Vanishing Trials: The Bankruptcy Experience

• DOI: http://doi.org/10.1111/j.1740-1461.2004.00026.x
• Author: Elizabeth Warren
• Date: 01 November 2004
• Published date: 01 November 2004

Vanishing Trials:

The Bankruptcy Experience

Elizabeth Warren*

The federal bankruptcy system provides two critical points of comparison

with data about the overall trends of federal lawsuits and trials. The first is

the rising number of bankruptcy filings, which indicates that a growing

number of collection actions and debtor-creditor disputes are funneled into

the bankruptcy system for relatively quick, cheap resolution. The second

point of comparison focuses on adversary proceedings, the lawsuit-like

subset of disputes that sometimes are resolved within a bankruptcy. The

trend lines here suggest that the number of adversary proceedings filed is

climbing, while the number of such disputes that are actually resolved by

trial is declining. Like the data about the federal court system generally,

these data suggest that the trial is quietly vanishing from the bankruptcy

system. Data about the number of judges and about business and nonbusi-

ness bankruptcy cases make it possible to explore two competing hypothe-

ses—a Judicial Workload Hypothesis and a Cost Hypothesis—to explain the

overall findings. The data are not conclusive, but they are consistent with

the view that judicial workloads explain less of the decline in the number

of trials than an increase in litigants’ costs of resolving disputes in bank-

ruptcy. The data are also consistent with a vision of bankruptcy as an evolv-

ing process that is increasingly standardized (and cheaper) for nonbusiness

debtors, while it is highly individualized (and more costly) for business

cases. If that vision is right, it has implications both for understanding the

changing role of the trial and for considering various statutory proposals to

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©2004 American Bar Association. All rights reserved.

*Leo Gottlieb Professor of Law, Harvard Law School.

I am grateful to Peter Eyre, Class of 2005, for his extraordinary work in assembling the data that are

reported in this article. His perseverance in locating the data, his inventiveness in disaggregating and ana-

lyzing the data, and his general good cheer in undertaking a project that often looked like an impossible

task were exemplary. I also owe a debt to William Rule of the Administrative Office of the United States for

his patience and willingness to take on a great deal of extra work to help us find and understand these data.

Without these two, this article would not have been written. Professor Robert Lawless read an earlier draft

of the article and offered several helpful comments, and Professor Kenneth Klee patiently schooled me on

changes in bankruptcy practices over the past 25 years. This article does not represent the views of the Admin-

istrative Office or anyone who helped on the article. Any errors are my own.

Journal of Empirical Legal Studies

Volume 1, Issue 3, 913–942, November 2004

differentiate further the treatment of large business, small business, and

nonbusiness cases.

Bankruptcy filings bear many of the aspects of typical lawsuits. Debtors—both indi-

viduals and corporate entities—file petitions naming their creditors and the amounts

owed to each and asking the court to distribute assets and to order permanent relief

from the collection of many of those debts.1Petitions are filed with the federal court,

signed under penalty of perjury, and accompanied by a filing fee. Each petition

creates a case. The federal district court takes formal supervision but, by standing

order in all courts, the case is automatically referred to bankruptcy judges who sit as

adjuncts to the district courts. During the course of the case, the bankruptcy judge

may hear motions and enter orders binding on all the parties. Final orders may be

appealed to the district court2and, from there, to the court of appeals and Supreme

Court. At the conclusion of the case, the judge signs an order dealing with the out-

standing debts, typically discharging the debtor from further liability on many of

these obligations. The orders are binding in all courts on all listed parties, and they

are enforced by a statutory injunction against any further efforts to collect debts so

discharged.

Bankruptcy filings also differ from typical lawsuits in substantial ways. Rarely

does a bankruptcy case resolve a dispute between only two parties. Instead, virtually

every bankruptcy case filed in the United States alters the legal relationships between

the debtor and many other parties—home mortgage lenders, car lenders, credit card

companies, banks, physicians and hospitals, alimony and child support recipients,

student loan servicers, taxing authorities, utilities, inventory financers, trade credi-

tors, inventory lenders, equity investors, tort victims, labor unions, regulatory author-

ities, environmental clean-up agencies, buyers and sellers of goods, landlords,

tenants, equipment lessors and lessees, patent and trademark licensors and licensees,

and bond holders—just to name a few. In the average consumer case, about 15 cred-

itors will be listed;3in the typical business case, the claims of about 22 creditors

will be resolved.4Debtors have choices among different legal regimes for the

914 Vanishing Trials: The Bankruptcy Experience

1A small number of cases is filed each year by creditors who want to bring a debtor under federal bankruptcy

jurisdiction to resolve outstanding debts. 11 U.S.C. § 303. The number of such cases, called “involuntary

bankruptcies,” is so small that the Administrative Office of the U.S. Courts ceased publishing data on these

cases several years ago.

2In the First, Sixth, Eighth, Ninth, and Tenth Circuits, the parties may by agreement take an appeal to a bank-

ruptcy appellate panel rather than a district court. Appeals from the BAP and the district court both go to

the court of appeals.

3Teresa Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, As We Forgive Our Debtors: Americans in

Debt 20 (Oxford, 1989) (reporting an average of 15.1 creditors per consumer case).

4Elizabeth Warren & Jay Lawrence Westbrook, Financial Characteristics of Businesses in Bankruptcy, 73 Am.

Bankr. L.J. 499, 515 (1999).