Category: Chapter 13

  • “Don’t give me so much that you’ve given me nothing” – Remembering M. Caldwell Butler’s Contribution to Bankruptcy Law

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    Former Virginia Congressman M. Caldwell Butler died last week. He is widely known for his role in the Nixon impeachment proceedings, his efforts to limit extensions of the Voting Rights Act, and his support for ensuring legal representation for low-income individuals. But Congressman Butler is also a major figure in the history of bankruptcy law. He was a principal co-sponsor of the Bankruptcy Reform Act of 1978 that serves as the foundation of the modern bankruptcy system. Professor and lawyer Kenneth N. Klee worked closely with Congressman Butler on the House Judiciary Committee in the 1970s. I asked Professor Klee to share a few words of remembrance with us, which I repeat in their entirety here:

    I first met M. Caldwell Butler in 1975 when he became the Ranking Minority Member of the Subcommittee on Civil and Constitutional Rights of the House Judiciary Committee. Caldwell was most interested in the Voting Rights Act legislation and finding a way for the South to get out from under the Act. In his view, Washington was improperly interfering with the sovereignty of the southern states based on predicate acts that had long since ceased to serve as a basis for federal control. He asked me to draft a series of amendments that would permit the South to extricate itself from the Voting Rights Act. The requirements to regain sovereignty were quite demanding, to the point that the amendments became known as the "impossible bailout."  Nevertheless, the amendments did not come close to passing. It was evident that there were no circumstances under which the majority in Congress wanted to let the southern states out from the Voting Rights Act.

    Caldwell assumed his responsibilities over bankruptcy legislation with diligence and good cheer. His fabulous sense of humor carried us through many long markup sessions during which the members of the Subcommittee read the bankruptcy legislation line by line. He had a sharp legal mind and deep curiosity. He also was very practical and to the point. He was fond of telling me "don't give me so much that you've given me nothing."

    It was a privilege and honor to work with him. The bankruptcy community should join in paying him tribute.

                            — Ken Klee

    Congressman Butler made another round of contributions to bankruptcy reform in the 1990s. The fact that they are not all reflected in today's Bankruptcy Code makes this story more pressing, not less. Well over a decade after he had returned to the practice of law in Virginia, Congressman Butler was appointed to the National Bankruptcy Review Commission, for which I was a staff attorney. Expressing satisfaction with the 1978 Code, the House Judiciary Committee directed this Bankruptcy Commission to focus, for two years, on "reviewing, improving, and updating the Code in ways which do not disturb the fundamental tenets of current law."  Not one to leave the heavy lifting to others, even in a pro bono post, Congressman Butler stepped up to the challenge of forging a compromise, among those with diverging politics and views, to improve the consumer bankruptcy system.

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  • Do Debtors or Creditors Get Undisbursed Chapter 13 Plan Payments Upon Conversion? — A New Circuit Split

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    Chapter 13 trustees handle millions of dollars in plan payments every year. At some point in likely a sizable portion of cases, the trustee accumulates these payments instead of distributing the funds to creditors. What happens if a debtor's case is converted while the trustee has this accumulated money in its account? In 2012, the 3rd Circuit, in a majority opinion, held that the trustee must return the funds to the debtor (see decision here). Yesterday the 5th Circuit held that the trustee must distribute the funds to creditors (see decision here), thus creating a split on an issue that, as the Fifth Circuit stated, "has divided courts for thirty years," though only had previously produced one appellate court decision squarely on point.

    With only one-third of Chapter 13 cases making it to discharge, the issue potentially affects a good number of debtors and involves a significant amount of money in total. Each individual debtor may (or may not) be entitled to a large sum of money in his or her estimation. In the 3rd Circuit case, the Chapter 13 trustee had accumulated over $9,000 in undistributed payments. In the 5th Circuit case, the trustee was holding about $5,500 in undistributed payments. And to the extent there isn't at least a local rule to rely on, Chapter 13 trustee probably would like clearer guidance on the issue.  

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  • Larry Summers’ Attempt to Rewrite Cramdown History

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    Larry Summers has a very interesting book review of Atif Mian and Amir Sufi's book House of Debt in the Financial Times. What's particularly interesting about the book review is not so much what Summers has to say about Mian and Sufi, as his attempt to rewrite history. Summers is trying to cast himself as having been on the right (but losing) side of the cramdown debate. His prooftext is a February 2008 op-ed he wrote in the Financial Times in his role as a private citizen. 

    The FT op-ed was, admittedly, supportive of cramdown. But that's not the whole story. If anything, the FT op-ed was the outlier, because whatever Larry Summers was writing in the FT, it wasn't what he was doing in DC once he was in the Obama Administration.

    Let's make no bones about it.  Larry Summers was not a proponent of cramdown.  At best, he was not an active opponent, but cramdown was not something Summers pushed for.  Maybe we can say that "Larry Summers was for cramdown before he was against it." 

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  • (Yet Another) Chapter 13 Map

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    Chapter 13 Percentages by DistrictThis post will have to be short on commentary — "yay!," goes the reader — as I am in the middle of getting ready for a conference. One of the things that preparation entailed is putting together the map to the right. To see the map well, you will need to click on it and a bring up a full-size image in a pop-up box.

    The map shows the percentage of all 2013 bankruptcy cases that were chapter 13s in the 90 federal judicial districts in the fifty states and the District of Columbia. Over the years, I have put up numerous maps and tables about chapter 13 rates. This map shows the same patterns we have seen in the past in terms of both the range of variation and geographic concentrations of high chapter 13 districts. This version is different because it (a) uses 2013 data (through November) and (b) has groupings based on a cluster analysis. (A cluster analysis finds "natural" groupings of data based on the data's statistical properties.)

    If anyone else has a use for the map, feel welcome. All I ask is attribution back to this post.

  • In Defense of Bankruptcy Courts (or, Is Bankruptcy Really That Exceptional?)

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    Although not always acknowledged expressly, exceptionalism is pervasive in bankruptcy scholarship. Some work makes no attempt to contexualize bankruptcy within the federal courts, apparently assuming its unique qualities (for example, the disinterest in most bankruptcy venue scholarship about venue laws applicable to other multi-party federal litigation). But other projects are more deliberate in their exceptionalist pursuits.

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  • Consumer Bankruptcy Fee Study

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    I have just finished reading Lois Lupica’s paper on her impressive
    consumer bankruptcy fee study

    This is a model of what empirical, law-and-society research should be –
    it combines data from electronic court records with focus groups and key player
    interviews to give a textured understanding of the role lawyer’s fees play in
    this particular legal system. 

    The finding that jumped out for me was a little-discussed
    but critical aspect of local bankruptcy culture: not how much, but when the trustee pays Chapter 13
    lawyers’ fees (pp. 105-106). I practiced in a district where (before BAPCPA)
    the trustee paid out the fees as the first priority claim i.e. ahead of even
    secured creditors, but adequate protection payments (current mortgage and auto
    loan payments, e.g.) were paid directly to the creditors.  There are apparently districts where
    every plan must include a $200 monthly payment for the first 15 months to pay
    the attorney, others where the pre-confirmation adequate protection payments are diverted to the attorney’s fees and added to the arrears paid over the
    remaining plan life (i.e. borrowed from secured creditors), and many other fascinating variations.

    Considering
    the practical consequences of these disparate rules for attorneys as they decide what cases to take, and
    how to structure plan payments, it is easy to see why Chapter choice, and
    Chapter 13 success rates, would vary so dramatically from one district to
    another.  For example, the front-loading of payments for the legal fee, followed by a payment step-down, would seem to increase the risk of plan failure. The sooner the lawyer is paid, the less risk she takes in filing the
    case.  That could increase access, but could also encourage filing more
    risky Chapter 13 plans. If we are concerned about
    the high failure rate of Chapter 13s on the one hand, and the high costs and
    difficulty of obtaining counsel on the other, we might do well to study these
    variations further to see what outcomes they produce for debtors, creditors and
    lawyers.

    It also struck me that Professor Lupica's extensive data tables with fees actually paid, by chapter, state, district and case outcome, and no-look fees for Chapter 13, can provide important independent variables for other studies modeling bankruptcy outcomes.

  • Do Your Research, Ezra Klein!

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    Ezra Klein has joined the melee over the Obama Administration's housing policy failure with an apologia for the Administration.  Klein argues: 

    The right question on housing, then, is not whether the administration’s policies proved insufficient. They did. It’s what would have been better. And that’s not a question that either Appelbaum or Goldfarb conclusively answer. It’s not even a question that the most credible critics of the Obama administration’s housing policies conclusively answer.

    In making this claim, Klein ignores a long list of the Administration's critics who pushed hard and vocally for more pro-active policy alternatives.  (I'm going to ignore the "conclusive" part of Klein's restatement of the issue. If he wants critics to prove "conclusively" that an alternative would have been better, then nothing will suffice.  We're not dealing with a pick-your-own-adventure book where you can go back and try out different decisions.)  

    As far as what would have been better:  gosh, there's a list of potential interventions that very credible people were proposing.  Here are a few:

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  • Representation and Realities of (Bankruptcy) Court Work

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    The Yale Journal of Law and the Humanities held a symposium on "Courts: Representing and Contesting Ideologies of the Public Sphere" in 2011, and recently published papers from this event. Some of the contributions to this symposium, especially the piece by Judith Resnik and Dennis Curtis, and the commentary by William Simon, emphasize the potential disconnect between representations of law and justice that might adorn courthouses and the nature of the actual work that goes on inside. Although these scholars did not discuss the bankruptcy court in depth (Simon does mention that scholars have long seen bankruptcy as deviating from traditional models of adjudication), each side of the disconnect may be quite interesting for our purposes.

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  • The New Cramdown

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    For the past couple of years, I've been thinking that cramdown is dead as a policy solution. But I was thinking about cramdown as requiring legislation. It doesn't. We could start doing it tomorrow. Under current bankruptcy law, a Chapter 13 plan may be confirmed only if secured creditors receive their collateral, receive the value of their collateral, or consent to the plan. The legislative proposals for cramdown all sought to enable involuntary modification of mortgages; cramdown was to be the stick that would encourage voluntary modifications. 

    But we could have voluntary cramdown under existing law and this could be done on a large scale staring immediately. Specifically, FHFA could require the GSEs to adopt a policy of consenting to Chapter 13 plans that have cramdown. (FHA/VA/Ginnie Mae could adopt a parallel policy for government insured loans.) Such a policy would address the two major objections that have been raised to principal reduction by the GSEs:  the much dreaded (and overstated, imho) moral hazard problem and the second lien free-rider problem.

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  • Chapter 13 Disparities: This Time with a Map

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    State Disparity in Chapter 13 UsageA few weeks ago, I put up a post describing the states with the highest and lowest per capita bankruptcy rates by chapter of the Bankruptcy Code. A closely related data point is which states have the highest percentage of bankruptcies that are chapter 13s. States with a high per capita rate of chapter 13s not surprisingly are the same states that tend to have the highest percentage of banrkuptcies that are chapter 13s.

    Anyway, my point is that I made a map. Actually, I had to make the map of chapter 13 filing percentages for another purpose, and I thought maybe some other persons might have a use for it. So here it is. You are welcome to use it. If you want to download it, be sure to click on it so that a larger version opens up in a pop-up window. If you do use it, all I ask is that you attribute it back to Credit Slips and me.