Sweeping consumer bankruptcy reform has been promised and much ballyhooed in the media for several years now. As the current bills languish in Congress, bankruptcy experts around the nation are kept guessing about the ultimate fate of major reform legislation.

Many members of the conference committee initially charged with reconciling the differences between the two reform bills -- which both passed the House and Senate in Spring 2001 -- have shifted gears. A formal meeting of the conference scheduled for the afternoon of September 11 was canceled. The conference has yet to be rescheduled owing to revised foreign and domestic priorities.

With little pressure to reconvene, some committee members are lately criticizing both versions. They argue the bills are out of step with the perceived need for economic stimulus legislation and business bankruptcy reform, and predict passage is at the very least uncertain for the balance of 2002. Yet it is well known in Washington how swiftly political winds can shift at the last minute without warning.

The bottom line: final action on the long-predicted, much debated, consumer bankruptcy package remains on hold for now. For better or worse, until comprehensive reform comes along, chapter 7 and 13 cases will continue to proceed as they always have in each of the nation's hundred-plus federal bankruptcy courts.

There are dozens of large and small areas of disagreement between the two bills facing the conference committee. However, one difference looms large and irks many. It highlights the special treatment afforded wealthy homeowners in states permitting consumer debtors to save a principal residence of any value despite bankruptcy.

The so-called unlimited homestead exemption states include Texas and Florida. There a debtor can erase consumer and small business debt in bankruptcy while shielding home equity worth millions from creditors or a bankruptcy trustee. Compared to those states, most other states restrict considerably the available homestead exemption. In contrast, no exemptions of any kind are available to business debtors.

Using the state-enacted homestead exemption, New York bankruptcy debtors can shield only $10,000 in available home equity. New Jersey debtors, like those in other states opting for the federal homestead exemption, are limited to protecting home equity worth up to $17,425. Reformers would raise the federal homestead exemption in most states while axing the unlimited exemption in others (the sum of $125,000 is included in the Senate-passed version as a fixed federal cap). Those from unlimited exemption states, including President Bush, disagree. They oppose dumping the unlimited exemption. Yet reformers point out the unlimited exemption benefits a small minority of America's most affluent debtors at the expense of everyone else.

Both bills, heavily promoted by the consumer lending industry, are seen by experts as making bankruptcy relief less comprehensive and accessible to individual debtors. However, such limitation has its champions, who suggest some facing bankruptcy have the ability to repay debts but don't even try. These able debtors are seen as unfairly evading their responsibilities to creditors and taking the easy way out. If substantial abuse, bad-faith and serial filings, and debtor ignorance of non-bankruptcy options require systematic change, reform legislation is up to the task. Additionally, creditors will be better able to participate and challenge fraudulent and abusive cases.

Should a reform bill actually become law, expect an effective date not less than six months from signature by the president. "Gap cases" filed between now and then will likely be governed by existing law.

Pro or con, the complexity of reform legislation is expected to increase the cost of consumer bankruptcy, both to debtors and creditors. Moreover, any new bill -- with compulsory credit counseling requirements, provisions mandating more chapter 13 payment plans, and stricter scrutiny of debtors' permitted expenses -- will require transition and retraining for bankruptcy professionals and trustees. Indeed, some attorneys suggest they will no longer represent bankruptcy debtors under reform. In any event, though the legislation includes many important innovations, certain critics protest the current bills do not go far enough. They assert complete reform must target business bankruptcies as well.

Since the largely pro-creditor legislation is still being shaped, concerned consumers have not been timid about voicing their opinions on the wisdom of enacting the touted reforms now. In fact, opponents have seized on the collapses of Enron and Global Crossings, as well as the ongoing war on terrorism, as new reasons to scrap consumer reform at this time. Some in Congress are lately giving the bills a second look as they weigh conflicting views received from constituents, trade groups and others.

Due to the lack of clear consensus, little purpose is served by trying to forecast the precise scope and features of the joint bill emerging from conference. Moreover, owing to the sharp variations in the House and Senate versions, reaching reconciliation will require significant compromises perhaps unpalatable to some in Congress and the White House.

Ultimately, Congress must vote yet again before sending a joint bill to the president. Whatever happens next, the scope and timing of bankruptcy reform remains controversial and difficult to plan for. If passed, reform will likely bedevil judges, court staff, attorneys, and debtors alike, at least until new forms, rules and procedures are adopted and become routine. As with all new legislation, matters of statutory interpretation will inevitably require review and consideration by the federal courts.

Creditors, debtors and other parties interested in reform will want to pay close attention to future developments in this area, as the next chapter in the battle for overhaul of the federal bankruptcy code has yet to be written.

Richard E. Weltman, a member of the firm of Weltman & Moskowitz, LLP, practices law in New York and New Jersey. He handles cases involving bankruptcy, business organization and litigation, intellectual property protection, real estate, and transactional matters. Weltman can be reached at 212.684.7800 or 201.794.7500 or by e-mail.