In 1938, the Chandler Act added significant applications for businesses facing financial ruin. In the same year, Congress enacted Section 60e of the Bankruptcy Act, to give customers of businesses, rather than creditors, the first priority in claims over the insolvent business.
When in 1969 through 1970, brokerage houses began abusing the bankruptcy laws and shattering investor confidence, Congress had to act again. They put into law the Securities Investor Protection Act of 1970 to increase the accountability of brokers and dealers in the security trade and restore investor confidence.
At last, in 1978, the Bankruptcy Reform Act was passed, going into effect October 1st of 1979. This is the act that still stands today, governing current bankruptcy cases. And while it was not yet complete in its first year, the Bankruptcy Reform Act made bankruptcies and reorganization of financial affairs simpler for individuals and businesses alike.
When the Bankruptcy Reform Act of 1978 was passed, it replaced the 1898 Act and the Chapters of that act and the Chandler Act amendment. Because this reform act was a significant change, it is understandable that controversy and conflict quickly arose.
As a result, the 1980s was a time of many new bankruptcy laws created as clarifications and amendments to the 1978 Act. For example, in 1980, the Bankruptcy Tax Act was passed, describing previously neglected issues of taxes in bankruptcy cases. Tax loss carry-forwards and rules for taxes on remaining assets were explained.
In 1982, the Supreme Court ruled that bankruptcy judges had been given power beyond that supported by the constitution. And in 1983, the Supreme Court ruled that companies should not be able to so easily terminate labor contract. Therefore, the Bankruptcy Amendment Act of 1984 narrowed and specified the powers of the bankruptcy judicial system. It also reduced companies’ rights to end labor contracts.
Still, there were those who were not entitled to protection under bankruptcy. In 1986, family farmers and family fishermen were directly included in this protection with the advent of Chapter 12. This bankruptcy option allowed those that ran family crop, animal, or fish farms to keep their farm in spite of bankruptcy.