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Bankruptcy Judges and BAPCPA

posted by Elizabeth Warren

Yesterday the House held a hearing on Medical Debt and Bankruptcy. Donna Smith, a smart, thoughtful woman forced into bankruptcy by medical problems was the star witness. (She was also featured in Michael Moore's SICKO--see it!) My co-author Dr. David Himmelstein from the Harvard Medical School was terrific, as was Mark Rukivana from The Access Project. I also testified, mostly about our studies and other people's studies on medical bankruptcy.

But I learned something new. During the Q&A, Professor Todd Zywicki testified that one of the key lobbying groups opposing the 2005 bankruptcy bill was the bankruptcy judges, who with bankruptcy attorneys balanced out the influence of the credit industry lobbyists. Why would the judges lobby strongly against BAPCPA? He said flatly, "Bankruptcy judges just want more bankruptcy."

As a group, I thought the judges were fairly quiet during the bankruptcy debates (much quieter than in the debates leading up to the 1978 Code). And I don't know of any evidence to back up any claim about what the judges do or don't want. So why would Professor Zywicki claim that judges lobbied so they could make sure they would have big caseloads? Professor Zywicki also described himself in the hearings as an economist, so perhaps his conclusion was based on an economic model. But then I'm stumped again. Last I heard, judges get paid the same whether they handle a lot of cases or a few cases. In fact, more cases means more work for judges and staffers. As economically rational maximizers, wouldn't sitting judges support anything that cut down on traffic in the bankruptcy courts?

In fact, doesn't the economic model claim that the only way CEOs in the private sector will have adequate incentives to work hard is that they can get paid millions of dollars? Doesn't the economic model abhor anything that de-links the amount of work and the amount of pay, and doesn't it predict that fixed-salary people will generally support moves to reduce their workloads?

BAPCPA was about consumer bankruptcies, not the high-prestige big business failures, so it is hard to make the claim that presiding over twice as many home mortgage foreclosures or the liquidations of people who lost their job carries more prestige. In short, I just can't get the economic model to square with Professor Zywicki's claim.

If Professor Zywicki is right that the judges were a big lobbying force in fighting BAPCPA--and that is a big, unproven IF--then is it possible that the judges were motivated by What they saw day in and day out in the bankruptcy courts. Perhaps the judges knew that the system was serving families who needed help, not the "abusers" claimed by the credit industry. Could it be that the judges thought that administering a law that was hurtful to families already in a world of hurt would be deeply painful both to the families and to themselves as the people in charge? 

Based on Professor Zywicki's testimony, I'm just trying to work out the model of why bankruptcy judges might have thought the 2005 amendments were wrong. I'm having some trouble with the idea that "Bankruptcy judges want more bankruptcy." 


Why should one expect Zywicki's testimony to be in the least bit truthful or factual? Let us not forget this infamous gem:

SENATOR FEINGOLD: What about my question? Are there any changes to the bill that need to be made at all or is it exactly the way it should be? We are marking this thing up next week. This is it. The train is leaving the station, apparently, and there is not going to be another bankruptcy bill probably for a very long time. This is it. Should this bill be changed?

MR. ZYWICKI: I believe this bill is fine as it is.


MR. ZYWICKI: There is no word that I would change in this particular piece of legislation.

His completely transparent attempts to explain away his testimony as out of context do little to inspire confidence in his credibility either.

Let's see. The centerpiece of the BAPCPA was the means test, which is designed to push debtors from chapter 7 to chapter 13. Chapter 13 involves years of court supervision and, therefore, lots more work for bankruptcy judges. So why exactly would a bankruptcy judge who wants more work would be opposed to the BAPCPA?

Also, Zywicki's hardly an economist, even if he fancies himself one. He has an MA in econ from a random school, which probably means he has no more econ training than many sophisticated undergrads.

It's really painful to see such obviously politically-determined "scholarship". It's down-right Soviet. Ironic for such an anti-communist like Zywicki.

What a fascinating statement on the part of Prof. Zywicki. Did he support it? I know that the NCBJ was silent on merits of the bill. Some judges (and its a very small number) expressed concern that the "sales pitch" being fed to Congress was flawed, but I would hardly call that "lobbying." Some judges were supportive of the legislation. Was that lobbying?

I know of no letter-writing campaign, no "talking point" white papers prepared or presented by bankruptcy judges, and certainly the judges did not retain a George Wallace or a Phil Corwin to present a position.

I'm mystified. Or was this just a question of tarring the judges who dared to express an opinion different than his own as vaguely corrupt? If so, I would have thought that a law professor would have found such an ad hominem attack beneath him.

Whenever I weigh the credibility of expert witnesses in cases in which I am involved, I always try to bear in mind who is paying for their testimony. I don't pretend to know what, if any, arragnements exist in connection with Professor Zywicki's testimony, but I am curious. Is the good professor taking all this time out of his busy day purely out of his concern for the improvement of our bankruptcy laws, or are there other motiviatons as well?

While I am writing-- bravo to Professor Warren for her work on this over these years, and for the other witnesses, trying to bring some reality to bear on Congress, even if their ears are plugged up with campaign contributions. As one who labors in the trenches of bankruptcy, I appreciate the effort.

My big objection is that the bill was little more than the Credit Card Issuers Relief Act. It really tightens the screws on subprime card holders.

--Jack Payne

My belief is that those bankruptcy judges who opposed BAPCPA did so because they thought it not prudent and also perhaps because it tied their hands more as to matters they felt they could address and were addressing on a case by case basis.

As for health care costs being a cause for bankruptcy filings, I am somewhat skeptical that it is as large a problem as represented. Most debtors I see have spending problems (ie, taking on too much credit card debt) that come crashing on them when some unexpected other problem (eg, job loss, divorce or uninsured medical bill) pops up.

Thank you to Professor Warren for giving me an opportunity to clarify these remarks. I recall this exchange in the hearing, but Congressman Conyers kept interrupting me when I tried to answer his questions, so it is quite possible that my answer was fragmentary or lost in an interruption. Or Professor Warren may have simply misheard what I said in the confusion of the exchange. I obviously haven't received a transcript yet of my remarks, so I'm going on my memory of a fairly confusing exchange between myself, and if I recall correctly, Congressman Conyers. Regardless, this is a good opportunity to clarify myself.

If so, what I intended to say (and thought I said) is not accurately conveyed in Professor Warren's post.

First, no one doubts that bankruptcy lawyers lobbied heavily against BAPCPA or heavily lobbied the earlier National Bankruptcy Review Commission. As David Skeel and Carruthers and Halliday have amply demonstrated in their books, bankruptcy lawyers have long been a potent lobbying force with the Judiciary Committee on bankruptcy legislation. Bankruptcy lawyers favor more bankruptcy filings for obvious financial reasons. This is quite well-established and should not surprising or controversial by now. For various reasons bankruptcy lawyers just had less sway in the enactment of BAPCPA than they had in past iterations of bankruptcy law-making in American history. I briefly discuss the politics of BAPCPA here: http://www.nationalreview.com/comment/zywicki200503160744.asp

BAPCPA passed both the House and Senate with over 70% support in both houses. The voting lineup was clear--virtually all Republicans supported it as did virtually all centrist Democrats. Liberal Democrats voted against it. The voting lineups can be found in the links provided here: http://volokh.com/posts/1115384685.shtml

It certainly is true that many of those same liberal Democrats who opposed BAPCPA also receive a lot of campaign contributions from lawyers as well, and it is possible that their support was swayed or strengthened by that fact. It is also clear that some of those favored bankruptcy reform received campaign contributions from creditors. Nunez and Rosenthal concluded that some centrist Democrats (perhaps 15 members, or about 5% of the overall 300+ that supported the legislation) may have been influenced by contributions from the consumer credit industry. But they also concluded, and the voting lineup in Congress clearly indicates, that both the support for and opposition against the legislation was overwhlelmingly principled and ideologically-based, not the result of monetary influence. To the extent that lobbying by lawyers moved votes against the legislation or lobbying by creditors moved votes in favor of the legislation, they appear to have both been relatively small and roughly offsetting influences.

Second, the only time I thought I mentioned bankruptcy judges in the hearing was in noting that I have never received any money to support my bankruptcy research from any party who had a vested interest in bankruptcy reform, whether the consumer credit industry or members of the bankruptcy industry, such as the NCBJ, ABI, or whatever other group comprised of those who directly derive their livings from the bankruptcy system. It is also generally agreed that judges in general, are not motivated by financial ends, but certainly prefer greater power, discretion, and authority to less of all of those, and there is little doubt that bankruptcy judges perceive that BAPCPA reduced their power and discretion. As Professor Warren notes, one plausible motivation for judges is that they seek to consume leisure, but casual empiricism suggests that this generally not true and that judges work at least as hard as most lawyers.

Coincidentally perhaps, the researchers supported by the bankruptcy industry around BAPCPA typically concluded that no reform was necessary, whereas the research supported by creditors tended to show a need for reform. As I said, I receive no support for my bankruptcy research from any of these groups so I take the conclusions of all of them with a grain of salt and just try to base my opinions on the soundness of the methodology in the studies and the reasonableness of the conclusions that they draw.

This does underscore, however, the importance of independent research by independent entities such as the Executive Office of the United States Trustee, Federal Reserve, and Federal Trade Commission. The EOUST's research on medical debt and bankruptcy is an excellent example of the value such research can add to our understanding of bankruptcy law and policy.

Let me make clear that I certainly am not critizing researchers who have received money to support their research, especially research that wouldn't otherwise exist, so long as there is transparency in disclosing funding sources and amounts. I'm not exactly sure whether Professor Warren has received any financial support from the bankruptcy industry or any of those organizations. I haven't seen a comprehensive disclosure of who exactly has supported her research through the years and in what amounts, but perhaps I just missed it.

In short, while I obviously haven't seen a transcript of the hearing yet, but in the confusion of Congressman Conyers interrupting me and my effort to try to answer his questions in fragments it is quite reasonably possible that I misspoke or Professor Warren simply misheard me as saying that bankruptcy judges had a financial interest in opposing BAPCPA.

As for PSP's comment, I have dealt with that out-of-context quotation extensively here and won't rehash that again here:

Professor Zywicki, I look forward to your reviewing the transcript to see whether you did or did not tell members of Congress at the recent hearing that bankruptcy judges were one of the key lobbying groups against BAPCPA. If so, I stand by my earlier comment that that was an unjustified ad hominem attack on bankruptcy judges.

Todd, it sounds indeed like there might have been some confusion about your remarks, so this may all be a molehill-mountain. I also like your idea of probing funding to studies. But I want to know more about why you don't think EOUST would be part of what you broadly call the "bankruptcy industry". It can't be that they're government actors, because that would apply to judges too. And isn't the NCBJ the umbrella organization of judges, in which case, aren't you doing exactly what Leif worries you are doing, namely, lumping them in (but not the EOUST) with the amorphously large "bankruptcy industry"? John. PS: On your infamous remarks to Congress, you forget that the hallmark of bankruptcy interpretation these days is textualism. Is it still open to explain away the "plain meaning" of your comments by the context in which they were uttered and intended? I think your best escape, under this interpretative paradigm, is absurdity: no-one could think ANY statute drafted by Congress is flawless....

In my experience as a reader, I am typically able to identify the sources who funded Prof. Warren's research from an early footnote in her published works, where she discloses any outside support and and thanks those agencies or entities. At the congressional hearing, she drew on her original, empirical research on medical bankruptcies from the Consumer Bankruptcy Project III, which has previously been published. To quote from the prefatory footnote in her article on medical bankruptcies in the Northwestern Law Review (with Jacoby): "The bankruptcy dataset evaluated in Part III of this Article was funded by the Robert Wood Johnson Foundation, The Ford Foundation, Harvard Law School, and New York University Law School." I am certain that if one simply reads each of her articles, he or she would be able to comprehend the sources of her funding.

I appreciate Prof. Zwyicki's point about the importance of disclosing funding, as I hope my effort to help him track down the sources of her funding for her medical bankruptcy research evidences. However, it seems to me that researchers who do not conduct original empirical research or construct new datasets to expand the base of knowledge have considerably less need for outside funding. One's need for funding may depend on the depth or nature of one's research. This is certainly true in most other disciplines. Applied economists routinely seek funding; theorists do not. For example, the data that Prof. Warren uses in Two-Income Trap was the result of three data instruments administered to over a thousand families with the collaboration of nearly a dozen researchers. In his testimony, Prof. Zwyicki disagreed with the primary conclusion of that book, opinioning that "[m]oreover, the increasing number of two wage-earner families obviously has made families more resilient in the face of the loss of one income as the result of job interruptions from health problems or any other source." I'm not exactly sure whether Professor Zywicki has ever conducted any original empirical research to back up that assertion, but perhaps I just missed it.

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