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A Federal Bankruptcy Regulator

posted by Barry Scholnick

I was very interested to read a Credit Slips blog post a few weeks ago by Melissa Jacoby concerning the recent paper of Rafael Pardo and Kathryn Watts. The key point of that paper is whether bankruptcy in the US should be regulated by a federal agency, or whether bankruptcy policy should be made by the courts. In their abstract Pardo and Watts comment that: “The current system of administration of the Bankruptcy Code is highly anomalous. It stands as one of the few major federal civil statutory regimes administered almost exclusively through adjudication in the courts, not through a federal regulatory agency. This means that rather than fitting bankruptcy into a regulatory model, Congress has chosen to give the courts primary interpretive authority in the field of bankruptcy”.

I read this blog post and paper with interest, not because I am a lawyer – I am an empirically focused economist – but because I have recently been working with the Canadian Office of the Superintendent of Bankruptcy (OSB). The OSB is exactly the kind of federal bankruptcy regulatory agency that Pardo and Watts describe as not existing in the US. (Full Disclosure: The OSB is partly funding my research and provides me with data, but nothing I say reflects the views of the OSB).

The OSB is part of Industry Canada (the Canadian equivalent of the US Department of Commerce), and has extensive regulatory powers over both corporate as well as consumer bankruptcies in Canada. For example, every consumer bankruptcy in Canada has to be filed directly with the OSB. Furthermore, a licensing system exists whereby only professionals licensed by the OSB (called bankruptcy trustees in Canada) are able to make consumer bankruptcy filings to the OSB. Obtaining a license to become a bankruptcy trustee entails taking and passing a variety of examinations on the specifics of bankruptcy in Canada. As is common in regulated professions, the OSB also regulates the maximum fees that bankruptcy trustees are allowed to charge clients.

I will leave to the lawyers the debate over whether it is better for the courts or a federal regulator to regulate bankruptcy. For me, as an economist, however, one advantage to a single Federal bankruptcy regulator is that it affords me access to “big data” on bankruptcy, that is not available to scholars studying bankruptcy in the United States.

In 2002 the OSB introduced E-Filing, whereby trustees could submit filings electronically rather than in paper form. Becasue of this the OSB has been able to provide me with balance sheet data for all Canadian consumer E-Filers from 2005 to 2010. The process of moving to E-Filing was essentially complete by 2007. This OSB database contains approximately half a million files - of which almost four hundred thousand are bankruptcies (similar to Chapter 7 in the US), and the rest proposals (similar to Chapter 13 in the US).

The two main reasons why the OSB is able to provide me with this extensive database are (1) the fact that it is the single bankruptcy regulator in Canada, to which all Canadian filings must be made, and (2) the introduction of electronic filing to replace paper filing, which allowed electronic data transfer etc. In comparison, scholars attempting to acquire similar bankruptcy balance sheet data in the US face a number of hurdles, not least of which is that the different bankruptcy court districts all have their separate administrative procedures for filing, and only some of which make data available to scholars. Furthermore, access to electronic data from the US courts seems to be rare, thus data needs to be laboriously hand collected and coded.

For example, Hankins, Hoekstra and Skiba (2011) hand collect about 250 bankruptcy balance sheets, Eraslan, Li and Sarte (2007) hand collect 948 Chapter 13 bankruptcy files and Gross, Notowidigdo and Wang (2012) hand collect data on the balance sheets of approximately 6500 filers.

Later this week I will discuss some of the possible uses of these individual Canadian consumer bankruptcy balance sheet data, to help us more fully understand the bankruptcy process.


As a lawyer in Canada who has had some experience with corporate bankruptcy (and insolvencies through the parallel CCAA process) I would argue that the situation in Canada is not that different, at least for corporate matters. Yes, the OSB does manage some aspects of it, but almost all of the process of dealing with debtors and creditors takes place in the courts and most of the decisions are made through a judicial process. I think it is different for consumer bankruptcies, but again I don't know anything about that process!

Barry, in my opinion, the data problem here in the U.S. stems from political issues and not the bureaucratic structure. The Administrative Office of U.S. Courts (AO) is a centralized agency that could make data more available to researchers. The judicial branch, however, runs the AO, and is thus in control of how much data about the judicial branch ends up in the hands of researchers.

FYI - we are in the process of collecting and coding metadata for US chapter 11's, and would be happy to help academic research.


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