-Westinghouse bid but said both offers were improvements over the earlier offers.

FNN put its cable channel and other assets up for sale last November. It agreed in principle in February to sell the network to Dow Jones-Westinghouse for about $90 million. But CNBC countered with a surprise $105 million offer, and FNN signed with CNBC.

FNN filed for protection from creditors under Chapter 11 of the Federal Bankruptcy Code on March 1, saying its liabilities were nearly twice its assets. The move meant any bids had to meet the approval of the bankruptcy judge.

Dow Jones-Westinghouse subsequently raised its offer to $115 million in cash, but the bid was disqualified in an April 3 bankruptcy hearing because the partnership refused to keep it open until May 31, as CNBC had. The judge then accepted CNBC’s sweetened $115 million offer.

But the award was thrown out in mid-April in Federal District Court, which said the Federal Bankruptcy Court should have allowed both sides to bid on FNN.

The Federal Trade Commission, after considering the antitrust implications of a CNBC-FNN merger, decided in a split vote last month not to contest it.

CNBC was started about two years ago and has about 18 million subscribers. But it has encountered trouble expanding because some cable system operators are reluctant to carry it and FNN.

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BERLIN, Oct. 2J.-The talk current last week on foreign markets, regarding a formal declaration of bankruptcy by Germany, is ridiculed in financial circles here. So far as regards gold liabilities on reparations account, defaultwhich may have been constructive bankruptcy–was announced long ago, when payments prescribed by the London ultimatum were repudiated. As for home …

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The examination in the case of AUGUSTUS W. MARSH, charged with fraudulently appropriating a large quantity of crinoline-wire, which had been purchased on credit from the firm of BENJAMIN DOREMUS, after he had become a bankrupt, was resumed before Commissioner SHIELDS, yesterday.

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he action of Judge BLATCHFORD in recently issuing an injunction restraining the creditors of GEORGE BIRD GRINNELL Co. from disposing of the securities which the firm had hypothecated for loans made to it, created at the time a most alarming feeling of insecurity among brokers and financial men generally

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George S. Wilkes, a lawyer of 140 Nassau Street, has filed a petition in bankruptcy, with liabilities of $67,543 and no assets. In his petition he stated that he has no house residence, but has resided in the city for the past thirty years. The liabilities were incurred from 1883 to 1898, and include twenty judgments for various amounts, five of which, it is stated, have been paid, but not discharged.

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No proposed legislation of a non-political nature is likely to receive more serious consideration from the present Legislature than that relating to bankruptcy. The Judiciary Committees of the Senate and the Assembly have already held one joint hearing on the subject, and another is projected for this week, the result of which is expected to be the appointment of a joint sub-committee to consider the matter more in detail.

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Early in the session of the Legislature requests poured in from all parts of the State for some change in the Bankruptcy laws, and the attention of many members was directed to the subject. A week ago there appeared

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The Maxwell Communication Corporation, the publicly held corporate flagship of Robert Maxwell, tonight became the latest domino to fall in his crumbling publishing empire when it announced that it had filed for bankruptcy protection from creditors in New York.

In a statement issued late tonight, the company, which owns several American businesses — including Macmillan Inc., the big publishing house — said an important reason its board had decided to seek protection in the United States was because “the bulk of its revenue and operating profit is generated by businesses located in the United States.”

Those businesses, which account for about 80 percent of the company’s assets, also include Official Airline Guides, P. F. Collier encyclopedias and half of the Macmillan/McGraw-Hill School Publishing Company. Maxwell Communication said the holding company was the only concern in bankruptcy under the filing, not the operating companies.

The American businesses have revenues of $1.25 billion and operating profits of about $225 million, the company said.

By filing for protection under Chapter 11 of the United States Bankruptcy Code, which gives the company time to work out a plan to pay its debt, the company is trying to put itself into a stronger position to bargain with its 40 or so lending banks, which were scheduled to meet on Wednesday.

The bankers had already been talking about breaking up the company and selling off parts of it to pay off the company’s debt, which totals $:1.3 billion ($2.37 billion), the company said. The only question in many of the bankers’ minds was whether to push for the company to be liquidated immediately or to wait for an economic recovery in the United States so that the businesses might fetch a higher price. While the larger lenders seemed to prefer selling the company off piecemeal over the next two to three years, some smaller ones apparently did not want to be stuck that long. Meeting With Banks

The decision to seek bankruptcy protection in the United States came after a meeting this afternoon with a steering committee of the banks, where a special investigation of the company’s financial health that has been conducted by Price Waterhouse, the accounting firm, was presumably discussed.

In an interview tonight, John Coyle, a Maxwell Communication spokesman, contended that there had been “no threats” from the banks at the meeting. But he said he did not know whether the banks had been informed of the Chapter 11 filing or whether they had agreed to it before the company had acted.

The Daily News in New York, which is owned by a private company that belonged to the Maxwell family, sought Chapter 11 bankruptcy protection on Dec. 5, also in New York. It did so immediately after the two private holding companies at the heart of the Maxwell empire, one of which is the paper’s parent, filed for the British equivalent of bankruptcy protection.

Some analysts say they believe that one reason The Daily News filed was to insulate itself from the bankruptcy administrators appointed by an English court, who conceivably might have been less willing to keep it going. There are also suspicions that Kevin Maxwell, the son of Robert Maxwell who has been active in trying to draw up a reorganization plan for The Daily News, is hoping that he will be able to use American law to hold on to that piece of the Maxwell empire.

Even before the empire’s collapse, Maxwell Communication’s financial health had been fragile. It had been struggling under the burden of its debt, which it had mainly accumulated when Robert Maxwell paid $2.6 billion for Macmillan and $750 million for Official Airline Guides in 1988.

In the last couple of years, the company sold off a slew of businesses to pare its debt. In early November, the company’s leaders had even thought that it would be able to meet its next big debt payment — $750 million due next October — without having to sell its core businesses.

But then the private Maxwell companies, which own most of the family’s 68 percent stake in Maxwell Communication, collapsed under a mountain of debt and filed for the British equivalent of bankruptcy protection early this month. Effect of Pension Revelation

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The Daily News filed for Federal bankruptcy court protection yesterday, and while the paper will probably continue to operate for now, the possibility that it will soon be sold or closed has greatly increased.

The paper’s bankruptcy filing came on the same day that the Maxwell family’s privately held companies, which control The Daily News and hundreds of other family companies, filed for bankruptcy in Britain. The British court appointed four partners at Arthur Andersen & Company, the accounting firm, to act as administrators of the private companies. [ Page D7. ]

Should The News be put up for sale, Mortimer B. Zuckerman, a real estate developer who also owns U.S. News & World Report, and Peter S. Kalikow, the owner of The New York Post and a real estate developer who himself is in personal bankruptcy, said yesterday that they would be interested in buying the paper, but only under conditions that would probably require significant concessions by the unions. Unions Examine the Situation

Because The News is in bankruptcy, it is likely to seek concessions from the unions to cut costs and increase profitability. The court could also impose changes in work rules and compensation.

“I don’t know what else can be done to help the paper, but we’ll take a look,” said John P. Kennedy, president of New York Newspaper Printing Pressmen’s Union Local 2.

Kevin Maxwell, the paper’s publisher and the son of the late Robert Maxwell, said yesterday in New York that there was “no question at this time of any sale,” and that a reorganization plan was now under way, presumably to try to cut costs.

The rapid collapse of the Maxwell empire began with the death of Robert Maxwell last month in bizarre circumstances in which he disappeared from his yacht in the middle of the night and was found dead in the water. The elder Mr. Maxwell bought The News only last March in the midst of a bitter strike and was regarded as the paper’s savior.

The decision on what will ultimately happen to the paper is no longer firmly in Kevin Maxwell’s hands, but he is scheduled to meet with union leaders today. He flew from London last night and went directly to The News and spoke with employees in the newsroom to reiterate the family’s intention to keep the paper. Reporters said Mr. Maxwell spoke of having employees share in the ownership of the paper and pledged to try to emerge from bankruptcy as soon as possible. Mr. Maxwell also spoke expressed confidence that The News could raise the money it needed for the short run.

In a statement earlier in the day, the paper said it had filed for bankrupcy “to protect The Daily News against the uncertainties involving the Maxwell family’s creditors in England and from a capital squeeze due to the debt problems of the family-owned businesses.”

The statement continued, “Although The News is ahead of its 1991 business goals, the paper requires a continuing short-term investment of funds to continue operations and achieve consistent profitability. The present situation has cut off the owners’ ability to assure that money.”

The News filed for protection in New York from creditors under Chapter 11 of the bankruptcy code to obtain time to work out a plan to pay its debts. Generally, owners file for Chapter 11 when they want to continue to operate their businesses and the move seemed to be intended to insure that The News would not be closed precipitately, even though it was losing money.

“It seems to me like a very prudent way to keep The Daily News as distinct as possible from the Maxwell difficulties and to prevent Maxwell creditors from dismembering it,” said James M. Lewis, a bankruptcy specialist at the law firm of McGuire, Woods, Battle & Boothe in Washington.

But Mr. Lewis noted that if the court-appointed administrators in London concluded that The News was not a viable business, they could move swiftly to petition the court for permission to close or sell it.

The News is owned by Maxwell Newspapers Inc., which in turn is owned by Maxwell Group Holdings Inc., a company incorporated in Delaware. But Maxwell Group Holdings is owned by Robert Maxwell Group P.L.C., based in London, which is now under the administration of Arthur Andersen and British courts.

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THE word bankruptcy comes from banca rotta, or broken bench, a term used in 14th century Italy where merchants conducted their business seated on benches. When a merchant failed to meet his financial obligations, the other merchants broke his bench over his head.

There are a lot of broken benches around today. Bankruptcy filings at the United States Bankruptcy Court in White Plains, which serves Westchester and Rockland Counties, increased to a record 1,364 last year, up from 978 in 1989. If January, when an additional 146 filings were recorded, is a portent, this year could also set a record.

“Filings are being made right across the board,” said Kenneth Freda, deputy clerk of the Bankruptcy Court. “They range from small businesses to large businesses and to consumers, including professional couples, who are all seeking protection. We have six people in this office and we could use 10 to handle the increased traffic.” Locally, Individuals Predominate

Bankruptcy filings in the court include those under Chapter VII, which covers businesses that want to liquidate; Chapter XI, which allows businesses to keep operating; Chapter XII, for farmers, and Chapter XIII, for individual debtors.

In the White Plains court, the majority of bankruptcy filings come under Chapter XIII, said Eric Charles Kurtzman, a lawyer who specializes in bankruptcy law. “Many cases in this court involve young families who are struggling to get out from under a mountain of debt, brought about by using too many credit cards,” he said.

Mr. Kurtzman said the latest bankruptcies frequently involved people who were very well off until recently. “For example, one professional couple living in northern Westchester recently filed for bankruptcy even though the husband, who is a lawyer, earns $120,000 a year,” Mr. Kurtzman said. “But their problem was that the wife, who also earned a high salary, lost her job and then they started falling further and further behind making payments on the $350,000 debt they had run up on six credit cards.”

He added that bankruptcy petitions were now filed by people from all walks of life: from 22-year-olds unable to pay car loans to elderly citizens burdened with high medical bills.

Mr. Kurtzman, who is 37, is a partner and founder of the law firm of Kurtzman & Haspel. It is one of the few full-service law firms in the local area that has its own department specializing in bankruptcy law and creditors’ rights.

“Bankruptcy law was a relatively obscure specialty when I began my law career nine years ago, as a clerk for U.S. Bankruptcy Court Judge Roy Babit,” he said. “Then only a few of the largest firms had bankruptcy departments. But I’ve always been interested in the power of bankruptcy law and the restructuring of debt.”

Now the economic downturn has created a boom for bankruptcy lawyers. Mr. Kurtzman’s firm, headquartered in Nanuet, has an office in Manhattan and recently opened a third one in Ramsey, N.J.

“Changes in the bankruptcy law in 1979 have made it easier to file for protection,” Mr. Kurtzman said. “It doesn’t have the stigma it once had. I’m a court-appointed bankruptcy trustee for the Southern District of New York and as such I administer 60 to 80 cases a month and I see everything. ‘Most People Are Honest’

“Most people, I’ve found — at least 98 percent — are honest. They file for bankruptcy because they are pushed to the limit. Divorce and matrimonial problems are the root of a lot of trouble, but credit card debt is what sends most people over the edge.”

April is the cruelest month for debtors, Mr. Kurtzman said, because of the demands for payments of bills acquired during holiday buying sprees.

“Credit card companies start demanding payment in earnest and our phones start jumping off the hook with people wanting to know how they can stop collection agencies from hounding them,” he said.

“I still recommend that they try to contact the financial institution that issued the credit card, to try to reach a settlement on the debt. But unfortunately the credit card companies will usually refuse. They find it cheaper to give the case to a collection agency.” Some Debts Still Must Be Paid

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ACCELERATING a four-year trend of increasing numbers of bankruptcies in the state, residents and businesses have filed more than 18,000 bankruptcy petitions this year and are expected to file hundreds, perhaps thousands, more by the end of 1991, Federal Bankruptcy Court officials say.

With a record number of petitions already filed — the vast majority for personal bankruptcy — experts say the trend is reflective of more than just the fallout from the nation’s vexing economic slump.

The bankruptcies, they say, though typically precipitated by unemployment or reductions in income, are often more deeply rooted in the frenetic consumer borrowing that was encouraged by banks and credit companies during the 1980’s.

That, they say, along with a lessening of the stigma associated with bankruptcy and increasing anger at the anonymous forces that have unbalanced many borderline budgets, has led a record number of people to seek the fresh start afforded by the bankruptcy laws.

“It’s almost uncontrollable,” said Edward P. Bond, managing partner in the West Orange accounting firm of Bederson & Company, referring to the number of bankruptcies filed in recent years.

“Today, every major accounting firm and law office has established a bankruptcy department,” Mr. Bond said, adding that in the past, bankruptcy work was often shunned by lawyers and accountants alike. “Now, my conception is that every attorney in the state has become a bankruptcy attorney,” he said.

Mr. Bond said the effects of the current recession, coupled with tight credit, stretched budgets and diminished incomes, had created one of the most severe bankruptcy filing frenzies he had seen in 30 years in business.

By the end of August, New Jersey residents and businesses had already filed nearly as many bankruptcy petitions as the total number filed in all of 1990.

James J. Waldron, clerk of the United States Bankruptcy Court for the District of New Jersey, said that last year 15,394 bankruptcy petitions were filed by businesses and individuals in the state. By Aug. 31 of this year, Mr. Waldron said, 15,112 petitions had been filed. By Oct. 31, the number had risen to 18,783. By the end of the year, he said, the total filings are expected to exceed 20,000.

“It’s impossible to react to that,” Mr. Waldron said, alluding to efforts of the Federal Bankruptcy Court in New Jersey to deal with the rising number of filings. “You just kind of scrounge around as best you can and put Band-Aids on the problems by processing paper.”

With only seven Federal Bankruptcy Court judges assigned to New Jersey, the state desperately needs another judge, he said. “Our judges are overwhelmed,” he said.

The vast majority of filings, Mr. Waldron said, are for personal bankruptcies. Through Oct. 31, for example, 1,085 businesses had filed while 17,698 personal bankruptcy petitions had been logged.

In fact, while the number of business bankruptcies has remained fairly constant — averaging about 1,000 each year since 1985 — the number of personal bankruptcies has nearly tripled from a 1985 total of 5,977.

That does not come as a surprise to bankruptcy experts.

“It’s like buying a new set of clothes,” said Hugh M. Leonard, a lawyer with the Hackensack law firm of Cole, Schotz, Bernstein, Meisel & Forman. “It really should be a last resort, and for the most part it is, but there are some situations where it’s used in a turnstile approach.”

Mr. Leonard, who was the United States Trustee for bankruptcy courts in New Jersey, Delaware and Pennsylvania, said the “turnstile approach” had been made worse, at least in part, by law firms that advertise for bankruptcy clients.

“For the most part, I think they’re factories,” Mr. Leonard said. “You run into an office, you fill out the papers and you don’t really understand the consequences.”

A major consequence, Mr. Leonard said, is that after a bankruptcy “it takes people a while to rehabilitate their credit.” Another, he said, is that those who file are effectively barred from filing another bankruptcy within six years.

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Enron won approval yesterday to emerge from bankruptcy protection more than two and a half years after its collapse, under a plan in which creditors will receive less than 20 cents on the dollar and the Enron name will disappear.

Once Enron sells assets to pay creditors, all that will be left of the company — once the seventh-largest in the world — will be a smattering of pipeline and energy assets in 14 countries that will be known as Primsa Energy International.

Creditors are expected to receive about $12 billion of the $63 billion they are owed. Shareholders will receive nothing. Enron, based in Houston, filed for bankruptcy protection in December 2001 amid revelations that debts had been hidden and profits had been inflated through deceptive accounting. The reorganization was approved by Judge Arthur J. Gonzalez of United States Bankruptcy Court in Manhattan.

One large creditor in the bankruptcy is the quasi-public authority that handles trash disposal for much of Connecticut. Residents of 70 towns and cities in Connecticut lost about $220 million in an energy deal that the trash authority negotiated with Enron in early 2001. A lawyer in the bankruptcy said that Connecticut’s claim could be worth $81 million, equivalent to 37 cents on the dollar, although some portion of that recovery is likely to be paid in stock of uncertain value.

”We have a claim, but under the bankruptcy plan, Enron can contest specific claims,” said Connecticut’s attorney general, Richard Blumenthal. He said the $81 million estimate ”could eventually be the result.”

But first, he said, ”We have to reach an agreement with Enron and its representatives.”

Besides what he may recover from Enron, Mr. Blumenthal has begun litigation against many of the financial advisers, lawyers and executives who either participated in the trash authority deal or helped Enron in other ways. Those lawsuits are pending.

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Connecticut succeeded today in blocking the City of Bridgeport from bankruptcy court when a Federal judge ruled that the city, despite its financial troubles, was able to pay its bills.

Declaring that Bridgeport was not insolvent, the judge, Alan H. W. Shiff of Federal Bankruptcy Court in Bridgeport, said the state’s largest city “has no choice but to continue with the budget and collective-bargaining processes.”

Gov. Lowell P. Weicker Jr. said the ruling protected the state’s commitment to help all of its distressed cities with its “full faith and credit,” which would have been jeopardized had Bridgeport won and become the nation’s first major city to enter bankruptcy court.

He spoke, however, at a news conference at the Capitol dominated by the threat of state offices shutting down next week because Connecticut does not have a state budget.

Judge Shiff’s ruling, in any case, was strongly sympathetic to Bridgeport’s financial problems and left open the door to bankruptcy court if the city’s finances worsened. The city’s lead lawyer, Richard D. Zeisler, said the opinion carried a strong message. Need to ‘Find a Solution’

“The unions, the city and the state better get to the table in good faith and try to find a solution,” said Mr. Zeisler, a partner in the Bridgeport law firm of Zeisler & Zeisler.

Bridgeport filed for bankruptcy protection on June 6, the day before a state financial review board was to set a budget requiring an 18 percent property-tax increase.

The city’s Mayor, Mary C. Moran, said she hoped to avoid the tax increase by using bankruptcy court to reorganize the city bureaucracy and break “onerous and economically burdensome” union contracts. She pledged to continue paying the city’s bills and bond payments.

The state board, which had ordered Bridgeport not to seek bankruptcy protection, responded by instructing State Attorney General Richard Blumenthal to block the bankruptcy bid.

The case attracted national attention as Bridgeport portrayed itself as a city abandoned by industry, left to bear alone the poverty and social problems of Fairfield County that its suburbs turned their backs on.

Judge Shiff, in ruling that Bridgeport was not eligible for bankruptcy court because it could still pay its bills, nevertheless was sympathetic to its problems and ruled against the state on important points.

In an opinion issued in July, the city won a major point when Judge Shiff ruled that Bridgeport did have authority to file a bankruptcy petition and that the state board, the Bridgeport Financial Review Board, lacked authority to bar it from doing so.

In his opinion today, Judge Shiff recalled that earlier ruling in saying that Bridgeport could return to court when it could show it would run out of money soon.

The judge also wrote that the city had “demonstrated that its ability to provide even minimal services to its residents is strained, and that its financial condition might get worse if drastic steps are not taken soon.”

But, he wrote, “the flaw in Bridgeport’s argument is that financial difficulties short of insolvency are not a basis” for relief under Chapter 9 of the bankruptcy code. Ability to Pay Debts

“I agree with Bridgeport that a city should not have to wait until it runs out of money in order to qualify for bankruptcy protection,” Judge Shiff wrote. “It must, however, demonstrate, as a condition precedent to filing, that in the near future it will run out of money and be unable to pay its debts as they become due.”

The state’s victory rested on its argument that Bridgeport had a $27.9 million cash reserve as it filed for bankruptcy protection, enough to operate at a $16 million deficit through the current fiscal year and still begin the next one with cash to pay its bills.

The city argued unsuccessfully that the reserve fund had to be repaid at the end of the fiscal year, and so it would be unable to pay its bills sometime in the following year.

Judge Shiff said Bridgeport was projecting too far ahead to be reliable, given the factors that could affect its financial condition, from the health of the economy to the level of state and Federal aid to labor-union concessions and a more efficient bureaucracy. ‘Unwarranted Intrusion’

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Many letters are being received here by members of Congress and prominent officers of the Government urging on the part of the House a reconsideration of its action in repealing entirely the Bankrupt law.

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Watching a rich man stiff his creditors while walking away with millions can grate on people. Yet a gaping loophole in the bankruptcy laws routinely allows that to happen.

That loophole enabled such people as Martin A. Siegel, the former investment banker who was convicted of insider trading; Bowie Kuhn, the former baseball commissioner, and Burt Reynolds, the actor, to emerge from bankruptcy with ample assets — sometimes valued in the millions — even as their creditors suffered huge losses.

Last week, amid much rhetoric about how outrageous it was that people who could afford to pay some of their bills were able to walk away from all of them, the House of Representatives passed a bankruptcy reform bill. If enacted, the bill will make it much easier for creditors — particularly credit card companies — to collect money from bankrupts.

But while it will become harder to evade a few thousand dollars of credit card debt, it will not be any more difficult for millionaires to shelter their assets while declaring bankruptcy.

The wealthy can often stay millionaires because the laws in a handful of states — most notably Florida and Texas — set no limit on the value of a home that a bankrupt person can keep even as his debts are discharged by the court. So some people, as bankruptcy nears, sell their homes in states like New York and buy million-dollar homes, for cash, in Florida.

A fair bill would put a limit on the amount of home equity that could be protected from creditors. The Senate tried to do that last year, with a limit of $100,000, but that bill was killed. The House wants no limits on what state legislatures let the rich keep.

The House bill will make life harder for poor and middle-class people who file for bankruptcy. People whose income has been above the regional median income will be forced into plans requiring some repayment of debts, even if future income is likely to be less because the person has lost his previous job. The calculations regarding how much a person can afford to pay may not take into consideration his actual living costs. It is reasonable to try to force bankrupts to pay what they can afford, but this bill, with its lack of discretion for bankruptcy trustees and judges, is likely to bring unreasonable hardship for some.

This bill was pushed by the credit card companies, who worry that people abuse them by taking on credit card debts and then going broke. The companies already can challenge any bankruptcy on fraud grounds, but doing so costs money and may not seem to be worth it when only a few thousand dollars or less are at stake in any one filing. They hope that strict rules will enable them to force many more people to repay at least some money.

The 1990’s have seen booms in bankruptcy filings — and in credit card issuance. Last year, 1.45 million people filed for bankruptcy, up 3 percent from 1997, while credit card companies sent out 3.4 billion card solicitations, a 15 percent increase. It would appear that rising bankruptcies have not yet caused lenders to grow more cautious.

One interesting feature of the House bill is that it requires the Government to pay for random audits of bankruptcy filings to see if people are cheating. Yet Congress will not spend money to let the Internal Revenue Service conduct random audits of tax returns. Protecting Visa’s revenues would seem to be a higher priority than protecting those of the Government.

Two centuries ago, it was common for states to allow creditors to throw people into prison if they had not paid their debts. But even then, the creditor had to pay the state the cost of imprisoning the man. Now, if this bill passes, the taxpayers will foot the bill to force people to pay their debts.

Unless, of course, they are once-rich people who can afford to buy expensive houses in Texas or Florida. Those people are to be protected even as the Government cracks down on middle-class people who have fallen on hard times.

Correction: May 19, 1999, Wednesday An Editorial Observer on May 9 erred in stating that Martin A. Siegel, the former investment banker who was convicted of insider trading, used a loophole in bankruptcy laws to avoid paying creditors. Mr. Siegel has paid his creditors and never filed for bankruptcy.

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