The First Part of Shredding the Safety Net

As mentioned yesterday, I'm at a symposium sponsored by the Southern Illinois University School of Law's symposium on the 2005 bankruptcy laws called "Shredding the Safety Net," and I thought I would try a little "live blogging" I have never tried this before, so consider this an experiment. I'll try my best to summarize the papers, but I'm sure my summaries will only be able to capture the outline of the presentations. The papers will appear in an issue of the Southern Illinois University Law Journal later this spring.

The first speaker of the morning is Professor Nathalie Martin of the University of New Mexico School of Law. She is presenting a paper on debtor education after the 2005 bankruptcy law. As Credit Slips readers probably know, the 2005 bankruptcy law requires credit counseling for consumers prior to filing bankruptcy as well as a postfiling debtor education course as a condition for the discharge. In her paper, "Mind Games: Rethinking BAPCPA's Debtor Education Provisions," Professor Martin proposes that we eliminate the prebankruptcy credit counseling requirement. She argues that by the time debtors are ready to file bankruptcy, it is too late for credit counseling to be meaningful. The debtors are under a lot of stress. Moreover, the industry administering credit counseling has been under investigation from the IRS for possible loss of their tax-exempt status. The IRS Commissioner labeled the industry "a big business dominated by bad actors." Although I agree with this recommendation, I don't believe even the congressional opponents of the 2005 bankruptcy law the political will to propose repeal of the credit counseling requirement.

Professor Martin would keep the second, postfiling debtor education course but would improve it so it dealt with the reality of decisionmaking by modern-day consumers. She cites studies by behavioral psychologists who find a preference for immediate consumption is hotwired, the well-known optimism bias (I'll make better decisions than you), and cultural impediments in a society that has promoted consumption for the economic well-being of the country as a whole. What sets Professor Martin's work apart from many bankruptcy academics is that she is able to draw on experiences through her involvement with the University of New Mexico's extensive clinical program. She reported on comments from a financial literacy course taught to college-age students at the University of New Mexico. In that course, she emphasizes that the mainstream culture promotes consumption and thus the renegade thing to do is to save. She reports that this countercultural message appeals to younger people. Her paper is a challenge to the "one size fits all" approach of the credit counseling industry.

The second speaker is Judge Judith Fitzgerald of the United States Bankruptcy Court for the Western District of Pennsylvania. That's a lawyer's way of saying "bankruptcy judge in Pittsburgh." She is giving a judge's view of the 2005 bankruptcy law as it relates to family law issues. Judge Fitzgerald argues that family law is one of the few areas where the 2005 bankruptcy law benefited consumers. By providing a broad definition of "domestic support obligation," the 2005 law got bankruptcy judges out of the business of deciding when a previous judgment was in the nature of a property settlement (and hence not subject to the bankruptcy discharge). In questioning, the issue came up of the 2005 law's application to a divorce decree entered before 2005. The 2005 bankruptcy law clearly would apply to the divorce decree. Of course, this can seem like a retroactive application of the 2005 law, and in a sense it is. The lawyers involved in the divorce decree could not possibly have anticipated a law that would not be enacted until the future. Neverthless, bankruptcy law always has had to operate on debts entered into before the law was passed.