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Your Government Prefers Chapter 13

posted by Katie Porter

Today, I went looking for the court costs payable by chapter 13 debtors who wants to convert their cases to chapter 7. I admit that like many Americans my starting point was Google. I quickly landed here, at the Bankruptcy Basics page provided by the Administrative Office of the U.S. Courts, a division of the judiciary. The site says that it "provides basic information to debtors, creditors, court personnel, the media, and the general public on different aspects of federal bankruptcy laws. It also provides individuals who may be considering bankruptcy with a basic explanation of the different chapters under which a bankruptcy case may be filed." From this description,  you might expect a factual, value-neutral description of the fundamental choice facing all consumer debtors: whether to chose chapter 7 or chapter 13. But look what I found when I read up on Chapter 7 and Chapter 13 . . .

If you click on Chapter 7, the first heading is "Alternatives to Chapter 7." Therein is a description of alternatives such as not filing, choosing chapter 11 or chapter 13, etc. I didn't think too much about this. People should think about alternatives when they are making the big decision of bankruptcy. But then I clicked on Chapter 13, and was immediately struck that instead of a parallel heading of "Alternatives to Chapter 13" that might discuss Chapter 7, people instead are directed immediately to learn about the "Advantages of Chapter 13."

Hmmm . . . what is the message here? Could it be that our government thinks chapter 13 is better? I thought that was a creditor position but I think it's a fair reading of the Administrative Office's website to say that their presentation of the relative benefits and drawbacks of the two chapters skews toward Chapter 13. The website directs people to think carefully about alternatives to Chapter 7  and to consider the benefits of Chapter 13 , but not do the converse: consider alternatives to Chapter 13 and to consider the benefits of Chapter 7.

I think this is lousy advice because I am increasingly discouraged about Chapter 13 given the problems of today's families, but the real point is that this Chapter 13 preference is an inappropriate perspective for the judiciary. Putting the means test limitations to one side for a moment, the Bankruptcy Code embraces the idea of informed debtor choice between Chapters 7 and 13. Information about the two chapters is a good government service. Prefering one chapter, and doing so in a subtle way that will largely escape anyone's attention, is not a good government service. This is especially true in light of the government's own statistics that show that Chapter 13 debtors are much less likely to receive a discharge than Chapter 7 debtors. That key fact never makes it onto the Bankruptcy Basics website, although it is surely one to balance against the potential benefits of Chapter 13.

p.s. If you think the website is simply ignorant of research on bankruptcy outcomes, consider that it contains this advice:  "A debtor may make plan payments through payroll deductions. This practice increases the likelihood that payments will be made on time and that the debtor will complete the plan." An accurate description of the research, and perhaps good advice, but perhaps just a wee bit less relevant than that less than one-third of filings will end without the debtor getting a Chapter 13 discharge.

p.p.s. The conversion fee from Chapter 13 to Chapter 7 is $25, according to the website. Good to know given that so many people will need to consider conversion when they do not complete their Chapter 13 plans!


You assume that an AO web page reflects the "perspective [of] the judiciary." Why?

I am certain as a practical matter that many in the judiciary don't agree with the AO on any given matter.

But my assumption that the AO reflects the perspective of the judiciary is based on the AO's own description of what it is and does:

"Created in 1939, the Administrative Office of the United States Courts (AO) serves the federal Judiciary in carrying out its constitutional mission to provide equal justice under law.

The AO is the central support entity for the Judicial Branch. It provides a wide range of administrative, legal, financial, management, program, and information technology services to the federal courts. The AO provides support and staff counsel to the Judicial Conference of the United States and its committees, and implements and executes Judicial Conference policies, as well as applicable federal statutes and regulations."

This description suggests that the AO is implementing Judicial Conference policies and supports the judiciary--that it works for the judiciary and not the other way around.

As the passage you quote demonstrates, and as its name plainly reflects, the AO performs an administrative function for the judicial branch of the federal government and that's all. I can't speak for the AO (any more than it speaks for me), but I would be surprised if even the AO believed that views on legal issues expressed on its web site reflected the views of "the judiciary" as a whole, a majority of judges, any group of judges, or even a particular judge.

As one who's worked with, and at times against, the AO and its policies for over 20 years, I must say that Katie's notion that the AO works for the judiciary - and not the other way around - is accurate. At times, the staff there needs to be reminded of that fact. And, to the extent the AO provides "information" via its website, it should be neutral and accurate - not skewed to the notions of AO staff (or even the judiciary) about what is the "better" choice among legislatively created alternatives.

It doesn't matter what the judiciary thinks; Chapter 13 is preferred because BAPCPA says it is. And there are a lot of Chapter 13 trustees who have not figured out the ramifications of that statutory preference and spend most of their time barring the courthouse door. In anti-debtor jurisdictions like Utah, you might as well throw them to the wolves.

What universe of debtors is potentially affected by this advice? Not likely those who have retained a competent lawyer; he or she will be a much more intense and personalized source of advice, and is not likely to care much what the AO's website advises. I would venture to say that the overwhelming majority of pro se debtor will never hear of this site. Also, while I don't have figures, my impression is that pro se Chapter 13 debtors are relatively rare. They ought to be; this stuff is not for amateurs.

Undeniably, the AO "works for the judiciary" rather than the other way round. But that says nothing about the capacity in which the AO works, the nature of its work. My point was simply that the AO is responsible for administrative functions, not for making pronouncements about the law on behalf of judges. The AO is in no sense a "division of the judiciary," as Prof. Porter asserts.

It doesn't matter to the point of my post because public perception is at least 99% of the issue here. People will think the AO reflects the views of the judiciary, whether it does or not. But in point of fact, I stand by my initial characterization that the AO is a part of the judicial branch of government. From the AO's own annual report, one learns that "the Administrative Office carries out statutory responsibilities and other duties under the supervision and direction of the principal policymaking body of the Judiciary, the Judicial Conference of the United States." Since the AO is supervised and directed by the judiciary, I think it is fair to hold the judiciary responsible for the AO's conduct.

And by way of further supporting that the AO is a "division of the judiciary," consider these statements from the AO Director's report to Congress: "the AO is a unique entity in government. Neither the Executive Branch nor the Legislative Branch has any comparable organization that provides the broad range of services and functions that the AO does for the Judicial Branch, Congress, and the public. . . The AO is the focal point for communication and coordination within the Judiciary and with Congress, the Executive Branch, and the public on behalf of the Judiciary.

In the end, I think our dispute is simply a matter of agency. You say the AO has actual authority to speak for judges but at a minimum has apparent authority. I say the AO has no such actual authority, but I would agree that it has apparent authority. So if, as you say, the AO gives the impression on the USCourts.gov site that it speaks for judges, and if it conveys views on the desirability of chapter 13 that might be attributable to judges, it ought to lay off. But that's just the view of a single judge and so probably not worth the pixels it's written with.

how about sticking to stuff you actually know, instead of blogging quick google links.
I mean, how do you know what you don't know ?

From the least sophisticated debtor viewpoint,I would get the impression that the government prefers Chapter 13 over 7 by far. When I ask someone in office(just to break the ice) "Do you have any particular questions about bankruptcy" they ask about the "changed law", "I heard I can't file" or "it's harder for me to file", etc... Like the government wanted to discourage them to file. It was the whole point of BAPCPA and it's what they heard and saw (on TV news, etc) Whether that language was meant to convey that point or not, its what got across to us down here if nothing else even 5 years later. Poor and Middle Class people pick up on the emotion of it all more than the affluent and are not typically inclined to read and understand legal code or a government website so from their point of view, I can see Mrs. Porters viewpoint. My training knows it's ultimately up to the Judge but in that same respect BAPCPA did gnawed away at some judicial discretion..

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