Friday, December 20, 2013

Lawless on the Geography of Chapter 13

I'm gearing up to go back onto the coal face into the classroom in January for another semester's teaching.  Which means, inter alia, that I've got to bring myself up to speed on what's been happening in bankruptcy law during the months when I focused my attention on opera, Proust and suchlike. This new inquiry  brings me to the excellent website of the American Bankruptcy Ihstitute (I swear, those guys have more money than is good for them--they should start a sovereign wealth fund).  It also means a a glide through the superb videos of Bloomberg's Bill Rochelle. 

And perhaps most important, it means turning attention to the unparalleled  "debt website" run by Bob Lawless and his cronies at Credit Slips--leading me in particular to Bob's superb map (and commentary)   on the geography of Chapter 13.

With a moment's reflection, nonspecialists will probably recall the point of Chapter 13 as distinct from "ordinary" bankruptcy. In the ordinary case, the debtor throws the keys on the table and the creditors get to divvy up what they can find.  If he plays by the rules, the debtor gets to wipe out (most of) his unpaid debts,   Familiar as far as it goes, but it finesses the fact that most debtors don't have any assets to distribute  so they are wiping the slate clean in exchange for nothing.

In Chapter 13, by contrast, the debtor agrees to deploy some of his (post-bankruptcy) earnings to pay pre-bankruptcy debts.  Just as a matter of taste, I've always found Chapter 13 to be a fascinating social artifact.  It is also (not incidentally) hugely controversial.    My late beloved colleague Pete Loiseaux (and there are others like him) used to dismiss it with a growl as a form of semi-involuntary servitude, a form of peonage.  

Another faction holds that it's a perfectly legitimate use of sovereign power to help induce people to do what they were supposed to do anyway.  Answering the case in favor, Pete used to take malicious delight in directing  to the map, to see where actual debtors filed for Chapter 13.  The point was that the vast majority of Chapter 13s were filed in the Southeast, aka the Old Confederacy, aka the Slave States (Memphis, Atlanta and the whole state of South Carolina used to lead the list).  The geography was enough to convince Pete that supporters of Chapter 13 were just refighting (and winning) the Civil War.

Pete's parallel air tight.  For example, Chapter 13 is, on the face of things (and ahem, unlike slavery)  "voluntary."  The alert reader will wonder: if the debtor can wipe out his debts in ordinary bankruptcy, why would he ever bother pay them off voluntarily from future earnings?  The answer is complicated; suffice to say that there are have always been carrots and sticks to induce the debtor into Chapter 13, pace the off-the-rack rule.  For present purposes, the interesting part of the story begins in 2005.  That was when Congress substantially rejiggered the filing rules, making it  harder for debtors to get relief in "ordinary" bankruptcy.  Clearly the hope was that some debtors, deprived of the protection offered in straight bankruptcy would opt to go down the 13 road.

So, at least in crude summary, it pretty much came to pass.  Overall filings fell; Chapter 13s rose.  I (at least) took it as a natural corollary that the map also changed: that we would find Chapter 13 numbers rising in places where such cases really hadn't arisen before.

And that's why Bob's new map is so interesting (if you missed the link, here it is again).  Bob makes clear that one's (at least "my") intuitions were wrong.  In mild oversimplification, Bob makes it clear that the geography of Chapter 13 is exactly the same as it was before 2005, before the new trends, before the changes in raw numbers.   

I really don't know quite what to make of all this.  I admit I have often wondered if the "old Confederacy" theory made sense in the first place.  For one thing, if Chapter 13 is an artifact of the old Confederacy, how come we see high numbers along the coast of California? Or rather, why California at all, but if California, why not inland, where comparisons to the old Confederacy seem far more apt?  Perhaps there is some other hidden premise that supports the data better. But if so, I haven't the slightest idea what it might be.  Or it may be one more proof that whatever they do in Washington, folks on the ground go on behaving in pretty much their own way.  Or as Andy Capp used to say in the comics, the difference between a law and a custom is that it takes a hell of a lot more courage to violate a custom.


Douglas Whaley said...

If you want to trade Pete Loiseaux stories with me, contact Douglas Whaley at Loved that man.

The New York Crank said...

Just a thought. Contradict me if you will. But I think the reason the coast of California goes for Chapter 13 is far different from the reasons it's happening in the "Old South."

In California, they're making money, and as far as you can see, the horizon is green. Contrary to the rest of the nation, one can be optimistic in Silicon Valley that the next app you'll invent, or market, or go public with, is right around the corner. Ditto the next Silicon Valley millionaire.

Farther south, it's the next screenplay, or production, or Best Supporting Performance By A Bankrupt Actor" that's going to throw off the gazillions. Or at least enough to pay back some of the old creditors.

If I were a betting man (which I'm not) I'd wager that there are more Chapter 13s in Northern California than Southern California. I'm theorizing that Hollywood throws off somewhat less optimism than, say, Social Media, because Hollywood has a bigger age factor. At some point, you become too old for an increasing number of roles. According to Hollywood thinking, you even become too old to write a screenplay. There are prizewinning screenplay authors who can't find assignments or sell a pilot in a busy industry because they're...53.

Anyway, it's a thesis worth testing. Is there a doctoral candidate in the house?

Very Crankily Yours,
The New York Crank