Web posted and Copyright © 1/12/98, American Bankruptcy Institute.

The following abstract summarizes the text of submissions made to the National Bankruptcy Review Commission. The abstract is organized by NBRC working group and topic.

The Final Report of the NBRC can be viewed on-line. To obtain a copy of any document shown below, contact the Center for Legislative Archives, Room 205, National Archives Building, Washington, D.C. 20408. The telephone number is 202/501-5350. Mr. R. Michael McReynolds, Deputy Director, will be able to assist with specific inquiries. (The NBRC documents will be housed at this location until June, 1999. Thereafter, the records will be transferred to the Center's archives in College Park, MD.)

Consumer: Eligibility for 7/13
IDNameGroupOtherCode
Sec
Cross
Ref
Problem ReferencedProposed Solutions
NBRC-
0004
Edgar M. Rothschild, IIIRothschild, Bloom, Hoover, Allison & Ryan. Chapter 7 & 13 Debtor's counsel.Oral Comments: May 17 Meeting1328a523(a)(8)Chapter 13 valid alternative to 7; Stop erosion of dischargeable debts under 1328a.Retain Chapter 13; Reinstate student loan discharge.
NBRC-
0005
Richard L. HaeusslerLaw Offices of Richard L. Haeussler. Sole practitioner who represents chapter 7 & 13 Debtors.
1325a3
Chapter 20 problem whereby a Ch. 7 is followed by a Ch. 13 in order to protect real property.If real property is to be saved, a debtor MUST file for Ch. 13. If debtor files a Ch. 7 first, would be barred from filing a Ch. 13 within one year of the discharge.
NBRC-
0005
Richard L. HaeusslerLaw Offices of Richard L. Haeussler. Sole practitioner who represents chapter 7 & 13 debtors.
707b
Has never seen 707b used in C.D. Ca.Does 707b serve a purpose, has never seen it used.
NBRC-
0004
Edgar M. Rothschild, IIIRothschild, Bloom, Hoover, Allison & Ryan. Chapter 7 & 13 Debtor's counsel.Oral Comments: May 17 Meeting109(e)
Chapter 13 valid alternative to 7.Retain Chapter 13.
NBRC-
0005
Richard L. HaeusslerLaw Offices of Richard L. Haeussler. Sole practitioner who represents chapter 7 & 13 Debtors.
1325(a)(3)
Chapter 20 problem whereby a Ch. 7 is followed by a Ch. 13 in order to protect real property.If real property is to be saved, a debtor MUST file for Ch. 13. If debtor files a Ch. 7 first, would be barred from filing a Ch. 13 within one year of the discharge.
NBRC-
0007
Leon S. ForemanScholar-in-Residence - American College of Bankruptcy - Selective Professional Association of 7, 13 & 11 Attys; Accts; Professors; Judges * Gov't Officials (Approx. 300 Fellows).
7271328Current judicial process for Chapter 7 and 13 proceedings is sufficient, and need not be replaced by an administrative system. Discharge has too much importance and significance to be left to the administrative process.Current judicial process for 7's & 13's works reasonably well. No need to replace current system with administrative process.
NBRC-
0009
Hon. James E. YacosJudiciary; United States Bankruptcy Court for the District of New Hampshire
109(e)
Recent legislation increasing the threshold amounts of claims below which Chapter 13 petitions can be filed will aggravate an enduring problem stemming from the fact that Chapter 13 is largely drafted to be a "wage earner" provision and now permits more "business cases" to be treated in Chapter 13.The Commission should give some attention to the fact that when considering whether a certain type of debtor belongs in a Chapter 13 case, it is really a matter of mixing "apples" with "oranges" when business cases are treated in the same chapter as consumer cases. Thought should be given to whether a reversion to a simple Chapter 13 for wage earner plans and a new "Chapter 13A" or other denomination should used for small business cases now being handled under either Chapter 11 or Chapter 13 but which deserve more particularized provisions suitable to the nature of such cases.
NBRC-
0044
David AndersenAttorney; David Andersen & Assoc. - Represents Consumers - Ch. 7 & Ch. 13


Ch. 13 works and his clients truly want to pay back their debts. Treated unfairly b/c Ch. 13 is reported for 7 yrs on a credit report. Ch. 7 debtors get credit right away because they file again for another 6 years. A Ch. 13 debtor usually has to get court permission to borrow money.Ch. 13 would be encouraged by the following: Allowing plans to run up to 7 yrs.; Credit reporting for only 7 yrs from date of filing; encouraging credit services and lending to ch. 13 debtors; upon completion of 100% plan - complete expungement on credit report.
NBRC-
0101
Ike SchulmanPresident; National Association of Consumer Bankruptcy AttorneysInvited Participant to numerous NBRC meetings.707(b)
Section 707(b) was enacted to curb the occasional case which everyone would agree was not just an abuse, but a "substantial abuse" of the Code. The legislative history and process leading to its enactment made clear that congress had rejected using it to deny chapter 7 relief simply because a debtor could pay some fraction of his debts over an extended ch. 13 plan. It was to be used simply for those rare debtors who could easily pay ALL of their debts as they became due. Courts have given this section widely varying interpretations, with some giving it exactly the effect that congress rejected leaving great uncertainty and disparities regarding how the law is applied. In view of the limited number of cases in which there really is substantial abuse (which usually can be dealt with in Code provisions) and the confusion caused by the section, the best solution would be to simply repeal section 707(b).NACBA recommends that section 707(b) be repealed. If it is not repealed, in the alternative, NACBA recommends that it should atleast be clarified to prevent its use based simply on a debtor's ability to pay some fraction of his debts in ch. 13.
NBRC-
0101
Ike SchulmanPresident; National Association of Consumer Bankruptcy AttorneysInvited Participant to numerous NBRC meetings.

Bankruptcy courts should permit poor persons access to court and to federal bankruptcy relief. With ever-more escalating filing fees, as well as the decline in public welfare spending, more and more families find themselves unable to pay the filing fee, even in installments. Many urgently need bankruptcy relief, to prevent or end homelessness, to maintain heat or hot water, and light utilities, or to end collection harassment by creditors.The pilot program supervised by the Federal Judicial Center has already demonstrated that permitting waiver of the filing fee for indigents is both manageable and necessary. It has made possible bankruptcy relief for those who need it, with no significant burden imposed on the courts. NACBA recommends that the pilot program allowing in forma pauperis bankruptcy filings by indigents be extended nationwide.
NBRC-
0109
Karen GrossProfessor of law; New York Law School
109(e)
Currently, secured and unsecured debts are segregated in ch. 13.The eligibility requirements of ch. 13 should be simplified. Rather than segregate secured and unsecured debts, an aggregate ceiling should be created. This involves revising section 109(e).
NBRC-
0109
Karen GrossProfessor of law; New York Law School
302
Currently, joint filings can only be made by married couples.Joint filings should be extended beyond married couples to include those individuals who share joint financial relationships and responsibilities. This would include parents and their adult children, friends and lovers (whether of a different or the same sex). This requires amending section 302.
NBRC-
0109
Karen GrossProfessor of law; New York Law School
707(b)
The choice to reorganize or to liquidate must be made by the individual debtor and not by creditors, the court or the U.S. Trustee.For individuals with consumer debt, this means eliminating section 707(b).
NBRC-
0115
Donald M. HillCreditors Bankruptcy Service


Submission does not detail a problem, but rather provides the results of the CBS's study concerning the correlation between length of Chapter 13 plans and percentage paid to unsecured creditors.
NBRC-
0116
Kenneth J. DoranLaw Offices of Kenneth J. DoranParticipated at Consumer Bankruptcy Working Group on July 19.109
The current rule prohibiting repeat Chapter 13 filings for 180 days post-confirmation is "crude and heavy handed."Draft provisions narrowly targeted to eliminate abusive filings.
NBRC-
0116
Kenneth J. DoranLaw Offices of Kenneth J. DoranParticipated at Consumer Bankruptcy Working Group on July 19.707
"Substantial abuse" language is overly vague.Amend § 707 to clarify whether Congress intends mandatory debt repayment for certain debtors.
NBRC-
0116
Kenneth J. DoranLaw Offices of Kenneth J. DoranParticipated at Consumer Bankruptcy Working Group on July 19.

"The current Chapter 13 is a non-systematic collection of special debt relief programs in search of a concept."
NBRC-
0132
Steven D. GoldsteinPresident, Credit Department, Sears Roebuck & Co.Heard Brady speak at National Retail Fed'n Credit Mangmnt Advisory Council706(c)
Problem of people who can afford to file 13 are filing 7s.Amend section 706(c) to permit any creditor to move for court ordered conversion of a case, via a means test based on the debtor's ability to repay if the case had been filed as a chapter 13, of a debtor's chapter 7 case to a chapter 13 case. Additionally require a debtor opposing such motion to establish eligibility for chapter 7 discharge by demonstrating lack of ability to repay. In keeping with the bankruptcy code policy of encouraging wage-earner utilization of chapter 13, this proposed amendment would allow a creditor to petition the court to consider evidence that the debtor possesses the ability to repay some or all of the obligation of the case would be converted to a chapter 13. The amendment would also serve the policy goals of chapter 7 by preserving the "fresh start" for those debtors truly in need of drastic relief.
NBRC-
0116
Kenneth J. DoranLaw Offices of Kenneth J. DoranParticipated at Consumer Bankruptcy Working Group on July 19.

Mr. Doran did not state a problem, but rather commented on the idea of "mandatory" Chapter 13s. He suggested that, as a matter of social policy, allowing creditors to have a claim on future earnings would unfairly impact low-income debtors. He believes that creditors would obtain greater payouts if exemptions laws were modified.N/A
NBRC-
0132
Steven D. GoldsteinPresident, Credit Department, Sears Roebuck & Co.Heard Brady speak at National Retail Fed'n Credit Mangmnt Advisory Council7071307A gap exists in existing law which provides the debtor to perform certain duties, but provides no penalties for failure to comply.Amend sections 707 and 1307 to require automatic dismissal, as well as a one-year bar against refiling, if the debtor fails to appear for two scheduled 341(a) hearings or rule 2004 examinations or fails to perform any of the duties specified under section 521. Additionally, the amendment would decrease the caseload of overburdened courts by effectively discouraging serial filings. The amendments are needed in order to enable creditors to gather information solely under the control of the debtor but needed by creditors to protect their interests.
NBRC-
0132
Steven D. GoldsteinPresident, Credit Department, Sears Roebuck & Co.Heard Brady speak at National Retail Fed'n Credit Mangmnt Advisory Council1307(c)
Abusive serial filings under circumstances indicating that the debtor has no intention of performing under the plan and that the system and the bankruptcy court are being abused.Amend section 1307(c) to require automatic dismissal of a chapter 13 case if no payments are made within 90 days of filing.
NBRC-
0120
Judith ElstonChrysler Financial Services, Toyota Motor Credit Company, Ford Motor Credit Company, General Motors, and American Financial Services


Abusive Chapter 13 serial filings.Amend the Code to provide that debtors who do not obtain a discharge in the previous Chapter 13 case may not file another Chapter 13 for 5 years, unless on notice and hearing they are found to have good cause for doing so.
NBRC-
0133
William E. CumberlandGeneral Counsel; Mortgage Bankers Ass'n of America


The variety of interpretations of the Code and of procedures from district to district and even from judge to judge adversely impacts a wide range of creditors. The mortgage market is a national one and this is an across the board problem.Provide a mechanism for establishing more uniformity of legal interpretations and practices.
NBRC-
0121
Brian L. McDonnell Navy Federal Credit Union
521, 301, 707, 1322
Debtors are not finanancially responsible. Amend § 521 to require debtors who have not completed a personal financial management course in the previous 180 days, to complete appropriate financial counseling within 45 days postpetition. Revise §§ 301 and 707 to provide that a petition must receive full consdieration under Chapter 13 before establishing eligibility for consideration under Chapter 7. Althernatively, revise § 707 to permit creditors to enter a motion for dismissal of a Chapter 7 based on debtor's earning sufficient income to permit repayment of debts under a Chapter 13 plan. Modify § 1322 of the Code to extend the Chapter 13 plan to provide for payments over a period of 6 years and, for cause, to permit the court to approve a longer reasonable period, without statutory limitation. Amend the Code to establish a nationwide databse to discourage abuse through multiple filings in multiple jurisdictions.
NBRC-
0123
Henry J. SommerNational Bankruptcy ConferenceSubmitted report entitled "Reforming the Bankruptcy Code"707(b)
707(b) is applied arbitrarily.Repeal § 707(b). Alternatively, § 707(b) should not be interpreted to deny access to Chapter 7 debtors who can make only partial repayment on their debt.
NBRC-
0141
George BrodyUnited States Bankruptcy Court


Chapter 13 is based on the false premise that the substantially favored treatment afforded to debtors incentiveizes them to select Chapter 13 as a debt repayment vehicle.Abolish the markedly different treatment accorded to debtors and creditors by Chapters 7 and 13.
NBRC-
0152
Kenneth L. RobinsonPresident; National Ass'n of Federal Credit Unions


Too many people file for chapter 7.Number of ch. 7's could be drastically cut by requiring debtors to prove why they are ineligible to file ch. 13. Ineligibility can be determined by requiring the debtor's attorney to file a separate schedule that compares ch. 13 to ch. 7. Public perception will be greatly improved if no. of ch. 7 filings can be reduced in favor of ch. 13.
NBRC-
0157
David C. AndersenAttorney; David Andersen & Assoc.Letter from Se. Carl Levin, requesting full consideration of Const. Letter.

Chapter 13 works very well and enables consumers to pay off all or a fairly high portion of their debts. Problem is that it remains on an individual's credit report as long as twelve years from the commencement of the case.Chapter 13 should be made more user-friendly: Amend the credit reporting laws to remove references to filing ch. 13 as soon as possible, such as five years after the filing of the case. More people will choose ch. 13 the sooner it is removed from their credit reports. Also allow ch. 13 plans to run for 6 or 7 years. Extending the length of ch. 13 plans amy result in more money being paid to creditors through ch. 13. Opposes any attempts to curtail use of the consumer bankruptcy system or make requirements more difficult, especially for ch. 13 payment plans.
NBRC-
0178
Gary White, on behalf of the Natl. Assoc. of Credit ManagementChair, Government Affairs Comm., Natl. Assoc. of Credit Management


Chapter 13 should only be available to wage earners. This Chapter has been used increasingly for business bankruptcy debts, but the orginal purpose of Chapter 13 was to provide debt relief to wage earners and encourage repayment through reorganization. Use of Chapter 13 for business bankruptcies creates inequity, and possibly constitutional conflicts, by failing to provide similar protection to creditors under Chapters 13 and 11. For example, Chapter 11 preserves opportunities for creditors that are unavailable under Chapter 13. Under Chapter 13, a creditor may not vote on a plan, the debtor's estate cannot bring a preference action, and "Debtor in Possession" treatment does not exist. In addition, a Chapter 13 trustee is not permitted to bring actions similar to those available to a Chapter 11 trustees. Although small businesses and sole proprietors have unique problems that warrant creation of an expedited Chapter 11 proceeding, the remedies available under Chapter 13 unfairly benefit businesses and should be reserved for wage earners.Chapter 13 should be available only to wage earners. A new provision should be created for small businesses that expedites bankruptcy proceedings but still provides creditors with similar protections those available in Chapter 11.
NBRC-
0274
Steven D. GoldsteinPresident, Credit - Sears, Roebuck and Co.
706(c)
In order to encourage wage earner utilization of chapter 13, creditors should be able to petition the court to consider evidence that the debtor possesses the ability to repay some of all of its obligations if the case were converted to chapter 13.Amend § 706(c) to permit any creditor to move for court-ordered conversion of a debtor's chapter 7 case to chapter 13 via a "means" test based on the debtor's ability to repay if the case had been filed as a chapter 13. Also, a debtor opposing such a motion should be required to establish eligibility for chapter 7 discharge by demonstrating lack of ability to repay.
NBRC-
0285
Paul Mignini, Jr. and Gary WhitePresident - National Association of Credit Management (NACM) and CAE, and Chair - NACM Government Affairs Committee, respectively


NACM, comprised of 33,000 member companies, is increasingly concerned about the utilization of chpater 13 by non-wager earners and the effect of this practice on the trade creditor community. The increased use of chpater 13 by non-wage earners, such as small businesses and professionals, has placed non-consumer credit grantors at a distinct disadvantage because "there are virtually no objections to dischargeability in chapter 13." Also, chapter 13 does not provide creditors the same protections as chapter 11.Bankruptcy Code should be amended so that chapter 13 is available only to wage earners.
NBRC-
0302
Brian L. Mc DonnellPresident, Navy Federal Credit Union
301, 707
Bankruptcy is increasingly being perceived as an "easy way out" for debtors seeking to avoid responsibility for their actions. In addition, many people no longer consider bankruptcy to be a financial stigma. It is imperative that bankruptcy procedures be revised to discourage financial irresponsibility in today's highly leveraged personal economic environment.Revise §§ 301 and 707 to provide that a petition must receive full consideration under chapter 13 before establishing eligibility for consideration under chapter 7. Alternatively, revise § 707 to permit creditors to enter a motion for dismissal of a chapter 7 filing where the debtor's earns sufficeint income to permit repayment of debts under a chapter 13 plan.
NBRC-
0303
Commercial Law League of AmericaCommercial Law League of America (CLLA)


The Commerical Law League of America believes that the following issues should be considered by the NBRC: Should consumer bankruptcy be organizaed around a chapter 7/chapter 13 split If so, should the differences between the chapters be expanded or contracted Should individuals be steered toward one chapter or anotherThe CLLA believes that this issue should receive moderate priority (no additional details are provided).
NBRC-
0320
Robert M. Zinman, on behalf of the Bankruptcy InstituteAmerican Bankruptcy Institute ("ABI")Numerous position papers, memoranda and research material707(b)
In this statement before the NBRC, the author states that ABI members generally agree that: (1) Section 707(b) is awkwardly written and has been of little use in some regions, but on a few occasions its has been used to dismiss a case involving "substantial abuse"; (2) The organization of consumer bankruptcy around the chapter 7/chapter 13 split should be preserved because different debtors have different financial needs and abilities.Section 707(b) does serve a "useful function." The chapter 7/chapter 13 structure of consumer bankruptcy should be preserved because "consumers need two separate and distinct chapters."
NBRC-
0372
Norma HammesPresident, National Association of Consumer Bankruptcy Attorneys ("NACBA")


The author provides this summary of the presentation she will be making to the NBRC on Feb. 21st, 1997. In her testimony, she will state that the NBRC's agenda has been largely driven by creditor proposals such as state exemptions, limits on stripdown of liens, and limits on dischargeability. NACBA is most concerned that the Commission has been looking in all the wrong places to find solutions to the most obvious means of improving consumer bankruptcy--enhancing the incentives for debtors to elect chapter 13 relief.The NBRC could accomplish a great deal if it would recommend to Congress changes to the Code that would increase incentives and decrease disincentives for debtors to elect chapter 13 relief.
NBRC-
0384
American Bankruptcy InstituteAmerican Bankruptcy Institute ("ABI")


ABI presents this "Report on the State of the American Bankruptcy System," which is the capstone of ABI's three-year Bankruptcy Reform Study Project. The Project's efforts culminated with a 65-question survey covering a broad spectrum of possible areas of reform. The study indicates that: (1) in general, the Code of 1978 is working well; and (2) probelms of delay, excessive costs, unfairness, and abuse need to be addressed in the current round of reforms.ABI recommnds: (1) strict deadlines for dismissal or appointment of trustees to help combat abuse; (2) reorganization of chapter 11 policy to provide stricter time limits, elimination of non-viable debtors, and reduction of excessive professional fees; (3) relaxing eligibility requirements for consumer reorganizations under chapter 13, and providing time limits, limited discharge and uniform national exemptions; (4) high standards of integrity for all professionals; (5) a balance between creditors' and debtors' rights, and equality of distribution; and (6) not adopting priority classes of claimants.
NBRC-
0391
David C. AndersonAttorney


A drawback to chpater 13 is that a chapter 13 filing still shows up on credit reports as filing for bankruptcy, even when a debtor pays off 100 percent of the debt. Moreover, the reference to the filing remains on a credit report for seven years or more--debtors should be rewarded for paying back debt by removing this reference from credit reports. Also, debtors would be able to pay off more debt if chapter 13 plans could run for six or seven years instead of the current limit of five years.Credit reporting laws should be amended to remove references to filing chapter 13 as soon as possible, such as five years after the filing of the case. Also, the Bankrupcy Code should be amended to allow chapter 13 plans to run for six or seven years instead of the current limit of five years.
NBRC-
0464
Ronald BarliantBankruptcy Judge, Northern District of Illinois


Author has been intrigued by the suggestion of some creditor groups that procedures be enacted that would, in effect, force chapter 7 debtors who are able to pay some portion of their debts over time to proceed under chapter 13.Author discusses implications of the proposal.
NBRC-
0535
John F. SutherlandSenior Attorney, Mercantile Bank National AssociationProposed changes to other Code sections, and a three page Memorandum with comments on the various proposals707
"The purpose of this proposed amendment is to allow creditors...to attempt to dismiss a case under Chapter 7 for abuse of the Bankruptcy Code or to convert such case to a case under Chapter 13...The reubttable presumption that the debtor would be entitled to a relief under Chapter 7 would be maintained and sanctions are provided to prevent frivolous or coersive motions be creditors."11 U.S.C. 707 would be amended by adding a new sub-paragraph (c), the language of which is given by author in his letter.
NBRC-
0630
James E. YacosChief Judge, U.S. Bankruptcy Court, District of New Hampshire
707(a) & (b)
Author is concerned that debtors' access to a chapter 7 "fresh start" would be compromised if the Commission were to adopt a "no ability to repay" threshold requirement. Author states that §707(b) permitting dismissal of consumer bankruptcy cases for "substantial abuse" demonstrates that the ability to repay debts often is in the "eye of the beholder" and causes in disparate results. Author seems to feel that there is no need for §707(b), since truly egregious cases where the debtor has no need for a fresh start and is using chapter 7 in a manipulative way can be dismissed "for cause" under §707(a) as a abuse of the bankkruptcy process. If chapter 7 relief can be called into question, creditors may threaten to do so in order to force debtors to reaffirm.The Commission's report should not encourage the creation of another ground for barring chapter 7 relief from debts that could serve for creditor abuse once again. It would be better to "increase the price" to be paid by debtors for chapter 7 relief by adjusting the exemption levels downward and/or altering the schedule of nondischargeable debts.
NBRC-
0649
Elizabeth S. Petersen Attorney


Author is concerned about provision for no refilings. "What I am concerned about is someone who elects to do a Chapter 13 plan and then for unforeseen circumstances such as an automobile wreck, a divorce, or a death of a family member is unable to complete the Chapter 13 plan." "I hope that the hardship discharge or a post-confirmation conversion will be available for those situations."
NBRC-
0658
Robert H. WaldschmidtAttorneyCopy of NABT Poll707(b)
Author asserts that "this is an area [707(b)] where a change to the current act is essential."Author proposes the following changes to §707(b): 1. Delete the use of the words "substantial abuse". If any phrase needs to be used, it could be called "inappropirate use" or "unneeded use". 2. Use an objective standard to determine whether a case is subject to dismissal (author outlines 3). 3. Allow an action to be filed by the US Trustee, the Chapter 7 Trustee, or any unsecured creditor with more than 40% of the total unsecured debt in the case. 4. Chapter 7 Trustees, if successful in pursuing a §707(b) action, would be granted a judgment against the debtor for all costs, expenses, and attorney fees incurred by the Trustee, which would be collectable after dismissal, non-dischargeable in any subsequent Chapter 7 proceeding, and treated as an administrative claim in any subsequent Chapter 13 proceeding.
NBRC-
0675
Michael R. BlaskowskyAttorney


Author is a debtor's attorney. He writes on the issue of encouraging debtors to file for Chapter 13 as opposed to Chapter 7. "At least here in Oregon, it is getting more and more difficult to make a recommendation in favor of Chapter 13. The Chapter 13 Trustee is taking hard-line positions on many issues, and scrutinizes every file with a fine tooth comb." Judges' rulings are also making Chapter 7 less attractive. " If the Rash opinion fromt he Fifth Circuit is reversed, and "high book" is used for valuation, this will be another disincentive to file Chapter 13. The hoops a debtor has to jump through to get a Chapter 13 discharge are simply becoming more onerous. Unless the law and procedure encourages the filings of Chapter 13 cases, Chapter 7 will continue to predominate.""One thing the Commission might want to take a look at is recommending a change in the substantial abuse rule of Section 707(b). The Ninth Circuit's interpretation of this rule is that a Chapter 7 will be denied if the Debtor could fund a Chapter 13 Plan to pay all of his debts in a three year period. Perhaps this could be changed to say that if a debtor had the ability to pay some, but not all (a percentage test would have to be formualted) of the debts in a three year period, that a Chapter 13 would be required."
NBRC-
0694
James H. CossittAttorneyExhibit 2, Memorandum from James H. Cossitt outlining pros and cons of various bankruptcy alternatives. 2 articles regarding the relaitonship between consumer debt and bankruptcy.

Author agrees with desire of the Draft Proposal to encourage more people ot file chapter 13 cases and repay their debts as an abstract goal, he is concerned with proposals which would dilute chapter 7 relief to achieve this. Little, or no, attention has been paid to the non economic issues considered by most consumers in making the decision to file. The debate has taken on overtones that the Code should be amended to the point that debtors are essentially coerced into repayment; however, debtors are in the best position to weigh economic and non economic factors and make this choice. At present, there is little reason for an attorney to advise clients to file a chapter 13 rather than a chapter 7. Author has attached as Exhibit 2 a memo he uses to assist clients in deciding whether to file a chapter 7 or 13 case."Whatever the final form of the Commission's recommendation to the Congress, it should: (a) allow for the final decision as to whether to file a liquidation or reorganization case to remain with the debtor; (b) preserve a meaningful and voluntary choice between liquidation and repayment; and (c) encourage repayment by additional incentives to chapter 13, but not by dilution of chapter 7 relief. I also encourage the NBRC to not overlook or underestimate the very real, human side of the bankruptcy process and take into full consideration the non-economic factors involved in the bankruptcy filing process."
NBRC-
0699
Edith H. JonesBankruptcy Judge


"The structure of the proposal is supposed to encourage debtors who are able to repay sosmeof their debts to do so through Chapter 13.""Eligibility for Chapter 7 relief should be presumptively limited to debtors who, singly or married, earn less jointly thant about $40,000 a year, a middle-class American wage."
NBRC-
0728
John C. AkardU.S. Bankruptcy Judge, Northern District of TexasCopy of letter dated 5/2/97 to Susan Jane Darnold from office of United States Trustee; Copies of 4 letters dated 3/26/97 from Judge Akard to the Bankruptcy Commissioners on different topics.

"One of your expressed concerns ...was that debtors who could afford to make payments under a Chapter 13 plan were instead taking a Chapter 7, thereby not committing any of their future income to their creditors....I do not know why, when drafting §707(b), Congress limited the section to an individual 'whose debts are primarily consumer debts.'" Removal of the quoted phrase would make it applicable to the high income earner who got into a bad business deal. Chapter 7 would be denied to them, and they would have to file Chapter 11 or 13, but in most cases the debt would exceed Chapter 13 limits, forcing them to Chapter 11. Chapter 11 may permit, but does not require, a commitment of future income. If the Chapter 11 will do nothing more then the Chapter 7, why put everyone through the additional time and expenseAny changes in §707(b) would have to be accompanied by fundamental changes in either Chapter 11 or Chapter 13. At present, potential §707(b) cases are referred to the US Trustee for review. Section 707(b) should not be broadened to allow any creditor to file such a complaint because there are some creditors who would file one in every case.
NBRC-
0733
Mark R. LeeperManager, River Valley Credit Union


"In my opinion, the real problem is that too often people are allowed to file for bankruptcy and walk away from entire sums of debt when they have good jobs and steady income." "While Chapter 7 Bankruptcy is justifiable in situations where someone is hopelessly buried in debt with little means of making any sort of payment due to health, loss of job, etc., I have seen that the majority of cases our credit union has been involved in, the people have good jobs, steady income and a debt load that is not insurmountable to overcome....and yet they can walk away from the entire indetedness without paying a dime.""There should be more restrictions on Chapter 7 bankruptcies that would force people to go through Chapter 13 instead."
NBRC-
0762
Ian DomowitzProfessor, Department of Economics, Northwestern University


Author is responding to a letter written by Dr. Michael Staten of the Purdue Credit Research Center dated May 7, 1997 which contained a critique of author's findings in his report to the NBRC. Author defends his data and research, and questions Dr. Staten's. He also disagrees with Dr. Staten's conclusion that some debtors who currently elect Chapter 7 should be forced into Chapter 13."I side with Professor Whitford, cited above, in saying that we cannot responsibly adopt legislation forcing dbtors into Chapter 13 without first studying failed Chapter 13 plans."
NBRC-
0763
Marianne Culhane and Michaela M. WhiteBoth are Professors of Law, Creighton University, School of Law


"Over the past year, we have been conducting an empirical study of consumer debtors in Chapter 7 cases, with a focus on reaffirmation. We have built a data base which, when finished, will include 1050 cases filed in 1995, in seven different circuits across the nation. We have been teaching bankruptcy courses for a combined total of 28 rears. These experiences give us a basis for commenting on the VISA/Purdue Study by Dr. Michael Staten, as well as come proposals which we understand will be presented to the full Comission at its next meeting in Detroit by the Consumer Working Group.....We believe that the VISA study seriously overstates the repayment capacity of most chapter 7 debtors. Using those overly optimistic figures to push many more debtors into Chapter 13 will not result in more payment to creditors. Instead, it will lead to substantially higher administrative costs, increase the already abysmal failure rate of Chapter 13 plans and further decrease public confidence in the bankruptcy process." In their discussion, authors dispute VISA's figures and conclusion that more people filing chapter 7 could afford to pay more in chapter 13 plans.Do not attempt to force more marginal debtors into chapter 13.
NBRC-
0764
National Consumer Bankruptcy Coalition The Coalition is composed of: American Bankers Association, America's Community Bankers, American Financial Services Association, Consumer Bankers Association, Credit Union National Association, Independent Bankers Association of America, MasterCard International Incorporated, National Retail Federation, and VISA U.S.A. Inc.


The National Consumer Bankruptcy Coalition (NCBC) submits this memorandum in response to the Consumer Working Group's May 6, 1997 Draft Proposal (May Draft). The NCBC is very unhappy with the May Draft as opposed to the earlier draft in March - "In our view the May Draft, taken as a whole, is clearly a step -- a very serious step -- in the wrong direction." The memorandum addresses many specific concern which the NCBC has with the May Draft, but their essential concern seems to be that the May Draft will encourage debtors to use Chapter 13 instead of Chapter 7 when filing bankruptcy, which is the opposite of what they would hope for. "We urge the Commission to reject the Drafts and quickly develop alternate proposals which would restrict eligibility for Chapter 7 relief to those without ability to pay and reduce the erosion of the position of secured creditors in consumer bankruptcy cases."
NBRC-
0767
Tom SymmondsManager, Lower Columbia Lonshoremen's Federal Credit Union


Author is "very interested in a "needs-based" review of bankruptcy, or at least an acknowledgement of future income." He gives two examples of members who filed chapter 7 who could have sustained a chapter 13 plan under their circumstances.No specific solution proposed.
NBRC-
0768
Alan OlsenManager/Treasurer, Evergreen Federal Credit Union


"As a credit grantor it seems that filing bankruptcy has become to [sic] easy. There are no judgements made at the judicial level that might disagree with a bankruptcy filing except in rare cases and thus it has become automatic to ahve the bankruptcy granted regardless of ones ability to pay or asset/liability ratio. Too many assets can be protected from the trustee to possibly satisfy creditors and to [sic] little counseling and redirection toward Chapter 13 or some other debt management service...is being done by debtors attorneys. It has become easier to file Chapter 7 than it is to file Chapter 13 so the attorneys are taking the easiest route to help their clients satisfy their credit problems.""I support the idea of a needs based bankruptcy." "I would also support a requirement by both the debtors attorney and the trustee to aggressively research the possibility of a Chapter 13 plan rather than a Chapter 7 plan."
NBRC-
0771
B.L. McDonnellPresident, Navy Federal Credit UnionRecommendations to the National Bankruptcy Review Commission dated June 24, 1996

"Consumer lending has evolved from heavy reliance on asset values to more emphasis on the debtor's repayment ability, therefore, I believe the nation's bankruptcy strategy should also rely more heavily on the debtor's repayment ability. Studies show that most debtors could repay a portion of their debts discharged in Chapter 7. The Commission has heard discussions in support of a bankruptcy framework that would more additional consumer bankruptcies to Chapter 13.""I strongly support a bankruptcy strategy that would place additional reliance on debtors' repayment ability, provided the administrative burden is not unreasonable and it promotes financial responsibility for debtors and creditors."
NBRC-
0777
Bruce CramerPresident, O Bee Credit Union


"I see Chapter 7 filings where the family income is more than adequae to repay all the debts in a reasonable period, like three years.""All Chapter 7 filings should be reviewed to decide if all the debts can be repaid under a Chapter 13 plan.
NBRC-
0787
Bart DeCampVP-Lending, School Employees Credit Union Clark County


"Many of our members desire to reaffirm, but are discouraged in doing so. The credit union has provided services to these members for up to 50 years. Unfortunately, the relationship is forced into an unwanted demise."No specific solution proposed.
NBRC-
0787
Bart DeCampVP-Lending, School Employees Credit Union Clark County


Author feels the current system encourages Chapter 7 filings. "Again, a large percentage of debtors possess sufficient income for at least some form of repayment.""A 'needs based' program, requiring a Chapter 13 filing in [instances where there is sufficient income for some repayment], would help curtail the rampant abuse that is now prevalent."
NBRC-
0790
Ed McKeeSenior Loan Officer/Vice President, Whatcom Education Credit Union


"We believe that debtors should have to pay back their debts if they are able to do so and they have income to support this.""[Debtors] should be required to file a Chapter 13 over a Chapter 7. They should not just be given the option of choosing whatever seems the simplest. Schedules filed should also be subject to random audits."
NBRC-
0796
Michael E. StatenDirector, Credit Research Center, Krannert Graduate School of Management, Purdue University


"As you know, I'm not an attorney, or a law professor or even especially knowledgeable about the intricacies of the legal system. However, 20 years of research on the behavioral impact of insurance programs have proven to me that government benefit programs change behavior. Bankruptcy law is no exception. Consequently, I am alarmed that the consumer Working Group proposal ignores the question of whether a prospective Chapter 7 discharge may encourage petitions from consumers who can pay their debts but choose not to do so." "...this latest version of the consumer bankruptcy framework does little to bolster consumer incentives to pursue non-bankruptcy alternatives prior to seeking court-ordered relief. More fundamentally, because it imposes little or no cost of insolvency back on the debtor, the proposed framework does nothing to bolster consumer incentives to handle credit more cautiously and so head off the need for the bankruptcy solution.""Whether it goes by "needs-based-bankruptcy" or by some other moniker, the concept of a means-test for Chapter 7 eligibility is an idea whose time has clearly arrived in the bankruptcy arena." "I strongly urge the Commission to recommend development of a gatekeeper mechanism that would match the magnitude of bankruptcy relief to debtor need."
NBRC-
0806
Jill M. SturtevantAssistant General Counsel, Bank of America


"The Bank of America strongly supports the mandatory Chapter 13 concept. Unfortunately, this proposal has not been adopted in the Commission's Draft #2 consumer framework. At the very least, the Code must be reformed to incent debtors to file for Chapter 13 when they have the ability to repay some of their debts."Mandate Chapter 13 for those debtors who can afford to pay.
NBRC-
0806
Jill M. SturtevantAssistant General Counsel, Bank of America


"The following proposals are made to supplement the Commission's basic framework in order to make Chapter 7 less attractive and Chapter 13 more attractive to certain debtors. Even if all of the following suggestions were adopted by the Commission, it wouldn't resolve the main problem: that individuals with steady income are not required to file in Chapter 13."It is still the Bank's position that Chapter 13 filing be mandatory in appropriate cases. Failing that, the framework for Chapter 7 and 13 filings could be augmented as follows: Debtors with an annual income of $40,000 or greater, or whose non-exempt assets total $15,000 or more, may file in Chapter 7 if they agree to verify their income by filing three years of tax returns and paya the Chapter 7 Trustee an audit fee. Debtors would be able to reaffirm or redeem secured debt under certain cirsumstances, but would be prohibited from purchasing any non-exempt assets from the trustee. The trustee would be required to audit all such Chapter 7 petitions. False petitions would be subject to dismissal or sanctions. Creditors would have the right to bring a motion to compel the trustee to audit or take action following an audit incases that warrant such action. Creditors would have the right to bad faith challenges of Chapter 7 filings pursuant to Section 707(b). Creditors who lose such motions would be required to pay the debtor's and/or trustee's attorneys' fees.
NBRC-
0808
James M. JohannesFirstar Professor of Banking and Director, Puelicher Center for Banking Education, University of Wisconsin-Madison School of Business3 graphs showing: Personal Bankruptcy vs. Unemployment; Portion of Ch 7 Debtors by percent of Repayable Non-housing Debt; and, Net Monthly Income Available to Repay Non-housing Debt.

The rate of bankruptcy filings is rising and is at least partially the blame of borrowers. There is a moral hazard in allowing bankruptcy abusers to self select heir own debt remedy. The abuse is easy to document. Some filers can repay a considerable amount of debt. "We need to means test fiings to eliminate this abuse."The Commission should "seriously consider "means testing" bankruptcy filers to determine what part, if any, of their debt they can repay."
NBRC-
0814
Samuel L. BuffordUnited States Bankruptcy Judge, Central District of California
109(e)
"I am writing to express my reservation on a singel point in the committee's report, relating to the eligibility to file a case under chapter 13. As you know, § 109(e) disqualifies a debtor from chapter 13 if the debtor owes non-contingent, liquidated unsecured debts aggregating $250,000. The Committee report recommends that unliquidated debts be included in this category. I believe that this change would be unwise, and would unduly complicate many chapter 13 cases." Currently, in cases where no tax returns have been filed, the IRS files a hugh claim, the debtor then files the missing returns, and the IRS claims are amended to a small fraction of the initial claim. "The proposed change to § 109 threatens much mischief to this scenario. Instead of resolving the tax debts on a consensual basis over a reasonable length of time after filing, these will be raised to bar the door to chapter 13 debtors.""The present system is not broken, and I recommend against the proposed fix." "If legislation is needed on this subject, I recommend a narrowly tailored provision, rather than tinkering with the eligibility requirements."
NBRC-
0841
Wendell J. SherkAttorney


"The automatic conversion to liquidation is an unusual idea even with the ability to argue for non-conversion....even with uniform exemptions...we would still have a few cases where the Trustee would be forced to sell a home."None
NBRC-
0846
Paula E. LangguthAuthor, Bounce Back From Bankruptcy, Pellingham Casper Communications, LLC.


Author heartily agrees with the proposal to convert dismissed Chapter 13 cases to Chapter 7s. "By adding this language, you make Chapter 13 a more appealing choice to debtors. This removes any fear of peanlty that consumers may have if they choose Chapter 13."N/A
NBRC-
0846
Paula E. LangguthAuthor, Bounce Back From Bankruptcy, Pellingham Casper Communications, LLC.


"I am glad that the commission has decided not to impose income-based guidelines for Chapter 7 cases. There are too many variable factors that cause people to declare chapter 7. Income-based guidelines would be too cumbersome and raises more questions. For example, would Chapter 13 debtors who have their cases dismissed still be sligible for conversion to Chapter 7 if their income exceeded the guidelines"N/A
NBRC-
0846
Paula E. LangguthAuthor, Bounce Back From Bankruptcy, Pellingham Casper Communications, LLC.


"There are instandes where a 'Chapter 20' is necessary, and I urge the commission to allow debtors to file Chapter 13 as soon as 120 days after filing Chapter 7. Debtors are often misinformed regarding the dischargeability of debts under Chapter 7. They may have a sudeen change in circumstances, etc., which may render them unable to pay for housing, etc. A Chapter 13 reorganization would give them time to get back on their feet. With a 2-year ban, some people may unnecessarily lose their homes."Debtors who file Chapter 7 should not be barred from refiling Chapter 13 for 2 years.
NBRC-
0849
Ron Haas Chairman, Bankruptcy Task Force, Alabama Credit Union League

11 Debtors need to be encouraged to work out plans for repayment, and to seek out bankrkuptcy relief only as a last resort, and not an easy out. "Consider extedning the time that a debtor is eligible for Chapter 7 relief from once in six years to once in ten years."
NBRC-
0849
Ron HaasChairman, Bankruptcy Task Force, Alabama Credit Union League

11"Chapter 7 should only be available to those debtors who are truly destitute and totally unable to repay their debts." "...if the Commission insissts on abolishing reaffirmations, the Alabama Credit Union League Bankruptcy Task Force would like to encourage the Commission to consider mandatory (underlined) Chapter 13 for those debtors who are able to repay at least a portion of their debts."
NBRC-
0918
Jeremy P. MurphyAttorney


Author heard of a proposal to "combine Chapters 7 and 13 into one chapter, forcing consumers to pay back some of their debt." "Very few consumers can afford to fund a chapter 13, and many of those who do opt for 13 convert to 7 or are dismissed for failure to make chapter 13 payments."Leave the option of filing Chapter 7 or Chapter 13 open.
NBRC-
0934
Jean BraucherProfessor of Law, University of Cincinnati College of LawJean Braucher, "Counseling Consumer Debtors to Make Their Own Informed Choices--A Question of Professional Responsibility", 5 Am. Bankr. Inst. L. Rev. 165 (1997).

"The June 10,1997 draft is silent concerning the 'substantial abuse' test in chapter 7....Since the current U.S. trustee practice...is to base substantial abuse challenges on ability to repay in chapter 13 out of disposable income...it would be confusing to eliminate the disposable income test in chapter 13 without setting forth some other basis for substantial abuse analysis in chapter 7 or eliminating that test altogether. Otherwise, courts may find it a substantial abuse to file in chapter 7 if the debtor could afford to pay the quideline amounts in chapter 13. If the fuideline amounts are set at reasonable percentages, this kind of possible judicial analysis would virtually repeal chapter 7.""The commission should either recommend that the 'substantial abuse' test be repealed or that it be made clear that ability to repay out of post-petition income is not what 'substantial abuse' refers to."
NBRC-
0936
Joe IrishCollections Officer, Fergus County Federal Credit Union


"It is also unfair to allow a member who is fully employed and can repay his debt to file a chpater 7 bankruptcy instead of a chapter 13.""If they have the means to repay their debt, they should be forced by law to attempt a chapter 13 repayment plan until they lose the income capabilities to do so."
NBRC-
0964
Lee H. BettisPresident/CEO, AGE, Southwest Georgia's Credit Union

11"We firmly believe in and support needs based bankruptcy reform." "A debtor who can pay some or all of the debt should do so through a Chapter 13 plan."
NBRC-
0988
Perry CaligiuriPresident and CEO, First Iowa Community Credit Union


"The Commission proposes that where the conditions for dismissal are met a Chapter 13 case will convert to Chapter 7....This proposal offers no incentive for debtors to file and carry through with a Chapter 13 repayment plan.""I respectfully ask that the Commission withdraw this proposal and leave the current system for conversions in place."
NBRC-
1000
Bruce MalloryVice President of Financial Services, SELCO Credit Union


"A 'balanced' reform of bankruptcy law must address the unwise proposal of permitting a debtor who could pay some part of his or her debt to file a Chapter 7.""If the debtor has disposable income and has the ability to repay a portion of the debt, that debtor should be required to file only a Chapter 13."
NBRC-
1010
Doug BentonManager, Loan Services, Eastman Credit Union


"Chapter 7 bankruptcies should be the relief of last resort for the truly needy or for those in dire and unavoidable circumstances.""Now is the time for needs-based reform." Bankruptcy laws should distinguish between those who can repay most or all of their debts and those who cannot.
NBRC-
1016
Richard T. WargoCompliance and Information, Pennsylvania Credit Union League & Pacul Services, Inc.


"The June 10 draft proposes that a Chapter 13 plan that meets dismissal standards shall be converted to a Chapter 7 bankruptcy after a notice and hearing." "There is no reason why a Chapter 13 plan that is dismissed should be converted to a Chapter 7 liquidation automatically."None
NBRC-
1018
William CookVice President for Operations and Development, State Department Federal Credit Union


There is usually a possibility of an increase in debtor's income in future years. "The debtor should be able to pay a portion of the bankrupt debt if subsequent funds do become available.""...we would like to see all debtors file Chapter 13 bankruptcy..."
NBRC-
1030
Stephen W. PogemillerPresident/CEO, Mather Federal Credit Union


Author is unhappy with the fact that debtors with some disposable income would have the option of filing a chapter 7, thereby repaying nothing to unsecured creditors."Unsecured creditors should be compensated if the debtor has some disposable income and he/she should be channeled to a Chapter 13 plan.
NBRC-
1033
Denise L. CaristiPresident/CEO, Granite State Credit Union



"Members who have the financial ability to repay their debt should be required to do so even if in part."
NBRC-
1036
Lois BakerAVP, Loan Servicing Manager, SAFE Federal Credit Union


Debtors should repay debts to the extent they can.Debtors who can pay should file Chapter 13 and no Chapter 7.
NBRC-
1038
Carl SessionsLoan Servicing Manager, University & State Employees Credit Union (USE)


Author is upset by increasing losses caused by bankruptcy filings. "It is inherently unfair for a debtor to be able to file a chapter 7, thus eliminating any payment to unsecured creditors, when there exists some disposable income that could be recovered if a chapter 13 was required." "It is imperative that legislation is enacted that protects the lender from bankruptcy abuse."No specific solution proposed.
NBRC-
1145
Polly S. HigdonBankruptcy Judge, District of OregonLetter by author to Mr. James Shepard dated January 7, 1997.

Mom and Pop operations should be able to take advantage of Chapter 13.Author feels that the debt limit of $1.5 million for Chapter 13 is a reasonable figure at this time. "Promotes uniformity, reduction in expense and complexity."
NBRC-
1156
James A. O'BrienAttorney, Conzett & O'Brien


"For what it's worth, my experience is that my recommendations to clients regarding Chapter 13 vs. Chapter 7 are primarily exemption-driven but some other factors do enter in on occasion."Author is just making observations, no solutions proposed.