Description
In statistics, explained variation measures the proportion to which a mathematical model accounts for the variation (dispersion) of a given data set. Often, variation is quantified as variance; then, the more specific term explained variance can be used.
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REPORT ON AN EMPIRICAL STUDY OF DISTRICT VARIATIONS, AND THE ROLES OF JUDGES, TRUSTEES AND DEBTORS’ ATTORNEYS IN CHAPTER 13 BANKRUPTCY CASES
by Scott F. Norberg and Nadja Schreiber Compo*
I. INTRODUCTION It is a truism that, while bankruptcies throughout the United States are governed by the same Bankruptcy Code and Rules of Bankruptcy Procedure, there are wide variations across federal judicial districts and divisions in how the law works in practice.1 In a Chapter 13 system
* Professor Norberg is a Professor of Law, Florida International University College of Law. Professor Compo is an Assistant Professor of Psychology, Florida International University. We are grateful to the National Conference of Bankruptcy Judges Endowment for Education and the American Bankruptcy Institute for their grants in support of the Chapter 13 Project, and to the Florida International University College of Law and Department of Psychology for providing research assistance. In addition, we thank the Chapter 13 trustees, bankruptcy court clerks, chief bankruptcy judges and regional United States Trustees in the seven districts covered by the Project for their diligent and professional assistance in the gathering of the data for the Project. 1 See Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence
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that has averaged over 300,000 filings a year during the past ten years,2 and that has distributed as much as $5.5 billion dollars a year to creditors,3 the potential social and economic impact of these differences is great. The empirical findings that we report here are based on data from the Chapter 13 Project, a multi-district study of the Chapter 13 system and the extent to which it has fulfilled two of its principal purposes – debtor fresh start and creditor repayment. The initial report on the Project’s findings focused on the debtors and their creditors in Chapter 13 cases. We described the debtors in our sample, and statistically measured the relationships between certain debtor characteristics and Chapter 13 plan features, on the one hand, and debtor discharge and the amounts and types of debt repaid to creditors, on the other hand.4 In this article, we report on differences among
Westbrook., The Persistence of Local Legal Culture: Twenty Years of Evidence from the Federal Bankruptcy Courts, 17 HARV. J.L. & PUB. POL’Y 801, 804 (1994) [hereinafter, Sullivan et al., The Persistence of Local Legal Culture]; Jean Braucher, Lawyers and Consumer Bankruptcy: One Code, Many Cultures, 67 AM. BANKR. L.J. 501, 503-504 (1993) [hereinafter, Braucher, Lawyers and Consumer Bankruptcy]. See also Jean Braucher, An Empirical Study of Debtor Education in Bankruptcy: Impact on Chapter 13 Completion Not Shown, 9 AM. BANKR. INST. L. REV. 557, 559 (2001) [hereinafter, Braucher, An Empirical Study of Debtor Education]; William C. Whitford, Has the Time Come to Repeal Chapter 13?, 65 IND. L.J. 85 (1989); Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, Laws, Models, and Real People: Choice of Chapter in Personal Bankruptcy, 13 LAW & SOC. INQUIRY 661, 693-700 (1988). 2 Administrative Office of the U.S. Courts, 1983-2003 Bankruptcy Filings, 12-month period ending June, by Chapter and District, http://www.uscourts.gov/bnkrpctystats/statistics.htm#june. 3 U.S. Trustee Program, Chapter 13 Handbooks & Reference Materials, Chapter 13 Statistics, FY 1994-2006, Chapter 13 Trustee Audited Annual Reports, at http://www.usdoj.gov/ust/eo/private_trustee/library/chapter13/index.h tm. 4 See Scott F. Norberg & Andrew J. Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, 39 CREIGHTON L. REV. 473 (2006) [hereinafter Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13].
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districts in the debtors who used Chapter 13 and in local case administration practices. We also begin to explore the roles of the key legal actors in Chapter 13 cases – the bankruptcy judges, Chapter 13 standing trustees and debtors’ attorneys. While it is well-established that Chapter 13 discharge rates vary widely across judicial 5 districts, and that bankruptcy and Chapter 13 filing rates differ substantially as well,6 our data reveal additional, sometimes unexpected, district variations in the debtors who used Chapter 13. For example, debtor incomes, debtincome ratios, refiling rates, and the proportion of individual female petitioners differed significantly across some of the seven sample districts. These differences add texture and detail to the existing picture of how the federal bankruptcy laws work differently in different locales, and suggest that the roots of the “bankruptcy epidemic” are more complex than generally understood and that bankruptcy reforms will impact filings and outcomes very differently in different places. We evaluate the relation between district dismissal and discharge rates, on the one hand, and various case administration practices, on the other hand, with the purpose of identifying best practices that may improve case outcomes for Chapter 13 debtors and their creditors. Bankruptcy courts across the country employ varying practices with respect to the use of wage orders, payment of post-petition mortgage payments through the trustee, payment of debtors’ attorneys’ fees, and plan payment moratoriums.
at 505-508 & n. 70 (reporting on district pre-confirmation dismissal, post-confirmation and discharge rates in the seven districts covered by the Chapter 13 Project, and citing to other studies reporting on Chapter 13 discharge rates in various districts). 6 E.g., Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 817-828 & Tables 1-3.
5 Id.
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They have also maintained differing expectations regarding plan length and minimum distribution to unsecured creditors. The data reveal significant differences in district discharge rates depending upon whether the district routinely issued wage orders for debtors’ plan payments. However, there were no significant differences in case outcomes based on whether debtors’ ongoing, post-petition mortgage payments were paid through the trustee. The effects of bankruptcy courts’ regulations on the payment of debtors’ attorney fees and of plan payment moratoriums were not clear from the data. Shorter plans resulted in a discharge of the debtor at a greater rate than longer plans, while counter intuitively, there were no significant differences in discharge rates depending on whether a district maintained a benchmark distribution to unsecured creditors. Regarding the roles of the key legal actors in Chapter 13cases, the data reveal significant differences in case outcomes based on the identity of the bankruptcy judge in a few single-judge divisions in three of the sample districts. These findings appear to confirm the influence that bankruptcy judges have over their case outcomes when they can cleanly exert that influence. The findings also imply that judges in multi-judge districts collectively may influence case results decisively, while either different practices or attitudes, or a tendency to gravitate toward common practices and attitudes, among the judges tends to moderate their individual influence. Notably, the data reveal no significant differences in judges’ discharge rates based on the rate at which they dismissed cases before confirmation of a plan. Predictably, debtors who were not represented by an attorney were much less likely to achieve a discharge. Debtors represented by a high-volume practitioner also were significantly less likely (but more likely than pro se debtors) to complete a plan and attain
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a discharge than debtors represented by a lowvolume practitioner. Part II briefly describes the design and methodology of the Chapter 13 Project. Part III reports on characteristics of the debtors filing for Chapter 13 relief in the seven districts covered by the Project. Part IV reports on the dismissal and discharge rates across the sample districts. Part V then examines differing district case administration practices, Part VI considers the roles of individual judges and Chapter 13 trustees in Chapter 13 case outcomes, and Part VII addresses the relationships between the debtor’s representation and discharge and case refiling rates. Finally, Part VIII concludes with a brief summary of our findings and conclusions and several recommendations regarding best practices. II.DESIGN PROJECT AND METHODOLOGY OF THE CHAPTER 13
The Chapter 13 Project is an empirical study of 795 Chapter 13 cases filed in 1994 in seven federal judicial districts comprising fourteen Chapter 13 trusteeships. The seven federal judicial districts are: Northern District of Georgia, Southern District of Georgia, Middle District of North Carolina, Middle District of Tennessee, Western District of Tennessee, District of Maryland, and Western District of Pennsylvania. Collectively, these seven districts accounted for a very large portion – nearly 20%—of Chapter 13 filings nationally in 1994. There were 240,639 Chapter 13 filings in 1994, including 47,393 in the seven sample districts.7 In each district, we pulled a quota sample of one percent (1%) of the Chapter 13 cases filed in 1994, but no fewer than 100 cases. The sample includes 165 cases from the Northern District of
7 See
supra note 2.
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Georgia, 130 cases from the Western District of Tennessee, and 100 cases from each of the other five districts. The Chapter 13 Project’s sample of debtors, trusteeships and districts was highly representative of the nation as a whole, notwithstanding significant variations in practice among districts, judges and trustees across the country. The discharge rate for the 795 debtors, as well as the average discharge rate across the seven districts, was almost identical to the oftcited national average of 33%.8 Further, the amounts and types of debt repaid by the debtors were similar to the national averages reported by the Executive Office for United States Trustees for all Chapter 13 cases closed during the same time period.9 The percentages of male and female petitioners, and the debt-income ratios of the debtors were comparable to those observed in other studies.10 While representative of the nation in the key areas of debtor discharge and creditor repayment, the sample is a multi-district, not a national, sample. The sample districts are located mostly in Southern states with higher Chapter 13 filing rates. At the same time, the choice of seven districts that accounted for nearly 20% of all Chapter 13 filings likely contributed to, rather than detracted from, the representativeness of the sample. The representativeness of the sample also was not undermined by the fact that it includes one percent of filings in the Northern District of Georgia and the Western District of Tennessee, and more than one percent of filings in the other five districts (ranging from 1.9% of Chapter 13 filings in the Southern District of Georgia to 11.9% in the Western District of Pennsylvania). Further,
infra note 33 and accompanying text and Tables 5 and 6. Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 480 & n. 11. 10 See id. at 483, 491-494.
9 See 8 See
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by including a minimum of 100 cases from each district, we were able to run numerous interdistrict analyses and intra-district comparisons. The term “significant” is used throughout the paper to mean statistical significance. Statistical analyses were performed using the SPSS software package and a criterion level of 5%. Thus, statistical significance is inferred only where there would be a 5% or less probability that a finding arose by chance. Most of the time, we used non-parametric tests for comparisons of nominaland ordinal-scaled variables (e.g., district, case disposition, other filings); and parametric tests for comparisons of intervalscaled variables (e.g., income, debt). The statistical analyses do not interpolate or extrapolate the values of missing data. If data were not available, the case was excluded from the relevant analysis. Much of the data analyzed for the study did not meet the criteria to be considered normally distributed in the sample. When normality assumptions were substantially violated and could not easily be resolved by excluding outlying scores (+3 SD’s above the mean), non-parametric statistical analyses were used instead. Finally, we note that we collected the Project data approximately five years ago, between 2000 and 2002, and that the data are from cases filed in 1994 and closed between 1994 and 2000. (The maximum length of a Chapter 13 plan is five years, so that the earliest time that data could be collected was in 2000.) While the data are not the most current available, there is no reason to believe that the findings and conclusions based on the data are not fully applicable to current Chapter 13 practice. All of the same variations in practices and conditions that are the subject of this paper remain in effect across the federal bankruptcy system today. Thus, for example, bankruptcy courts continue to take varying
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approaches to the use of wage orders, payment of mortgages through the trustee, regulation of attorney fees and the like. Moreover, our findings will serve as a baseline for evaluating the impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) on Chapter 13 practice and case outcomes. III.DISTRICT VARIATIONS IN THE CHAPTER 13 DEBTORS There were significant, sometimes unexpected, differences across the seven sample districts in Chapter 13 filing rates, debtor homeownership rates, debtor incomes and debt-income ratios, the numbers of repeat filers, and the proportion of male, female and joint petitioners. While many of these differences are not easily explained, they add texture and detail to the existing picture of how the bankruptcy system functions differently in different locales.11 Some of the differences may reflect varying economic circumstances of the debtors or differing state law debt collection regimes in the several districts, while other of the variations evidence different norms regarding use of the Chapter 13 system based on the local legal12 and non-legal cultures. A. CHAPTER 13 FILING RATES That legal culture differs widely across localities, even within a single state, is
11 See, e.g., Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 498-499, 507-509; Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 804; Braucher, Lawyers and Consumer Bankruptcy, supra note 3, at 503-504; William C. Whitford, The Ideal of Individualized Justice: Consumer Bankruptcy as Consumer Protection, and Consumer Protection in Consumer Bankruptcy, 68 AM. BANKR. L.J. 397, 406 (1994) [hereinafter, Whitford, The Ideal of Individualized Justice]. 12 “Local legal culture” refers to the variations in local legal practices that arise from the perceptions, attitudes and expectations of bankruptcy judges, trustees and attorneys in a particular locality. See Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 804; Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 503-504.
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illustrated by the wide differences in consumer and Chapter 13 filing rates across the country.13 Nationally, Chapter 13 filings have approximated 30% of annual consumer filings.14 As reported in Table 1 below, in the seven sample districts covered by the Chapter 13 Project, the ratio of Chapter 13 filings to total consumer filings ranged from 16.9% in the Western District of Pennsylvania to 80.7% in the Western District of Tennessee. Overall, nearly 60% of the debtors in the sample districts filed under Chapter 13 in 1994, nearly double the national average.15 The ratio of Chapter 13 filings to total consumer filings was above the national average in five of the sample districts, and below the national average in two – the District of Maryland and the Western District of Pennsylvania.16 Further, there were large differences between districts in the two states in which the Project pulled cases from two districts within the state. The Chapter 13 filing rate in the Southern District of Georgia was almost 9% higher than in the Northern District of Georgia. More
Sullivan et al., The Persistence of Local Legal Culture, supra, note 1, at 822-830 (reporting on and discussing variations among federal judicial districts in bankruptcy filing rates). 14 See supra note 2. 15 Id. See generally Gordon Bermant and Ed Flynn, Bankruptcy by the Numbers, Thoughts on the “Local Legal Culture,” The Case of Consumer Chapter Choice, Feb. 2002 AM. BANKR. INST. J. 24 (reviewing data on the variation among districts and states in percentages of consumer debtors who choose Chapter 13 or Chapter 7); Gordon Bermant and Ed Flynn, Bankruptcy by the Numbers, A Tale of Two Chapters, Part I, Aug. 2002 AM. BANKR. INST. J. 20 (same); Gordon Bermant, Bankruptcy by the Numbers, Exploring the Demographics of Consumer Chapter Choice, May 1999 AM. BANKR. INST. J. 20 (finding that the “percentage of chapter 13 filings in a state tends to vary directly with the number of filings per 1000 households in the state”). 16 As discussed supra, notes 8-10 and accompanying text, the fact that most of the sample districts had a higher proportion of Chapter 13 filings than the national average did not detract from the representativeness of the Project sample. Rather, the representativeness of the sample was likely in part a result of the fact that the districts included in the sample accounted for a large proportion, nearly 20%, of all Chapter 13 filings in 1994.
13 See
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dramatically, the proportion of Chapter 13 filings in the Western District of Tennessee was more than 25% higher than in the Middle District. As Sullivan, Warren and Westbrook have written, these intra-state differences support the conclusion that state law does not explain variations in Chapter 13 filings rates, and that local legal culture probably accounts for the variations.17 Table 1.
District
Consumer Bankruptcy Filings, 1994
Total Consumer Filings 24,686 6,822 8,648 16,083 4,201 4,976 14,272 79,688 778,190 Chapter Filings 16,466 5,173 4,794 12,972 3,161 840 3,987 47,393 240,639 13 Percent Chapter Filings 66.6% 75.8% 55.4% 80.7% 75.2% 16.9% 27.9% 59.5% 30.9% 13
NDGA SDGA MDTN WDTN MDNC WDPA DMD Seven Districts United States
B. HOMEOWNERSHIP The homeownership rates of the debtors in the Project sample also varied substantially by district. As reported in Table 2, overall, about 47% of the debtors were home owners.18
17 Sullivan,
et al., The Persistence of Local Legal Culture, supra note 1, at 833-839. 18 Neither the Schedules, Official Bankruptcy Form 6, nor the Statement of Financial Affairs, Official Bankruptcy Form 7, includes any direct question regarding homeownership. Homeownership was inferred from whether the debtor scheduled a mortgage or mobile home debt. Thus, the rate of home ownership reported here may be slightly understated because some debtors may have owned homes not subject to any mortgage, and some mortgage or mobile home creditors may not have been identifiable as such. 427, or 54%, of the cases indicated a mortgage or mobile home debt. We identified 16 mobile home debts in
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Homeownership rates ranged from a low of 32% in the Middle District of Tennessee to a high of 79% in the Western District of Pennsylvania. The very large variations in homeownership rates among debtors in several of the sample districts suggest that the purposes for which many of the debtors used Chapter 13 differed markedly by district. As evidenced by the high homeownership rate, debtors in the Western District of Pennsylvania generally used Chapter 13 to deal with mortgage defaults. At the same time, the great majority of debtors in the Middle District of Tennessee, and nearly half of the debtors in the Northern and Southern Districts of Georgia and the Western District of Tennessee, used Chapter 13 for other reasons.19
the Middle District of North Carolina, seven in the Northern District of Georgia, , five in the Southern District of Georgia and one each in the District of Maryland and the Middle District of Tennessee. In the Middle District of Tennessee, we identified 42 debtors with mortgage debt, and further estimated that roughly 25 real estate mortgages were listed as priority instead of secured debts. The remaining 372 homeowners were identified as having mortgage debts. The 47% homeownership rate for the sample debtors compared to the national rate of homeownership in 1994 of 64%. Robert R. Callis, Current Housing Reports, Moving to America – Moving to Home Ownership: 1994-2002, U.S. Census Bureau (Sept. 2003), available at http://www.census.gov/prod/ 2003pubs/h121-03-1.pdf. 19 A chi-square analysis indicated differential rates of homeownership across the districts studied, ?2 (6, N = 795) = 67.09, p < .001. The homeownership rate in Middle District of Tennessee (32.0%) was lower than expected, and homeownership rates in Maryland (57%), the Middle District of North Carolina (58%) and the Western District of Pennsylvania (79.0%) were higher than expected. The significantly different homeownership rates among districts could be a function not of local legal culture, but of differences in state debt collections laws. The fact that the homeownership rates for the debtors in the Northern and Southern Districts of Georgia, and in the Middle and Western Districts of Tennessee, are almost identical tends to support the conclusion that state debt collection law, including mortgage foreclosure and homestead exemption laws, influence the proportion of Chapter 13 debtors who use Chapter 13 to deal with a debt secured by the debtor’s home.
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Table 2. District MD MDNC MDTN NDGA SDGA WDPA WDTN Total
Frequency of Homeownership by District Do not own home Homeowner (percent) (percent) 43 (43%) 57 (57%) 59 (59%) 41 (41%) 68 (68%) 32 (32%) 90 (54.5%) 75 (45.5%) 54 (54%) 46 (46%) 21 (21%) 79 (79%) 88 (67.7%) 42 (32.3%)20 423 (53.2%) 372 (46.8%)
C. INCOME AND DEBT-INCOME RATIO The mean debt-income ratio, excluding mortgage debt, varied dramatically between several of the sample districts. As shown in Table 3, the mean debt-income ratio in the Western District of Tennessee – 1.0 – was considerably less than half that in the Southern District of Georgia – 2.4. The overall mean debt-income ratio was 1.5, and the mean in four of the seven districts fell between 1.2 and 1.4.21 Stated differently, the average debtor had non-mortgage debts equal to one and a half years’ income, while the debtors in the Western District of Tennessee had on average nonmortgage debts equal to one year’s income, and debtors in the Southern District of Georgia had average non-mortgage debts equal to nearly two and a half years’ income. It might be expected that debtors with lower incomes would tend to have lower debt-income ratios at the time of their bankruptcy filing. A lower-income debtor must devote a greater a
20 This figure includes approximately 25 cases in which mortgage debt apparently was listed as priority debt. 21 Univariate ANOVAs were conducted. The differences in the mean debt-income ratio across the seven districts were significant, F(6, 736) = 21.77, p < .001. Cf. Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at p. 836 (reporting that differences in debtors’ debt-income ratios in ten districts in Texas, Illinois and Pennsylvania were statistically indistinguishable).
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portion of income to basic needs than a higherincome debtor, so that lower-income debtors would tend to have greater need for bankruptcy relief at a relatively lower debt-income ratio. The data, however, indicate no clear relation between mean debtor or household income and debt-income ratio. As further reported in Table 3, debtors in the Western District of Tennessee had both the lowest mean debt-income ratio and the lowest mean household net and gross incomes. At the same time, the debtors in the Southern District of Georgia had both the highest average debt-income ratio and the second lowest average incomes, and the debtors in the District of Maryland had the highest mean net and gross household incomes but a relatively modest mean debt-income ratio. Table 3. Debt-Income Ratio and Annual Household Incomes by District Distr Debt-income Annual Net Annual Gross ict ratio Household Income Household Income
Mean MD MDNC MDTN NDGA SDGA WDPA WDTN Total 1.4 1.4 1.2 1.3 2.4 1.8 1.0 1.5 Median .83 1.0 .93 .97 1.5 1.3 .82 .97 Mean $33,270 $18,849 $20,778 $22,101 $18,218 $25,466 $14,681 $21,506 Median $30,000 $17,040 $19,926 $20,814 $16,512 $22,926 $13,494 $18,504 Mean $41,250 $24,042 $24,061 $27,731 $22,220 $31,285 $16,942 $26,309 Median $38,400 $21,846 $21,606 $24,384 $20,136 $28,446 $14,958 $22,512
The district differences in mean and median debtor debt-income ratios may reflect differing cultures in which debtors more or less readily resorted to Chapter 13 when confronted by financial crisis. The districts where debtors had lower debt-income ratios generally had higher rates of consumer and Chapter 13 filings per
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100,000 of population.22 The debtors in the Western and Middle Districts of Tennessee had the lowest mean debt-income ratios and the highest consumer and Chapter 13 bankruptcy filing rates per 100,000 of population of the seven districts covered by the study.23 At the other extreme, debtors in the Western District of Pennsylvania had the second highest mean debt-income ratio and the lowest consumer and Chapter 13 filing rates per 100.000 of population. There was one “anomaly”: debtors in the Southern District of Georgia had by far the highest mean debt-income ratio, while that district had the fourth and second highest consumer and Chapter 13 filing rates, respectively. As further reported in Table 3 above, there was also a significant difference in the net and gross annual household incomes between the debtors in the districts with the highest and lowest means
22 Debt-Income Ratio and Bankruptcy Filing Rates, by District District NDGA SDGA MD MDNC WDPA MDTN WDTN 2.4 1.4 1.4 1.8 1.2 1.0 Mean Debt- 1.3 Income Ratio .97 1.5 .83 1.03 1.3 .94 .82 Median DebtIncome Ratio Bankruptcy 602.35 583.28 175.47 166.33 104.33 662.94 994.12 Filings (Chapters 7 & 13 per 100,000 Bankruptcy 331.32 389.88 60.86 132.61 16.06 382.77 730.61 Filings (Chapter 13) per 100,000 Source: Administrative Office of the Courts, Annual Reports for 1990 (the closest year available for the Chapter 13 Project sample of 1994 cases), as reported in Sullivan, et al., The Persistence of Local Legal Culture, supra note 1, at Table 1 and Table 2. 23 Actually, debtors in the Middle District of Tennessee had the second lowest debt-income ratios and the second and third highest consumer and Chapter 13 filing rates, respectively.
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and medians. In the District of Maryland, the mean and median, net and gross household annual incomes were all more than twice the corresponding amounts in the Western District of Tennessee. The overall mean and median, net and gross annual household incomes of the debtors in the sample were very modest, even meager: $21,506, $18,504, $26,309 and $22,512, respectively.24 While the differences in debtor incomes between districts are striking, we are hard-pressed for an explanation. While Maryland has had among the highest median incomes of any state,25 that would not necessarily result in a higher median income among those filing for Chapter 13 in the state. Perhaps the local legal culture in Maryland more consistently pushes lower income debtors into Chapter 7 cases than does the culture in the Tennessee districts. Alternatively, differences in state debt collection laws might help to explain the variance. Alternatively, it is possible that income equality contributes to over indebtedness – the “keeping up with the Joneses” problem of people with incomes that should be adequate who take on debt they can not manage when they try to live like others they know who have higher incomes. D. OTHER FILINGS At least half of all of the Chapter 13 debtors in the seven sample districts had filed one or more bankruptcy cases in addition to the sample case. Nearly 30% had filed at least one other case; 10% had filed at least two other cases; and
univariate ANOVAs revealed that the variations in average net and gross annual household incomes across districts were statistically significant, F(6, 751) = 22.60, p < .001, and F(6, 753) = 27.19, p < .001, respectively. 25 See http://www.usdoj.gov/ust/eo/bapcpa/20070201/bci_data/median_income_ta ble.htm (Executive Office for United States Trustees website, reporting Census Bureau data on median incomes for purposes of applying the means test under 11 U.S.C. § 707(b)(2)).
24 Again,
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10% had filed three or more other cases.26 Because the Project data on previous filings did not cover the same time periods in all seven of the sample districts,27 inter-district comparisons were possible only with respect to subsequent refiling rates. Here again, the data revealed statistically significant differences in the incidence of repeat refilings across districts. As reflected in Figure 1 below, 20% of the debtors in the Middle District of North Carolina filed one or more subsequent cases, compared to 39% and 56% of the debtors in the Middle and Western Districts of Tennessee, respectively.28 The overall subsequent refiling rate was 33% for all debtors in all seven districts.29 The two districts with the highest subsequent refiling rates, the Western and Middle Districts of Tennessee, had the lowest debt-income ratios, reinforcing the idea that in some districts the culture permits debtors to resort more freely to bankruptcy relief than in other districts. No doubt, many factors may further explain the differences in district filing and refiling rates
were probably more other filings by the sample debtors than evidenced by the Project data. The Project data on other filings were drawn from the debtors’ Statement of Financial Affairs and electronic searches of the PACER data base in each district. The PACER data bases have a limited reach back period, and debtors do not always report all previous filings in the Statement of Financial Affairs. See Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 496-499. 27 The PACER database for the Middle District of North Carolina reaches back only one year before the sample cases, compared to two or more years in the other six districts. 28 ?2(6, N = 793) = 47.16, p < .001. 29 BAPCPA has placed new restrictions on serial filings. The Code now provides that the automatic stay will expire 30 days after filing when an individual debtor had another case that was pending within a year before the current filing, unless a party in interest files a motion to extend the stay and shows that the current filing was in good faith, 11 U.S.C. § 362(c)(3); and that no stay will arise when the debtor had two or more cases pending within the year before filing the current case, again unless a party in interest files a motion to impose the stay and shows that the current filing was made in good faith. 11 U.S.C. § 362(c)(4).
26 There
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and mean debtor debt-income ratios, including income and cost of living levels, attorney advertising, perceived stigma, bankruptcy court efficiency, and policies and practices favoring either Chapter 13 or Chapter 7 filings by consumer debtors. In the Western District of Tennessee, the debtors had the lowest debt-income ratios and the highest refiling rate, as well as the lowest incomes. At the same time, debtors in the Southern District of Georgia had the highest debtincome ratios and a relatively high bankruptcy filing rate per 100,000 population, but a relatively lower refiling rate and lower mean income amount. That the debt-income ratios are very different in the two Georgia districts tends to support the conclusion that debt-income ratio is a function of local culture and not state debt collection law. Figure 1. Subsequent Refiling Rates by District
Percent of Current Cases wit h at Least One Subsequent Filing by Dist rict (N = 261)
60% 56.2% 50%
40%
39.0% Over al l Subsequent Fi l i ng Rate (32.9% )
30%
29.6% 28.0% 25.5%
30.0%
20%
20.0%
10%
0% MD MDNC MDTN NDGA D i st r i c t SDGA WDPA WDTN
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E. GENDER AND HOUSEHOLD SIZE There were significant differences across districts in the proportion of female, male and joint petitioners. As reported in Table 4, the percentage of women filing individually for Chapter 13 relief ranged from 28.9% in the Western District of Pennsylvania to 46.5% in the Western District of Tennessee, compared to an average percentage of individual women filers of 36.1% across all sample districts. The variation in the percentage of joint petitioners was even larger, ranging from just 15% of filings in the Western District of Tennessee to 38.1% in the Western District of Pennsylvania.30 The average household size did not differ significantly across districts; the range was 2.6 to 3.0 persons per household.
Table 4. Mean Frequency of Gender and Household Size by District District Gender Household Size Mean 2.6 2.6 2.6 2.6 2.6 3.0 2.8 2.7 2.7 Median 2.0 2.0 2.0 2.0 2.0 3.0 3.0 2.0 2.0
MD MDNC MDTN NDGA SDGA WDPA WDTN Total
Male 37% 32.3% 42% 42% 30% 33% 38.6% 36.9%
Female 39.1% 32.3% 31% 33.8% 40% 28.9% 46.5% 36.1%
Joint 23.9% 35.4% 27% 24.2% 30% 38.1% 15% 26.9%
Again, there is not an obvious explanation for the significant differences in the gender of petitioners across districts. Perhaps the local population demographics of the sample districts were different, with more single or divorced, financially distressed women in some districts
30 A chi square comparison revealed significant differences in gender distribution across the seven districts, ?² (12, N = 772) = 26.34, p < .05.
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than in others. Alternatively, or in addition, perhaps women were more susceptible than men to the influence of a culture that emphasized repayment of debt in Chapter 13 over the quick discharge in Chapter 7. As discussed above, in several districts the majority of debtors used Chapter 13 to deal with a home mortgage, while in other districts – including the districts with the highest proportion of women filing individually – most debtors appear to have used Chapter 13 because the local culture encouraged that option regardless of whether the debtor had a home mortgage. One of the two districts that appear to have most heavily emphasized Chapter 13 as a vehicle for repayment of unsecured debt, the Western District of Tennessee, was also the district with the highest proportion of women filing individually, the lowest proportion of joint filings, and the lowest mean income; whereas the district where debtors most often used Chapter 13 to deal with a mortgage debt, the Western District of Pennsylvania, had the lowest percentage of women filing individually, the highest percentage of joint filers, and the second highest mean income. One implication is that in some districts that most heavily emphasize Chapter 13 for the repayment of unsecured debt, women filing individually and who tended to have lower incomes were disproportionately represented in the ranks of Chapter 13 debtors who may have been better served by filing under Chapter 7. IV.DISTRICT DISCHARGE RATES In Parts V-VII, we use district discharge and dismissal rates in attempting to ascertain the roles of various Chapter 13 players and the efficacy of different local case administration practices. Thus, for example, we compare discharge rates by judge, trustee and whether the debtor was represented by a higher- or lowervolume legal practice. Similarly, we gauge the
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efficacy of district practices such as use of wage orders and payment of the mortgage through the trustee based on their relation to case outcomes. In performing these statistical analyses, we are cognizant that not all Chapter 13 dismissals represent “failures,” and that, conversely, debtor discharge does not invariably equate to “success” for the debtor and her creditors.31 However, because confirmation and completion of a Chapter 13 plan are the stated objectives of Chapter 13, and because plan completion and debtor discharge are more likely to provide the debtor with a fresh start and creditors with greater repayment of debt32 than if the case were dismissed, case disposition is the most reliable if not the only practical means to evaluate local practices and other variables.33 Overall, thirty-three percent (33%) of the debtors in the seven districts covered by the Project completed their plans and obtained a discharge. Sixty-seven percent (67%) of the cases were dismissed or converted, either before or
31 Some debtors achieve a fresh start without completing a plan, because the breathing spell afforded by the automatic stay allows them to regain their financial footing and to catch up on mortgage or other secured debt defaults before the case is dismissed or converted. Other debtors may lose their home or other collateral, but the interval during which foreclosure and repossession are automatically stayed gives them needed time to make other arrangements. Meanwhile, some debtors who complete a plan and attain a discharge do not achieve a fresh start. Not all claims are discharged at the end of a Chapter 13 plan, and about 15% of all debtors who achieve a discharge file again for bankruptcy protection. Norberg & Velkey, Debtor Discharge and Creditor Repayment, supra note 4 at 504. See also Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 535-36 (discussing that Chapter 13 non completions are not necessarily failures). 32 Norberg & Velkey, Debtor Discharge and Creditor Repayment, supra note 4, at 546 (reporting findings that “debtors who completed their plans paid greater amounts and percentages of their pre-bankruptcy debts than those whose cases were dismissed short of discharge.”) 33 See id. at 546-548 (using discharge rates to evaluate various debtor characteristics and plan features); Braucher, Empirical Study of Debtor Education, supra note 1, at 563 (using plan completion to gauge efficacy of debtor education and other local practices).
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after confirmation. As reported in Table 5, over 57% of the sample cases were dismissed, and nearly 10% were converted to Chapter 7. Of the dismissed cases, one-third was dismissed before confirmation of a plan and two-thirds after confirmation; that is, about 19% of all filings were dismissed before confirmation, and 38% after confirmation of a plan. The courts confirmed a plan in nearly 78% of all cases.34
Table 5. Discharge, Dismissal and Conversion Rates – All Cases (N = 794 cases) Dismissal 455 cases (57.3%) Before Confirmation 154 cases (19.4 %) After Confirmation 301 cases (37.9 %) Conversion 77 cases (9.7%) Before Confirmation 27 cases (3.4 %) After Confirmation 50 cases (6.3 %) Discharge 262 cases (33%)
The rates of debtor discharge varied significantly across the seven sample districts. Table 6 reports the discharge, dismissal and conversion rates by district, in order from left to right of lowest to highest rates of debtor discharge. As a percentage of all filings, the discharge rates in the seven districts ranged from a low of 20% of Chapter 13 filings in the Western District of Tennessee to a high of 47% in the Middle District of North Carolina. The average discharge rate among districts was 33.8%, almost identical to the overall rate of 33% for all debtors in the sample. Excluding converted cases,35 statistical analysis reveals significant differences in disposition rates between districts.36
34 See generally Norberg & Velkey, Debtor Discharge and Creditor Repayment, supra note 4, at 506. 35 N = 77. 36 ?² (4, N = 717) = 49.71, p < .001. See generally Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 505 & n. 70 (citing to findings regarding Chapter 13
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Table 6. Discharge, Dismissal and Conversion Rates – All Cases, by District WD NDG MD WD MD PA TN TN A NC Disposition SDGA MD Debtor discharged/cas 26 51 36 47 29 36 37 e completed 20.0% 29.0% 30.9% 36.0% 36.4% 37.0% 47.0% Case dismissed after 67 61 27 41 44 40 21 confirmation 51.5% 44.0% 37.0% 40.0% 7.3% 21.0% 41.0% Case dismissed before 30 45 21 8 9 17 24 confirmation 23.1% 9.0% 27.3% 17.0% 21.2% 24.0% 8.0% Case converted after 5 6 11 0 13 5 10 confirmation 3.8% 13.0% 3.6% 5.0% 11.1% 10.0% 0.0% Case converted before 2 2 4 4 5 2 8 confirmation 1.5% 5.0% 1.2% 2.0% 4.0% 8.0% 4.0% Sub-total of cases 130 100 165 100 99 100 100 Missing cases Total cases 0 130 0 100 0 165 0 100 1 100 0 100 0 100
TOTAL 262 33.0% 301 37.9% 154 19.4% 50 6.3% 27 3.4% 794 1 795
The significant variation in discharge and dismissal rates across districts raises the question, to what extent do the various Chapter 13 players and varying local legal practices account for the differences? And conversely, what differences in local legal cultures appear not to influence case outcomes? We turn to these questions in the sections that follow. V. DISTRICT PRACTICES AND DEBTOR PLAN PROVISIONS The significant differences in district discharge rates naturally raise the question of what practices and conditions may explain – or do not explain – the differences. We surveyed the Chapter 13 trustees in the seven sample districts regarding the following local practices: (1) use
debtor discharge rates in numerous other studies).
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of wage orders, (2) payment of ongoing, postpetition mortgage payments through the trustee rather than directly to the mortgagee, (3) the amount of the standard, “no look” fee that debtors’ attorneys were permitted to charge for representation in a Chapter 13 case, (4) any requirement that some or all of the debtor’s attorney’s fee be paid under the plan and not in advance, and (5) the availability of plan payment moratoriums when a debtor could not make payments under the plan for several weeks or months. In addition, using data collected from the sample debtors’ proposed plans, we examined the differences among districts regarding the proposed length of the debtors’ plans and the proposed distributions to unsecured creditors. A. DISTRICT PRACTICES Chapter 13 trustees in six of the seven judicial districts responded to the survey. Their responses are summarized in Table 7 below. As shown, five of the districts required wage orders in all cases in which the debtor was not selfemployed. Only the Western District of Pennsylvania did not impose wage orders in the general course. The six responding districts were evenly divided on the practice of requiring postpetition mortgage payments to be made through the trustee. In three districts the debtors generally made their mortgage payments directly to the creditor, while in the other three districts the debtors normally made their post-petition mortgage payments through the trustee. The standard Chapter 13 attorney’s fee ranged from $750 in the Southern District of Georgia to $1600 in the Western District of Pennsylvania. Only Maryland did not require that at least some portion of the attorney’s fees be paid under the plan. The six districts were evenly split on permissibility of plan payment moratoriums when the debtor had encountered an income disruption or extraordinary expense.
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Table 7. District Practices District Wage Standard Orders Fee Generally Amount Required NDGA SDGA DMD MDNC WDPA WDTN Yes Yes Yes Yes No Yes $1,000 $750 $1,250 $750 $1600 $1200/ $700$80037
Attorney Fee Payment Requirements
Payment Moratoriums Permitted
Yes Yes No Yes Yes Yes
Yes No No Yes No No
Postpetition Mortgage Payments Through Trustee No No No Yes Yes Yes
By hypothesis, the routine use of wage orders, payment of post-petition mortgage payments through the trustee (instead of directly by the debtor to the mortgagee), a requirement that a portion of the debtor’s attorney’s fee be paid under the plan, and availability of plan payment moratoriums, in that order of importance, would have had a positive impact on a district’s rate of debtor discharge. Wage orders require employers to deduct the debtor’s plan payments from wages and remit the withheld wages directly to the trustee, thereby ensuring that the plan payments will be made so long as the debtor is employed and limiting the debtor’s ability to use the wages for other purposes. Similarly, when post-petition mortgage payments must be made through the trustee, there may be a reduced risk that the debtor will miss the payments, especially when this practice is combined with a wage order. On the other hand, wage orders and payment of postpetition mortgage payments through the trustee reduce the debtor’s responsibility for managing
37 In the cases handled by two of the three Chapter 13 Trustees in the Western District of Tennessee, the standard fee was $1200, and in cases handled by the other trustee, located in a different geographical area, the standard fee was $700-$800.
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household finances and thus may diminish any rehabilitative function of performing a Chapter 13 plan.38 Most of the sample districts prohibited debtors’ attorneys from taking full payment of their fees in advance of filing or confirmation, but instead required that a portion of the fee be paid over time under the plan. The rationale for such payment restrictions is that the debtor’s attorney will have a greater incentive to assist the debtor to propose a feasible plan when payment in full of the attorney’s fee depends on performance of the plan for at least the period during which the balance of fees will be paid.39 With regard to the standard “no look” fee, higher fees may translate into better representation in the structuring of a feasible, confirmable plan. On the other hand, higher Chapter 13 fees may lead debtors’ attorneys to recommend Chapter 13 in some cases in which the debtor is not a good candidate for performing a plan.40 Also, the premise that higher fees would affect the quality of legal representation is difficult to ascertain, because an attorney’s cost of representing a debtor may have varied considerably by locality. Finally, the availability of payment moratoriums may have positively impacted discharge rates by permitting a debtor who experienced an income or expense disruption to defer some payments until she recovered from the disruption.41 1. Wage Orders The Bankruptcy Code does not expressly authorize wage orders. Local rules that require wage orders in the ordinary course are premised on Code
38 See Braucher, Empirical Study of Debtor Education, supra note 1, at 576 and 565 n. 59. 39 See id. at 574 40 See id. at 573-74. 41 See id. at 575.
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section 105(a), which provides that the bankruptcy court may “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions” of the Bankruptcy Code42 Statistical analyses43 revealed a significant difference in case outcomes based on the use of wage orders.44 Cases were less likely to be dismissed or converted before confirmation, and a debtor was more likely to attain a discharge, when the district routinely issued wage orders to debtors’ employers. As reported in Table 8 below, 21.3% of cases with a wage order were dismissed or converted before confirmation, compared to 27.8% of cases with no wage order; and debtors obtained
U.S.C. § 105(a). series of non-parametric chi-square tests were conducted for each of the following variables: wage order; ongoing, post-petition mortgage payments through the trustee; attorney fee payment restrictions; standard fee amount; and payment moratoriums. The table below shows the ?² and p values for each of the five comparisons. To control for alpha inflation after multiple tests, only adjusted p values were considered statistically significant.
43 A 42 11
Statistical values for each of the five comparisons
Variable Wage order Mortgage payment through trustee Fee payment limitation Standard fee Availability of plan payment moratorium ?² 6.95 1.29 Df 2 2 p value .03 Ns
.98 25.96 2.89
2 6 2
Ns .00 Ns
44 ?² (2) = 6.95, p < .05. This finding is consistent with findings in several other empirical studies. See Braucher, Empirical Study of Debtor Education, supra note 3, at 579 [reporting finding that “[t]he completion rate among debtors in the trusteeships that used wage orders was much greater than in trusteeships that did not (50.1 percent to 26.9 percent)”]; Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 535.
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a discharge in 36.6% of cases with a wage order, compared to 27.4% of debtors in cases with no wage order.
Table 8. District Discharge Rates by Wage Order Case Disposition Cases Cases without wage order with wage order Dismissed/converted 99 64 (27.8%) before confirmation (21.3%) Dismissed/converted after 195 103 (44.8%) confirmation (42%) Discharged/completed 170 63 (27.4%) (36.6%)
2. Payment of Post-petition Mortgage Payments Through the Trustee A majority of Chapter 13 trustees now collect and disburse post-petition mortgage payments.45 The statutory basis for the practice is Code section 1326(c), which states: “Except as otherwise provided in the plan or in the order confirming the plan, the trustee shall make payments to creditors under the plan.”46 The statistically significant differences in discharge rates based on the use of wage orders imply that there would have been similar differences based on the payment of post-petition mortgage payments through the trustee. Both practices reduce the debtor’s opportunity to use income for purposes other than plan payments. However, the Chapter 13 Project data indicate no significant differences in discharge rates by
Bermant & Jean Braucher, Making Post-Petition Mortgage Payments Inside Chapter 13 Plans: Facts, Law, Policy, 80 AM. BANKR. L. J. 261, 269, 276 (2006). 46 11 U.S.C. § 1326(c). See Bermant & Braucher, Making PostPetition Mortgage Payments Inside Chapter 13 Plans: Facts, Law, Policy, supra note 45, at 263-264 (discussing § 1326(c) and whether it authorizes plans, confirmation orders and local rules requiring payment of post-petition mortgage payments through the Chapter 13 trustee).
45 Gordon
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reason of a policy of payment of the mortgage through the trustee.47 Table 9 reports the dismissal, conversion, and discharge rates by whether the debtor paid post-petition mortgage payments through the trustee or directly to the mortgagee. The discharge rate for cases in which the mortgage payment was, and was not disbursed by the trustee were almost identical, 33.3% and 33.8%, respectively.48
Table 9. District Discharge Rates by Mortgage Paid under the Plan Cases in which Cases in which mortgage paid mortgage not paid through the trustee through the trustee Dismissed/converted before 72 (21.8%) 91 (25%) confirmation Dismissed/converted after 148 (44.8%) 150 (41.2%) confirmation
to the differences in homeownership rates between districts in the Project, we analyzed the data on district discharge rates by mortgage paid versus not paid through the trustee only for debtors who owned a home. For homeowners only, there were no significant differences in likelihood of discharge between debtors who paid their post-petition mortgage payments through the trustee and those who did not.Accord, Gordon Bermant & Ed Flynn, Bankruptcy by the Numbers, Chapter 13: Who Pays the Mortgage, June 2001 AM. BANKR. INST. J. 20, 21 (comparison of discharge rates among trusteeships that disbursed mortgage payments with trusteeships that did not do so failed to “support the conclusion that moving the ongoing mortgage payments through the trustee operation increases the rate of successful terminations.”). Cf. Bermant & Braucher, Making Post-Petition Mortgage Payments Inside Chapter 13 Plans: Facts, Law, Policy, supra note 45, at 272 (reporting that most Chapter 13 trustees that disburse post-petition mortgage payments “agree that [the practice] increases the probability of plan completion; the survey results cannot, however, count as objective proof of that relationship”). 48 It is possible that payment of the mortgage through the trustee does not correlate with plan completion because some or many debtors with mortgages stop paying under their plans once the mortgage arrearage has been paid. Several standing trustees told us that more than a few debtors use Chapter 13 in this way. If the cases dismissed after paying the mortgage arrearage are excluded from the analysis, or counted as cases with successful outcomes, there might have been a positive, statistically significant relation between payment of the mortgage through the trustee and debtor success. However, it was not possible to distinguish these dismissals from other dismissals.
47 Due
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110 (33.3%) 123 (33.8%)
129
Discharged/completed
3. Standard Fee Amounts and Fee Payment Requirements Bankruptcy Code sections 329(a) and (b) provide that an attorney representing a debtor must file “a statement of the compensation paid or agreed to be paid” and that the court may limit fees to the reasonable value of the services provided.49 The Code does not expressly address the timing of payment of attorney fees in Chapter 13 cases. The bankruptcy courts in nearly all districts, including the seven districts covered by the Chapter 13 Project, have established standard, “no-look” fee amounts that may be paid to debtor’s counsel without the necessity of a fee application. Special application must be made for approval of payment of fees in excess of the standard fee. In addition, many districts, including five of the seven districts covered by the Project, require that some portion of the debtor’s attorney fee be paid under the plan and not in advance. The Project data reveal no statistically significant differences in discharge rates dependent on either the amount of the standard, “no-look” attorney fee or any restrictions on the timing of payment of the debtor’s attorney fees.50 Tables 10 and 11 below report the number and percentage of cases that were dismissed or in which the debtor obtained a discharge, broken down by the amount of the debtor’s attorney’s fee and by whether the court required payment of a portion of the attorney’s fee under the plan.51 Perhaps
49 11
U.S.C. § 329(a), (b). Braucher, Empirical Study of Debtor Education, supra note 1, at 578 (reporting finding that plan completion rate increased by 1.6% for each $100 in attorneys fees, for a total positive effect from lowest to highest fee charged in the five districts of 10%). 51 We also collected data on the amount of attorneys fees paid by
50 Compare
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any incentive for attorneys to work with their clients to structure a better plan because a portion of the fee will be paid under that plan is offset by the fact that the primary competition among lawyers for Chapter 13 clients is in the amount of the up-front payment that is required (because the fee amount is standard).52
Table 10. District Discharge rates by Standard Fees $750 $1000 $1200 Dismissed/converted before confirmation Dismissed/converted after confirmation Discharged/completed 27 cases (13.5%) 90 cases (45%) 83 (41.5%) 47 cases (28.5%) 67 cases (40.6%) 51 (30.9%) 57 cases (24.9%) 110 cases (48%) 62 (27.1%)
$1600 32 cases (32%) 31 cases (31%) 37 (37%)
Table 11. District Discharge Rates by Fee Payment Limitations Fee Limitations Fee Limitations present absent Dismissed/converted before 138 cases (23.2%) 25 cases (25.3%) confirmation Dismissed/converted after 260 cases (43.7%) 38 cases (38.4%) confirmation
debtors to their attorneys in advance, as disclosed in the debtor’s Statement of Financial Affairs, and on the amount to be paid under the plan. Unfortunately, the quality of these data was poor; much of them were missing, and the total of pre-bankruptcy fees and postpetition fees reportedly paid or to be paid often did not equal the standard fee amount. As a result, we were unable to reliably test our hypothesis that payment of a portion of the debtor’s attorney fee after filing, under the plan, was positively correlated with debtor discharge. Anecdotally, we have heard the conjecture from several Chapter 13 trustees and bankruptcy judges. The premise is that the debtor’s attorney is more likely to structure a workable plan where payment of fees depends upon the debtor performing her plan for a period of time after filing. See also Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 546-551 (discussing local practices regarding payment of attorney fees in Chapter 13 cases in four cities; noting that the debtors’ attorneys had an incentive to make plan payments as large as possible where the district’s standing chapter 13 trustee’s policy was to make the first plan distributions to pay debtor’s attorney. 52 See id. at 546-548 (noting that in light of established standard, “no-look” fees, primary competition among lawyers was in payments terms).
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197 cases (33.1%)
131
Discharged/completed
36 cases (36.4%)
4. Payment Moratoriums Regarding payment moratoriums, the Code provides for dismissal or conversion of a Chapter 13 case when the debtor has materially defaulted in the Moratoriums are an performance of the plan.53 informal practice whereby the trustee delays filing a motion to dismiss or convert to give the debtor a chance to resume payments after missing one or several. Section 105(a) again provides statutory authority for the practice.54 There were also no statistically significant differences in discharge rates based on the availability of plan payment moratoriums.55 The comparisons are reported in the following Table 12.
Table 12. District Discharge Rates by Moratoriums Moratorium present Dismissed/converted before confirmation Dismissed/converted after confirmation Discharged/completed 55 cases (20.8%) 112 cases (42.3%) 98 cases (37%) Moratorium absent 108 cases (25.2%) 186 cases (43.4%) 135 cases (31.5%)
B. PLAN LENGTH AND DISTRIBUTIONS TO UNSECURED CREDITORS Some courts have maintained benchmarks regarding the length of a Chapter 13 plan and percentage distribution to unsecured creditors.56 The Code’s
U.S.C. § 1307(c)(6). 105(a) provides that the court may “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of title 11.” 55 Compare Braucher, Empirical Study of Debtor Education, supra note 1, at 577-578 (finding that use of moratoriums was negatively associated with plan completion, with a percentage effect of 30%). 56 See Braucher, Empirical Study of Debtor Education, supra note 1, at 577 (noting that as of 1994, “San Antonio and Greensboro continued to resist low percentage plans (that pay unsecured creditors under 25
54 § 53 11
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authorization of these practices is doubtful.57 1. Plan Length The Chapter 13 Project collected data on the terms of the sample debtors’ plans, including proposed length and proposed distribution to unsecured creditors. With respect to plan length, the Bankruptcy Code provides that a Chapter 13 plan generally may not exceed three years except for “cause,”58 and that a plan must run for no less than three years unless unsecured creditors were The maximum paid in full under a shorter plan.59 length of a Chapter 13 plan is five years.60 Most debtors in most of the sample districts proposed plans running more than three years. As reported in Tables 13 and 14, the median and modal
percent),” while “n Fort Worth and Charlotte, most plans were for less than 25 percent, and in Sacramento plans were averaging 35 to 40 percent.”); Jean Braucher, Counseling Consumer Debtors to Make Their Own Informed Choices – A Question of Professional Responsibility, 5 AM. BANKR. INST. L. REV. 165, 178 (1997) (discussing varying district benchmarks regarding repayment of unsecured claims); Sullivan, et al., The Persistence of Local Legal Culture, supra note 1 at 832-833; Whitford, The Ideal of Individualized Justice, supra note 11, at 410411. 57 Regarding a benchmark for plan length, at the time that the sample cases were filed, the Code provided that the standard length of a plan would be three years (unless unsecured creditors were to be paid in full in a shorter period), which period could be extended “for cause.” 11 U.S.C. § 1322(d)(1994). The Chapter 13 provisions expressly stating requirements for payment of unsecured claims, 11 U.S.C. § 1325(a)(4)(the best interests test) and 11 U.S.C. § 1325(b) (the best efforts test), implicitly negate an interpretation of “cause” as including a set, minimum payment obligation beyond the best interests and best efforts requirements. See Whitford, The Ideal of Individualized Justice, supra note 11, at 412-413 (suggesting that Chapter 13 debtors’ attorneys in some districts have successfully challenged established benchmarks regarding payment of unsecured claims). 58 11 U.S.C. § 1322(d). 59 11 U.S.C. § 1325(b)(1)(1994). Under the BAPCPA amendments, debtors with above-median incomes are subject to a five-year commitment period. 11 U.S.C. § 1325(d)(2006). 60 As amended by BAPCPA, the Code now further mandates that debtors with incomes above the applicable median must commit to a five-year plan unless unsecured creditors will be paid in full under a shorter plan. 11 U.S.C. § 1325(b)(4) (2006).
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plan lengths were 60 months, or 24 months longer than the standard mandated by the Code. Even at the 25th percentile, the plan length was 47 months, or 11 months longer than the 36-month term specified by the Code. As reported in Table 13, the median plan length in four of the sample districts was 60 months, and in another it was 57 months. In one district, the Middle District of North Carolina, the median was 48 months, and in only one district, the Northern District of Georgia, was the median 36 months. An analysis of the variance in proposed length of plans revealed statistically significant differences across the seven districts.61 As reported in Table 14 below, post-hoc statistical comparisons revealed significantly shorter plans in the Middle District of North Carolina than in the other districts; 38% of the plans filed in that district had proposed plan lengths of 36 months. The post-hoc statistical comparisons also revealed significantly longer plans in both the Middle District of Tennessee and Western District of Tennessee. Fifty-seven percent (57%) of plans in the Middle District of Tennessee had proposed plan lengths of 60 months, the average proposed plan length in the Middle District of Tennessee was significantly longer than the average proposed plan length in the Middle District of North Carolina. Eighty-five percent (85%) of the plans in the Western District of Tennessee had proposed plan lengths of 60 months;62 the average proposed plan length in the Western District of Tennessee was significantly longer than the proposed plan
61 Because
only seven cases in Northern District of Georgia included specific plan lengths, the data from this district were excluded from the analysis concerning district-level differences in proposed length of plans. 62 F(5,574) = 8.00, p # .001. Levene’s test for heterogeneity of variance was significant, F(5,574) = 11.14, p # .001; equality of the variance in proposed plan length should not be assumed across the districts. As a result, the post-hoc comparisons were completed using Dunnett’s T3 test that does not assume equality of variances.
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lengths in Maryland, the Middle District of North Carolina, the Southern District of Georgia, and the Western District of Pennsylvania.
Table 13. Frequency of Plan Length and Distribution to Unsecured by District District Plan Length (in months) Mean Median Mean Distribution to Unsecured Creditors MD 53.56 60 28.56 MDNC 47.30 48 31.72 MDTN 54.0 60 46.81 NDGA 40.28 36 52.77 SDGA 51.35 57 23.53 WDPA 52.74 60 48.61 WDTN 56.91 60 55.20 Total 52.70 60 41.66
Debtors who completed their plans tended to propose significantly shorter plans63 than debtors Perhaps who did not complete their plans.64 shorter plans reduced the risks of income and expense disruptions, or required correspondingly less discipline on the part of the debtor, and so were more likely to be completed.65 It is also possible that some debtors proposed longer plans without the intention to complete them. For example, if a debtor wanted to cure a mortgage arrearage, and then dismiss her case without completing her plan, a longer plan would have allowed the debtor to stretch out the payments and make them more affordable.
= 51.31 months, SD = 11.25, SEM = .789. = 53.45 months, SD = 11.07, SEM = .568, t(409.6) = 2.196, p = .029. However, disposition was not significantly related to plan length, F(2,515) = 2.39, p = .093, when cases in which the debtor obtained a discharge were separately compared to cases that were dismissed after confirmation and to cases that were dismissed before confirmation. Cf. Braucher, An Empirical Study of Debtor Education, supra note 1, at 574-576 (“[d]ifferences in proposed plan length do not appear to be a significant factor in explaining the different [discharge rates in the five cities covered by the study] because five-year plans are readily permitted in all of them.)” 65 See Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 527.
64 M 63 M
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Table 14. Proposed Length of Plan in Completed and Dismissed Cases 2 Rang 5 Medi N e Mean SD SEM % an 75% Case Dismissed Before Confirmati 03 on 6 86 60 50.24 17.09 1.84 60 60 Case Dismissed After Confirmati 12 0.67 4 on 231 60 53.67 10.24 3 8 60 60 Case Converted Before Confirmati 36 5 on 18 60 56.06 8.36 1.97 8 60 60 Case Converted After Confirmati 36 4 on 8 47 60 53.66 9.16 1.33 60 60 Debtor Obtained 10 0.78 3 Discharge 203 60 51.4 11.23 8 6 60 60
Cases missing
68
70
5
7
58
2. Distributions to Unsecured Creditors With respect to distributions to unsecured creditors, the Code does not mandate any set, minimum percentage that must be repaid, apart from the best interests66, best efforts67 and good faith requirements.68 Nevertheless, the data reveal that most of the sample districts had norms to which debtors generally conformed in formulating their plans.69 In the Middle District of North Carolina,
66 11 67 11
U.S.C. § 1325(a)(4). U.S.C. § 1325(b). 68 11 U.S.C. § 1325(a)(3). 69 See also William C. Whitford, The Ideal of Individualized Justice, supra note 11, at 397, 405-06; Jean Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 532 (“The reality is that
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more than three-quarters of the debtors proposed a distribution of 25% to unsecured creditors. In the Middle District of Tennessee, over 40% of the debtors proposed a 20% distribution, and another 30% proposed 100%. In the Northern District of Georgia, 86% of the debtors proposed to pay either 100% (48% of debtors) or 1% (38% of debtors). In the District of Maryland and the Southern District of Georgia, most debtors proposed an unspecified, pro rata distribution to unsecured creditors, and a substantial number proposed 100% plans. Only in the Western District of Tennessee and the Western District of Pennsylvania does it appear that there were no standard benchmarks.70 In the Western District of Tennessee, 38% of the debtors who proposed a distribution proposed 100% plans, and 15.2% proposed 70% plans; the rest were fairly evenly distributed between 1% and 60%. In the Western District of Pennsylvania, about 65% of debtors proposed either a 0% or a 100% plan, while the other debtors were fairly evenly distributed between these extremes.71 Analysis of the proposed distributions to unsecured creditors (excluding pro rata distribution cases) indicates significant differences between the districts.72 Debtors in
chapter 13 trustees and judges in the four cities [studied] effectively deter 0% plans and keep most plans above a floor percent that is known to local practitioners.”). 70 It should be noted, however, that in the Western District of Tennessee, the data on this point were missing in nearly 40% of the cases). 71 It is not possible to say whether 11 U.S.C. § 727(a)(9)(B) influenced many debtors with regard to the formulation of proposed distributions to unsecured creditors. That section provides in part that a debtor is not eligible for a Chapter 7 discharge if she has received a discharge in a Chapter 13 case commenced within six years before the Chapter 7 filing, unless the debtor paid at least 70% of unsecured claims and the plan was proposed in good faith and was the debtor’s best effort. Only in the Western District of Tennessee was there a notable percentage of debtors (15.2%) who proposed 70% plans. 72 F (6,558) = 3.91, p = .001, O2 = .040. See also Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 523-526; Whitford, Has the Time Come to Repeal Chapter 13?, supra
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the Middle District of North Carolina proposed to pay a significantly lower percentage of unsecured claims73 than debtors in the other districts.74 There was no statistically significant difference in the proposed percentage to be paid on unsecured debt by debtors in completed cases and by debtors in cases dismissed or converted either before or after confirmation. That is, the debtors who completed their plans and obtained a discharge did not propose to repay a significantly different percentage of general unsecured claims than debtors whose cases were dismissed or converted.75 These findings, although counterintuitive, are consistent with the findings Table 15 reports on the in another study.76 percentages of unsecured debt that debtors proposed to pay in completed, dismissed and converted cases.
Table 15. Case Outcome and Proposed Distributions to Unsecured Creditors Completed Cases N 196 Range 0% - 100% Mean 44.31% SD 40.11% 25% 10% Median 25% 75% 100%
mode = 100% (60 cases/30.6%)
note 1, at 409-411 (reporting large variations among districts as to proposed distributions to unsecured creditors); Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 532 (study of practices in four districts, finding “floor” percentage of 100% in one, and 10 % in one, and 25-33% in one, and 70% in another). 73 (M = 31.7%, SEM = 4.28). 74 Also, debtors in the District of Maryland proposed to pay a significantly higher percentage on unsecured claims (M = 61.3%, SEM = 6.75). However, this observation is based on only 37 of 100 cases. 75 Mann-Whitney U = 34135, z = -1.128, p = .259; Kruskal-Wallis X2(4, N=565)=6.872, p=.143. 76 See Braucher, Empirical Study of Debtor Education, supra note 1, at 577 (concluding that “there is no apparent pattern of connection between [district norms regarding percentage distribution to unsecured creditors] and completion rates [in the five trusteeships covered by the empirical study]”). But see William C. Whitford, The Ideal of Individualized Justice, supra note 11, at 410-12).
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Dismissed Cases N 369 Range 0% - 100% Mean 51.13% SD 42.50% 25% 10% Median 30% 75% 100%
mode = 100% (146 cases/39.6%)
Converted Cases N 54 Range 0% - 100% Mean 45.14% SD 39.45% 25% 14.5% Median 25% 75% 100%
VI.THE BANKRUPTCY JUDGES AND CHAPTER 13 TRUSTEES The key legal actors in Chapter 13 cases include the bankruptcy judges, Chapter 13 standing trustees and debtors’ attorneys.77 Across the seven districts covered by the study, there were a total of 25 judges, 14 standing trustees and 337 attorneys in our 794 sample cases. Thus, the samples of bankruptcy judges and Chapter 13 trustees are quite limited.78 Also, we did not attempt to discern whether a particular judge or trustee in any of the sample districts played an especially influential role, a phenomenon that has been observed in other studies.79 As a result, while we find several statistically significant differences in case outcomes based on the identity of the judge or trustee, these findings are
77 In addition, the United States Trustee, Clerk of the Bankruptcy Court and creditors’ attorneys may play important parts in Chapter 13 cases. The Chapter 13 Project did not collect any data that permit evaluation of their roles. 78 There were approximately 325 bankruptcy judges and 160 standing Chapter 13 trustees in the United States in 1994. Thus, our sample represented 7.7% of all judges and 8.8% of all trustees 79 See Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 841-847; Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 556, 580-81.
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necessarily tentative and may not be generalizable beyond the specific districts. We sought to measure whether any of these players acting individually exerted a decisive influence over the outcomes in the body of cases they handled. As discussed below, we found no statistically significant differences in case outcomes based on the identity of the judge or trustee, except for three judges that sat in separate, single-judge divisions within a district. These findings indicate that individual judges can and do exert decisive influence over the outcomes in their Chapter 13 cases when their attitudes and practices are not moderated by other judges in the same division; and also imply that judges in multi-judge divisions collectively possess such influence. These findings also may suggest that location – the local legal and nonlegal culture – may have an important impact on case outcomes. Finally, case outcomes differed significantly based on whether the debtor was represented by an attorney and, if so, whether the attorney was a high-volume or low-volume consumer bankruptcy practitioner.
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The bankruptcy judges have the greatest potential influence of any of the key legal actors over case outcomes in their districts. Collectively, the judges in a judicial district hold primary authority over almost all aspects of bankruptcy case administration. They promulgate the local rules of bankruptcy practice, which may cover everything from the timing of confirmation hearings to the use of wage orders and the valuation of collateral. They rule on all aspects of Chapter 13 cases, including the statutory requirements for confirmation of plans. These rulings sometimes establish precedents for thousands of cases to follow. The bankruptcy judges approve the amounts and terms of compensation for debtors’ attorneys, and may discipline attorneys for misconduct in their courts. They may establish benchmarks for distributions to unsecured creditors, expectations regarding plan length and requirements regarding adequate protection. Through their attitudes, rulings and case administration practices, the bankruptcy judges may influence the chapter under which debtors file, and the terms of debtors’ Chapter 13 plans, including standards regarding feasibility.80 1. Judge and Case Outcomes in Chapter 13 Beyond the district-wide practices that are determined collectively by the judges in the district, we sought to ascertain whether there were any significant differences in case outcomes based on the identity of the individual judge. Any such differences might indicate that there are judge-specific policies or practices that significantly affect case outcomes. To test whether judges may individually exert a decisive
80 See Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 841-847.
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influence on case outcomes, we compared dismissal and discharge rates of each the bankruptcy judges in the seven sample districts with each of the other judges in the same district.81 In doing so, we found statistically significant differences in dismissal and discharge rates among several of the judges in three of the districts82—the District of Maryland,83 the Middle District of North 84 and the Northern District of Georgia.85 Carolina, Importantly, in each of these districts, one of the judges with significantly different case outcomes handled cases from a different division.86 These findings seem to confirm that when there is only one judge in a division, that judge may cleanly exert a decisive influence over case outcomes, which influence is reflected in significantly different discharge and dismissal rates than in cases before another judge or judges in the same district. The findings also may imply that the differences in case outcomes were to some extent a function of the different locality. At the same time, the findings that there were no significant differences in case outcomes among any
81 All cases for which judges were either unknown or judges with fewer than 11 cases were excluded from the statistical analyses. 82 We tested this hypothesis using a nominal regression with “judge” as a predictor variable and “case outcome” as a criterion variable. Analyses revealed an overall significant effect, ?² (48, N = 715) = 130.53, p < .00, Nagelkerke R² = .19 We then conducted a series of non-parametric chi-square tests for each of the seven districts. 83 ?² (6) = 14.85, p < .05. 84 ?² (6) = 15.647, p < .05. 85 ?² (8) = 18.07, p < .05. 86 One trustee handled all of the cases for each of the judges in the single-judge divisions whose case outcomes were significantly different than another judge’s or judges’ case outcomes in the same district. Thus, it was difficult to disentangle the influence of the judge from the influence of the trustee. However, because we found no significant differences in case outcomes among any of the trustees within a district when they handled cases for more than one judge, it seems likely that it was the judge and not the trustee that exerted the decisive influence when the outcomes in the cases handled by a particular judge and trustee were significantly different than the outcomes in cases handled by another judge (and trustee). See infra note 98 and accompanying text.
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judges sitting in multi-judge divisions indicate that multiple judges moderate the influence of each individual judge. This moderating effect may stem from a tendency of judges within a division to gravitate toward similar attitudes and practices. Alternatively, when there are multiple judges in one division who have different attitudes and practices, attorneys must make a choice in each case about how to proceed, perhaps catering to the strictest judge, with respect to proposed length of plan, proposed distribution to unsecured creditors, etc. The differences in dismissal and discharge rates between judges who sit in different divisions of the same district were sometimes dramatic, and further illustrate the point that variations among divisions within a district are sometimes greater than differences between districts. There were four judges in the District of Maryland, and differences in case outcomes were significantly different among three of them. As shown in Table 16 below, Judge MD1’s and Judge MD2’s case outcomes were significantly different from Judge MD4’s.87 Judge MD4’s’ cases were almost five times more likely to be dismissed or converted before confirmation than Judge MD1’s cases, and more than six times more likely to be dismissed or converted before confirmation than Judge MD2’s cases. At the same time, 52.4% of the debtors in Judge MD1’s cases attained a discharge, compared to 29.2% of the debtors in Judge MD4’s cases. Some judges were more selective in confirming plans than others. While the debtors whose cases were assigned to Judge MD3 and Judge MD4 completed their plans at very nearly the same rate, the preand post-confirmation dismissal and conversion rates were almost the inverse of one another; 45.8% of Judge MD4’s cases were converted before confirmation and 25% after confirmation, while the
87 ?²
(2) = 10.18, p < .00.
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corresponding figures for Judge MDJ3 were 26.1% and 43.5%, respectively. These large differences in plan confirmation practices are even more remarkable for that fact that the same trustee handled all of the cases before both Judges MD3 and MD4.
Table 16. Case Outcomes: District of Maryland Judges Case Outcome (number of cases and %) Plan Completed/ Case Dismissed Case Dismissed or Converted or Converted Debtor Before After Attained Discharge Confirmation Confirmation 2(9.5%) 2(7.4%) 6(26.1%) 11(45.8%) 8(38.1%) 14(51.9%) 10(43.5%) 6(25%) 11(52.4%) 11(40.7%) 7(30.4%) 7(29.2%) Total
District – Bankruptcy Judge Judge MD1 Judge MD2 Judge MD3 Judge MD4
21(100%) 27(100%) 23(100%) 24(100%)
There were four bankruptcy judges in the Middle District of North Carolina, and significantly different case outcomes among three of them. As reported in Table 17, Judge MDNC3’s case outcomes were significantly different than either Judge MDNC1’s or Judge MDNC2’s.88 Only 15.8% of the debtors assigned to Judge MDNC3 attained a discharge, compared to 59.5% of the debtors assigned to Judge MDNC1 and 57.1% of the debtors assigned to Judge MDNC2. All three of the judges dismissed relatively few cases before confirmation, so that the big difference between the judges was in the numbers of cases dismissed or converted after confirmation and in the numbers of completed cases.
88 ?²
(2) = 6.87, p < .05.
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Table 17. Case Outcomes: Middle District of North Carolina Judges Case Outcome (number of cases and %) Plan Case Dismissed Case Dismissed Completed/ Debtor or Converted or Converted Before After Attained Confirmation Confirmation Discharge 3(8.1%) 0(0%) 2(10.5%) 12(32.4%) 6(42.9%) 14(73.7%) 22(59.5%) 8(57.1%) 3(15.8%) Total
District – Bankruptcy Judge MDNC1 MDNC2 MDNC3
37(100%) 14(100%) 19(100%)
There were significant differences in case outcomes between two of the judges in the Northern District of Georgia. As shown in Table 18, Judge NDGA1’s case outcomes were significantly different from Judge NDGA2’s.89 Almost 61% of the debtors in Judge NDGA2’s cases completed their plans, compared to 25.9% in Judge NDGA1’s cases, while almost 52% of Judge NDGA1’s cases were dismissed before confirmation, compared to 8.7% of Judge NDGA2’s.
Table 18. Case Outcomes: Georgia North District judges Case Outcome (number of cases & %) Plan Case Dismissed Case Dismissed Completed/ Debtor or Converted or Converted Before After Attained Confirmation Confirmation Discharge 14(51.9%) 2(8.7%) 6(22.2%) 7(30.4%) 7(25.9%) 14(60.9%) Total
District – Bankruptcy Judge NDGA1 NDGA2
27(100%) 23(100%)
89 ?²
(2) = 11.16, p < .00.
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2. Pre-Confirmation Dismissal and Discharge Rates We expected but did not find a correlation between the rate of pre-confirmation dismissals and conversions and the rate of debtor discharge in a district. Typically, a case is dismissed or converted before confirmation because the debtor did not make the payments required to that point by the plan. In addition, the Chapter 13 trustee or court may screen cases for feasibility at confirmation, and dismiss those that are unlikely to achieve completion. Because cases dismissed without confirmation of a plan are cases that are least likely to succeed, we speculated that the discharge rates would correspond to higher preconfirmation dismissal rates. However, as shown in Table 20 below, the Middle District of North Carolina and the Western District of Pennsylvania had the highest rates of debtor discharge, yet the North Carolina district had the lowest rate and the Pennsylvania district had the highest rate of pre-confirmation dismissals and conversions. At the same time, the district with the lowest rate of debtor discharge – the Western District of Tennessee – had among the higher rates of preconfirmation dismissals and conversions, and the district with the second lowest rate of discharge – the Middle District of Tennessee – also had the second lowest rate of pre-confirmation dismissals and conversions.
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Table 20. Comparison of Discharge, and Confirmation Rates, by District WD MD ND SD TN TN GA GA Dismissals 24.6 14.0 28.5 19.0 and % % % % Conversions Before Confirmatio n (as % of all cases) Discharges 20.0 29.0 30.9 36.0 (as % of all % % % % cases) Discharges 26.5 33.7 43.2 44.4 (as % of % % % % cases with confirmed plan)
Dismissal/Conversion Before MD NC 12.0 % WD PA 32.0 %
MD 25.2 %
ALL 22.8 %
36.4 % 48.6 %
47.0 % 53.4 %
37.0 % 54.4 %
33.0 % 42.7 %
The absence of a significant correlation between the rate of pre-confirmation dismissals and conversions and the rate of debtor discharge may suggest that some courts and trustees generally do not carefully screen cases for feasibility.90 In fact, courts and trustees may see little downside in allowing debtors to proceed with even the most unrealistic plans. Absent any creditor objection based on the treatment of its claim, the alternative is dismissal or conversion to Chapter 7, where unsecured creditors are not likely to collect anything. As the chief judge in one of the sample districts remarked, the test for feasibility is a “heartbeat” test: if the debtor has a heartbeat, the plan is feasible.91 One
90 See
also Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 536 (reporting that three of four standing Chapter 13 trustees did not scrutinize budgets for feasibility); Jean Braucher, Counseling Consumer Debtors to Make Their Own Informed Choices – A Question of Professional Responsibility, 5 AM. BANKR. INST. L. REV. 165, 195 (1997) (reporting that “ome chapter 13 trustees make sure that debtors have budgeted enough to live on, as part of a feasibility review.”). 91 See also Lynn M. LoPucki, Common Sense Consumer Bankruptcy, 71 AM. BANKR. L. J. 461, 474-475 (1997). But see Gary Neustadter, When
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exception may be the Western District of Pennsylvania, which had fewer than expected dismissals after confirmation and more than expected dismissals before confirmation.92 Alternatively, the absence of any significant correlation between pre-confirmation dismissals and conversions and the rate of debtor discharge may mean that there is in fact little connection between the apparent feasibility of a plan and the actual feasibility of a plan. Another possible explanation is that non-payment is by far the leading reason for dismissal, and because some courts consider confirmation at an earlier point after filing than others, fewer debtors in the early-confirmation districts are in serious default at the time of confirmation, so fewer cases are dismissed before confirmation and more are dismissed after confirmation in these districts. B. THE CHAPTER 13 TRUSTEES There were one to three standing Chapter 13 trustees in each of the seven sample districts. Second only to the bankruptcy judges in their potential influence over case administration,93 the standing trustees are closely involved in almost every aspect of Chapter 13 case administration. The trustee presides over the meetings of creditors, reviews all plans and when appropriate objects to confirmation, seeks dismissal of cases when the debtor fails to make required plan
Lawyer and Client Meet: Observations of Interviewing and Counseling Behavior in the Consumer Bankruptcy Law Office, 35 BUFF. L. REV. 177, 204 (1986) (stating the local bankruptcy judge carefully assessed feasibility of proposed Chapter 13 plans). 92 The combination of lower discharge rate and higher preconfirmation dismissal rate reported in Table 20 for the Western District of Tennessee may have been a function of the very high numbers of serial filers there. See supra note 30 and accompanying text and Figure 1. 93 See also Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 556 (concluding that “Chapter 13 standing trustees have great potential influence” on local legal culture).
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payments, recommends to the court the standard “no-look” fee for debtors’ attorneys, and collects and disburses payments to creditors. Trustees in some districts have implemented debtor education programs for Chapter 13 debtors,94 and some may be zealous advocates for the use of Chapter 13 instead of Chapter 7 by debtors in their districts.95 We found no significant differences in case outcomes based on the identity of the standing Chapter 13 trustee. It was difficult to disentangle the impact of judges from the impact of trustees on case outcomes, because (except in one district96 in which there were no significant differences in case outcomes among judges) only one trustee administered essentially all cases before a given judge.97 Nonetheless, seven of the fourteen standing trustees in the study handled almost all of the cases assigned to two or more judges. In the District of Maryland, Middle District of Tennessee, Western District of Tennessee, Northern District of Georgia and Southern District of Georgia, at least one of the standing trustees was assigned to handle the cases before two or more judges. In these five districts, then, we were able to compare the case outcomes for each of the trustees to determine whether there were any significant differences in case outcomes based on the identity of the trustee. Looking at only these cases, we found no significant differences in case outcomes based on the identity of the trustee.98 Although limited in
94 See
Braucher, An Empirical Study of Debtor Education, supra note
1. Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 556-559. 96 In the Western District of Tennessee, one judge’s cases were split between two standing trustees. 97 See supra note 86. 98 Specifically, in the District of Maryland, there were no significant differences in discharge rates for the cases that Chapter 13 Trustee Cosby administered before either of two judges. The same
95 See
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their reliability due to the small sample of trustees, these findings tend to support the conclusion that judges typically exert more influence over case outcomes than trustees and that the broader culture, or the interaction or confluence of attitudes and practices of the relevant actors, generally exerted more influence on case outcomes than the actions of individual trustees. VII.THE DEBTORS’ ATTORNEYS The debtor’s attorney also plays a pivotal role in the Chapter 13 system. The attorney advises the debtor regarding the need to file for bankruptcy relief and, if bankruptcy is advised, whether to file under Chapter 7 or Chapter 13. In Chapter 13 cases, the attorney’s duties include working with the debtor to devise a feasible and otherwise confirmable plan. The court case records contain very limited information regarding debtors’ attorneys. We were able to collect data on whether the debtor was represented by an attorney, and if so, the name of the attorney or firm. In addition, as discussed in Part V above, we also surveyed the Chapter 13 trustees in each district regarding the amount of the standard fee for Chapter 13 cases in their districts in 1994 and regarding any requirements for payment of attorney fees under the plan as opposed to up front.
was true for Trustee Lackey, who administered cases before the other two judges. In the Middle District of Tennessee, there was no significant difference in the discharge rates between the different judges whose cases were administered by the one standing Chapter 13 trustee. In the Northern District of Georgia, the discharge rates did not significantly differ as between any of the three judges whose cases were assigned to Trustee Bone. Nor did any significant differences occur in the distribution of discharge rates for Trustee Brown in the cases before the two judges whose cases she served. Finally, there were no significant differences in discharge rates in the Western District of Tennessee for trustee (now Judge) Emerson in cases before two judges and similarly no differences for Trustee Stevenson in the cases that he handled before either of two judges.
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This Part reports on the numbers of debtors who filed for Chapter 13 pro se, and compares case outcomes and bankruptcy refiling rates based on whether the debtor was represented by an attorney. It then considers the relation between case outcome and whether the debtor was represented by a “low-volume” or “high-volume” debtor law practice. A. PRO SE AND REPRESENTED DEBTORS Overall, there were relatively few cases in which the debtor was not represented by an attorney, however, the percentage of cases varied considerably by district. Table 22 reports the number of pro se cases in each district and in the entire sample. As shown, 27 of 795 debtors (3.4%) were not represented by an attorney. The number of pro se filings ranged from none in the sample of cases from the Southern District of Georgia and the Western District of Tennessee to nine percent (9%) in the District of Maryland, and 6.9% in the Northern District of Georgia.99
Table 22. Pro Se Filings
DM D Pro se filings Total Cases Percent of total cases
9 100 9%
MD NC
2 100 2%
MD TN
1 100 1%
ND GA
11 160 7%
SDG A
0 100 0%
WD PA
4 100 4%
WD TN
0 140 0%
All Distri cts
27 795 3.4%
Not surprisingly, debtors who were not represented by an attorney were far more likely to have their cases dismissed or converted before
99 Compare TERESA A. SULLIVAN, ELIZABETH WARREN & JAY L. WESTBROOK, AS WE FORGIVE OUR DEBTORS 23 (1989) (of 1529 Chapter 7 and Chapter 13 filings in 1981, 62 debtors (4.05%) were pro se, with most from one district with a nonlawyer “clinic” (later closed) advising these debtors). Pro se cases are more common in Chapter 7 cases because they are simpler than Chapter 13 cases.
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confirmation, and much less likely to have their cases dismissed or converted after confirmation or to receive a discharge than debtors represented by an attorney.100 As reported in Table 23 below, 76.9% of pro se cases were dismissed or converted before confirmation, and another 11.5% were dismissed after confirmation. Only three of 26, pro se filings (11.5%) resulted in a discharge for the debtor.101 By comparison, 33.8% of the debtors represented by an attorney attained a discharge, while 20.5% of represented debtors’ cases were dismissed before confirmation and 45.8% were dismissed after confirmation.
Table 23. Case outcome and Refilings, Pro se versus Represented Debtors102
Dismissed / Converted Before Confirmat ion Type of Refiling Pro se (pro se vs. attorne
Represente d by attorney 20 76.9% 157 20.5%
Dismissed / Converted After Confirmat ion
2 11.5% 351 45.8%
Completed
Total
3 11.5% 259 33.8%
26 100% 767 100%
We further examined whether pro se debtors were more likely to be repeat filers than debtors represented by an attorney. Specifically, we
= 46.27, p < .001. BAPCPA amendments make bankruptcy filings more difficult and complicated, and thus even fewer pro se Chapter 13 debtors can be expected to confirm and complete a plan and obtain a discharge under the new law. See e.g., 11 U.S.C. § 109(h) (2006) (requiring individual debtors to obtain credit counseling before filing); § 521 (requiring significant additional debtor duties and paperwork). This result undercuts the wisdom of the BAPCPA requirement that debt relief agencies disclose to debtors that they might not need an attorney. See 11 U.S.C. § 527(b) (2006). 102 Due to the robustness of the statistical test used (?²-test) and the fact that it compares cell means, the large difference in sample sizes does not explain the significant differences between the groups.
101 The 100 ?²(2)
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compared the number of previous and subsequent filings and the total number of other filings by pro se debtors and by debtors represented by an attorney. There were no significant differences between the two groups for any of the variables.103 This finding indicates that pro se debtors are statistically not significantly more (or less) likely to be repeat filers than debtors represented by an attorney. B. LOWER-VOLUME AND HIGHER-VOLUME DEBTOR ATTORNEY LAW PRACTICES The consumer bankruptcy bar in all of the sample districts includes solo and small firm practitioners as well as larger law practices that represent greater numbers of debtors. We collected from the debtors’ petitions the name of the attorney or firm representing each debtor, and then separately coded each attorney and firm name. We then tabulated the number of debtors represented by each attorney or firm. Based on the number of debtors in the sample that a given attorney or firm represented, we classified each attorney and firm as a higher-volume or lowervolume practitioner. We classified any attorney or firm that handled seven or more cases as a high-volume practice.104 As detailed in Table 24 below, across districts, most debtors were represented by attorneys with lower-volume practices as we have defined that term. Over 68% of the debtors were represented by attorneys who represented between one and six sample debtors, including 40.6% of debtors who
p’s > .05. her empirical study of lawyers and consumer bankruptcy, Professor Braucher likewise classified consumer bankruptcy law practices as either high- or low-volume. She noted that “high-volume lawyers devote all or most of their time to bankruptcy work, while the low-volume lawyers usually devote substantial time to one or more other practice areas.” Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 519.
104 In
103 All
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were represented by attorneys who handled only one or two of the sample cases. Nearly 32% of the debtors were represented by attorneys who handled seven or more other cases in the sample. The number of sample cases handled by one attorney or firm ranged from 1 to 27.105
Table 24. Attorney Case Load Number/Percentage of bankruptcy cases per attorney’s overall caseload Caseload 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 11.00 13.00 16.00 17.00 27.00 Total Missing Total Frequency 194 129 74 64 45 37 56 32 27 33 27 32 17 27 794 1 795 Percent 24.4 16.2 9.3 8.1 5.7 4.7 7.0 4.0 3.4 4.2 3.4 4.0 2.1 3.4 99.9 .1 100.0
A comparison of attorney caseloads across the seven sample districts revealed significant 106 As reported differences in average caseloads. in Tables 25 and 26 below, debtors in the Middle
105 Jean Braucher, The Challenge to the Bench and Bar Presented by the 2005 Bankruptcy Act: Resistance Need Not be Futile, 2007 U. ILL. L. REV. 93, 95 (“The consumer debtor bar is likely to consolidate as a result of the 2005 Act . . . . In a sign of predicted trends, a continuing legal education session at the 2005 annual meeting of the National Conference of Bankruptcy Judges was devoted to “How to Run a ‘Mill’: Ethically and Effectively.”“) 106 F(6,787) = 7.66, p < .01.
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District of Tennessee, the Northern District of Georgia and the Western District of Pennsylvania more frequently were represented by attorneys who handled a higher volume of cases, and the difference was statistically significant.107 The higher average caseloads tended to occur in the districts dominated by a large city: Atlanta in the Northern District of Georgia, Nashville in the Middle District of Tennessee, and Pittsburg in the Western District of Pennsylvania. The overall average caseload was 5.68 cases per attorney in the sample.108
Table 25. Average Attorney Case Load by District District Average Attorney Caseload MD 4.32 MDNC 4.24 MDTN 8.24 NDGA 6.74 SDGA 4.56 WDPA 6.46 WDTN 4.8 All Districts 5.68
(6) = 43.74, p < .001. of the BAPCPA amendments may have the effect of reducing the number of lower-volume practitioners, and further concentrating the representation of debtors in higher-volume practices, because the amendments make filing for bankruptcy more complicated and expensive, and impose greater obligations and potential liabilities on debtor’s attorneys. See, e.g., 11 U.S.C. §§ 526, 527 (as amended 2005).
108 Some
107 ?²
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Table 26. Law Practice Case Loads, Lower- and Higher-Volume Practices, by District District MD MD MD ND SD WD WD Total NC TN GA GA PA TN Practices 84 83 50 102 75 62 87 543 with seven (15.5 (15.3 (9.2% (18.8 (13.8 (11.4 (16% (100 or fewer %) %) ) %) %) %) ) %) cases Practices 16 17 50 62 25 38 43 251 with more (6.4% (6.8% 19.9 (24.7 (10% (15.1 (17.1 (100 than seven ) ) %) %) ) %) %) %) cases Total 100 100 100 164 100 100 130 794
(12.6 %)
(12.6 %)
(12.6 %)
(20.7 %)
(12.6 %)
(12.6 %)
(16.4 %)
(100 %)
The quality of an attorney’s representation of a debtor may be related to the volume of cases handled by the firm. The size of the practice might cut either way. On the one hand, a highervolume practice might mean greater legal expertise and efficiencies that promote a higher quality of representation and by extension a better discharge rate. On the other hand, a higher-volume practice may mean routinized practices that give less attention to individual debtors and fail to fully take into account their particular circumstances and needs. Overall, debtors represented by attorneys who handled seven or more sample cases were significantly less likely to complete their plans and obtain a discharge. Stated differently, debtors represented by an attorney with fewer than seven cases were more likely to complete their cases and receive a discharge, and correspondingly less likely to have their cases dismissed or converted, than debtors who were represented by an attorney with seven or more cases.109 Figure 2 below compares Chapter 13 case outcomes based on whether the debtor was represented by a higher109 ?²(1)
= 4.61, p< .05.
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volume or lower-volume law practice. The differences in case outcomes based on the number of cases handled by an attorney were not significant when at any cut-off line below seven. Figure 2. Case Outcomes and High- vs. Low-Volume Practices
Finally, there were no statistically significant differences based on attorney caseloads with respect to debtor refiling rates.110 In other words, high-volume practitioners were no more likely to represent repeat filers than were lowervolume attorneys.
110 p
> .05.
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VIII.CONCLUSION There are wide variations across federal judicial districts in how the bankruptcy laws work in practice, and these differences go well beyond Chapter 7 and Chapter 13 filing rates and proposed distributions to unsecured creditors in Chapter 13 cases. The Chapter 13 Project documents significant differences in the characteristics of the debtors who used Chapter 13 in different courts, as well as in the purposes for which they used Chapter 13. In some jurisdictions, the large majority of debtors used Chapter 13 primarily to address mortgage defaults, while in other districts the local legal culture appears to encourage debtors to use Chapter 13 to maximize repayment to unsecured creditors. Further, as reflected in debtor debt-income ratios and district filing rates per 100,000 of population, debtors in some localities more readily resorted to bankruptcy relief when confronted with financial crisis. Relatedly, some districts experience significantly higher debtor refiling rates than other districts. Furthermore, Chapter 13 case outcomes varied considerably across districts. We have examined the relation between case outcomes and various case administration practices, and have begun to explore the roles of the key legal actors in the Chapter 13 system, namely the bankruptcy judges, Chapter 13 standing trustees and debtors’ attorneys. On a practical level, the data reveal that the case outcomes differed significantly depending on whether the district routinely used wage orders to collect debtors’ plan payments. However, there were not any significant differences among districts based on whether postpetition mortgage payments were paid through the trustee. The data regarding the relation between restrictions on the amount of the debtor’s attorney fee that can be paid in advance are poor, and so no definitive conclusions can be drawn.
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However, anecdotally, several trustees, judges and lawyers told us that such restrictions do increase plan completion rates. Finally, the Project data indicate that individual judges can and do exert a decisive influence over case outcomes in some single-judge divisions, but that the Chapter 13 standing trustees in the sample districts did not appear to exert such influence apart from their prominent roles in establishing generally applicable district policies and practices. The identity of the debtor’s attorney can have a significant impact on case outcome; debtors represented by higher-volume law practices were significantly less likely to complete their plans than debtors represented by lower-volume practices.
doc_399657296.pdf
In statistics, explained variation measures the proportion to which a mathematical model accounts for the variation (dispersion) of a given data set. Often, variation is quantified as variance; then, the more specific term explained variance can be used.
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REPORT ON AN EMPIRICAL STUDY OF DISTRICT VARIATIONS, AND THE ROLES OF JUDGES, TRUSTEES AND DEBTORS’ ATTORNEYS IN CHAPTER 13 BANKRUPTCY CASES
by Scott F. Norberg and Nadja Schreiber Compo*
I. INTRODUCTION It is a truism that, while bankruptcies throughout the United States are governed by the same Bankruptcy Code and Rules of Bankruptcy Procedure, there are wide variations across federal judicial districts and divisions in how the law works in practice.1 In a Chapter 13 system
* Professor Norberg is a Professor of Law, Florida International University College of Law. Professor Compo is an Assistant Professor of Psychology, Florida International University. We are grateful to the National Conference of Bankruptcy Judges Endowment for Education and the American Bankruptcy Institute for their grants in support of the Chapter 13 Project, and to the Florida International University College of Law and Department of Psychology for providing research assistance. In addition, we thank the Chapter 13 trustees, bankruptcy court clerks, chief bankruptcy judges and regional United States Trustees in the seven districts covered by the Project for their diligent and professional assistance in the gathering of the data for the Project. 1 See Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence
101
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that has averaged over 300,000 filings a year during the past ten years,2 and that has distributed as much as $5.5 billion dollars a year to creditors,3 the potential social and economic impact of these differences is great. The empirical findings that we report here are based on data from the Chapter 13 Project, a multi-district study of the Chapter 13 system and the extent to which it has fulfilled two of its principal purposes – debtor fresh start and creditor repayment. The initial report on the Project’s findings focused on the debtors and their creditors in Chapter 13 cases. We described the debtors in our sample, and statistically measured the relationships between certain debtor characteristics and Chapter 13 plan features, on the one hand, and debtor discharge and the amounts and types of debt repaid to creditors, on the other hand.4 In this article, we report on differences among
Westbrook., The Persistence of Local Legal Culture: Twenty Years of Evidence from the Federal Bankruptcy Courts, 17 HARV. J.L. & PUB. POL’Y 801, 804 (1994) [hereinafter, Sullivan et al., The Persistence of Local Legal Culture]; Jean Braucher, Lawyers and Consumer Bankruptcy: One Code, Many Cultures, 67 AM. BANKR. L.J. 501, 503-504 (1993) [hereinafter, Braucher, Lawyers and Consumer Bankruptcy]. See also Jean Braucher, An Empirical Study of Debtor Education in Bankruptcy: Impact on Chapter 13 Completion Not Shown, 9 AM. BANKR. INST. L. REV. 557, 559 (2001) [hereinafter, Braucher, An Empirical Study of Debtor Education]; William C. Whitford, Has the Time Come to Repeal Chapter 13?, 65 IND. L.J. 85 (1989); Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, Laws, Models, and Real People: Choice of Chapter in Personal Bankruptcy, 13 LAW & SOC. INQUIRY 661, 693-700 (1988). 2 Administrative Office of the U.S. Courts, 1983-2003 Bankruptcy Filings, 12-month period ending June, by Chapter and District, http://www.uscourts.gov/bnkrpctystats/statistics.htm#june. 3 U.S. Trustee Program, Chapter 13 Handbooks & Reference Materials, Chapter 13 Statistics, FY 1994-2006, Chapter 13 Trustee Audited Annual Reports, at http://www.usdoj.gov/ust/eo/private_trustee/library/chapter13/index.h tm. 4 See Scott F. Norberg & Andrew J. Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, 39 CREIGHTON L. REV. 473 (2006) [hereinafter Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13].
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districts in the debtors who used Chapter 13 and in local case administration practices. We also begin to explore the roles of the key legal actors in Chapter 13 cases – the bankruptcy judges, Chapter 13 standing trustees and debtors’ attorneys. While it is well-established that Chapter 13 discharge rates vary widely across judicial 5 districts, and that bankruptcy and Chapter 13 filing rates differ substantially as well,6 our data reveal additional, sometimes unexpected, district variations in the debtors who used Chapter 13. For example, debtor incomes, debtincome ratios, refiling rates, and the proportion of individual female petitioners differed significantly across some of the seven sample districts. These differences add texture and detail to the existing picture of how the federal bankruptcy laws work differently in different locales, and suggest that the roots of the “bankruptcy epidemic” are more complex than generally understood and that bankruptcy reforms will impact filings and outcomes very differently in different places. We evaluate the relation between district dismissal and discharge rates, on the one hand, and various case administration practices, on the other hand, with the purpose of identifying best practices that may improve case outcomes for Chapter 13 debtors and their creditors. Bankruptcy courts across the country employ varying practices with respect to the use of wage orders, payment of post-petition mortgage payments through the trustee, payment of debtors’ attorneys’ fees, and plan payment moratoriums.
at 505-508 & n. 70 (reporting on district pre-confirmation dismissal, post-confirmation and discharge rates in the seven districts covered by the Chapter 13 Project, and citing to other studies reporting on Chapter 13 discharge rates in various districts). 6 E.g., Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 817-828 & Tables 1-3.
5 Id.
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They have also maintained differing expectations regarding plan length and minimum distribution to unsecured creditors. The data reveal significant differences in district discharge rates depending upon whether the district routinely issued wage orders for debtors’ plan payments. However, there were no significant differences in case outcomes based on whether debtors’ ongoing, post-petition mortgage payments were paid through the trustee. The effects of bankruptcy courts’ regulations on the payment of debtors’ attorney fees and of plan payment moratoriums were not clear from the data. Shorter plans resulted in a discharge of the debtor at a greater rate than longer plans, while counter intuitively, there were no significant differences in discharge rates depending on whether a district maintained a benchmark distribution to unsecured creditors. Regarding the roles of the key legal actors in Chapter 13cases, the data reveal significant differences in case outcomes based on the identity of the bankruptcy judge in a few single-judge divisions in three of the sample districts. These findings appear to confirm the influence that bankruptcy judges have over their case outcomes when they can cleanly exert that influence. The findings also imply that judges in multi-judge districts collectively may influence case results decisively, while either different practices or attitudes, or a tendency to gravitate toward common practices and attitudes, among the judges tends to moderate their individual influence. Notably, the data reveal no significant differences in judges’ discharge rates based on the rate at which they dismissed cases before confirmation of a plan. Predictably, debtors who were not represented by an attorney were much less likely to achieve a discharge. Debtors represented by a high-volume practitioner also were significantly less likely (but more likely than pro se debtors) to complete a plan and attain
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a discharge than debtors represented by a lowvolume practitioner. Part II briefly describes the design and methodology of the Chapter 13 Project. Part III reports on characteristics of the debtors filing for Chapter 13 relief in the seven districts covered by the Project. Part IV reports on the dismissal and discharge rates across the sample districts. Part V then examines differing district case administration practices, Part VI considers the roles of individual judges and Chapter 13 trustees in Chapter 13 case outcomes, and Part VII addresses the relationships between the debtor’s representation and discharge and case refiling rates. Finally, Part VIII concludes with a brief summary of our findings and conclusions and several recommendations regarding best practices. II.DESIGN PROJECT AND METHODOLOGY OF THE CHAPTER 13
The Chapter 13 Project is an empirical study of 795 Chapter 13 cases filed in 1994 in seven federal judicial districts comprising fourteen Chapter 13 trusteeships. The seven federal judicial districts are: Northern District of Georgia, Southern District of Georgia, Middle District of North Carolina, Middle District of Tennessee, Western District of Tennessee, District of Maryland, and Western District of Pennsylvania. Collectively, these seven districts accounted for a very large portion – nearly 20%—of Chapter 13 filings nationally in 1994. There were 240,639 Chapter 13 filings in 1994, including 47,393 in the seven sample districts.7 In each district, we pulled a quota sample of one percent (1%) of the Chapter 13 cases filed in 1994, but no fewer than 100 cases. The sample includes 165 cases from the Northern District of
7 See
supra note 2.
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Georgia, 130 cases from the Western District of Tennessee, and 100 cases from each of the other five districts. The Chapter 13 Project’s sample of debtors, trusteeships and districts was highly representative of the nation as a whole, notwithstanding significant variations in practice among districts, judges and trustees across the country. The discharge rate for the 795 debtors, as well as the average discharge rate across the seven districts, was almost identical to the oftcited national average of 33%.8 Further, the amounts and types of debt repaid by the debtors were similar to the national averages reported by the Executive Office for United States Trustees for all Chapter 13 cases closed during the same time period.9 The percentages of male and female petitioners, and the debt-income ratios of the debtors were comparable to those observed in other studies.10 While representative of the nation in the key areas of debtor discharge and creditor repayment, the sample is a multi-district, not a national, sample. The sample districts are located mostly in Southern states with higher Chapter 13 filing rates. At the same time, the choice of seven districts that accounted for nearly 20% of all Chapter 13 filings likely contributed to, rather than detracted from, the representativeness of the sample. The representativeness of the sample also was not undermined by the fact that it includes one percent of filings in the Northern District of Georgia and the Western District of Tennessee, and more than one percent of filings in the other five districts (ranging from 1.9% of Chapter 13 filings in the Southern District of Georgia to 11.9% in the Western District of Pennsylvania). Further,
infra note 33 and accompanying text and Tables 5 and 6. Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 480 & n. 11. 10 See id. at 483, 491-494.
9 See 8 See
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by including a minimum of 100 cases from each district, we were able to run numerous interdistrict analyses and intra-district comparisons. The term “significant” is used throughout the paper to mean statistical significance. Statistical analyses were performed using the SPSS software package and a criterion level of 5%. Thus, statistical significance is inferred only where there would be a 5% or less probability that a finding arose by chance. Most of the time, we used non-parametric tests for comparisons of nominaland ordinal-scaled variables (e.g., district, case disposition, other filings); and parametric tests for comparisons of intervalscaled variables (e.g., income, debt). The statistical analyses do not interpolate or extrapolate the values of missing data. If data were not available, the case was excluded from the relevant analysis. Much of the data analyzed for the study did not meet the criteria to be considered normally distributed in the sample. When normality assumptions were substantially violated and could not easily be resolved by excluding outlying scores (+3 SD’s above the mean), non-parametric statistical analyses were used instead. Finally, we note that we collected the Project data approximately five years ago, between 2000 and 2002, and that the data are from cases filed in 1994 and closed between 1994 and 2000. (The maximum length of a Chapter 13 plan is five years, so that the earliest time that data could be collected was in 2000.) While the data are not the most current available, there is no reason to believe that the findings and conclusions based on the data are not fully applicable to current Chapter 13 practice. All of the same variations in practices and conditions that are the subject of this paper remain in effect across the federal bankruptcy system today. Thus, for example, bankruptcy courts continue to take varying
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approaches to the use of wage orders, payment of mortgages through the trustee, regulation of attorney fees and the like. Moreover, our findings will serve as a baseline for evaluating the impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) on Chapter 13 practice and case outcomes. III.DISTRICT VARIATIONS IN THE CHAPTER 13 DEBTORS There were significant, sometimes unexpected, differences across the seven sample districts in Chapter 13 filing rates, debtor homeownership rates, debtor incomes and debt-income ratios, the numbers of repeat filers, and the proportion of male, female and joint petitioners. While many of these differences are not easily explained, they add texture and detail to the existing picture of how the bankruptcy system functions differently in different locales.11 Some of the differences may reflect varying economic circumstances of the debtors or differing state law debt collection regimes in the several districts, while other of the variations evidence different norms regarding use of the Chapter 13 system based on the local legal12 and non-legal cultures. A. CHAPTER 13 FILING RATES That legal culture differs widely across localities, even within a single state, is
11 See, e.g., Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 498-499, 507-509; Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 804; Braucher, Lawyers and Consumer Bankruptcy, supra note 3, at 503-504; William C. Whitford, The Ideal of Individualized Justice: Consumer Bankruptcy as Consumer Protection, and Consumer Protection in Consumer Bankruptcy, 68 AM. BANKR. L.J. 397, 406 (1994) [hereinafter, Whitford, The Ideal of Individualized Justice]. 12 “Local legal culture” refers to the variations in local legal practices that arise from the perceptions, attitudes and expectations of bankruptcy judges, trustees and attorneys in a particular locality. See Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 804; Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 503-504.
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illustrated by the wide differences in consumer and Chapter 13 filing rates across the country.13 Nationally, Chapter 13 filings have approximated 30% of annual consumer filings.14 As reported in Table 1 below, in the seven sample districts covered by the Chapter 13 Project, the ratio of Chapter 13 filings to total consumer filings ranged from 16.9% in the Western District of Pennsylvania to 80.7% in the Western District of Tennessee. Overall, nearly 60% of the debtors in the sample districts filed under Chapter 13 in 1994, nearly double the national average.15 The ratio of Chapter 13 filings to total consumer filings was above the national average in five of the sample districts, and below the national average in two – the District of Maryland and the Western District of Pennsylvania.16 Further, there were large differences between districts in the two states in which the Project pulled cases from two districts within the state. The Chapter 13 filing rate in the Southern District of Georgia was almost 9% higher than in the Northern District of Georgia. More
Sullivan et al., The Persistence of Local Legal Culture, supra, note 1, at 822-830 (reporting on and discussing variations among federal judicial districts in bankruptcy filing rates). 14 See supra note 2. 15 Id. See generally Gordon Bermant and Ed Flynn, Bankruptcy by the Numbers, Thoughts on the “Local Legal Culture,” The Case of Consumer Chapter Choice, Feb. 2002 AM. BANKR. INST. J. 24 (reviewing data on the variation among districts and states in percentages of consumer debtors who choose Chapter 13 or Chapter 7); Gordon Bermant and Ed Flynn, Bankruptcy by the Numbers, A Tale of Two Chapters, Part I, Aug. 2002 AM. BANKR. INST. J. 20 (same); Gordon Bermant, Bankruptcy by the Numbers, Exploring the Demographics of Consumer Chapter Choice, May 1999 AM. BANKR. INST. J. 20 (finding that the “percentage of chapter 13 filings in a state tends to vary directly with the number of filings per 1000 households in the state”). 16 As discussed supra, notes 8-10 and accompanying text, the fact that most of the sample districts had a higher proportion of Chapter 13 filings than the national average did not detract from the representativeness of the Project sample. Rather, the representativeness of the sample was likely in part a result of the fact that the districts included in the sample accounted for a large proportion, nearly 20%, of all Chapter 13 filings in 1994.
13 See
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dramatically, the proportion of Chapter 13 filings in the Western District of Tennessee was more than 25% higher than in the Middle District. As Sullivan, Warren and Westbrook have written, these intra-state differences support the conclusion that state law does not explain variations in Chapter 13 filings rates, and that local legal culture probably accounts for the variations.17 Table 1.
District
Consumer Bankruptcy Filings, 1994
Total Consumer Filings 24,686 6,822 8,648 16,083 4,201 4,976 14,272 79,688 778,190 Chapter Filings 16,466 5,173 4,794 12,972 3,161 840 3,987 47,393 240,639 13 Percent Chapter Filings 66.6% 75.8% 55.4% 80.7% 75.2% 16.9% 27.9% 59.5% 30.9% 13
NDGA SDGA MDTN WDTN MDNC WDPA DMD Seven Districts United States
B. HOMEOWNERSHIP The homeownership rates of the debtors in the Project sample also varied substantially by district. As reported in Table 2, overall, about 47% of the debtors were home owners.18
17 Sullivan,
et al., The Persistence of Local Legal Culture, supra note 1, at 833-839. 18 Neither the Schedules, Official Bankruptcy Form 6, nor the Statement of Financial Affairs, Official Bankruptcy Form 7, includes any direct question regarding homeownership. Homeownership was inferred from whether the debtor scheduled a mortgage or mobile home debt. Thus, the rate of home ownership reported here may be slightly understated because some debtors may have owned homes not subject to any mortgage, and some mortgage or mobile home creditors may not have been identifiable as such. 427, or 54%, of the cases indicated a mortgage or mobile home debt. We identified 16 mobile home debts in
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Homeownership rates ranged from a low of 32% in the Middle District of Tennessee to a high of 79% in the Western District of Pennsylvania. The very large variations in homeownership rates among debtors in several of the sample districts suggest that the purposes for which many of the debtors used Chapter 13 differed markedly by district. As evidenced by the high homeownership rate, debtors in the Western District of Pennsylvania generally used Chapter 13 to deal with mortgage defaults. At the same time, the great majority of debtors in the Middle District of Tennessee, and nearly half of the debtors in the Northern and Southern Districts of Georgia and the Western District of Tennessee, used Chapter 13 for other reasons.19
the Middle District of North Carolina, seven in the Northern District of Georgia, , five in the Southern District of Georgia and one each in the District of Maryland and the Middle District of Tennessee. In the Middle District of Tennessee, we identified 42 debtors with mortgage debt, and further estimated that roughly 25 real estate mortgages were listed as priority instead of secured debts. The remaining 372 homeowners were identified as having mortgage debts. The 47% homeownership rate for the sample debtors compared to the national rate of homeownership in 1994 of 64%. Robert R. Callis, Current Housing Reports, Moving to America – Moving to Home Ownership: 1994-2002, U.S. Census Bureau (Sept. 2003), available at http://www.census.gov/prod/ 2003pubs/h121-03-1.pdf. 19 A chi-square analysis indicated differential rates of homeownership across the districts studied, ?2 (6, N = 795) = 67.09, p < .001. The homeownership rate in Middle District of Tennessee (32.0%) was lower than expected, and homeownership rates in Maryland (57%), the Middle District of North Carolina (58%) and the Western District of Pennsylvania (79.0%) were higher than expected. The significantly different homeownership rates among districts could be a function not of local legal culture, but of differences in state debt collections laws. The fact that the homeownership rates for the debtors in the Northern and Southern Districts of Georgia, and in the Middle and Western Districts of Tennessee, are almost identical tends to support the conclusion that state debt collection law, including mortgage foreclosure and homestead exemption laws, influence the proportion of Chapter 13 debtors who use Chapter 13 to deal with a debt secured by the debtor’s home.
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Table 2. District MD MDNC MDTN NDGA SDGA WDPA WDTN Total
Frequency of Homeownership by District Do not own home Homeowner (percent) (percent) 43 (43%) 57 (57%) 59 (59%) 41 (41%) 68 (68%) 32 (32%) 90 (54.5%) 75 (45.5%) 54 (54%) 46 (46%) 21 (21%) 79 (79%) 88 (67.7%) 42 (32.3%)20 423 (53.2%) 372 (46.8%)
C. INCOME AND DEBT-INCOME RATIO The mean debt-income ratio, excluding mortgage debt, varied dramatically between several of the sample districts. As shown in Table 3, the mean debt-income ratio in the Western District of Tennessee – 1.0 – was considerably less than half that in the Southern District of Georgia – 2.4. The overall mean debt-income ratio was 1.5, and the mean in four of the seven districts fell between 1.2 and 1.4.21 Stated differently, the average debtor had non-mortgage debts equal to one and a half years’ income, while the debtors in the Western District of Tennessee had on average nonmortgage debts equal to one year’s income, and debtors in the Southern District of Georgia had average non-mortgage debts equal to nearly two and a half years’ income. It might be expected that debtors with lower incomes would tend to have lower debt-income ratios at the time of their bankruptcy filing. A lower-income debtor must devote a greater a
20 This figure includes approximately 25 cases in which mortgage debt apparently was listed as priority debt. 21 Univariate ANOVAs were conducted. The differences in the mean debt-income ratio across the seven districts were significant, F(6, 736) = 21.77, p < .001. Cf. Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at p. 836 (reporting that differences in debtors’ debt-income ratios in ten districts in Texas, Illinois and Pennsylvania were statistically indistinguishable).
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portion of income to basic needs than a higherincome debtor, so that lower-income debtors would tend to have greater need for bankruptcy relief at a relatively lower debt-income ratio. The data, however, indicate no clear relation between mean debtor or household income and debt-income ratio. As further reported in Table 3, debtors in the Western District of Tennessee had both the lowest mean debt-income ratio and the lowest mean household net and gross incomes. At the same time, the debtors in the Southern District of Georgia had both the highest average debt-income ratio and the second lowest average incomes, and the debtors in the District of Maryland had the highest mean net and gross household incomes but a relatively modest mean debt-income ratio. Table 3. Debt-Income Ratio and Annual Household Incomes by District Distr Debt-income Annual Net Annual Gross ict ratio Household Income Household Income
Mean MD MDNC MDTN NDGA SDGA WDPA WDTN Total 1.4 1.4 1.2 1.3 2.4 1.8 1.0 1.5 Median .83 1.0 .93 .97 1.5 1.3 .82 .97 Mean $33,270 $18,849 $20,778 $22,101 $18,218 $25,466 $14,681 $21,506 Median $30,000 $17,040 $19,926 $20,814 $16,512 $22,926 $13,494 $18,504 Mean $41,250 $24,042 $24,061 $27,731 $22,220 $31,285 $16,942 $26,309 Median $38,400 $21,846 $21,606 $24,384 $20,136 $28,446 $14,958 $22,512
The district differences in mean and median debtor debt-income ratios may reflect differing cultures in which debtors more or less readily resorted to Chapter 13 when confronted by financial crisis. The districts where debtors had lower debt-income ratios generally had higher rates of consumer and Chapter 13 filings per
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100,000 of population.22 The debtors in the Western and Middle Districts of Tennessee had the lowest mean debt-income ratios and the highest consumer and Chapter 13 bankruptcy filing rates per 100,000 of population of the seven districts covered by the study.23 At the other extreme, debtors in the Western District of Pennsylvania had the second highest mean debt-income ratio and the lowest consumer and Chapter 13 filing rates per 100.000 of population. There was one “anomaly”: debtors in the Southern District of Georgia had by far the highest mean debt-income ratio, while that district had the fourth and second highest consumer and Chapter 13 filing rates, respectively. As further reported in Table 3 above, there was also a significant difference in the net and gross annual household incomes between the debtors in the districts with the highest and lowest means
22 Debt-Income Ratio and Bankruptcy Filing Rates, by District District NDGA SDGA MD MDNC WDPA MDTN WDTN 2.4 1.4 1.4 1.8 1.2 1.0 Mean Debt- 1.3 Income Ratio .97 1.5 .83 1.03 1.3 .94 .82 Median DebtIncome Ratio Bankruptcy 602.35 583.28 175.47 166.33 104.33 662.94 994.12 Filings (Chapters 7 & 13 per 100,000 Bankruptcy 331.32 389.88 60.86 132.61 16.06 382.77 730.61 Filings (Chapter 13) per 100,000 Source: Administrative Office of the Courts, Annual Reports for 1990 (the closest year available for the Chapter 13 Project sample of 1994 cases), as reported in Sullivan, et al., The Persistence of Local Legal Culture, supra note 1, at Table 1 and Table 2. 23 Actually, debtors in the Middle District of Tennessee had the second lowest debt-income ratios and the second and third highest consumer and Chapter 13 filing rates, respectively.
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and medians. In the District of Maryland, the mean and median, net and gross household annual incomes were all more than twice the corresponding amounts in the Western District of Tennessee. The overall mean and median, net and gross annual household incomes of the debtors in the sample were very modest, even meager: $21,506, $18,504, $26,309 and $22,512, respectively.24 While the differences in debtor incomes between districts are striking, we are hard-pressed for an explanation. While Maryland has had among the highest median incomes of any state,25 that would not necessarily result in a higher median income among those filing for Chapter 13 in the state. Perhaps the local legal culture in Maryland more consistently pushes lower income debtors into Chapter 7 cases than does the culture in the Tennessee districts. Alternatively, differences in state debt collection laws might help to explain the variance. Alternatively, it is possible that income equality contributes to over indebtedness – the “keeping up with the Joneses” problem of people with incomes that should be adequate who take on debt they can not manage when they try to live like others they know who have higher incomes. D. OTHER FILINGS At least half of all of the Chapter 13 debtors in the seven sample districts had filed one or more bankruptcy cases in addition to the sample case. Nearly 30% had filed at least one other case; 10% had filed at least two other cases; and
univariate ANOVAs revealed that the variations in average net and gross annual household incomes across districts were statistically significant, F(6, 751) = 22.60, p < .001, and F(6, 753) = 27.19, p < .001, respectively. 25 See http://www.usdoj.gov/ust/eo/bapcpa/20070201/bci_data/median_income_ta ble.htm (Executive Office for United States Trustees website, reporting Census Bureau data on median incomes for purposes of applying the means test under 11 U.S.C. § 707(b)(2)).
24 Again,
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10% had filed three or more other cases.26 Because the Project data on previous filings did not cover the same time periods in all seven of the sample districts,27 inter-district comparisons were possible only with respect to subsequent refiling rates. Here again, the data revealed statistically significant differences in the incidence of repeat refilings across districts. As reflected in Figure 1 below, 20% of the debtors in the Middle District of North Carolina filed one or more subsequent cases, compared to 39% and 56% of the debtors in the Middle and Western Districts of Tennessee, respectively.28 The overall subsequent refiling rate was 33% for all debtors in all seven districts.29 The two districts with the highest subsequent refiling rates, the Western and Middle Districts of Tennessee, had the lowest debt-income ratios, reinforcing the idea that in some districts the culture permits debtors to resort more freely to bankruptcy relief than in other districts. No doubt, many factors may further explain the differences in district filing and refiling rates
were probably more other filings by the sample debtors than evidenced by the Project data. The Project data on other filings were drawn from the debtors’ Statement of Financial Affairs and electronic searches of the PACER data base in each district. The PACER data bases have a limited reach back period, and debtors do not always report all previous filings in the Statement of Financial Affairs. See Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 496-499. 27 The PACER database for the Middle District of North Carolina reaches back only one year before the sample cases, compared to two or more years in the other six districts. 28 ?2(6, N = 793) = 47.16, p < .001. 29 BAPCPA has placed new restrictions on serial filings. The Code now provides that the automatic stay will expire 30 days after filing when an individual debtor had another case that was pending within a year before the current filing, unless a party in interest files a motion to extend the stay and shows that the current filing was in good faith, 11 U.S.C. § 362(c)(3); and that no stay will arise when the debtor had two or more cases pending within the year before filing the current case, again unless a party in interest files a motion to impose the stay and shows that the current filing was made in good faith. 11 U.S.C. § 362(c)(4).
26 There
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and mean debtor debt-income ratios, including income and cost of living levels, attorney advertising, perceived stigma, bankruptcy court efficiency, and policies and practices favoring either Chapter 13 or Chapter 7 filings by consumer debtors. In the Western District of Tennessee, the debtors had the lowest debt-income ratios and the highest refiling rate, as well as the lowest incomes. At the same time, debtors in the Southern District of Georgia had the highest debtincome ratios and a relatively high bankruptcy filing rate per 100,000 population, but a relatively lower refiling rate and lower mean income amount. That the debt-income ratios are very different in the two Georgia districts tends to support the conclusion that debt-income ratio is a function of local culture and not state debt collection law. Figure 1. Subsequent Refiling Rates by District
Percent of Current Cases wit h at Least One Subsequent Filing by Dist rict (N = 261)
60% 56.2% 50%
40%
39.0% Over al l Subsequent Fi l i ng Rate (32.9% )
30%
29.6% 28.0% 25.5%
30.0%
20%
20.0%
10%
0% MD MDNC MDTN NDGA D i st r i c t SDGA WDPA WDTN
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E. GENDER AND HOUSEHOLD SIZE There were significant differences across districts in the proportion of female, male and joint petitioners. As reported in Table 4, the percentage of women filing individually for Chapter 13 relief ranged from 28.9% in the Western District of Pennsylvania to 46.5% in the Western District of Tennessee, compared to an average percentage of individual women filers of 36.1% across all sample districts. The variation in the percentage of joint petitioners was even larger, ranging from just 15% of filings in the Western District of Tennessee to 38.1% in the Western District of Pennsylvania.30 The average household size did not differ significantly across districts; the range was 2.6 to 3.0 persons per household.
Table 4. Mean Frequency of Gender and Household Size by District District Gender Household Size Mean 2.6 2.6 2.6 2.6 2.6 3.0 2.8 2.7 2.7 Median 2.0 2.0 2.0 2.0 2.0 3.0 3.0 2.0 2.0
MD MDNC MDTN NDGA SDGA WDPA WDTN Total
Male 37% 32.3% 42% 42% 30% 33% 38.6% 36.9%
Female 39.1% 32.3% 31% 33.8% 40% 28.9% 46.5% 36.1%
Joint 23.9% 35.4% 27% 24.2% 30% 38.1% 15% 26.9%
Again, there is not an obvious explanation for the significant differences in the gender of petitioners across districts. Perhaps the local population demographics of the sample districts were different, with more single or divorced, financially distressed women in some districts
30 A chi square comparison revealed significant differences in gender distribution across the seven districts, ?² (12, N = 772) = 26.34, p < .05.
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than in others. Alternatively, or in addition, perhaps women were more susceptible than men to the influence of a culture that emphasized repayment of debt in Chapter 13 over the quick discharge in Chapter 7. As discussed above, in several districts the majority of debtors used Chapter 13 to deal with a home mortgage, while in other districts – including the districts with the highest proportion of women filing individually – most debtors appear to have used Chapter 13 because the local culture encouraged that option regardless of whether the debtor had a home mortgage. One of the two districts that appear to have most heavily emphasized Chapter 13 as a vehicle for repayment of unsecured debt, the Western District of Tennessee, was also the district with the highest proportion of women filing individually, the lowest proportion of joint filings, and the lowest mean income; whereas the district where debtors most often used Chapter 13 to deal with a mortgage debt, the Western District of Pennsylvania, had the lowest percentage of women filing individually, the highest percentage of joint filers, and the second highest mean income. One implication is that in some districts that most heavily emphasize Chapter 13 for the repayment of unsecured debt, women filing individually and who tended to have lower incomes were disproportionately represented in the ranks of Chapter 13 debtors who may have been better served by filing under Chapter 7. IV.DISTRICT DISCHARGE RATES In Parts V-VII, we use district discharge and dismissal rates in attempting to ascertain the roles of various Chapter 13 players and the efficacy of different local case administration practices. Thus, for example, we compare discharge rates by judge, trustee and whether the debtor was represented by a higher- or lowervolume legal practice. Similarly, we gauge the
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efficacy of district practices such as use of wage orders and payment of the mortgage through the trustee based on their relation to case outcomes. In performing these statistical analyses, we are cognizant that not all Chapter 13 dismissals represent “failures,” and that, conversely, debtor discharge does not invariably equate to “success” for the debtor and her creditors.31 However, because confirmation and completion of a Chapter 13 plan are the stated objectives of Chapter 13, and because plan completion and debtor discharge are more likely to provide the debtor with a fresh start and creditors with greater repayment of debt32 than if the case were dismissed, case disposition is the most reliable if not the only practical means to evaluate local practices and other variables.33 Overall, thirty-three percent (33%) of the debtors in the seven districts covered by the Project completed their plans and obtained a discharge. Sixty-seven percent (67%) of the cases were dismissed or converted, either before or
31 Some debtors achieve a fresh start without completing a plan, because the breathing spell afforded by the automatic stay allows them to regain their financial footing and to catch up on mortgage or other secured debt defaults before the case is dismissed or converted. Other debtors may lose their home or other collateral, but the interval during which foreclosure and repossession are automatically stayed gives them needed time to make other arrangements. Meanwhile, some debtors who complete a plan and attain a discharge do not achieve a fresh start. Not all claims are discharged at the end of a Chapter 13 plan, and about 15% of all debtors who achieve a discharge file again for bankruptcy protection. Norberg & Velkey, Debtor Discharge and Creditor Repayment, supra note 4 at 504. See also Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 535-36 (discussing that Chapter 13 non completions are not necessarily failures). 32 Norberg & Velkey, Debtor Discharge and Creditor Repayment, supra note 4, at 546 (reporting findings that “debtors who completed their plans paid greater amounts and percentages of their pre-bankruptcy debts than those whose cases were dismissed short of discharge.”) 33 See id. at 546-548 (using discharge rates to evaluate various debtor characteristics and plan features); Braucher, Empirical Study of Debtor Education, supra note 1, at 563 (using plan completion to gauge efficacy of debtor education and other local practices).
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after confirmation. As reported in Table 5, over 57% of the sample cases were dismissed, and nearly 10% were converted to Chapter 7. Of the dismissed cases, one-third was dismissed before confirmation of a plan and two-thirds after confirmation; that is, about 19% of all filings were dismissed before confirmation, and 38% after confirmation of a plan. The courts confirmed a plan in nearly 78% of all cases.34
Table 5. Discharge, Dismissal and Conversion Rates – All Cases (N = 794 cases) Dismissal 455 cases (57.3%) Before Confirmation 154 cases (19.4 %) After Confirmation 301 cases (37.9 %) Conversion 77 cases (9.7%) Before Confirmation 27 cases (3.4 %) After Confirmation 50 cases (6.3 %) Discharge 262 cases (33%)
The rates of debtor discharge varied significantly across the seven sample districts. Table 6 reports the discharge, dismissal and conversion rates by district, in order from left to right of lowest to highest rates of debtor discharge. As a percentage of all filings, the discharge rates in the seven districts ranged from a low of 20% of Chapter 13 filings in the Western District of Tennessee to a high of 47% in the Middle District of North Carolina. The average discharge rate among districts was 33.8%, almost identical to the overall rate of 33% for all debtors in the sample. Excluding converted cases,35 statistical analysis reveals significant differences in disposition rates between districts.36
34 See generally Norberg & Velkey, Debtor Discharge and Creditor Repayment, supra note 4, at 506. 35 N = 77. 36 ?² (4, N = 717) = 49.71, p < .001. See generally Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 505 & n. 70 (citing to findings regarding Chapter 13
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Table 6. Discharge, Dismissal and Conversion Rates – All Cases, by District WD NDG MD WD MD PA TN TN A NC Disposition SDGA MD Debtor discharged/cas 26 51 36 47 29 36 37 e completed 20.0% 29.0% 30.9% 36.0% 36.4% 37.0% 47.0% Case dismissed after 67 61 27 41 44 40 21 confirmation 51.5% 44.0% 37.0% 40.0% 7.3% 21.0% 41.0% Case dismissed before 30 45 21 8 9 17 24 confirmation 23.1% 9.0% 27.3% 17.0% 21.2% 24.0% 8.0% Case converted after 5 6 11 0 13 5 10 confirmation 3.8% 13.0% 3.6% 5.0% 11.1% 10.0% 0.0% Case converted before 2 2 4 4 5 2 8 confirmation 1.5% 5.0% 1.2% 2.0% 4.0% 8.0% 4.0% Sub-total of cases 130 100 165 100 99 100 100 Missing cases Total cases 0 130 0 100 0 165 0 100 1 100 0 100 0 100
TOTAL 262 33.0% 301 37.9% 154 19.4% 50 6.3% 27 3.4% 794 1 795
The significant variation in discharge and dismissal rates across districts raises the question, to what extent do the various Chapter 13 players and varying local legal practices account for the differences? And conversely, what differences in local legal cultures appear not to influence case outcomes? We turn to these questions in the sections that follow. V. DISTRICT PRACTICES AND DEBTOR PLAN PROVISIONS The significant differences in district discharge rates naturally raise the question of what practices and conditions may explain – or do not explain – the differences. We surveyed the Chapter 13 trustees in the seven sample districts regarding the following local practices: (1) use
debtor discharge rates in numerous other studies).
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of wage orders, (2) payment of ongoing, postpetition mortgage payments through the trustee rather than directly to the mortgagee, (3) the amount of the standard, “no look” fee that debtors’ attorneys were permitted to charge for representation in a Chapter 13 case, (4) any requirement that some or all of the debtor’s attorney’s fee be paid under the plan and not in advance, and (5) the availability of plan payment moratoriums when a debtor could not make payments under the plan for several weeks or months. In addition, using data collected from the sample debtors’ proposed plans, we examined the differences among districts regarding the proposed length of the debtors’ plans and the proposed distributions to unsecured creditors. A. DISTRICT PRACTICES Chapter 13 trustees in six of the seven judicial districts responded to the survey. Their responses are summarized in Table 7 below. As shown, five of the districts required wage orders in all cases in which the debtor was not selfemployed. Only the Western District of Pennsylvania did not impose wage orders in the general course. The six responding districts were evenly divided on the practice of requiring postpetition mortgage payments to be made through the trustee. In three districts the debtors generally made their mortgage payments directly to the creditor, while in the other three districts the debtors normally made their post-petition mortgage payments through the trustee. The standard Chapter 13 attorney’s fee ranged from $750 in the Southern District of Georgia to $1600 in the Western District of Pennsylvania. Only Maryland did not require that at least some portion of the attorney’s fees be paid under the plan. The six districts were evenly split on permissibility of plan payment moratoriums when the debtor had encountered an income disruption or extraordinary expense.
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Table 7. District Practices District Wage Standard Orders Fee Generally Amount Required NDGA SDGA DMD MDNC WDPA WDTN Yes Yes Yes Yes No Yes $1,000 $750 $1,250 $750 $1600 $1200/ $700$80037
Attorney Fee Payment Requirements
Payment Moratoriums Permitted
Yes Yes No Yes Yes Yes
Yes No No Yes No No
Postpetition Mortgage Payments Through Trustee No No No Yes Yes Yes
By hypothesis, the routine use of wage orders, payment of post-petition mortgage payments through the trustee (instead of directly by the debtor to the mortgagee), a requirement that a portion of the debtor’s attorney’s fee be paid under the plan, and availability of plan payment moratoriums, in that order of importance, would have had a positive impact on a district’s rate of debtor discharge. Wage orders require employers to deduct the debtor’s plan payments from wages and remit the withheld wages directly to the trustee, thereby ensuring that the plan payments will be made so long as the debtor is employed and limiting the debtor’s ability to use the wages for other purposes. Similarly, when post-petition mortgage payments must be made through the trustee, there may be a reduced risk that the debtor will miss the payments, especially when this practice is combined with a wage order. On the other hand, wage orders and payment of postpetition mortgage payments through the trustee reduce the debtor’s responsibility for managing
37 In the cases handled by two of the three Chapter 13 Trustees in the Western District of Tennessee, the standard fee was $1200, and in cases handled by the other trustee, located in a different geographical area, the standard fee was $700-$800.
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household finances and thus may diminish any rehabilitative function of performing a Chapter 13 plan.38 Most of the sample districts prohibited debtors’ attorneys from taking full payment of their fees in advance of filing or confirmation, but instead required that a portion of the fee be paid over time under the plan. The rationale for such payment restrictions is that the debtor’s attorney will have a greater incentive to assist the debtor to propose a feasible plan when payment in full of the attorney’s fee depends on performance of the plan for at least the period during which the balance of fees will be paid.39 With regard to the standard “no look” fee, higher fees may translate into better representation in the structuring of a feasible, confirmable plan. On the other hand, higher Chapter 13 fees may lead debtors’ attorneys to recommend Chapter 13 in some cases in which the debtor is not a good candidate for performing a plan.40 Also, the premise that higher fees would affect the quality of legal representation is difficult to ascertain, because an attorney’s cost of representing a debtor may have varied considerably by locality. Finally, the availability of payment moratoriums may have positively impacted discharge rates by permitting a debtor who experienced an income or expense disruption to defer some payments until she recovered from the disruption.41 1. Wage Orders The Bankruptcy Code does not expressly authorize wage orders. Local rules that require wage orders in the ordinary course are premised on Code
38 See Braucher, Empirical Study of Debtor Education, supra note 1, at 576 and 565 n. 59. 39 See id. at 574 40 See id. at 573-74. 41 See id. at 575.
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section 105(a), which provides that the bankruptcy court may “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions” of the Bankruptcy Code42 Statistical analyses43 revealed a significant difference in case outcomes based on the use of wage orders.44 Cases were less likely to be dismissed or converted before confirmation, and a debtor was more likely to attain a discharge, when the district routinely issued wage orders to debtors’ employers. As reported in Table 8 below, 21.3% of cases with a wage order were dismissed or converted before confirmation, compared to 27.8% of cases with no wage order; and debtors obtained
U.S.C. § 105(a). series of non-parametric chi-square tests were conducted for each of the following variables: wage order; ongoing, post-petition mortgage payments through the trustee; attorney fee payment restrictions; standard fee amount; and payment moratoriums. The table below shows the ?² and p values for each of the five comparisons. To control for alpha inflation after multiple tests, only adjusted p values were considered statistically significant.
43 A 42 11
Statistical values for each of the five comparisons
Variable Wage order Mortgage payment through trustee Fee payment limitation Standard fee Availability of plan payment moratorium ?² 6.95 1.29 Df 2 2 p value .03 Ns
.98 25.96 2.89
2 6 2
Ns .00 Ns
44 ?² (2) = 6.95, p < .05. This finding is consistent with findings in several other empirical studies. See Braucher, Empirical Study of Debtor Education, supra note 3, at 579 [reporting finding that “[t]he completion rate among debtors in the trusteeships that used wage orders was much greater than in trusteeships that did not (50.1 percent to 26.9 percent)”]; Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 535.
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a discharge in 36.6% of cases with a wage order, compared to 27.4% of debtors in cases with no wage order.
Table 8. District Discharge Rates by Wage Order Case Disposition Cases Cases without wage order with wage order Dismissed/converted 99 64 (27.8%) before confirmation (21.3%) Dismissed/converted after 195 103 (44.8%) confirmation (42%) Discharged/completed 170 63 (27.4%) (36.6%)
2. Payment of Post-petition Mortgage Payments Through the Trustee A majority of Chapter 13 trustees now collect and disburse post-petition mortgage payments.45 The statutory basis for the practice is Code section 1326(c), which states: “Except as otherwise provided in the plan or in the order confirming the plan, the trustee shall make payments to creditors under the plan.”46 The statistically significant differences in discharge rates based on the use of wage orders imply that there would have been similar differences based on the payment of post-petition mortgage payments through the trustee. Both practices reduce the debtor’s opportunity to use income for purposes other than plan payments. However, the Chapter 13 Project data indicate no significant differences in discharge rates by
Bermant & Jean Braucher, Making Post-Petition Mortgage Payments Inside Chapter 13 Plans: Facts, Law, Policy, 80 AM. BANKR. L. J. 261, 269, 276 (2006). 46 11 U.S.C. § 1326(c). See Bermant & Braucher, Making PostPetition Mortgage Payments Inside Chapter 13 Plans: Facts, Law, Policy, supra note 45, at 263-264 (discussing § 1326(c) and whether it authorizes plans, confirmation orders and local rules requiring payment of post-petition mortgage payments through the Chapter 13 trustee).
45 Gordon
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reason of a policy of payment of the mortgage through the trustee.47 Table 9 reports the dismissal, conversion, and discharge rates by whether the debtor paid post-petition mortgage payments through the trustee or directly to the mortgagee. The discharge rate for cases in which the mortgage payment was, and was not disbursed by the trustee were almost identical, 33.3% and 33.8%, respectively.48
Table 9. District Discharge Rates by Mortgage Paid under the Plan Cases in which Cases in which mortgage paid mortgage not paid through the trustee through the trustee Dismissed/converted before 72 (21.8%) 91 (25%) confirmation Dismissed/converted after 148 (44.8%) 150 (41.2%) confirmation
to the differences in homeownership rates between districts in the Project, we analyzed the data on district discharge rates by mortgage paid versus not paid through the trustee only for debtors who owned a home. For homeowners only, there were no significant differences in likelihood of discharge between debtors who paid their post-petition mortgage payments through the trustee and those who did not.Accord, Gordon Bermant & Ed Flynn, Bankruptcy by the Numbers, Chapter 13: Who Pays the Mortgage, June 2001 AM. BANKR. INST. J. 20, 21 (comparison of discharge rates among trusteeships that disbursed mortgage payments with trusteeships that did not do so failed to “support the conclusion that moving the ongoing mortgage payments through the trustee operation increases the rate of successful terminations.”). Cf. Bermant & Braucher, Making Post-Petition Mortgage Payments Inside Chapter 13 Plans: Facts, Law, Policy, supra note 45, at 272 (reporting that most Chapter 13 trustees that disburse post-petition mortgage payments “agree that [the practice] increases the probability of plan completion; the survey results cannot, however, count as objective proof of that relationship”). 48 It is possible that payment of the mortgage through the trustee does not correlate with plan completion because some or many debtors with mortgages stop paying under their plans once the mortgage arrearage has been paid. Several standing trustees told us that more than a few debtors use Chapter 13 in this way. If the cases dismissed after paying the mortgage arrearage are excluded from the analysis, or counted as cases with successful outcomes, there might have been a positive, statistically significant relation between payment of the mortgage through the trustee and debtor success. However, it was not possible to distinguish these dismissals from other dismissals.
47 Due
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110 (33.3%) 123 (33.8%)
129
Discharged/completed
3. Standard Fee Amounts and Fee Payment Requirements Bankruptcy Code sections 329(a) and (b) provide that an attorney representing a debtor must file “a statement of the compensation paid or agreed to be paid” and that the court may limit fees to the reasonable value of the services provided.49 The Code does not expressly address the timing of payment of attorney fees in Chapter 13 cases. The bankruptcy courts in nearly all districts, including the seven districts covered by the Chapter 13 Project, have established standard, “no-look” fee amounts that may be paid to debtor’s counsel without the necessity of a fee application. Special application must be made for approval of payment of fees in excess of the standard fee. In addition, many districts, including five of the seven districts covered by the Project, require that some portion of the debtor’s attorney fee be paid under the plan and not in advance. The Project data reveal no statistically significant differences in discharge rates dependent on either the amount of the standard, “no-look” attorney fee or any restrictions on the timing of payment of the debtor’s attorney fees.50 Tables 10 and 11 below report the number and percentage of cases that were dismissed or in which the debtor obtained a discharge, broken down by the amount of the debtor’s attorney’s fee and by whether the court required payment of a portion of the attorney’s fee under the plan.51 Perhaps
49 11
U.S.C. § 329(a), (b). Braucher, Empirical Study of Debtor Education, supra note 1, at 578 (reporting finding that plan completion rate increased by 1.6% for each $100 in attorneys fees, for a total positive effect from lowest to highest fee charged in the five districts of 10%). 51 We also collected data on the amount of attorneys fees paid by
50 Compare
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any incentive for attorneys to work with their clients to structure a better plan because a portion of the fee will be paid under that plan is offset by the fact that the primary competition among lawyers for Chapter 13 clients is in the amount of the up-front payment that is required (because the fee amount is standard).52
Table 10. District Discharge rates by Standard Fees $750 $1000 $1200 Dismissed/converted before confirmation Dismissed/converted after confirmation Discharged/completed 27 cases (13.5%) 90 cases (45%) 83 (41.5%) 47 cases (28.5%) 67 cases (40.6%) 51 (30.9%) 57 cases (24.9%) 110 cases (48%) 62 (27.1%)
$1600 32 cases (32%) 31 cases (31%) 37 (37%)
Table 11. District Discharge Rates by Fee Payment Limitations Fee Limitations Fee Limitations present absent Dismissed/converted before 138 cases (23.2%) 25 cases (25.3%) confirmation Dismissed/converted after 260 cases (43.7%) 38 cases (38.4%) confirmation
debtors to their attorneys in advance, as disclosed in the debtor’s Statement of Financial Affairs, and on the amount to be paid under the plan. Unfortunately, the quality of these data was poor; much of them were missing, and the total of pre-bankruptcy fees and postpetition fees reportedly paid or to be paid often did not equal the standard fee amount. As a result, we were unable to reliably test our hypothesis that payment of a portion of the debtor’s attorney fee after filing, under the plan, was positively correlated with debtor discharge. Anecdotally, we have heard the conjecture from several Chapter 13 trustees and bankruptcy judges. The premise is that the debtor’s attorney is more likely to structure a workable plan where payment of fees depends upon the debtor performing her plan for a period of time after filing. See also Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 546-551 (discussing local practices regarding payment of attorney fees in Chapter 13 cases in four cities; noting that the debtors’ attorneys had an incentive to make plan payments as large as possible where the district’s standing chapter 13 trustee’s policy was to make the first plan distributions to pay debtor’s attorney. 52 See id. at 546-548 (noting that in light of established standard, “no-look” fees, primary competition among lawyers was in payments terms).
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CHAPTER 13 DISTRICT VARIATIONS
197 cases (33.1%)
131
Discharged/completed
36 cases (36.4%)
4. Payment Moratoriums Regarding payment moratoriums, the Code provides for dismissal or conversion of a Chapter 13 case when the debtor has materially defaulted in the Moratoriums are an performance of the plan.53 informal practice whereby the trustee delays filing a motion to dismiss or convert to give the debtor a chance to resume payments after missing one or several. Section 105(a) again provides statutory authority for the practice.54 There were also no statistically significant differences in discharge rates based on the availability of plan payment moratoriums.55 The comparisons are reported in the following Table 12.
Table 12. District Discharge Rates by Moratoriums Moratorium present Dismissed/converted before confirmation Dismissed/converted after confirmation Discharged/completed 55 cases (20.8%) 112 cases (42.3%) 98 cases (37%) Moratorium absent 108 cases (25.2%) 186 cases (43.4%) 135 cases (31.5%)
B. PLAN LENGTH AND DISTRIBUTIONS TO UNSECURED CREDITORS Some courts have maintained benchmarks regarding the length of a Chapter 13 plan and percentage distribution to unsecured creditors.56 The Code’s
U.S.C. § 1307(c)(6). 105(a) provides that the court may “issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of title 11.” 55 Compare Braucher, Empirical Study of Debtor Education, supra note 1, at 577-578 (finding that use of moratoriums was negatively associated with plan completion, with a percentage effect of 30%). 56 See Braucher, Empirical Study of Debtor Education, supra note 1, at 577 (noting that as of 1994, “San Antonio and Greensboro continued to resist low percentage plans (that pay unsecured creditors under 25
54 § 53 11
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authorization of these practices is doubtful.57 1. Plan Length The Chapter 13 Project collected data on the terms of the sample debtors’ plans, including proposed length and proposed distribution to unsecured creditors. With respect to plan length, the Bankruptcy Code provides that a Chapter 13 plan generally may not exceed three years except for “cause,”58 and that a plan must run for no less than three years unless unsecured creditors were The maximum paid in full under a shorter plan.59 length of a Chapter 13 plan is five years.60 Most debtors in most of the sample districts proposed plans running more than three years. As reported in Tables 13 and 14, the median and modal
percent),” while “n Fort Worth and Charlotte, most plans were for less than 25 percent, and in Sacramento plans were averaging 35 to 40 percent.”); Jean Braucher, Counseling Consumer Debtors to Make Their Own Informed Choices – A Question of Professional Responsibility, 5 AM. BANKR. INST. L. REV. 165, 178 (1997) (discussing varying district benchmarks regarding repayment of unsecured claims); Sullivan, et al., The Persistence of Local Legal Culture, supra note 1 at 832-833; Whitford, The Ideal of Individualized Justice, supra note 11, at 410411. 57 Regarding a benchmark for plan length, at the time that the sample cases were filed, the Code provided that the standard length of a plan would be three years (unless unsecured creditors were to be paid in full in a shorter period), which period could be extended “for cause.” 11 U.S.C. § 1322(d)(1994). The Chapter 13 provisions expressly stating requirements for payment of unsecured claims, 11 U.S.C. § 1325(a)(4)(the best interests test) and 11 U.S.C. § 1325(b) (the best efforts test), implicitly negate an interpretation of “cause” as including a set, minimum payment obligation beyond the best interests and best efforts requirements. See Whitford, The Ideal of Individualized Justice, supra note 11, at 412-413 (suggesting that Chapter 13 debtors’ attorneys in some districts have successfully challenged established benchmarks regarding payment of unsecured claims). 58 11 U.S.C. § 1322(d). 59 11 U.S.C. § 1325(b)(1)(1994). Under the BAPCPA amendments, debtors with above-median incomes are subject to a five-year commitment period. 11 U.S.C. § 1325(d)(2006). 60 As amended by BAPCPA, the Code now further mandates that debtors with incomes above the applicable median must commit to a five-year plan unless unsecured creditors will be paid in full under a shorter plan. 11 U.S.C. § 1325(b)(4) (2006).
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plan lengths were 60 months, or 24 months longer than the standard mandated by the Code. Even at the 25th percentile, the plan length was 47 months, or 11 months longer than the 36-month term specified by the Code. As reported in Table 13, the median plan length in four of the sample districts was 60 months, and in another it was 57 months. In one district, the Middle District of North Carolina, the median was 48 months, and in only one district, the Northern District of Georgia, was the median 36 months. An analysis of the variance in proposed length of plans revealed statistically significant differences across the seven districts.61 As reported in Table 14 below, post-hoc statistical comparisons revealed significantly shorter plans in the Middle District of North Carolina than in the other districts; 38% of the plans filed in that district had proposed plan lengths of 36 months. The post-hoc statistical comparisons also revealed significantly longer plans in both the Middle District of Tennessee and Western District of Tennessee. Fifty-seven percent (57%) of plans in the Middle District of Tennessee had proposed plan lengths of 60 months, the average proposed plan length in the Middle District of Tennessee was significantly longer than the average proposed plan length in the Middle District of North Carolina. Eighty-five percent (85%) of the plans in the Western District of Tennessee had proposed plan lengths of 60 months;62 the average proposed plan length in the Western District of Tennessee was significantly longer than the proposed plan
61 Because
only seven cases in Northern District of Georgia included specific plan lengths, the data from this district were excluded from the analysis concerning district-level differences in proposed length of plans. 62 F(5,574) = 8.00, p # .001. Levene’s test for heterogeneity of variance was significant, F(5,574) = 11.14, p # .001; equality of the variance in proposed plan length should not be assumed across the districts. As a result, the post-hoc comparisons were completed using Dunnett’s T3 test that does not assume equality of variances.
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lengths in Maryland, the Middle District of North Carolina, the Southern District of Georgia, and the Western District of Pennsylvania.
Table 13. Frequency of Plan Length and Distribution to Unsecured by District District Plan Length (in months) Mean Median Mean Distribution to Unsecured Creditors MD 53.56 60 28.56 MDNC 47.30 48 31.72 MDTN 54.0 60 46.81 NDGA 40.28 36 52.77 SDGA 51.35 57 23.53 WDPA 52.74 60 48.61 WDTN 56.91 60 55.20 Total 52.70 60 41.66
Debtors who completed their plans tended to propose significantly shorter plans63 than debtors Perhaps who did not complete their plans.64 shorter plans reduced the risks of income and expense disruptions, or required correspondingly less discipline on the part of the debtor, and so were more likely to be completed.65 It is also possible that some debtors proposed longer plans without the intention to complete them. For example, if a debtor wanted to cure a mortgage arrearage, and then dismiss her case without completing her plan, a longer plan would have allowed the debtor to stretch out the payments and make them more affordable.
= 51.31 months, SD = 11.25, SEM = .789. = 53.45 months, SD = 11.07, SEM = .568, t(409.6) = 2.196, p = .029. However, disposition was not significantly related to plan length, F(2,515) = 2.39, p = .093, when cases in which the debtor obtained a discharge were separately compared to cases that were dismissed after confirmation and to cases that were dismissed before confirmation. Cf. Braucher, An Empirical Study of Debtor Education, supra note 1, at 574-576 (“[d]ifferences in proposed plan length do not appear to be a significant factor in explaining the different [discharge rates in the five cities covered by the study] because five-year plans are readily permitted in all of them.)” 65 See Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 527.
64 M 63 M
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Table 14. Proposed Length of Plan in Completed and Dismissed Cases 2 Rang 5 Medi N e Mean SD SEM % an 75% Case Dismissed Before Confirmati 03 on 6 86 60 50.24 17.09 1.84 60 60 Case Dismissed After Confirmati 12 0.67 4 on 231 60 53.67 10.24 3 8 60 60 Case Converted Before Confirmati 36 5 on 18 60 56.06 8.36 1.97 8 60 60 Case Converted After Confirmati 36 4 on 8 47 60 53.66 9.16 1.33 60 60 Debtor Obtained 10 0.78 3 Discharge 203 60 51.4 11.23 8 6 60 60
Cases missing
68
70
5
7
58
2. Distributions to Unsecured Creditors With respect to distributions to unsecured creditors, the Code does not mandate any set, minimum percentage that must be repaid, apart from the best interests66, best efforts67 and good faith requirements.68 Nevertheless, the data reveal that most of the sample districts had norms to which debtors generally conformed in formulating their plans.69 In the Middle District of North Carolina,
66 11 67 11
U.S.C. § 1325(a)(4). U.S.C. § 1325(b). 68 11 U.S.C. § 1325(a)(3). 69 See also William C. Whitford, The Ideal of Individualized Justice, supra note 11, at 397, 405-06; Jean Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 532 (“The reality is that
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more than three-quarters of the debtors proposed a distribution of 25% to unsecured creditors. In the Middle District of Tennessee, over 40% of the debtors proposed a 20% distribution, and another 30% proposed 100%. In the Northern District of Georgia, 86% of the debtors proposed to pay either 100% (48% of debtors) or 1% (38% of debtors). In the District of Maryland and the Southern District of Georgia, most debtors proposed an unspecified, pro rata distribution to unsecured creditors, and a substantial number proposed 100% plans. Only in the Western District of Tennessee and the Western District of Pennsylvania does it appear that there were no standard benchmarks.70 In the Western District of Tennessee, 38% of the debtors who proposed a distribution proposed 100% plans, and 15.2% proposed 70% plans; the rest were fairly evenly distributed between 1% and 60%. In the Western District of Pennsylvania, about 65% of debtors proposed either a 0% or a 100% plan, while the other debtors were fairly evenly distributed between these extremes.71 Analysis of the proposed distributions to unsecured creditors (excluding pro rata distribution cases) indicates significant differences between the districts.72 Debtors in
chapter 13 trustees and judges in the four cities [studied] effectively deter 0% plans and keep most plans above a floor percent that is known to local practitioners.”). 70 It should be noted, however, that in the Western District of Tennessee, the data on this point were missing in nearly 40% of the cases). 71 It is not possible to say whether 11 U.S.C. § 727(a)(9)(B) influenced many debtors with regard to the formulation of proposed distributions to unsecured creditors. That section provides in part that a debtor is not eligible for a Chapter 7 discharge if she has received a discharge in a Chapter 13 case commenced within six years before the Chapter 7 filing, unless the debtor paid at least 70% of unsecured claims and the plan was proposed in good faith and was the debtor’s best effort. Only in the Western District of Tennessee was there a notable percentage of debtors (15.2%) who proposed 70% plans. 72 F (6,558) = 3.91, p = .001, O2 = .040. See also Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 523-526; Whitford, Has the Time Come to Repeal Chapter 13?, supra
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the Middle District of North Carolina proposed to pay a significantly lower percentage of unsecured claims73 than debtors in the other districts.74 There was no statistically significant difference in the proposed percentage to be paid on unsecured debt by debtors in completed cases and by debtors in cases dismissed or converted either before or after confirmation. That is, the debtors who completed their plans and obtained a discharge did not propose to repay a significantly different percentage of general unsecured claims than debtors whose cases were dismissed or converted.75 These findings, although counterintuitive, are consistent with the findings Table 15 reports on the in another study.76 percentages of unsecured debt that debtors proposed to pay in completed, dismissed and converted cases.
Table 15. Case Outcome and Proposed Distributions to Unsecured Creditors Completed Cases N 196 Range 0% - 100% Mean 44.31% SD 40.11% 25% 10% Median 25% 75% 100%
mode = 100% (60 cases/30.6%)
note 1, at 409-411 (reporting large variations among districts as to proposed distributions to unsecured creditors); Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 532 (study of practices in four districts, finding “floor” percentage of 100% in one, and 10 % in one, and 25-33% in one, and 70% in another). 73 (M = 31.7%, SEM = 4.28). 74 Also, debtors in the District of Maryland proposed to pay a significantly higher percentage on unsecured claims (M = 61.3%, SEM = 6.75). However, this observation is based on only 37 of 100 cases. 75 Mann-Whitney U = 34135, z = -1.128, p = .259; Kruskal-Wallis X2(4, N=565)=6.872, p=.143. 76 See Braucher, Empirical Study of Debtor Education, supra note 1, at 577 (concluding that “there is no apparent pattern of connection between [district norms regarding percentage distribution to unsecured creditors] and completion rates [in the five trusteeships covered by the empirical study]”). But see William C. Whitford, The Ideal of Individualized Justice, supra note 11, at 410-12).
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Dismissed Cases N 369 Range 0% - 100% Mean 51.13% SD 42.50% 25% 10% Median 30% 75% 100%
mode = 100% (146 cases/39.6%)
Converted Cases N 54 Range 0% - 100% Mean 45.14% SD 39.45% 25% 14.5% Median 25% 75% 100%
VI.THE BANKRUPTCY JUDGES AND CHAPTER 13 TRUSTEES The key legal actors in Chapter 13 cases include the bankruptcy judges, Chapter 13 standing trustees and debtors’ attorneys.77 Across the seven districts covered by the study, there were a total of 25 judges, 14 standing trustees and 337 attorneys in our 794 sample cases. Thus, the samples of bankruptcy judges and Chapter 13 trustees are quite limited.78 Also, we did not attempt to discern whether a particular judge or trustee in any of the sample districts played an especially influential role, a phenomenon that has been observed in other studies.79 As a result, while we find several statistically significant differences in case outcomes based on the identity of the judge or trustee, these findings are
77 In addition, the United States Trustee, Clerk of the Bankruptcy Court and creditors’ attorneys may play important parts in Chapter 13 cases. The Chapter 13 Project did not collect any data that permit evaluation of their roles. 78 There were approximately 325 bankruptcy judges and 160 standing Chapter 13 trustees in the United States in 1994. Thus, our sample represented 7.7% of all judges and 8.8% of all trustees 79 See Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 841-847; Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 556, 580-81.
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necessarily tentative and may not be generalizable beyond the specific districts. We sought to measure whether any of these players acting individually exerted a decisive influence over the outcomes in the body of cases they handled. As discussed below, we found no statistically significant differences in case outcomes based on the identity of the judge or trustee, except for three judges that sat in separate, single-judge divisions within a district. These findings indicate that individual judges can and do exert decisive influence over the outcomes in their Chapter 13 cases when their attitudes and practices are not moderated by other judges in the same division; and also imply that judges in multi-judge divisions collectively possess such influence. These findings also may suggest that location – the local legal and nonlegal culture – may have an important impact on case outcomes. Finally, case outcomes differed significantly based on whether the debtor was represented by an attorney and, if so, whether the attorney was a high-volume or low-volume consumer bankruptcy practitioner.
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The bankruptcy judges have the greatest potential influence of any of the key legal actors over case outcomes in their districts. Collectively, the judges in a judicial district hold primary authority over almost all aspects of bankruptcy case administration. They promulgate the local rules of bankruptcy practice, which may cover everything from the timing of confirmation hearings to the use of wage orders and the valuation of collateral. They rule on all aspects of Chapter 13 cases, including the statutory requirements for confirmation of plans. These rulings sometimes establish precedents for thousands of cases to follow. The bankruptcy judges approve the amounts and terms of compensation for debtors’ attorneys, and may discipline attorneys for misconduct in their courts. They may establish benchmarks for distributions to unsecured creditors, expectations regarding plan length and requirements regarding adequate protection. Through their attitudes, rulings and case administration practices, the bankruptcy judges may influence the chapter under which debtors file, and the terms of debtors’ Chapter 13 plans, including standards regarding feasibility.80 1. Judge and Case Outcomes in Chapter 13 Beyond the district-wide practices that are determined collectively by the judges in the district, we sought to ascertain whether there were any significant differences in case outcomes based on the identity of the individual judge. Any such differences might indicate that there are judge-specific policies or practices that significantly affect case outcomes. To test whether judges may individually exert a decisive
80 See Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 841-847.
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influence on case outcomes, we compared dismissal and discharge rates of each the bankruptcy judges in the seven sample districts with each of the other judges in the same district.81 In doing so, we found statistically significant differences in dismissal and discharge rates among several of the judges in three of the districts82—the District of Maryland,83 the Middle District of North 84 and the Northern District of Georgia.85 Carolina, Importantly, in each of these districts, one of the judges with significantly different case outcomes handled cases from a different division.86 These findings seem to confirm that when there is only one judge in a division, that judge may cleanly exert a decisive influence over case outcomes, which influence is reflected in significantly different discharge and dismissal rates than in cases before another judge or judges in the same district. The findings also may imply that the differences in case outcomes were to some extent a function of the different locality. At the same time, the findings that there were no significant differences in case outcomes among any
81 All cases for which judges were either unknown or judges with fewer than 11 cases were excluded from the statistical analyses. 82 We tested this hypothesis using a nominal regression with “judge” as a predictor variable and “case outcome” as a criterion variable. Analyses revealed an overall significant effect, ?² (48, N = 715) = 130.53, p < .00, Nagelkerke R² = .19 We then conducted a series of non-parametric chi-square tests for each of the seven districts. 83 ?² (6) = 14.85, p < .05. 84 ?² (6) = 15.647, p < .05. 85 ?² (8) = 18.07, p < .05. 86 One trustee handled all of the cases for each of the judges in the single-judge divisions whose case outcomes were significantly different than another judge’s or judges’ case outcomes in the same district. Thus, it was difficult to disentangle the influence of the judge from the influence of the trustee. However, because we found no significant differences in case outcomes among any of the trustees within a district when they handled cases for more than one judge, it seems likely that it was the judge and not the trustee that exerted the decisive influence when the outcomes in the cases handled by a particular judge and trustee were significantly different than the outcomes in cases handled by another judge (and trustee). See infra note 98 and accompanying text.
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judges sitting in multi-judge divisions indicate that multiple judges moderate the influence of each individual judge. This moderating effect may stem from a tendency of judges within a division to gravitate toward similar attitudes and practices. Alternatively, when there are multiple judges in one division who have different attitudes and practices, attorneys must make a choice in each case about how to proceed, perhaps catering to the strictest judge, with respect to proposed length of plan, proposed distribution to unsecured creditors, etc. The differences in dismissal and discharge rates between judges who sit in different divisions of the same district were sometimes dramatic, and further illustrate the point that variations among divisions within a district are sometimes greater than differences between districts. There were four judges in the District of Maryland, and differences in case outcomes were significantly different among three of them. As shown in Table 16 below, Judge MD1’s and Judge MD2’s case outcomes were significantly different from Judge MD4’s.87 Judge MD4’s’ cases were almost five times more likely to be dismissed or converted before confirmation than Judge MD1’s cases, and more than six times more likely to be dismissed or converted before confirmation than Judge MD2’s cases. At the same time, 52.4% of the debtors in Judge MD1’s cases attained a discharge, compared to 29.2% of the debtors in Judge MD4’s cases. Some judges were more selective in confirming plans than others. While the debtors whose cases were assigned to Judge MD3 and Judge MD4 completed their plans at very nearly the same rate, the preand post-confirmation dismissal and conversion rates were almost the inverse of one another; 45.8% of Judge MD4’s cases were converted before confirmation and 25% after confirmation, while the
87 ?²
(2) = 10.18, p < .00.
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corresponding figures for Judge MDJ3 were 26.1% and 43.5%, respectively. These large differences in plan confirmation practices are even more remarkable for that fact that the same trustee handled all of the cases before both Judges MD3 and MD4.
Table 16. Case Outcomes: District of Maryland Judges Case Outcome (number of cases and %) Plan Completed/ Case Dismissed Case Dismissed or Converted or Converted Debtor Before After Attained Discharge Confirmation Confirmation 2(9.5%) 2(7.4%) 6(26.1%) 11(45.8%) 8(38.1%) 14(51.9%) 10(43.5%) 6(25%) 11(52.4%) 11(40.7%) 7(30.4%) 7(29.2%) Total
District – Bankruptcy Judge Judge MD1 Judge MD2 Judge MD3 Judge MD4
21(100%) 27(100%) 23(100%) 24(100%)
There were four bankruptcy judges in the Middle District of North Carolina, and significantly different case outcomes among three of them. As reported in Table 17, Judge MDNC3’s case outcomes were significantly different than either Judge MDNC1’s or Judge MDNC2’s.88 Only 15.8% of the debtors assigned to Judge MDNC3 attained a discharge, compared to 59.5% of the debtors assigned to Judge MDNC1 and 57.1% of the debtors assigned to Judge MDNC2. All three of the judges dismissed relatively few cases before confirmation, so that the big difference between the judges was in the numbers of cases dismissed or converted after confirmation and in the numbers of completed cases.
88 ?²
(2) = 6.87, p < .05.
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Table 17. Case Outcomes: Middle District of North Carolina Judges Case Outcome (number of cases and %) Plan Case Dismissed Case Dismissed Completed/ Debtor or Converted or Converted Before After Attained Confirmation Confirmation Discharge 3(8.1%) 0(0%) 2(10.5%) 12(32.4%) 6(42.9%) 14(73.7%) 22(59.5%) 8(57.1%) 3(15.8%) Total
District – Bankruptcy Judge MDNC1 MDNC2 MDNC3
37(100%) 14(100%) 19(100%)
There were significant differences in case outcomes between two of the judges in the Northern District of Georgia. As shown in Table 18, Judge NDGA1’s case outcomes were significantly different from Judge NDGA2’s.89 Almost 61% of the debtors in Judge NDGA2’s cases completed their plans, compared to 25.9% in Judge NDGA1’s cases, while almost 52% of Judge NDGA1’s cases were dismissed before confirmation, compared to 8.7% of Judge NDGA2’s.
Table 18. Case Outcomes: Georgia North District judges Case Outcome (number of cases & %) Plan Case Dismissed Case Dismissed Completed/ Debtor or Converted or Converted Before After Attained Confirmation Confirmation Discharge 14(51.9%) 2(8.7%) 6(22.2%) 7(30.4%) 7(25.9%) 14(60.9%) Total
District – Bankruptcy Judge NDGA1 NDGA2
27(100%) 23(100%)
89 ?²
(2) = 11.16, p < .00.
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2. Pre-Confirmation Dismissal and Discharge Rates We expected but did not find a correlation between the rate of pre-confirmation dismissals and conversions and the rate of debtor discharge in a district. Typically, a case is dismissed or converted before confirmation because the debtor did not make the payments required to that point by the plan. In addition, the Chapter 13 trustee or court may screen cases for feasibility at confirmation, and dismiss those that are unlikely to achieve completion. Because cases dismissed without confirmation of a plan are cases that are least likely to succeed, we speculated that the discharge rates would correspond to higher preconfirmation dismissal rates. However, as shown in Table 20 below, the Middle District of North Carolina and the Western District of Pennsylvania had the highest rates of debtor discharge, yet the North Carolina district had the lowest rate and the Pennsylvania district had the highest rate of pre-confirmation dismissals and conversions. At the same time, the district with the lowest rate of debtor discharge – the Western District of Tennessee – had among the higher rates of preconfirmation dismissals and conversions, and the district with the second lowest rate of discharge – the Middle District of Tennessee – also had the second lowest rate of pre-confirmation dismissals and conversions.
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Table 20. Comparison of Discharge, and Confirmation Rates, by District WD MD ND SD TN TN GA GA Dismissals 24.6 14.0 28.5 19.0 and % % % % Conversions Before Confirmatio n (as % of all cases) Discharges 20.0 29.0 30.9 36.0 (as % of all % % % % cases) Discharges 26.5 33.7 43.2 44.4 (as % of % % % % cases with confirmed plan)
Dismissal/Conversion Before MD NC 12.0 % WD PA 32.0 %
MD 25.2 %
ALL 22.8 %
36.4 % 48.6 %
47.0 % 53.4 %
37.0 % 54.4 %
33.0 % 42.7 %
The absence of a significant correlation between the rate of pre-confirmation dismissals and conversions and the rate of debtor discharge may suggest that some courts and trustees generally do not carefully screen cases for feasibility.90 In fact, courts and trustees may see little downside in allowing debtors to proceed with even the most unrealistic plans. Absent any creditor objection based on the treatment of its claim, the alternative is dismissal or conversion to Chapter 7, where unsecured creditors are not likely to collect anything. As the chief judge in one of the sample districts remarked, the test for feasibility is a “heartbeat” test: if the debtor has a heartbeat, the plan is feasible.91 One
90 See
also Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 536 (reporting that three of four standing Chapter 13 trustees did not scrutinize budgets for feasibility); Jean Braucher, Counseling Consumer Debtors to Make Their Own Informed Choices – A Question of Professional Responsibility, 5 AM. BANKR. INST. L. REV. 165, 195 (1997) (reporting that “
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exception may be the Western District of Pennsylvania, which had fewer than expected dismissals after confirmation and more than expected dismissals before confirmation.92 Alternatively, the absence of any significant correlation between pre-confirmation dismissals and conversions and the rate of debtor discharge may mean that there is in fact little connection between the apparent feasibility of a plan and the actual feasibility of a plan. Another possible explanation is that non-payment is by far the leading reason for dismissal, and because some courts consider confirmation at an earlier point after filing than others, fewer debtors in the early-confirmation districts are in serious default at the time of confirmation, so fewer cases are dismissed before confirmation and more are dismissed after confirmation in these districts. B. THE CHAPTER 13 TRUSTEES There were one to three standing Chapter 13 trustees in each of the seven sample districts. Second only to the bankruptcy judges in their potential influence over case administration,93 the standing trustees are closely involved in almost every aspect of Chapter 13 case administration. The trustee presides over the meetings of creditors, reviews all plans and when appropriate objects to confirmation, seeks dismissal of cases when the debtor fails to make required plan
Lawyer and Client Meet: Observations of Interviewing and Counseling Behavior in the Consumer Bankruptcy Law Office, 35 BUFF. L. REV. 177, 204 (1986) (stating the local bankruptcy judge carefully assessed feasibility of proposed Chapter 13 plans). 92 The combination of lower discharge rate and higher preconfirmation dismissal rate reported in Table 20 for the Western District of Tennessee may have been a function of the very high numbers of serial filers there. See supra note 30 and accompanying text and Figure 1. 93 See also Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 556 (concluding that “Chapter 13 standing trustees have great potential influence” on local legal culture).
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payments, recommends to the court the standard “no-look” fee for debtors’ attorneys, and collects and disburses payments to creditors. Trustees in some districts have implemented debtor education programs for Chapter 13 debtors,94 and some may be zealous advocates for the use of Chapter 13 instead of Chapter 7 by debtors in their districts.95 We found no significant differences in case outcomes based on the identity of the standing Chapter 13 trustee. It was difficult to disentangle the impact of judges from the impact of trustees on case outcomes, because (except in one district96 in which there were no significant differences in case outcomes among judges) only one trustee administered essentially all cases before a given judge.97 Nonetheless, seven of the fourteen standing trustees in the study handled almost all of the cases assigned to two or more judges. In the District of Maryland, Middle District of Tennessee, Western District of Tennessee, Northern District of Georgia and Southern District of Georgia, at least one of the standing trustees was assigned to handle the cases before two or more judges. In these five districts, then, we were able to compare the case outcomes for each of the trustees to determine whether there were any significant differences in case outcomes based on the identity of the trustee. Looking at only these cases, we found no significant differences in case outcomes based on the identity of the trustee.98 Although limited in
94 See
Braucher, An Empirical Study of Debtor Education, supra note
1. Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 556-559. 96 In the Western District of Tennessee, one judge’s cases were split between two standing trustees. 97 See supra note 86. 98 Specifically, in the District of Maryland, there were no significant differences in discharge rates for the cases that Chapter 13 Trustee Cosby administered before either of two judges. The same
95 See
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their reliability due to the small sample of trustees, these findings tend to support the conclusion that judges typically exert more influence over case outcomes than trustees and that the broader culture, or the interaction or confluence of attitudes and practices of the relevant actors, generally exerted more influence on case outcomes than the actions of individual trustees. VII.THE DEBTORS’ ATTORNEYS The debtor’s attorney also plays a pivotal role in the Chapter 13 system. The attorney advises the debtor regarding the need to file for bankruptcy relief and, if bankruptcy is advised, whether to file under Chapter 7 or Chapter 13. In Chapter 13 cases, the attorney’s duties include working with the debtor to devise a feasible and otherwise confirmable plan. The court case records contain very limited information regarding debtors’ attorneys. We were able to collect data on whether the debtor was represented by an attorney, and if so, the name of the attorney or firm. In addition, as discussed in Part V above, we also surveyed the Chapter 13 trustees in each district regarding the amount of the standard fee for Chapter 13 cases in their districts in 1994 and regarding any requirements for payment of attorney fees under the plan as opposed to up front.
was true for Trustee Lackey, who administered cases before the other two judges. In the Middle District of Tennessee, there was no significant difference in the discharge rates between the different judges whose cases were administered by the one standing Chapter 13 trustee. In the Northern District of Georgia, the discharge rates did not significantly differ as between any of the three judges whose cases were assigned to Trustee Bone. Nor did any significant differences occur in the distribution of discharge rates for Trustee Brown in the cases before the two judges whose cases she served. Finally, there were no significant differences in discharge rates in the Western District of Tennessee for trustee (now Judge) Emerson in cases before two judges and similarly no differences for Trustee Stevenson in the cases that he handled before either of two judges.
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This Part reports on the numbers of debtors who filed for Chapter 13 pro se, and compares case outcomes and bankruptcy refiling rates based on whether the debtor was represented by an attorney. It then considers the relation between case outcome and whether the debtor was represented by a “low-volume” or “high-volume” debtor law practice. A. PRO SE AND REPRESENTED DEBTORS Overall, there were relatively few cases in which the debtor was not represented by an attorney, however, the percentage of cases varied considerably by district. Table 22 reports the number of pro se cases in each district and in the entire sample. As shown, 27 of 795 debtors (3.4%) were not represented by an attorney. The number of pro se filings ranged from none in the sample of cases from the Southern District of Georgia and the Western District of Tennessee to nine percent (9%) in the District of Maryland, and 6.9% in the Northern District of Georgia.99
Table 22. Pro Se Filings
DM D Pro se filings Total Cases Percent of total cases
9 100 9%
MD NC
2 100 2%
MD TN
1 100 1%
ND GA
11 160 7%
SDG A
0 100 0%
WD PA
4 100 4%
WD TN
0 140 0%
All Distri cts
27 795 3.4%
Not surprisingly, debtors who were not represented by an attorney were far more likely to have their cases dismissed or converted before
99 Compare TERESA A. SULLIVAN, ELIZABETH WARREN & JAY L. WESTBROOK, AS WE FORGIVE OUR DEBTORS 23 (1989) (of 1529 Chapter 7 and Chapter 13 filings in 1981, 62 debtors (4.05%) were pro se, with most from one district with a nonlawyer “clinic” (later closed) advising these debtors). Pro se cases are more common in Chapter 7 cases because they are simpler than Chapter 13 cases.
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confirmation, and much less likely to have their cases dismissed or converted after confirmation or to receive a discharge than debtors represented by an attorney.100 As reported in Table 23 below, 76.9% of pro se cases were dismissed or converted before confirmation, and another 11.5% were dismissed after confirmation. Only three of 26, pro se filings (11.5%) resulted in a discharge for the debtor.101 By comparison, 33.8% of the debtors represented by an attorney attained a discharge, while 20.5% of represented debtors’ cases were dismissed before confirmation and 45.8% were dismissed after confirmation.
Table 23. Case outcome and Refilings, Pro se versus Represented Debtors102
Dismissed / Converted Before Confirmat ion Type of Refiling Pro se (pro se vs. attorne
Represente d by attorney 20 76.9% 157 20.5%
Dismissed / Converted After Confirmat ion
2 11.5% 351 45.8%
Completed
Total
3 11.5% 259 33.8%
26 100% 767 100%
We further examined whether pro se debtors were more likely to be repeat filers than debtors represented by an attorney. Specifically, we
= 46.27, p < .001. BAPCPA amendments make bankruptcy filings more difficult and complicated, and thus even fewer pro se Chapter 13 debtors can be expected to confirm and complete a plan and obtain a discharge under the new law. See e.g., 11 U.S.C. § 109(h) (2006) (requiring individual debtors to obtain credit counseling before filing); § 521 (requiring significant additional debtor duties and paperwork). This result undercuts the wisdom of the BAPCPA requirement that debt relief agencies disclose to debtors that they might not need an attorney. See 11 U.S.C. § 527(b) (2006). 102 Due to the robustness of the statistical test used (?²-test) and the fact that it compares cell means, the large difference in sample sizes does not explain the significant differences between the groups.
101 The 100 ?²(2)
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compared the number of previous and subsequent filings and the total number of other filings by pro se debtors and by debtors represented by an attorney. There were no significant differences between the two groups for any of the variables.103 This finding indicates that pro se debtors are statistically not significantly more (or less) likely to be repeat filers than debtors represented by an attorney. B. LOWER-VOLUME AND HIGHER-VOLUME DEBTOR ATTORNEY LAW PRACTICES The consumer bankruptcy bar in all of the sample districts includes solo and small firm practitioners as well as larger law practices that represent greater numbers of debtors. We collected from the debtors’ petitions the name of the attorney or firm representing each debtor, and then separately coded each attorney and firm name. We then tabulated the number of debtors represented by each attorney or firm. Based on the number of debtors in the sample that a given attorney or firm represented, we classified each attorney and firm as a higher-volume or lowervolume practitioner. We classified any attorney or firm that handled seven or more cases as a high-volume practice.104 As detailed in Table 24 below, across districts, most debtors were represented by attorneys with lower-volume practices as we have defined that term. Over 68% of the debtors were represented by attorneys who represented between one and six sample debtors, including 40.6% of debtors who
p’s > .05. her empirical study of lawyers and consumer bankruptcy, Professor Braucher likewise classified consumer bankruptcy law practices as either high- or low-volume. She noted that “high-volume lawyers devote all or most of their time to bankruptcy work, while the low-volume lawyers usually devote substantial time to one or more other practice areas.” Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 519.
104 In
103 All
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were represented by attorneys who handled only one or two of the sample cases. Nearly 32% of the debtors were represented by attorneys who handled seven or more other cases in the sample. The number of sample cases handled by one attorney or firm ranged from 1 to 27.105
Table 24. Attorney Case Load Number/Percentage of bankruptcy cases per attorney’s overall caseload Caseload 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 11.00 13.00 16.00 17.00 27.00 Total Missing Total Frequency 194 129 74 64 45 37 56 32 27 33 27 32 17 27 794 1 795 Percent 24.4 16.2 9.3 8.1 5.7 4.7 7.0 4.0 3.4 4.2 3.4 4.0 2.1 3.4 99.9 .1 100.0
A comparison of attorney caseloads across the seven sample districts revealed significant 106 As reported differences in average caseloads. in Tables 25 and 26 below, debtors in the Middle
105 Jean Braucher, The Challenge to the Bench and Bar Presented by the 2005 Bankruptcy Act: Resistance Need Not be Futile, 2007 U. ILL. L. REV. 93, 95 (“The consumer debtor bar is likely to consolidate as a result of the 2005 Act . . . . In a sign of predicted trends, a continuing legal education session at the 2005 annual meeting of the National Conference of Bankruptcy Judges was devoted to “How to Run a ‘Mill’: Ethically and Effectively.”“) 106 F(6,787) = 7.66, p < .01.
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District of Tennessee, the Northern District of Georgia and the Western District of Pennsylvania more frequently were represented by attorneys who handled a higher volume of cases, and the difference was statistically significant.107 The higher average caseloads tended to occur in the districts dominated by a large city: Atlanta in the Northern District of Georgia, Nashville in the Middle District of Tennessee, and Pittsburg in the Western District of Pennsylvania. The overall average caseload was 5.68 cases per attorney in the sample.108
Table 25. Average Attorney Case Load by District District Average Attorney Caseload MD 4.32 MDNC 4.24 MDTN 8.24 NDGA 6.74 SDGA 4.56 WDPA 6.46 WDTN 4.8 All Districts 5.68
(6) = 43.74, p < .001. of the BAPCPA amendments may have the effect of reducing the number of lower-volume practitioners, and further concentrating the representation of debtors in higher-volume practices, because the amendments make filing for bankruptcy more complicated and expensive, and impose greater obligations and potential liabilities on debtor’s attorneys. See, e.g., 11 U.S.C. §§ 526, 527 (as amended 2005).
108 Some
107 ?²
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Table 26. Law Practice Case Loads, Lower- and Higher-Volume Practices, by District District MD MD MD ND SD WD WD Total NC TN GA GA PA TN Practices 84 83 50 102 75 62 87 543 with seven (15.5 (15.3 (9.2% (18.8 (13.8 (11.4 (16% (100 or fewer %) %) ) %) %) %) ) %) cases Practices 16 17 50 62 25 38 43 251 with more (6.4% (6.8% 19.9 (24.7 (10% (15.1 (17.1 (100 than seven ) ) %) %) ) %) %) %) cases Total 100 100 100 164 100 100 130 794
(12.6 %)
(12.6 %)
(12.6 %)
(20.7 %)
(12.6 %)
(12.6 %)
(16.4 %)
(100 %)
The quality of an attorney’s representation of a debtor may be related to the volume of cases handled by the firm. The size of the practice might cut either way. On the one hand, a highervolume practice might mean greater legal expertise and efficiencies that promote a higher quality of representation and by extension a better discharge rate. On the other hand, a higher-volume practice may mean routinized practices that give less attention to individual debtors and fail to fully take into account their particular circumstances and needs. Overall, debtors represented by attorneys who handled seven or more sample cases were significantly less likely to complete their plans and obtain a discharge. Stated differently, debtors represented by an attorney with fewer than seven cases were more likely to complete their cases and receive a discharge, and correspondingly less likely to have their cases dismissed or converted, than debtors who were represented by an attorney with seven or more cases.109 Figure 2 below compares Chapter 13 case outcomes based on whether the debtor was represented by a higher109 ?²(1)
= 4.61, p< .05.
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volume or lower-volume law practice. The differences in case outcomes based on the number of cases handled by an attorney were not significant when at any cut-off line below seven. Figure 2. Case Outcomes and High- vs. Low-Volume Practices
Finally, there were no statistically significant differences based on attorney caseloads with respect to debtor refiling rates.110 In other words, high-volume practitioners were no more likely to represent repeat filers than were lowervolume attorneys.
110 p
> .05.
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VIII.CONCLUSION There are wide variations across federal judicial districts in how the bankruptcy laws work in practice, and these differences go well beyond Chapter 7 and Chapter 13 filing rates and proposed distributions to unsecured creditors in Chapter 13 cases. The Chapter 13 Project documents significant differences in the characteristics of the debtors who used Chapter 13 in different courts, as well as in the purposes for which they used Chapter 13. In some jurisdictions, the large majority of debtors used Chapter 13 primarily to address mortgage defaults, while in other districts the local legal culture appears to encourage debtors to use Chapter 13 to maximize repayment to unsecured creditors. Further, as reflected in debtor debt-income ratios and district filing rates per 100,000 of population, debtors in some localities more readily resorted to bankruptcy relief when confronted with financial crisis. Relatedly, some districts experience significantly higher debtor refiling rates than other districts. Furthermore, Chapter 13 case outcomes varied considerably across districts. We have examined the relation between case outcomes and various case administration practices, and have begun to explore the roles of the key legal actors in the Chapter 13 system, namely the bankruptcy judges, Chapter 13 standing trustees and debtors’ attorneys. On a practical level, the data reveal that the case outcomes differed significantly depending on whether the district routinely used wage orders to collect debtors’ plan payments. However, there were not any significant differences among districts based on whether postpetition mortgage payments were paid through the trustee. The data regarding the relation between restrictions on the amount of the debtor’s attorney fee that can be paid in advance are poor, and so no definitive conclusions can be drawn.
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However, anecdotally, several trustees, judges and lawyers told us that such restrictions do increase plan completion rates. Finally, the Project data indicate that individual judges can and do exert a decisive influence over case outcomes in some single-judge divisions, but that the Chapter 13 standing trustees in the sample districts did not appear to exert such influence apart from their prominent roles in establishing generally applicable district policies and practices. The identity of the debtor’s attorney can have a significant impact on case outcome; debtors represented by higher-volume law practices were significantly less likely to complete their plans than debtors represented by lower-volume practices.
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