Congress OKs Reform of Bankruptcy Law : Legislation: Bill sent to President marks the first major revision in 16 years. It would streamline court proceedings.

WASHINGTON — Congress on Friday passed and sent to President Clinton the first major reform of federal bankruptcy laws in 16 years.

The Senate completed action on the bill early Friday after the House of Representatives passed it Wednesday. The bill would streamline Bankruptcy Court procedures and balance the rights of debtors and creditors, according to its chief sponsor, Sen. Howell Heflin, an Alabama Democrat.

“The bankruptcy reform act is a good and thoughtful piece of legislation that is designed to ensure equity and fairness in our nation’s bankruptcy laws,” Heflin said in a statement.

He said it was needed because a 152% increase in filings since 1986 is clogging the courts.

The bill would encourage judges to have individuals file for bankruptcy under Chapter 13, which provides for a court-supervised, timely repayment plan and allows debtors to keep their houses and cars, rather than Chapter 7, which forces individuals to liquidate their property.

It would also allow creditors to immediately appeal court orders extending the deadline for debtor companies to file reorganization plans under Chapter 11. Creditors have complained that many companies abuse the extensions.

The bill would require airlines filing for bankruptcy to honor lease and sales contracts while reorganizing.

It establishes a national bankruptcy commission to make recommendations on whether further reforms are needed.

Sen. Howard Metzenbaum (D-Ohio) said the bill also sets standards to determine whether fees charged by lawyers, accountants and others in bankruptcy cases are appropriate and strengthens the government’s ability to prosecute bankruptcy fraud.

“This bill has considerably reduced credit risk to lenders and therefore will benefit the overall economy by making credit more widely available at a lower cost,” said Philip Corwin, director of operations and retail banking for the American Bankers Assn.

“It is not a perfect bill from a consumer perspective, but there are enough things in there for consumers and lenders (that) it won’t create a serious change,” said Gary Klein, a staff attorney at the Boston office of the National Consumer Law Center. “It’s not going to change the balance of power significantly.”