Arbitration Clauses in Bankruptcy
By Brett Weiss, Maryland Bankruptcy Attorney on Oct 7, 2007 in Bankruptcy Practice and Procedure, Chapter 13 Bankruptcy, Chapter 7 Bankruptcy, Maryland
Attention has been given recently to the use of arbitration clauses to avoid scrutiny by Bankruptcy Courts and move disputes to the more creditor-friendly arbitrators hand-picked by the creditors. Several recent cases have approved such clauses (although it is not clear whether the clauses were rejected in the Schedules or the Plan, or if such rejection was argued). Change may be on the horizon, however, thanks to the alliance between U.S. Senators Richard Durbin (D-Ill.) and Charles Schumer (D-NY).
As BLN member Jay Fleischman posted recently, arbitration stacks the deck against consumers. As a result, creditors have increasingly tried to remove cases alleging wrongdoing by them from Bankruptcy Courts to arbitration panels. But it appears that these one-sided anti-consumer provisions are finally being scrutinized.
Several recent bills introduced in Congress place some restrictions on the availability of arbitration clauses. The Arbitration Fairness Act of 2007 (S. 1782 and H.R. 3010) and The Helping Families Save Their Homes in Bankruptcy Act of 2007 (S. 2136) both contain language prohibiting the enforcement of arbitration clauses in bankruptcy. Passage of these bills will ensure that consumers can have their day in Court, before a real, neutral judge, instead of in absentia, before an arbitrator chosen by the creditor who is arguing before him or her. Urge your Senator and Representative to support these bills.
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