Web prepared, posted and Copyright © March 18, 1998, American Bankruptcy
March 18, 1998
Samuel J. Gerdano
American Bankruptcy Institute
44 Canal Center Plaza, Suite 404
I stand by my use of data reported in Sullivan, Warren and Westbrook, As We Forgive Our Debtors (1989) ("SWW") during the recent ABI debate on needs based bankruptcy.
SWW clearly reported that about 10% of their sample had the ability to pay all of their debts on a modified low budget. At page 211, SWW state as follows:
"...75--about 10%--of [the] households [of Chapter 7 filers in the SWW sample] could have paid all their debts in three years while living on the Labor Departments low budget."
At page 212, SWW state:
"Thus 9% of our wage-earner Chapter 7 debtors on a posttax basis could pay all their debts in three years while living on the Bureau of Labor Statistics low budget and dedicating up to 40% of their incomes to debt repayment."
In the debate, I pointed out that SWWs data confirm the results of the recent Ernst & Young and Barron and Staten studies, adding to the considerable credibility those two studies already have. The Ernst & Young and Barron and Staten studies, of course, conclude that a substantial number of Chapter 7 filers today disclose they have the ability to pay a significant part of their unsecured debts.
SWWs data indicated that a significant group of Chapter 7 debtors in their sample disclosed income in excess of estimated expenses which could have been used to pay unsecured creditors. SWW report their data only in terms of an artificial question: How many debtors could pay all of their debts. If SWW had instead asked realistically whether Chapter 7 filers had the ability to pay a significant part of their debts, as the recent Ernst & Young and Barron and Staten studies did, the SWW data would apparently be quite consistent with the basic findings of those studies. After all, if 9% or 10% could pay all of their debts in three years, how many could pay at least a significant part of their debts? Presumably, quite a few more.
On a slightly different point, Warren and Westbrook apparently want to separate their study from "made to order" studies of bankruptcy. However, I do not believe that anyone who has read their writings believes that either Elizabeth Warren or Jay Westbrook are "neutral" about the direction bankruptcy reform should take, or that their analysis is free from their point of view. They have their beliefs and political philosophies, as the tone and content of their letter to you indicate, and it affects the questions they ask about their data.
Warren and Westbrook wish to draw different inferences than I and many others do from the fact that a significant number of Chapter 7 filers disclose they have significant net income available to pay creditors. But they should not confuse their data with argument about what inferences can be drawn from it. Their data indicated that in 1981 there was a group of Chapter 7 filers who disclosed they had the ability to pay a substantial part of their debts.
From the inappropriate ad hominem tone and content of their letter it is clear that they do not like others to point out what their data was, but the data is clearly there for all to see, and it confirms the results of the recent Ernst & Young and Barron and Staten studies.
Very truly yours,
George J. Wallace