All Request Day: Bankruptcy

SLA wants to know why I am interested in bankruptcy law, and WAB wonders why I don't like the new bankruptcy legislation.

I've written before about why I like bankruptcy.  Those reasons are still true -- the tension between justice and mercy that's inherent in the idea of paying some of your debts and then walking away with a fresh start, and the particular characteristics of a bankruptcy practice.  Thinking about it recently, I can boil it down to something even simpler.  I like people who are changing their lives.  I think that is brave, and interesting, and fundamentally worth doing.  I like people who have had their dreams fall apart and are trying to start over.  I want to help them do it.   

People who file for bankruptcy are facing something that hasn't worked.  Sometimes they're admitting colossal failure after pretending to hold it together for years.  Filing for bankruptcy is saying, "I can't do this anymore.  I need help.  I've got to fix this."  That's admirable to me.  I like to believe that this country is a place where people can bounce back, where people who admit their mistakes and face them have the hope to become something better.  If we're going to be a country of capitalism, which I believe in fundamentally, we've got to have a system for dealing with failure and for picking up the pieces of bad risks and ruined dreams.  That's what bankruptcy is. 

The world of bankruptcy is a fascinating combination of jadedness and hope.  Shattered dreams and sad stories and foolish risks are the bread and butter of the bankruptcy court.  But responsibility and accountability and dignity and autonomy are part of it too.  I guess I feel like that's the American dream.  That sounds corny, but I believe in risk, and failure, and reinvention informed by the wisdom of past mistakes.  I believe in redemption, I guess.  And I'm interested in the details.    

And that's why I don't like the bankruptcy bill.  It posits "abuse" that's not nearly as widespread as the credit card companies' rhetoric suggests.  It then puts forth solutions to that abuse that impose really big costs on the process without addressing the worst abuses that do exist with the current system (e.g. the ways rich folks can use bankruptcy to evade debts without risking much of their assets).  Most of those costs fall on individual debtors, who can't afford them, and small unsecured creditors.  It will become much more cumbersome and expensive to file for bankruptcy.  Fewer people will be able to receive bankruptcy discharges and get out from under their debts.  Fewer attorneys will be willing to help people do it, because the new law will make attorneys responsible for verifying the information clients provide about their own finances.  Chapter 13 plans, which are already really tough to do successfully, get even harder and longer.  Certain secured creditors -- mostly those who make auto loans -- will get a windfall.  The bill erects a lot of hurdles and imposes a lot of costs to solve a problem that's not all that widespread, and it doesn't really solve that problem very well.  It's a bad bill. (That last link is to an alternative set of reforms proposed by two bankruptcy judges, including Judge Eugene Wedoff from Chicago.  The proposed reforms talk about what is wrong with the bill's treatment of particular issues and offers solutions that make much more sense.  I've seen Judge Wedoff at a couple of conferences and am extremly impressed with him -- he's engaged, thoughtful, sincere, and very intelligent.  His suggestions and criticisms a great deal of weight with me because he's earned my respect and admiration.) 

[NOTE: I haven't read the text of the new law yet, so what I know about the bill comes from reading  commentaries and summaries, and talking with people involved in the practice.  I'm waiting until it actually gets passed to read the thing.  But nobody I know in the bankruptcy arena thinks the law is any good -- not judges, not law professors, not practitioners who represent debtors or those who represent creditors.  Maybe those who represent commercial landlords like it.  The credit card companies like it.]    

Comments

[Paul Gowder]

Hear, hear! I don't know why nobody ever talks about forgiveness in all of this. We seem to be living in a "make one mistake" society: you screw up once, it's put on "your permanent record" (a.k.a. your credit report) and it follows you around forever.

I suspect it has something to do with technology, honestly. The industrial age has conditioned people to conform their behavior to the supposedly perfect standards of machines and computers, and errors have become correspondingly less acceptable.