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Abstract:
The discharge in bankruptcy embodies the policy that relief should be granted to an individual who has ceased to be economically productive by virtue of burdensome debt obligations (the fresh start policy). Once the debtor has been deemed eligible for discharge, forgiveness of debt is automatic, accomplished through legislative rule and its judicial enforcement. With regard to the discharge of educational debt, however, Congress has devolved the exercise of debt relief to courts. An obligation to repay such debt will be discharged if a debtor establishes that undue hardship would be suffered in the absence of its discharge. A court must therefore wrestle to define the boundaries of the fresh start policy as it decides whether a debtor's circumstances warrant forgiveness of educational debt. Commentators and reformers have criticized both the law itself, for granting educational debt conditionally dischargeable status in the first instance, and its application, arguing that the standard has been interpreted too narrowly by courts. The literature, however, has yet to analyze systematically—with the purpose of ascertaining whether such criticism is warranted—the decision-making process of bankruptcy judges who make undue hardship determinations. This Article undertakes such an analysis and provides an empirical account of undue hardship discharge determinations made by bankruptcy courts and documented in issued opinions.

The information gathered in this study illustrates that debtors who have sought relief from educational debt have done so under conditions evincing financial distress. This portrait starkly contrasts with the image of an opportunistic debtor seeking to avoid repayment of student loans on the eve of a lucrative career, a stereotype stylized by courts on the basis of what they have deemed to have been Congress's intent when it made educational debt conditionally dischargeable. After portraying the class of individual that has been subject to the law, the Article examines how the law has functioned in its application. One might expect that, in separating the group of debtors in this study by legal outcome (i.e., grant of discharge and denial of discharge), significant differences would reveal themselves with respect to certain demographic and financial characteristics. After all, it is factual circumstances that give content to the law. Contrary to that expectation, however, the data reveal few statistically significant differences between the two groups. Instead, legal outcome is best explained by differing judicial perceptions of how the same standard applies to similarly situated debtors. This Article concludes that the law governing the discharge of educational debt, by virtue of its application, has been uniform only in form and not in substance, and it prescribes a reorientation of the undue hardship standard that comports with the structure of the Bankruptcy Code and that better effectuates uniformity in the implementation of debtor relief.

Bankruptcy, discharge, education, higher education, educational debt, student loans

Abstract:
For a debtor to obtain a discharge of educational debt in bankruptcy, an adversary proceeding between the debtor and the creditor must be initiated, and the debtor must establish that repayment of the debt would impose an undue hardship. This empirical study documents and analyzes trial-level outcomes of such proceedings. An original data set has been compiled of all terminated undue hardship discharge proceedings in the U.S. Bankruptcy Court for the Western District of Washington that were commenced during the five-year period beginning on January 1, 2002 and ending on December 31, 2006. The study seeks to provide an account of the determinants of the extent of discharge obtained by debtors, whether through settlement or through court adjudication. Bivariate and regression analyzes of the data reveal that case characteristics that decisional law would deem irrelevant to the merits of a debtor's claim of undue hardship, such as the level of experience of the debtor's attorney and the identity of the judge assigned to the debtor's adversary proceeding, predominate the group of determinants of the extent of discharge. We conclude that our findings raise serious concerns regarding access to justice and thus challenge long-standing assumptions regarding the propriety of discharge litigation for relief from student loans in a bankruptcy system designed to provide a fresh start for debtors.

bankruptcy discharge, student loans, educational debt, discharge litigation, higher education

Abstract:
Commentators have theorized that several factors may improve the process, and thus perhaps the accuracy, of appellate review: (1) review by a panel of judges, (2) subject-matter expertise in the area of the appeal, (3) other lawfinding ability, (4) adherence to traditional notions of appellate hierarchy, and (5) the judicial independence of appellate judges. The considerable discussion that has expounded upon these theories has occurred in a vacuum of abstract generalization. This Paper adds a new dimension by presenting results from an empirical study of bankruptcy appellate opinions issued over a three-year period. The federal bankruptcy appellate structure provides certain litigants the choice to appeal, in the first instance, to one of two distinct appellate tribunals - district courts and bankruptcy appellate panels (BAPs) - whose structural features relating to the theorized qualities of appellate review differ. As BAPs appear to have more of the features associated with the quality of appellate review, the study tests the theory through various hypotheses that focus on the perception held by other federal courts within the bankruptcy appellate structure of the quality of appellate review provided by these distinct appellate tribunals. The data show that federal courts have perceived BAPs to provide a better quality of appellate review. Having unearthed evidence that supports the theoretical notions underlying the quality of appellate review, this Paper concludes that commentators and policymakers ought to be encouraged to explore further, in a more detailed manner, the question of how appellate structure can be designed to provide better results.

Courts, Judges, Appeals, Appellate Structure, Bankruptcy, Bankruptcy Appellate Panels

Abstract:
The centerpiece of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has been the means test, a formulaic statutory directive pursuant to which courts are to presume abuse of the bankruptcy system by Chapter 7 debtors who have an ability to repay past debts with future income. This Essay provides a new insight into means testing by arguing that, more than anything else, it has brought about a significant change in the institutional design of bankruptcy courts: namely, the increased blurring of administrative and judicial functions. The Essay concludes that this development should be cause for concern as it has the potential to erode the judicial character of the consumer bankruptcy system.

administration, bankruptcy, courts, judges, judicial function, judicial discretion, means test

Abstract:
This Article presents a comprehensive analysis of the manner in which the trustee of a debtor's estate may satisfy his burden of proof to demonstrate the preferential effect of a prebankruptcy transfer from a debtor to a creditor. The proposed framework, if adhered to by courts, will create a uniformity that gives preference law its proper reach and thereby reinforces its primary goal: equal treatment of similarly situated creditors (the equality principle). After examining the historical developments that have made a trustee's evidentiary burden administratively less complex, the Article discusses the Ninth Circuit's decision in Batlan v. TransAmerica Commercial Finance Corp. (In re Smith's Home Furnishings, Inc.) to illustrate how a court impairs the avoidance of preferential transfers when it creates a rule that improperly construes a trustee's evidentiary burden. The Article rejects the court's rule on the basis that it neither comports with the Bankruptcy Code's test for preferential effect nor with the evolution of the trustee's burden of proof. The Article concludes that, although the ultimate burden of proof rests on the trustee as he presents his prima facie case for preference avoidance, courts must give effect to state law presumptions in favor of the trustee. Failure to do so gives certain creditors procedural advantages, and possibly substantive advantages, to which they would otherwise not be entitled, thus compromising the equality principle.

bankruptcy, preferences, trustee, burden of proof

Abstract:
I have recently engaged in a scholarly exchange with Professors Robert M. Lawless, Angela K. Littwin, Katherine M. Porter, John A. E. Pottow, Deborah K. Thorne, and Elizabeth Warren that debates the conclusions they have drawn in their first report from the 2007 Consumer Bankruptcy Project (the "First Report"). Unfortunately, the reply of Professors Lawless et al. to my critique mischaracterizes, misinterprets, and does not fully engage with the constructive commentary that I suggested. This sur-reply clarifies the misperceptions and mischaracterizations of my commentary by Professors Lawless et al. and demonstrates that my arguments not only are grounded in a compelling theory of the operation of the bankruptcy system and an understanding of the First Report's data, but also offer useful ideas for exploring available empirical data.

2007 Consumer Bankruptcy Project, bankruptcy reform, consumer debtors, means test

Abstract:
In two 1996 decisions involving equitable subordination of claims in bankruptcy cases, United States v. Noland and United States v. Reorganized CF&I Fabricators of Utah, Inc., the Supreme Court did not answer the question of whether a bankruptcy court must find creditor misconduct before it equitably subordinates a creditor's claim. This Note argues that the Court should have established a bright-line rule that requires such a finding, using prepetition, nonpecuniary loss tax penalty claims of the IRS as a model. After showing that, as codified in the Bankruptcy Code, the doctrine of equitable subordination requires a finding of creditor misconduct, it analyzes circuit courts of appeals cases decided prior to Noland and Reorganized CF&I Fabricators that upheld equitable subordination of IRS prepetition tax penalty claims under a no-fault standard. The Note concludes that use of a no-fault standard of equitable subordination by a bankruptcy court constitutes impermissible judicial activism and that any unfairness resulting from the treatment of claims by the Bankruptcy Code should be remedied by Congress.

bankruptcy, equitable subordination

Abstract:
For a debtor to obtain a discharge of student loans in bankruptcy, the debtor must establish that their repayment would impose an undue hardship. This Article presents the results of an empirical study of bankruptcy court doctrine over a ten-year period that involved undue hardship discharge proceedings where the court reported information on the debtor's health status, monthly household income, and monthly household expenses. The data show that a medical condition increased a debtor's odds of being granted a discharge by 140% but that household income and expense levels did not have a statistically significant association with legal outcome. These results suggest that a great deal of bankruptcy court doctrine regarding the discharge of educational debt has given a meaning to the statutory term undue hardship"that is far removed from financial indicia of ability to repay. As a consequence, the statute has not been given its proper reach and has failed to achieve its proper sorting function: identifying those debtors without a meaningful ability to repay their educational debt.

bankruptcy, discharge, student loans, educational debt, health, illness

Abstract:
This Comment criticizes a pair of decisions by the United States Court of Appeals for the Second Circuit, FCC v. NextWave Personal Communications, Inc. (In re NextWave Personal Communications, Inc.) and In re FCC, which held that a bankruptcy court lacks jurisdiction to determine whether the Federal Communications Commission is stayed from revoking a debtor's licenses. The Comment argues that the Second Circuit interpreted the bankruptcy court's jurisdiction too narrowly because it failed to distinguish properly between an agency's action as a creditor and as a regulator. It concludes that bankruptcy courts and courts of appeals have concurrent jurisdiction to make automatic stay determinations regarding FCC licenses and that, for reasons of institutional competence, courts of appeals should defer to this exercise of jurisdiction by bankruptcy courts.

bankruptcy, jurisdiction, automatic stay, property of the estate, government creditor, FCC

Abstract:
Over the past quarter century, our knowledge of individuals who seek relief through the consumer bankruptcy system has been derived largely from the information that has been collected and analyzed by the Consumer Bankruptcy Project. The most recent iteration of the Consumer Bankruptcy Project, the 2007 Consumer Bankruptcy Project (the "2007 CBP"), extends well beyond prior iterations by drawing a nationwide random sample of bankruptcy filings. The first report published in connection with the 2007 CBP (the "First Report" or "Report") seeks to evaluate the success of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA") in sorting debtors according to their ability to repay past debts from future income. Specifically, the First Report focuses on a comparison of the median income levels of pre-BAPCPA and post-BAPCPA debtors to discern how BAPCPA's sorting mechanism--the means test--has functioned. Based on its finding that the difference in the income profile of debtors who filed in 2007 and in 2001 is statistically insignificant, the First Report concludes "that instead of functioning like a sieve, carefully sorting the high-income abusers from those in true need, the amendments' means test functioned more like a barricade, blocking out hundreds of thousands of struggling families indiscriminately, regardless of their individual circumstances." In other words, bankruptcy reform failed.

This Commentary argues that the First Report has possibly failed to answer the research question that it presented for three primary reasons. As an initial matter, the Report relies on two questionable assumptions to support its analysis. It assumes that enactment of the means test deterred 800,000 individuals from filing for bankruptcy in 2007. It also assumes that the combined income profile of these 800,000 individuals and those who actually filed in 2007 is similar to the income profile of debtors who filed in 2001. If neither of these assumptions holds, then the Report's analysis potentially cannot stand.

Second, the Report provides an incomplete account of the purpose of the means test and does not provide a sufficiently nuanced account of the manner in which the means test would be expected to affect (1) the behavior of individuals who were considering filing for relief under Chapter 7 of the Bankruptcy Code and (2) the dismissal or conversion of Chapter 7 cases that were ultimately filed. As a result, the First Report improperly frames the research question.

Third, even if one considers the Report's research question as it has been framed (i.e., as an inquiry into the deterrent effect of the means test), several methodological deficiencies cloud the data marshaled by the First Report. Among these deficiencies, the pre-BAPCPA sample of debtors may not be representative of the income profile of debtors nationally in 2001. Moreover, the Report focuses on the total income of debtors, rather than their disposable income, as a metric for evaluating the effectiveness of the means test--an odd choice given the means test's focus on disposable income. Finally, the Report does not account for state variation and family size when considering debtor income levels, which makes income by itself an unsuitable metric for evaluating the deterrent effect of the means test. This Commentary concludes that, without better designed research questions and metrics for answering those questions, we cannot answer whether bankruptcy reform has failed.

2007 Consumer Bankruptcy Project, bankruptcy reform, consumer debtors, means test

Abstract:
Does too much transparency in the selection of judges undermine the independence of the judiciary? This Essay seeks to provide insight into answering this question by focusing on the opaque process by which federal bankruptcy judges are selected. Part I begins with an account that anchors the concepts of judicial independence and judicial accountability to the concept of judicial quality. It proceeds to situate within this account the selection process, suggesting that the process can function as a form of judicial accountability, albeit one that diminishes judicial quality in those instances where the process becomes politicized. A brief discussion follows regarding the concept of transparency in the context of the selection process, with emphasis on the distinction between transparency of the process itself and transparency of the judicial candidates. I then explain how process transparency may reduce the utility of a candidate transparency requirement and thus undermine judicial quality. Part II suggests that moving to an opaque process may solve this problem and uses the selection of bankruptcy judges as an example. The Essay concludes that process opacity may prevent candidate transparency from being co-opted for political ends, thus improving judicial quality. Although the scope of the Essay is limited to discussing appointment systems, rather than election systems, my hope is that it will shed new light on proposed selection reforms in both systems by prompting others to consider the utility of opacity in judicial selection.

judicial appointments, judicial independence, judicial selection, judicial accountability, judicial quality, bankruptcy judges

Abstract:
The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) represents the most significant overhaul of federal bankruptcy law since the Bankruptcy Code’s enactment in 1978. The legislation expanded the grounds on which a debtor’s Chapter 7 case may be dismissed. Moreover, it increased the administrative requirements imposed upon debtors who file for bankruptcy (e.g., increased financial disclosures), which in turn has had the effect of increasing the direct costs of filing for bankruptcy (e.g., filing fees and attorneys’ fees). With this increased complexity in accessing Chapter 7 relief, the question arises whether BAPCPA has had a disproportionate impact on pro se debtors. This Article seeks to provide preliminary insight into answering the question by examining dismissal rates in Chapter 7 cases filed by consumer debtors in the U.S. Bankruptcy Court for the Western District of Washington from 2003 through 2007. It is hypothesized that (1) dismissal rates for pro se debtors will be statistically significantly higher than for represented debtors and (2) dismissal rates for post-BAPCPA pro se debtors will be statistically significantly higher than for pre-BAPCPA pro se debtors. Analyses of the data support both hypotheses. This Article concludes that, if pro se debtors who would otherwise be eligible for Chapter 7 relief cannot access that relief due to lack of representation, serious access-to-justice concerns arise that must be addressed by the courts and Congress.

BAPCPA, bankruptcy administration, bankruptcy reform, case dismissal, consumer debtors, means test, pro se debtors