The Honorable Mary Grace Diehl, the Honorable Keith M. Lundin, the Honorable Cecelia G. Morris, Professor Jack Williams, the Consumer Bankruptcy Panel: Five Years of Bapcpa

• Jurisdiction: United States,Federal
• Publication year: 2011
• Citation: Vol. 26 No. 2

THE CONSUMER BANKRUPTCY PANEL

VIEWS FROM THE BENCH-FIVE YEARS OF BAPCPA

The Honorable Mary Grace Diehl^*The Honorable Keith M. Lundin^**The Honorable Cecelia G. Morris^***Professor Jack Williams^****

PROF. WILLIAMS: We have an opportunity to hear from three very distinguished judges who all have great reputations of being thoughtful, deliberate and careful in their analysis of bankruptcy law, practice ,and procedure. I'd like to start by taking a retrospective look back to, it's hard to believe, five years ago with BAPCPA and the 2005 amendments to the Bankruptcy Code. In fact, I think it was enacted in April of 2005, so it's almost been a complete five-year cycle.

JUDGE LUNDIN: It was enacted on Hitler's birthday.

PROF. WILLIAMS: That I did not know, but I'm sure there's a back-story behind that as well.

JUDGE LUNDIN: True story.

PROF. WILLIAMS: One of the things I'd like to explore right now with our panelists is the intent of the 2005 amendments to the Bankruptcy Code and the consequences of whether that intent has been effectuated through its application. Of course any time you try to cobble on a complex set of rules and standards to an already-existing complex legal system, you often experience the law of unintended consequences as well. So I'd like to start with that and begin with Judge Diehl.

JUDGE DIEHL: The question being what the unintended consequences of

BAPCPA were?

PROF. WILLIAMS: Yes. I think if you could give us a little background on what Congress intended, if you could be so kind, and then move to what is actually occurring.

JUDGE DIEHL: I think the title of the statute, the Bankruptcy Abuse Prevention and Consumer Protection Act, would lead you to believe that there were probably two intended consequences. It was supposed to prevent bankruptcy abuse, and it was supposed to protect consumers. Did it do these things? I have yet to see the consumer protection aspect of it. Maybe one of the other judges can comment on that. I think that there was a feeling that a lot of people were abusing bankruptcy in the consumer area, that highfliers were filing cases and they were passing under the radar and they weren't getting the kind of scrutiny that they had to. There are a number of things in the statute that somebody thought might prevent that abuse. One of the abuses was the continuous refiling of cases particularly in the chapter 13 arena because a debtor in a chapter 13 has a pretty much absolute right to dismiss a chapter 13 case. Somebody would be coming at them, for example a lender would have gotten relief from stay and be about to foreclose, and they would dismiss their case, refile, and get a new automatic stay. Congress came up with Sec.362 (c) and 362 (d) to deal with second time filers and third time filers, and I guess in Congress' mind Sec.362 (c) would limit the automatic stay in the second case. I think the way that this has played out as a result of some court decisions, which have held that after the expiration of the stay of 30 days only applies to property of the estate and if that's true, is it pretty much guts it because in chapter 13 everything is property of the estate. It hasn't even taken uniformity among the courts. I think the lending community responded to those opinions by saying, "We're not going to treat it as if it expires after 30 days and we'll just go back to filing our motions for relief from stay." To the extent that BAPCPA was intended to stop second filings, I don't think that has happened at all. I think in the third filing area it probably has done a better job because the statute was drafted much more clearly and it's pretty clear that there is no stay if you file a third case within a year. To the extent that was an abuse, I think that's being taken care of. I'm not sure what the credit counseling requirement was designed to do, but I think it's had zero impact other than for the pro se debtors that don't know they're supposed to get credit counseling before they file. I think it's become nothing more than a tax that people have to pay before they can file a case. I have not seen a single case where somebody did credit counseling before bankruptcy and ended up with a debt repayment plan prepared by the credit counselor that was what it's supposed to be.

JUDGE MORRIS: One of the stated intents of BAPCPA that everyone talked about was to reduce the number of bankruptcy filings and it did that for a while because they all filed right before the law was enacted. So if that pig had to move through the pipe and almost the moment that pig got through the pipe, of course we had this amazing economic downturn and our filings are almost back up to what they were and probably will surpass even what happened in

2005. I think the intent for what they really said has happened. It's more expensive for someone to file. I can't speak about Florida, but an unintended consequence that happened in New York, unbeknownst to any bankruptcy judge in the state, was that the New York State Legislature in August of 2005 passed legislation that said that instead of $10,000 in a homestead exmption, you suddenly had $50,000 to claim per individual in a homestead exemption, so $100,000 per a couple in a home. No bankruptcy judge in New York knew anything about that, so those are sort of the intended and unintended effects. I think that Judge Diehl and I just absolutely agree on the credit counseling requirement. My law clerks went and took the financial management counseling that is exit counseling and brought back the materials. The one they went to was the one put on by Cornell University. It was excellent, and debtors have to get that, so maybe that might help in the future. The one thing about the third filing and the no stay is that the debtors almost immediately come to court. Their lawyer brings them to court, and I get an opportunity to look at them over my glasses and say, "Do you understand that if you don't go through with this this time that you won't have another chance?" I don't know if that makes any difference, but at least that fourth filing isn't happening so that's sort of the intended and the unintended effect. For the debtors, it seems to me it's more costly to file for bankruptcy. For creditors, I don't think the unsecureds-except maybe the car companies, and we don't know this yet- are going to make any kind of windfall on this bill whatsoever. For the administrators and for the bankruptcy court, it is just a lot of paperwork.

JUDGE LUNDIN: Jack, am I allowed to talk to the students?

PROF. WILLIAMS: Yes, you can.

JUDGE LUNDIN: Just a little digression. You take this for granted, but it is fabulous that the Emory Bankruptcy Developments Journal does this Symposium. Symposiums went out of style at some point. Law reviews stopped doing them, so people like us don't get to see law students unless we can drag one in to work for us. I love it. I'm going to tell you a couple of secrets directed at you, and I apologize in advance that I tend to be a little more frank than I should be and I name names, but people have to be responsible for what they do and if you don't name them, they don't know. The first secret I want to tell you is bankruptcy practice is great practice. It's great practice, and if you haven't decided what you want to do when you get out of law school, in spite of everything else that we are going to say this morning, bankruptcy is a great place to go. Relatively little blood and tears. If you need blood and tears in your practice, there's only a little bit of that.

JUDGE MORRIS: I have to interrupt you.

JUDGE LUNDIN: I knew you would.

JUDGE MORRIS: A lot of tears. A lot of tears.

JUDGE LUNDIN: Well, some tears.

JUDGE MORRIS: No, and I'll give you a true story on this. On chapter 13 day, I come in and I have chat with my law clerks. I look out in the audience and there are five women in the room with turbans on. I e-mail quickly that it's going to be a bad day and they e-mail me back asking what I mean, and I say there are going to be at least five people coming up talking about their cancer. Sure enough, that day was a day, you know, what kind of cancer do you have? What are we doing? There are a lot of tears and a lot of problems to solve for people in this situation.

JUDGE LUNDIN: The next point was but there are people.

JUDGE MORRIS: That's true.

JUDGE LUNDIN: If you're looking for a people practice where you're not doing child custody or going to jail, bankruptcy is a hell of a good place to go and it's kind of a secret. I don't want it to get out of this room, but you can make a lot of money doing it also. It is a nice practice and you will still have a life, which is not true of a lot of kinds of law practice these days.

JUDGE MORRIS: By and large you do also-I'm sorry to keep interrupting.

JUDGE LUNDIN: No, you're not. You're not sorry.

JUDGE MORRIS: If I was sorry, I wouldn't interrupt, right?

JUDGE LUNDIN: I can't believe Jack is keeping his mouth shut.

JUDGE MORRIS: You have grateful clients.

JUDGE LUNDIN: Yes, there are people at the end of it. The other great secret about bankruptcy is that it is hugely important. You saw that first panel and your dean, Dean Partlett, was up here talking about, do you know where basically all the mass tort law in the last thirty years had been made? Made in Judge Morris's court, the Southern District of New York. It started with Judge

Bert Lifland, and the case, which is called Johns-Manville,¹is still ongoing and you guys had it down here. Your former dean, David Epstein, ended up representing the future claimants in the Piper Aircraft²case trying to figure out how you figure out how many people Piper is going to kill ten years from now.

PROF. WILLIAMS: Pardon my interruption, Judge. Judge Lundin raises a great point, and that is that many, many fundamental issues end up in the bankruptcy court often times because there is no other branch of government that will address the issue. Congress may pass on the...