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Lawyers Make Good Laws?

posted by Gene Wedoff

I attended last weekend's University of Illinois/ABI Symposium on Debt—a tour de force, as readers of Credit Slips can glean from Mechele Dickerson's recent reports. My main interest in attending was to gain insights about how to improve U.S. consumer bankruptcy law, and I got one insight in particular from an unexpected source--a paper on international corporate bankruptcy. The insight?  Bankruptcy lawyers really may be the best source for good bankruptcy laws.

The paper, "Missing Debtors: National Lawmaking and Global Norm-Making of Corporate Bankruptcy Regimes," by Terence Halliday, Susan Block-Lieb, and Bruce Carruthers, asks why the corporate bankruptcy reforms recently enacted in a number of countries have a "pro-debtor" (reorganization) focus, even though the corporations that would benefit from pro-debtor laws were not active in lobbying for or drafting the reform legislation. An ultimate reason given by the paper is that the legislative outcome was driven by bankruptcy professionals, especially lawyers. David Skeel, who commented on the paper, reached a similar conclusion in his book Debt's Dominion, in explaining the development of U.S. bankruptcy law through 1978.

Of course, it's not surprising that lawyers would want to influence the system in which they earn their living; both the paper and Skeel book emphasize the interest lawyers have in creating bankruptcy systems that require substantial work by lawyers.  But the paper makes another point, easy to miss: lawyers have an instinct to make laws that, beyond benefiting their profession, benefit society generally.  Here's how the paper puts it (citing Max Weber as supporting authority):

Professionals characteristically value arenas where they can exercise creativity, where their ingenuity has powerful consequences, where they can use law to make a difference.  This instinct gains leverage when it coincides with normative causes--saving jobs, reviving productive businesses, preserving company towns.  A bankruptcy regime that offers lawyers broad scope to mobilize law creatively towards a good cause simultaneously maximizes intrinsic, aesthetic and extrinsic values.  To do good while doing well has much to recommend it.

In my experience, this rings true.  Bankruptcy lawyers generally have the willingness to separate themselves from the clients they represent and work cooperatively toward developing good bankruptcy legislation, effectively balancing debtor and creditor interests.  Whether any such lawyer-generated legislation can be enacted is a product of shifting political and economic climates, but if the climate in the U.S. ever favors good bankruptcy legislation, bankruptcy lawyers should be ready to propose it.


When you talk about bankruptcy lawyers cooperating, I assume that you mean, "across the debtor's counsel/creditor's counsel divide". Speaking as primarily a debtor's lawyer, the problem appears to be that the "creditor" side of the table has been occupied for the last decade and more not by bankruptcy counsel but the lobbyists who brought us the 2005 "reforms". It is for those with influence on that side of the table to get their house in order to bring about the outcome anticipated in your final sentence.

I don't think BAPCPA was drafted by the creditor bar. It was drafted primarily by the their clients - primarily the credit card industry.

If the creditor bar had written the "reform" bill, it would have been competently drafted, and at worst we would have provided consistent answers as to how the debtors were being screwed by the new law. Instead, we have vast areas lacking any kind of clarity, where debtors are benefited or screwed - seemingly at random.

The BAPCPA is not the product of an evil intelligence. It's the product of an evil incompetence. AT least in the field of legislative drafting. And, regardless of how you feel about the creditor bar: they aren't incompetent.

I think the problem came when the republicans took office they had the power and opportunity to bow to will of their financiers. They were in such a hurry to pass something that their eyes focused on BK reform that had been stalled. The consequences were things like the “hanging paragraph” a.k.a “the paragraph after” 11 U.S.C. 1325(a)(9) but preceding 1325(b)(1). Is it apart of (a)(9) or (b)(1)? There also seems to be a bit of confusion as to whether it passes thru the “secured creditor gate” of 11 U.S.C. 506? (that kind of stuff)

Can consumer bankruptcy firms work with creditor firms? They do it all the time! Why? Because they can’t fight every battle tooth and nail. Consumer Bankruptcy firms have a financial incentive to work with creditor firms. If a BK attorney files one chapter 13 bankruptcy, he or she may see Multiple Motions for Relief, Confirmation Objections and may have to object to multiple Proof of Claims. Add to that, coordinating with the debtors to provide tax returns not filed, pay stubs, etc... Coordinating with Chapter 13 Trustees. Dealing with violations of stay/ discharge violations. Consumer Bankruptcy attorneys are usually the first point of contact on any other matters arising post-petition. ie. Debtor was in a car accident, debtor’s home was damaged by a storm, debtors filed for a tax refund but applied for a RAL and now the refund was frozen. It is the debtors’ chapter 13 attorneys’ fees that are looked at closely even more than Mortgage Proof of claims and their attorneys fees. The fact that the UST is now investigating mortgage servicers is a positive but as everyone knows that type of action by the UST is somewhat of a novelty.

I know if someone were listening to them, that consumer bankruptcy attorneys would be able to help propose great legislation. It would be legislation that would be both fair to both sides and would streamline the process. The every day consumer bankruptcy attorney or firm does not have the type of extra income and time that would allow them to lobby for their clients. Our elect should have had consumers in mind when they passed the law that claimed “Protection for Consumers”. Instead they made it seem like they provided additional protections when they did not. “Bankruptcy Abuse Prevention and Consumer Protection Act”. It gave us 362(k), when we already had it in (h) but made it harder to prove the violation by changing (h) to require a more stringent notice requirement. Bankruptcy Abuse Prevention and “CREDITOR” Protection Act of 2005.

You know how creditors can sign up to list where they are to be served for the purpose of 362(h)? Well when I called the data base for a list of where to properly serve the creditors, they could not or would not give me a copy of the list. So we are still shooting in the dark on notice when debtors first file. That fact provides a huge amount of leeway to creditors when it comes to discouraging violations of the Automatic Stay.

For the reasons stated above, is why I believe that this blog is so important. It provides an important vehicle to voice concerns (gripes) about the system. This blog is a "vehicle" that "decision makers" will actually listen to. Who’s going to listen to Joe Shmoe? They will listen to the Authors of this blog though. That I have seen in decision after decision.

Ooopppsss. I meant the "effective notice" provision of 11 U.S.C. 342(g) not 362(h). Myyyy badddd!!!! Anyhow like 342(g), 362(h) was also protection of sorts for creditors when combined with 362(k)(2). The new provisions severely water down one of the most important provisions of the bankruptcy code, the "automatic stay". 362(k) was further watered down my 342(g)(2) in that it takes away the Judges discretion on awarding monetary penalty for a violation of the stay. That provision in effect says that certain violations of the stay may be permissible. The Automatic stay is no longer this bright line in the sand that it used to be. It is one that is open to interpretation and viewpoint.

I understand the need to file complete schedules as soon as humanly possible but these new provisions are the "icing on the cake". These provisions leave the door open to claims traders or claims "launders" to be free to do their thing and violate the stay and say "I didn't know, no one noticed me". What about faxing the entity, calling, e-mailing? What if they call the debtor over and over and debtor tells them over and over that they have filed? What if it is one of these old debts that no longer show up on credit reports and someone buys it mid way thru the bk. They didn't have effective notice. It was a pre petition debt. What then? The way it’s all worded, the creditor would have to file a POC in order to be on the hook for a stay violation. What happened to “showing that a willful violation of the stay” did not mean that the creditor intended to violate the stay but just that they knew of the stay and their actions violated the stay?

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