A Doctor & His Debts

In the midnight solitude of his office, John Doctor, smalltown physician, spread his books out on the desk, began casting up his accounts. He owed his landlord $700 in back rent. His bill at the grocers was $200. Other stores about town had claims of $600 on him for household furnishings, clothes, books, jewelry. Against him was pending a $1,000 deficiency judgment because his home, on which he had a $5,000 mortgage, brought only $4,000 at forced sale. A friend held his unsecured note for $500. That made his total indebtedness $3,000 and his creditors were clamoring for full and immediate payments.

Aside from a batch of bills for professional services, on which he could not collect a penny, John Doctor's assets were meagre--$400 cash in the bank, one $100 Liberty bond, a second-hand automobile worth $200, a $300 lot. Total: $1,000. If ever a man was insolvent, it was John Doctor.

Next morning he marched down to the Federal Court and there filed with the judge a schedule of his assets and liabilities and a petition asking for a conference with his creditors. The judge granted the petition. At the conference Debtor Doctor told his creditors he would: 1) settle for 33-c- on the $1; 2) pay in full if given an extension; 3) be thrown into bankruptcy if neither proposal was accepted. The holder of the deficiency judgment, demanding his $1,000, favored bankruptcy. The grocer was ready for a time extension. But the landlord, the friend with the I. 0. U. and the town tradesmen, all needing cash, consented to take one-third of their debts and call it square. As majority creditors with claims of $1,800 against John Doctor they signed an agreement which the judge promptly confirmed. Turning over his cash, car, lot and bond. John Doctor was spared the stigma and expense of a bankruptcy suit, walked out of the courthouse a debt-free man.

What John Doctor did, "any person excepting a corporation and excepting a farmer'' could do last week as the result of a bill signed by President Hoover day before he left office. An important revision of the Federal Bankruptcy Law. the measure represented a final thrust by a dying Congress at the dragon of private debt. By providing machinery whereby an individual could compose or compromise his debts under a judicial eye, it required only a bare majority of creditors to effect an agreement.

For debt-ridden farmers a somewhat different procedure was provided. Fifteen of them, all insolvent and living in the same county, could petition a Federal judge who in turn would appoint a conciliation commissioner. This official would receive the debtors' schedules, call in creditors and attempt to work out a compromise which the court would later confirm. The hitch with a farmer's debts is that he generally owes only a single creditor, the holder of the mortgage on his farm. If he refuses to dicker, the farmer is balked at the outset in producing the kind of majority agreement the court requires before discharging the debtor. Conciliation commissioners were provided to try to make mortgage holders see reason on debt reduction.

Of large national import was a last-minute amendment which permitted railroads to reorganize without going through receivership. Under this emergency provision a tottering carrier can go into Federal court, admit its insolvency, petition for the privilege of reorganization. The Interstate Commerce Commission assumes direct charge of the reorganization, thus taking it out of the hands of bankers and lawyers, saving the roads large fees incident to receivership and the long pull back to solvency. Two-thirds of a carrier's creditors must assent to reorganization before its confirmation by the court. Last week many a weak road was expected to take prompt advantage of this provision to shave down its capital structure and escape further R. F. C. borrowings.

Excluded by the Senate from the bill was a House proposal to make corporations beneficiaries of bankruptcy reform.

This file is automatically generated by a robot program, so reader's discretion is required.