REPORT ON AN EMPIRICAL STUDY OF DISTRICT VARIATIONS, AND THE ROLES OF JUDGES, TRUSTEES AND DEBTORS ATTORNEYS IN CHAPTER 13 BANKRUPTCY CASES

Transcription

1 REPORT ON AN EMPIRICAL STUDY OF DISTRICT VARIATIONS, AND THE ROLES OF JUDGES, TRUSTEES AND DEBTORS ATTORNEYS IN CHAPTER 13 BANKRUPTCY CASES by Scott F. Norberg and Nadja Schreiber Compo* I. INTRODUCTION It is a truism that, while bankruptcies throughout the United States are governed by the same Bankruptcy Code and Rules of Bankruptcy Procedure, there are wide variations across federal judicial districts and divisions in how the law works in practice. 1 In a Chapter 13 system * Professor Norberg is a Professor of Law, Florida International University College of Law. Professor Compo is an Assistant Professor of Psychology, Florida International University. We are grateful to the National Conference of Bankruptcy Judges Endowment for Education and the American Bankruptcy Institute for their grants in support of the Chapter 13 Project, and to the Florida International University College of Law and Department of Psychology for providing research assistance. In addition, we thank the Chapter 13 trustees, bankruptcy court clerks, chief bankruptcy judges and regional United States Trustees in the seven districts covered by the Project for their diligent and professional assistance in the gathering of the data for the Project. 1 See Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence 101

2 102 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 that has averaged over 300,000 filings a year during the past ten years, 2 and that has distributed as much as $5.5 billion dollars a year to creditors, 3 the potential social and economic impact of these differences is great. The empirical findings that we report here are based on data from the Chapter 13 Project, a multi-district study of the Chapter 13 system and the extent to which it has fulfilled two of its principal purposes debtor fresh start and creditor repayment. The initial report on the Project s findings focused on the debtors and their creditors in Chapter 13 cases. We described the debtors in our sample, and statistically measured the relationships between certain debtor characteristics and Chapter 13 plan features, on the one hand, and debtor discharge and the amounts and types of debt repaid to creditors, on the other hand. 4 In this article, we report on differences among Westbrook., The Persistence of Local Legal Culture: Twenty Years of Evidence from the Federal Bankruptcy Courts, 17 HARV. J.L. & PUB. POL Y 801, 804 (1994) [hereinafter, Sullivan et al., The Persistence of Local Legal Culture]; Jean Braucher, Lawyers and Consumer Bankruptcy: One Code, Many Cultures, 67 AM. BANKR. L.J. 501, (1993) [hereinafter, Braucher, Lawyers and Consumer Bankruptcy]. See also Jean Braucher, An Empirical Study of Debtor Education in Bankruptcy: Impact on Chapter 13 Completion Not Shown, 9 AM. BANKR. INST. L. REV. 557, 559 (2001) [hereinafter, Braucher, An Empirical Study of Debtor Education]; William C. Whitford, Has the Time Come to Repeal Chapter 13?, 65 IND. L.J. 85 (1989); Teresa A. Sullivan, Elizabeth Warren & Jay Lawrence Westbrook, Laws, Models, and Real People: Choice of Chapter in Personal Bankruptcy, 13 LAW & SOC. INQUIRY 661, (1988). 2 Administrative Office of the U.S. Courts, Bankruptcy Filings, 12-month period ending June, by Chapter and District, 3 U.S. Trustee Program, Chapter 13 Handbooks & Reference Materials, Chapter 13 Statistics, FY , Chapter 13 Trustee Audited Annual Reports, at tm. 4 See Scott F. Norberg & Andrew J. Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, 39 CREIGHTON L. REV. 473 (2006) [hereinafter Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13].

3 2007) CHAPTER 13 DISTRICT VARIATIONS 103 districts in the debtors who used Chapter 13 and in local case administration practices. We also begin to explore the roles of the key legal actors in Chapter 13 cases the bankruptcy judges, Chapter 13 standing trustees and debtors attorneys. While it is well-established that Chapter 13 discharge rates vary widely across judicial districts, 5 and that bankruptcy and Chapter 13 filing rates differ substantially as well, 6 our data reveal additional, sometimes unexpected, district variations in the debtors who used Chapter 13. For example, debtor incomes, debtincome ratios, refiling rates, and the proportion of individual female petitioners differed significantly across some of the seven sample districts. These differences add texture and detail to the existing picture of how the federal bankruptcy laws work differently in different locales, and suggest that the roots of the bankruptcy epidemic are more complex than generally understood and that bankruptcy reforms will impact filings and outcomes very differently in different places. We evaluate the relation between district dismissal and discharge rates, on the one hand, and various case administration practices, on the other hand, with the purpose of identifying best practices that may improve case outcomes for Chapter 13 debtors and their creditors. Bankruptcy courts across the country employ varying practices with respect to the use of wage orders, payment of post-petition mortgage payments through the trustee, payment of debtors attorneys fees, and plan payment moratoriums. 5 Id. at & n. 70 (reporting on district pre-confirmation dismissal, post-confirmation and discharge rates in the seven districts covered by the Chapter 13 Project, and citing to other studies reporting on Chapter 13 discharge rates in various districts). 6 E.g., Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at & Tables 1-3.

4 104 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 They have also maintained differing expectations regarding plan length and minimum distribution to unsecured creditors. The data reveal significant differences in district discharge rates depending upon whether the district routinely issued wage orders for debtors plan payments. However, there were no significant differences in case outcomes based on whether debtors ongoing, post-petition mortgage payments were paid through the trustee. The effects of bankruptcy courts regulations on the payment of debtors attorney fees and of plan payment moratoriums were not clear from the data. Shorter plans resulted in a discharge of the debtor at a greater rate than longer plans, while counter intuitively, there were no significant differences in discharge rates depending on whether a district maintained a benchmark distribution to unsecured creditors. Regarding the roles of the key legal actors in Chapter 13cases, the data reveal significant differences in case outcomes based on the identity of the bankruptcy judge in a few single-judge divisions in three of the sample districts. These findings appear to confirm the influence that bankruptcy judges have over their case outcomes when they can cleanly exert that influence. The findings also imply that judges in multi-judge districts collectively may influence case results decisively, while either different practices or attitudes, or a tendency to gravitate toward common practices and attitudes, among the judges tends to moderate their individual influence. Notably, the data reveal no significant differences in judges discharge rates based on the rate at which they dismissed cases before confirmation of a plan. Predictably, debtors who were not represented by an attorney were much less likely to achieve a discharge. Debtors represented by a high-volume practitioner also were significantly less likely (but more likely than pro se debtors) to complete a plan and attain

5 2007) CHAPTER 13 DISTRICT VARIATIONS 105 a discharge than debtors represented by a lowvolume practitioner. Part II briefly describes the design and methodology of the Chapter 13 Project. Part III reports on characteristics of the debtors filing for Chapter 13 relief in the seven districts covered by the Project. Part IV reports on the dismissal and discharge rates across the sample districts. Part V then examines differing district case administration practices, Part VI considers the roles of individual judges and Chapter 13 trustees in Chapter 13 case outcomes, and Part VII addresses the relationships between the debtor s representation and discharge and case refiling rates. Finally, Part VIII concludes with a brief summary of our findings and conclusions and several recommendations regarding best practices. II.DESIGN AND METHODOLOGY OF THE CHAPTER 13 PROJECT The Chapter 13 Project is an empirical study of 795 Chapter 13 cases filed in 1994 in seven federal judicial districts comprising fourteen Chapter 13 trusteeships. The seven federal judicial districts are: Northern District of Georgia, Southern District of Georgia, Middle District of North Carolina, Middle District of Tennessee, Western District of Tennessee, District of Maryland, and Western District of Pennsylvania. Collectively, these seven districts accounted for a very large portion nearly 20% of Chapter 13 filings nationally in There were 240,639 Chapter 13 filings in 1994, including 47,393 in the seven sample districts. 7 In each district, we pulled a quota sample of one percent (1%) of the Chapter 13 cases filed in 1994, but no fewer than 100 cases. The sample includes 165 cases from the Northern District of 7 See supra note 2.

6 106 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 Georgia, 130 cases from the Western District of Tennessee, and 100 cases from each of the other five districts. The Chapter 13 Project s sample of debtors, trusteeships and districts was highly representative of the nation as a whole, notwithstanding significant variations in practice among districts, judges and trustees across the country. The discharge rate for the 795 debtors, as well as the average discharge rate across the seven districts, was almost identical to the oftcited national average of 33%. 8 Further, the amounts and types of debt repaid by the debtors were similar to the national averages reported by the Executive Office for United States Trustees for all Chapter 13 cases closed during the same time period. 9 The percentages of male and female petitioners, and the debt-income ratios of the debtors were comparable to those observed in other studies. 10 While representative of the nation in the key areas of debtor discharge and creditor repayment, the sample is a multi-district, not a national, sample. The sample districts are located mostly in Southern states with higher Chapter 13 filing rates. At the same time, the choice of seven districts that accounted for nearly 20% of all Chapter 13 filings likely contributed to, rather than detracted from, the representativeness of the sample. The representativeness of the sample also was not undermined by the fact that it includes one percent of filings in the Northern District of Georgia and the Western District of Tennessee, and more than one percent of filings in the other five districts (ranging from 1.9% of Chapter 13 filings in the Southern District of Georgia to 11.9% in the Western District of Pennsylvania). Further, 8 See infra note 33 and accompanying text and Tables 5 and 6. 9 See Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 480 & n See id. at 483,

7 2007) CHAPTER 13 DISTRICT VARIATIONS 107 by including a minimum of 100 cases from each district, we were able to run numerous interdistrict analyses and intra-district comparisons. The term significant is used throughout the paper to mean statistical significance. Statistical analyses were performed using the SPSS software package and a criterion level of 5%. Thus, statistical significance is inferred only where there would be a 5% or less probability that a finding arose by chance. Most of the time, we used non-parametric tests for comparisons of nominal- and ordinal-scaled variables (e.g., district, case disposition, other filings); and parametric tests for comparisons of intervalscaled variables (e.g., income, debt). The statistical analyses do not interpolate or extrapolate the values of missing data. If data were not available, the case was excluded from the relevant analysis. Much of the data analyzed for the study did not meet the criteria to be considered normally distributed in the sample. When normality assumptions were substantially violated and could not easily be resolved by excluding outlying scores (+3 SD s above the mean), non-parametric statistical analyses were used instead. Finally, we note that we collected the Project data approximately five years ago, between 2000 and 2002, and that the data are from cases filed in 1994 and closed between 1994 and (The maximum length of a Chapter 13 plan is five years, so that the earliest time that data could be collected was in 2000.) While the data are not the most current available, there is no reason to believe that the findings and conclusions based on the data are not fully applicable to current Chapter 13 practice. All of the same variations in practices and conditions that are the subject of this paper remain in effect across the federal bankruptcy system today. Thus, for example, bankruptcy courts continue to take varying

8 108 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 approaches to the use of wage orders, payment of mortgages through the trustee, regulation of attorney fees and the like. Moreover, our findings will serve as a baseline for evaluating the impact of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) on Chapter 13 practice and case outcomes. III.DISTRICT VARIATIONS IN THE CHAPTER 13 DEBTORS There were significant, sometimes unexpected, differences across the seven sample districts in Chapter 13 filing rates, debtor homeownership rates, debtor incomes and debt-income ratios, the numbers of repeat filers, and the proportion of male, female and joint petitioners. While many of these differences are not easily explained, they add texture and detail to the existing picture of how the bankruptcy system functions differently in different locales. 11 Some of the differences may reflect varying economic circumstances of the debtors or differing state law debt collection regimes in the several districts, while other of the variations evidence different norms regarding use of the Chapter 13 system based on the local legal 12 and non-legal cultures. A. CHAPTER 13 FILING RATES That legal culture differs widely across localities, even within a single state, is 11 See, e.g., Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at , ; Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 804; Braucher, Lawyers and Consumer Bankruptcy, supra note 3, at ; William C. Whitford, The Ideal of Individualized Justice: Consumer Bankruptcy as Consumer Protection, and Consumer Protection in Consumer Bankruptcy, 68 AM. BANKR. L.J. 397, 406 (1994) [hereinafter, Whitford, The Ideal of Individualized Justice]. 12 Local legal culture refers to the variations in local legal practices that arise from the perceptions, attitudes and expectations of bankruptcy judges, trustees and attorneys in a particular locality. See Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at 804; Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at

9 2007) CHAPTER 13 DISTRICT VARIATIONS 109 illustrated by the wide differences in consumer and Chapter 13 filing rates across the country. 13 Nationally, Chapter 13 filings have approximated 30% of annual consumer filings. 14 As reported in Table 1 below, in the seven sample districts covered by the Chapter 13 Project, the ratio of Chapter 13 filings to total consumer filings ranged from 16.9% in the Western District of Pennsylvania to 80.7% in the Western District of Tennessee. Overall, nearly 60% of the debtors in the sample districts filed under Chapter 13 in 1994, nearly double the national average. 15 The ratio of Chapter 13 filings to total consumer filings was above the national average in five of the sample districts, and below the national average in two the District of Maryland and the Western District of Pennsylvania. 16 Further, there were large differences between districts in the two states in which the Project pulled cases from two districts within the state. The Chapter 13 filing rate in the Southern District of Georgia was almost 9% higher than in the Northern District of Georgia. More 13 See Sullivan et al., The Persistence of Local Legal Culture, supra, note 1, at (reporting on and discussing variations among federal judicial districts in bankruptcy filing rates). 14 See supra note Id. See generally Gordon Bermant and Ed Flynn, Bankruptcy by the Numbers, Thoughts on the Local Legal Culture, The Case of Consumer Chapter Choice, Feb AM. BANKR. INST. J. 24 (reviewing data on the variation among districts and states in percentages of consumer debtors who choose Chapter 13 or Chapter 7); Gordon Bermant and Ed Flynn, Bankruptcy by the Numbers, A Tale of Two Chapters, Part I, Aug AM. BANKR. INST. J. 20 (same); Gordon Bermant, Bankruptcy by the Numbers, Exploring the Demographics of Consumer Chapter Choice, May 1999 AM. BANKR. INST. J. 20 (finding that the percentage of chapter 13 filings in a state tends to vary directly with the number of filings per 1000 households in the state ). 16 As discussed supra, notes 8-10 and accompanying text, the fact that most of the sample districts had a higher proportion of Chapter 13 filings than the national average did not detract from the representativeness of the Project sample. Rather, the representativeness of the sample was likely in part a result of the fact that the districts included in the sample accounted for a large proportion, nearly 20%, of all Chapter 13 filings in 1994.

10 110 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 dramatically, the proportion of Chapter 13 filings in the Western District of Tennessee was more than 25% higher than in the Middle District. As Sullivan, Warren and Westbrook have written, these intra-state differences support the conclusion that state law does not explain variations in Chapter 13 filings rates, and that local legal culture probably accounts for the variations. 17 Table 1. Consumer Bankruptcy Filings, 1994 District Total Chapter 13 Percent Consumer Filings Chapter 13 Filings Filings NDGA 24,686 16, % SDGA 6,822 5, % MDTN 8,648 4, % WDTN 16,083 12, % MDNC 4,201 3, % WDPA 4, % DMD 14,272 3, % Seven 79,688 47, % Districts United States 778, , % B. HOMEOWNERSHIP The homeownership rates of the debtors in the Project sample also varied substantially by district. As reported in Table 2, overall, about 47% of the debtors were home owners Sullivan, et al., The Persistence of Local Legal Culture, supra note 1, at Neither the Schedules, Official Bankruptcy Form 6, nor the Statement of Financial Affairs, Official Bankruptcy Form 7, includes any direct question regarding homeownership. Homeownership was inferred from whether the debtor scheduled a mortgage or mobile home debt. Thus, the rate of home ownership reported here may be slightly understated because some debtors may have owned homes not subject to any mortgage, and some mortgage or mobile home creditors may not have been identifiable as such. 427, or 54%, of the cases indicated a mortgage or mobile home debt. We identified 16 mobile home debts in

11 2007) CHAPTER 13 DISTRICT VARIATIONS 111 Homeownership rates ranged from a low of 32% in the Middle District of Tennessee to a high of 79% in the Western District of Pennsylvania. The very large variations in homeownership rates among debtors in several of the sample districts suggest that the purposes for which many of the debtors used Chapter 13 differed markedly by district. As evidenced by the high homeownership rate, debtors in the Western District of Pennsylvania generally used Chapter 13 to deal with mortgage defaults. At the same time, the great majority of debtors in the Middle District of Tennessee, and nearly half of the debtors in the Northern and Southern Districts of Georgia and the Western District of Tennessee, used Chapter 13 for other reasons. 19 the Middle District of North Carolina, seven in the Northern District of Georgia,, five in the Southern District of Georgia and one each in the District of Maryland and the Middle District of Tennessee. In the Middle District of Tennessee, we identified 42 debtors with mortgage debt, and further estimated that roughly 25 real estate mortgages were listed as priority instead of secured debts. The remaining 372 homeowners were identified as having mortgage debts. The 47% homeownership rate for the sample debtors compared to the national rate of homeownership in 1994 of 64%. Robert R. Callis, Current Housing Reports, Moving to America Moving to Home Ownership: , U.S. Census Bureau (Sept. 2003), available at pubs/h pdf. 19 A chi-square analysis indicated differential rates of homeownership across the districts studied, χ 2 (6, N = 795) = 67.09, p <.001. The homeownership rate in Middle District of Tennessee (32.0%) was lower than expected, and homeownership rates in Maryland (57%), the Middle District of North Carolina (58%) and the Western District of Pennsylvania (79.0%) were higher than expected. The significantly different homeownership rates among districts could be a function not of local legal culture, but of differences in state debt collections laws. The fact that the homeownership rates for the debtors in the Northern and Southern Districts of Georgia, and in the Middle and Western Districts of Tennessee, are almost identical tends to support the conclusion that state debt collection law, including mortgage foreclosure and homestead exemption laws, influence the proportion of Chapter 13 debtors who use Chapter 13 to deal with a debt secured by the debtor s home.

12 112 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 Table 2. Frequency of Homeownership by District District Do not own home Homeowner (percent) (percent) MD 43 (43%) 57 (57%) MDNC 59 (59%) 41 (41%) MDTN 68 (68%) 32 (32%) NDGA 90 (54.5%) 75 (45.5%) SDGA 54 (54%) 46 (46%) WDPA 21 (21%) 79 (79%) WDTN 88 (67.7%) 42 (32.3%) 20 Total 423 (53.2%) 372 (46.8%) C. INCOME AND DEBT-INCOME RATIO The mean debt-income ratio, excluding mortgage debt, varied dramatically between several of the sample districts. As shown in Table 3, the mean debt-income ratio in the Western District of Tennessee 1.0 was considerably less than half that in the Southern District of Georgia 2.4. The overall mean debt-income ratio was 1.5, and the mean in four of the seven districts fell between 1.2 and Stated differently, the average debtor had non-mortgage debts equal to one and a half years income, while the debtors in the Western District of Tennessee had on average nonmortgage debts equal to one year s income, and debtors in the Southern District of Georgia had average non-mortgage debts equal to nearly two and a half years income. It might be expected that debtors with lower incomes would tend to have lower debt-income ratios at the time of their bankruptcy filing. A lower-income debtor must devote a greater a 20 This figure includes approximately 25 cases in which mortgage debt apparently was listed as priority debt. 21 Univariate ANOVAs were conducted. The differences in the mean debt-income ratio across the seven districts were significant, F(6, 736) = 21.77, p <.001. Cf. Sullivan et al., The Persistence of Local Legal Culture, supra note 1, at p. 836 (reporting that differences in debtors debt-income ratios in ten districts in Texas, Illinois and Pennsylvania were statistically indistinguishable).

13 2007) CHAPTER 13 DISTRICT VARIATIONS 113 portion of income to basic needs than a higherincome debtor, so that lower-income debtors would tend to have greater need for bankruptcy relief at a relatively lower debt-income ratio. The data, however, indicate no clear relation between mean debtor or household income and debt-income ratio. As further reported in Table 3, debtors in the Western District of Tennessee had both the lowest mean debt-income ratio and the lowest mean household net and gross incomes. At the same time, the debtors in the Southern District of Georgia had both the highest average debt-income ratio and the second lowest average incomes, and the debtors in the District of Maryland had the highest mean net and gross household incomes but a relatively modest mean debt-income ratio. Table 3. Debt-Income Ratio and Annual Household Incomes by District Distr Debt-income Annual Net Annual Gross ict ratio Household Income Household Income Mean Median Mean Median Mean Median MD $33,270 $30,000 $41,250 $38,400 MDNC $18,849 $17,040 $24,042 $21,846 MDTN $20,778 $19,926 $24,061 $21,606 NDGA $22,101 $20,814 $27,731 $24,384 SDGA $18,218 $16,512 $22,220 $20,136 WDPA $25,466 $22,926 $31,285 $28,446 WDTN $14,681 $13,494 $16,942 $14,958 Total $21,506 $18,504 $26,309 $22,512 The district differences in mean and median debtor debt-income ratios may reflect differing cultures in which debtors more or less readily resorted to Chapter 13 when confronted by financial crisis. The districts where debtors had lower debt-income ratios generally had higher rates of consumer and Chapter 13 filings per

14 114 AMERICAN BANKRUPTCY LAW JOURNAL (Vol ,000 of population. 22 The debtors in the Western and Middle Districts of Tennessee had the lowest mean debt-income ratios and the highest consumer and Chapter 13 bankruptcy filing rates per 100,000 of population of the seven districts covered by the study. 23 At the other extreme, debtors in the Western District of Pennsylvania had the second highest mean debt-income ratio and the lowest consumer and Chapter 13 filing rates per of population. There was one anomaly : debtors in the Southern District of Georgia had by far the highest mean debt-income ratio, while that district had the fourth and second highest consumer and Chapter 13 filing rates, respectively. As further reported in Table 3 above, there was also a significant difference in the net and gross annual household incomes between the debtors in the districts with the highest and lowest means 22 Debt-Income Ratio and Bankruptcy Filing Rates, by District District NDGA SDGA MD MDNC WDPA MDTN WDTN Mean Debt Income Ratio Median Debt- Income Ratio Bankruptcy Filings (Chapters 7 & 13 per 100,000 Bankruptcy Filings (Chapter 13) per 100,000 Source: Administrative Office of the Courts, Annual Reports for 1990 (the closest year available for the Chapter 13 Project sample of 1994 cases), as reported in Sullivan, et al., The Persistence of Local Legal Culture, supra note 1, at Table 1 and Table Actually, debtors in the Middle District of Tennessee had the second lowest debt-income ratios and the second and third highest consumer and Chapter 13 filing rates, respectively.

15 2007) CHAPTER 13 DISTRICT VARIATIONS 115 and medians. In the District of Maryland, the mean and median, net and gross household annual incomes were all more than twice the corresponding amounts in the Western District of Tennessee. The overall mean and median, net and gross annual household incomes of the debtors in the sample were very modest, even meager: $21,506, $18,504, $26,309 and $22,512, respectively. 24 While the differences in debtor incomes between districts are striking, we are hard-pressed for an explanation. While Maryland has had among the highest median incomes of any state, 25 that would not necessarily result in a higher median income among those filing for Chapter 13 in the state. Perhaps the local legal culture in Maryland more consistently pushes lower income debtors into Chapter 7 cases than does the culture in the Tennessee districts. Alternatively, differences in state debt collection laws might help to explain the variance. Alternatively, it is possible that income equality contributes to over indebtedness the keeping up with the Joneses problem of people with incomes that should be adequate who take on debt they can not manage when they try to live like others they know who have higher incomes. D. OTHER FILINGS At least half of all of the Chapter 13 debtors in the seven sample districts had filed one or more bankruptcy cases in addition to the sample case. Nearly 30% had filed at least one other case; 10% had filed at least two other cases; and 24 Again, univariate ANOVAs revealed that the variations in average net and gross annual household incomes across districts were statistically significant, F(6, 751) = 22.60, p <.001, and F(6, 753) = 27.19, p <.001, respectively. 25 See ble.htm (Executive Office for United States Trustees website, reporting Census Bureau data on median incomes for purposes of applying the means test under 11 U.S.C. 707(b)(2)).

16 116 AMERICAN BANKRUPTCY LAW JOURNAL (Vol % had filed three or more other cases. 26 Because the Project data on previous filings did not cover the same time periods in all seven of the sample districts, 27 inter-district comparisons were possible only with respect to subsequent refiling rates. Here again, the data revealed statistically significant differences in the incidence of repeat refilings across districts. As reflected in Figure 1 below, 20% of the debtors in the Middle District of North Carolina filed one or more subsequent cases, compared to 39% and 56% of the debtors in the Middle and Western Districts of Tennessee, respectively. 28 The overall subsequent refiling rate was 33% for all debtors in all seven districts. 29 The two districts with the highest subsequent refiling rates, the Western and Middle Districts of Tennessee, had the lowest debt-income ratios, reinforcing the idea that in some districts the culture permits debtors to resort more freely to bankruptcy relief than in other districts. No doubt, many factors may further explain the differences in district filing and refiling rates 26 There were probably more other filings by the sample debtors than evidenced by the Project data. The Project data on other filings were drawn from the debtors Statement of Financial Affairs and electronic searches of the PACER data base in each district. The PACER data bases have a limited reach back period, and debtors do not always report all previous filings in the Statement of Financial Affairs. See Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at The PACER database for the Middle District of North Carolina reaches back only one year before the sample cases, compared to two or more years in the other six districts. 28 χ2(6, N = 793) = 47.16, p < BAPCPA has placed new restrictions on serial filings. The Code now provides that the automatic stay will expire 30 days after filing when an individual debtor had another case that was pending within a year before the current filing, unless a party in interest files a motion to extend the stay and shows that the current filing was in good faith, 11 U.S.C. 362(c)(3); and that no stay will arise when the debtor had two or more cases pending within the year before filing the current case, again unless a party in interest files a motion to impose the stay and shows that the current filing was made in good faith. 11 U.S.C. 362(c)(4).

17 2007) CHAPTER 13 DISTRICT VARIATIONS 117 and mean debtor debt-income ratios, including income and cost of living levels, attorney advertising, perceived stigma, bankruptcy court efficiency, and policies and practices favoring either Chapter 13 or Chapter 7 filings by consumer debtors. In the Western District of Tennessee, the debtors had the lowest debt-income ratios and the highest refiling rate, as well as the lowest incomes. At the same time, debtors in the Southern District of Georgia had the highest debtincome ratios and a relatively high bankruptcy filing rate per 100,000 population, but a relatively lower refiling rate and lower mean income amount. That the debt-income ratios are very different in the two Georgia districts tends to support the conclusion that debt-income ratio is a function of local culture and not state debt collection law. Figure 1. Subsequent Refiling Rates by District Percent of Current Cases wit h at Least One Subsequent Filing by District (N = 261) 60% 56.2% 50% 40% 39.0% Overall Subsequent Filing Rate (32.9%) 30% 29.6% 28.0% 30.0% 20% 20.0% 25.5% 10% 0% MD MDNC MDTN NDGA SDGA WDPA WDTN Distr ict

18 118 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 E. GENDER AND HOUSEHOLD SIZE There were significant differences across districts in the proportion of female, male and joint petitioners. As reported in Table 4, the percentage of women filing individually for Chapter 13 relief ranged from 28.9% in the Western District of Pennsylvania to 46.5% in the Western District of Tennessee, compared to an average percentage of individual women filers of 36.1% across all sample districts. The variation in the percentage of joint petitioners was even larger, ranging from just 15% of filings in the Western District of Tennessee to 38.1% in the Western District of Pennsylvania. 30 The average household size did not differ significantly across districts; the range was 2.6 to 3.0 persons per household. Table 4. Mean Frequency of Gender and Household Size by District District Gender Household Size Mean Median Male Female Joint MD 37% 39.1% 23.9% MDNC 32.3% 32.3% 35.4% MDTN 42% 31% 27% NDGA 42% 33.8% 24.2% SDGA 30% 40% 30% WDPA 33% 28.9% 38.1% WDTN 38.6% 46.5% 15% Total 36.9% 36.1% 26.9% Again, there is not an obvious explanation for the significant differences in the gender of petitioners across districts. Perhaps the local population demographics of the sample districts were different, with more single or divorced, financially distressed women in some districts 30 A chi square comparison revealed significant differences in gender distribution across the seven districts, χ² (12, N = 772) = 26.34, p <.05.

19 2007) CHAPTER 13 DISTRICT VARIATIONS 119 than in others. Alternatively, or in addition, perhaps women were more susceptible than men to the influence of a culture that emphasized repayment of debt in Chapter 13 over the quick discharge in Chapter 7. As discussed above, in several districts the majority of debtors used Chapter 13 to deal with a home mortgage, while in other districts including the districts with the highest proportion of women filing individually most debtors appear to have used Chapter 13 because the local culture encouraged that option regardless of whether the debtor had a home mortgage. One of the two districts that appear to have most heavily emphasized Chapter 13 as a vehicle for repayment of unsecured debt, the Western District of Tennessee, was also the district with the highest proportion of women filing individually, the lowest proportion of joint filings, and the lowest mean income; whereas the district where debtors most often used Chapter 13 to deal with a mortgage debt, the Western District of Pennsylvania, had the lowest percentage of women filing individually, the highest percentage of joint filers, and the second highest mean income. One implication is that in some districts that most heavily emphasize Chapter 13 for the repayment of unsecured debt, women filing individually and who tended to have lower incomes were disproportionately represented in the ranks of Chapter 13 debtors who may have been better served by filing under Chapter 7. IV.DISTRICT DISCHARGE RATES In Parts V-VII, we use district discharge and dismissal rates in attempting to ascertain the roles of various Chapter 13 players and the efficacy of different local case administration practices. Thus, for example, we compare discharge rates by judge, trustee and whether the debtor was represented by a higher- or lowervolume legal practice. Similarly, we gauge the

20 120 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 efficacy of district practices such as use of wage orders and payment of the mortgage through the trustee based on their relation to case outcomes. In performing these statistical analyses, we are cognizant that not all Chapter 13 dismissals represent failures, and that, conversely, debtor discharge does not invariably equate to success for the debtor and her creditors. 31 However, because confirmation and completion of a Chapter 13 plan are the stated objectives of Chapter 13, and because plan completion and debtor discharge are more likely to provide the debtor with a fresh start and creditors with greater repayment of debt 32 than if the case were dismissed, case disposition is the most reliable if not the only practical means to evaluate local practices and other variables. 33 Overall, thirty-three percent (33%) of the debtors in the seven districts covered by the Project completed their plans and obtained a discharge. Sixty-seven percent (67%) of the cases were dismissed or converted, either before or 31 Some debtors achieve a fresh start without completing a plan, because the breathing spell afforded by the automatic stay allows them to regain their financial footing and to catch up on mortgage or other secured debt defaults before the case is dismissed or converted. Other debtors may lose their home or other collateral, but the interval during which foreclosure and repossession are automatically stayed gives them needed time to make other arrangements. Meanwhile, some debtors who complete a plan and attain a discharge do not achieve a fresh start. Not all claims are discharged at the end of a Chapter 13 plan, and about 15% of all debtors who achieve a discharge file again for bankruptcy protection. Norberg & Velkey, Debtor Discharge and Creditor Repayment, supra note 4 at 504. See also Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at (discussing that Chapter 13 non completions are not necessarily failures). 32 Norberg & Velkey, Debtor Discharge and Creditor Repayment, supra note 4, at 546 (reporting findings that debtors who completed their plans paid greater amounts and percentages of their pre-bankruptcy debts than those whose cases were dismissed short of discharge. ) 33 See id. at (using discharge rates to evaluate various debtor characteristics and plan features); Braucher, Empirical Study of Debtor Education, supra note 1, at 563 (using plan completion to gauge efficacy of debtor education and other local practices).

21 2007) CHAPTER 13 DISTRICT VARIATIONS 121 after confirmation. As reported in Table 5, over 57% of the sample cases were dismissed, and nearly 10% were converted to Chapter 7. Of the dismissed cases, one-third was dismissed before confirmation of a plan and two-thirds after confirmation; that is, about 19% of all filings were dismissed before confirmation, and 38% after confirmation of a plan. The courts confirmed a plan in nearly 78% of all cases. 34 Table 5. Discharge, Dismissal and Conversion Rates All Cases (N = 794 cases) Dismissal Conversion Discharge 455 cases (57.3%) 77 cases (9.7%) Before Confirmation 154 cases (19.4 %) After Confirmation 301 cases (37.9 %) Before Confirmation 27 cases (3.4 %) After Confirmation 50 cases (6.3 %) 262 cases (33%) The rates of debtor discharge varied significantly across the seven sample districts. Table 6 reports the discharge, dismissal and conversion rates by district, in order from left to right of lowest to highest rates of debtor discharge. As a percentage of all filings, the discharge rates in the seven districts ranged from a low of 20% of Chapter 13 filings in the Western District of Tennessee to a high of 47% in the Middle District of North Carolina. The average discharge rate among districts was 33.8%, almost identical to the overall rate of 33% for all debtors in the sample. Excluding converted cases, 35 statistical analysis reveals significant differences in disposition rates between districts See generally Norberg & Velkey, Debtor Discharge and Creditor Repayment, supra note 4, at N = χ² (4, N = 717) = 49.71, p <.001. See generally Norberg & Velkey, Debtor Discharge and Creditor Repayment in Chapter 13, supra note 4, at 505 & n. 70 (citing to findings regarding Chapter 13

22 122 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 Table 6. Discharge, Dismissal and Conversion Rates All Cases, by District WD MD NDG WD TN TN A SDGA MD PA Disposition Debtor discharged/cas e completed Case dismissed after confirmation Case dismissed before confirmation Case converted after confirmation Case converted before confirmation % % % 5 3.8% 2 1.5% % % 9 9.0% % 5 5.0% % % % 6 3.6% 2 1.2% % % % 5 5.0% 2 2.0% % % % % 4 4.0% % % % % 8 8.0% MD NC % % 8 8.0% 0 0.0% 4 4.0% TOTAL % % % % % Sub-total of cases Missing cases Total cases The significant variation in discharge and dismissal rates across districts raises the question, to what extent do the various Chapter 13 players and varying local legal practices account for the differences? And conversely, what differences in local legal cultures appear not to influence case outcomes? We turn to these questions in the sections that follow. V. DISTRICT PRACTICES AND DEBTOR PLAN PROVISIONS The significant differences in district discharge rates naturally raise the question of what practices and conditions may explain or do not explain the differences. We surveyed the Chapter 13 trustees in the seven sample districts regarding the following local practices: (1) use debtor discharge rates in numerous other studies).

23 2007) CHAPTER 13 DISTRICT VARIATIONS 123 of wage orders, (2) payment of ongoing, postpetition mortgage payments through the trustee rather than directly to the mortgagee, (3) the amount of the standard, no look fee that debtors attorneys were permitted to charge for representation in a Chapter 13 case, (4) any requirement that some or all of the debtor s attorney s fee be paid under the plan and not in advance, and (5) the availability of plan payment moratoriums when a debtor could not make payments under the plan for several weeks or months. In addition, using data collected from the sample debtors proposed plans, we examined the differences among districts regarding the proposed length of the debtors plans and the proposed distributions to unsecured creditors. A. DISTRICT PRACTICES Chapter 13 trustees in six of the seven judicial districts responded to the survey. Their responses are summarized in Table 7 below. As shown, five of the districts required wage orders in all cases in which the debtor was not selfemployed. Only the Western District of Pennsylvania did not impose wage orders in the general course. The six responding districts were evenly divided on the practice of requiring postpetition mortgage payments to be made through the trustee. In three districts the debtors generally made their mortgage payments directly to the creditor, while in the other three districts the debtors normally made their post-petition mortgage payments through the trustee. The standard Chapter 13 attorney s fee ranged from $750 in the Southern District of Georgia to $1600 in the Western District of Pennsylvania. Only Maryland did not require that at least some portion of the attorney s fees be paid under the plan. The six districts were evenly split on permissibility of plan payment moratoriums when the debtor had encountered an income disruption or extraordinary expense.

24 124 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 Table 7. District Practices District Wage Orders Generally Required Standard Fee Amount Attorney Fee Payment Requirements Payment Moratoriums Permitted NDGA Yes $1,000 Yes Yes No SDGA Yes $750 Yes No No DMD Yes $1,250 No No No MDNC Yes $750 Yes Yes Yes WDPA No $1600 Yes No Yes WDTN Yes $1200/ $700- $ Yes No Yes Postpetition Mortgage Payments Through Trustee By hypothesis, the routine use of wage orders, payment of post-petition mortgage payments through the trustee (instead of directly by the debtor to the mortgagee), a requirement that a portion of the debtor s attorney s fee be paid under the plan, and availability of plan payment moratoriums, in that order of importance, would have had a positive impact on a district s rate of debtor discharge. Wage orders require employers to deduct the debtor s plan payments from wages and remit the withheld wages directly to the trustee, thereby ensuring that the plan payments will be made so long as the debtor is employed and limiting the debtor s ability to use the wages for other purposes. Similarly, when post-petition mortgage payments must be made through the trustee, there may be a reduced risk that the debtor will miss the payments, especially when this practice is combined with a wage order. On the other hand, wage orders and payment of postpetition mortgage payments through the trustee reduce the debtor s responsibility for managing 37 In the cases handled by two of the three Chapter 13 Trustees in the Western District of Tennessee, the standard fee was $1200, and in cases handled by the other trustee, located in a different geographical area, the standard fee was $700-$800.

25 2007) CHAPTER 13 DISTRICT VARIATIONS 125 household finances and thus may diminish any rehabilitative function of performing a Chapter 13 plan. 38 Most of the sample districts prohibited debtors attorneys from taking full payment of their fees in advance of filing or confirmation, but instead required that a portion of the fee be paid over time under the plan. The rationale for such payment restrictions is that the debtor s attorney will have a greater incentive to assist the debtor to propose a feasible plan when payment in full of the attorney s fee depends on performance of the plan for at least the period during which the balance of fees will be paid. 39 With regard to the standard no look fee, higher fees may translate into better representation in the structuring of a feasible, confirmable plan. On the other hand, higher Chapter 13 fees may lead debtors attorneys to recommend Chapter 13 in some cases in which the debtor is not a good candidate for performing a plan. 40 Also, the premise that higher fees would affect the quality of legal representation is difficult to ascertain, because an attorney s cost of representing a debtor may have varied considerably by locality. Finally, the availability of payment moratoriums may have positively impacted discharge rates by permitting a debtor who experienced an income or expense disruption to defer some payments until she recovered from the disruption Wage Orders The Bankruptcy Code does not expressly authorize wage orders. Local rules that require wage orders in the ordinary course are premised on Code 38 See Braucher, Empirical Study of Debtor Education, supra note 1, at 576 and 565 n See id. at See id. at See id. at 575.

26 126 AMERICAN BANKRUPTCY LAW JOURNAL (Vol. 81 section 105(a), which provides that the bankruptcy court may issue any order, process, or judgment that is necessary or appropriate to carry out the provisions of the Bankruptcy Code 42 Statistical analyses 43 revealed a significant difference in case outcomes based on the use of wage orders. 44 Cases were less likely to be dismissed or converted before confirmation, and a debtor was more likely to attain a discharge, when the district routinely issued wage orders to debtors employers. As reported in Table 8 below, 21.3% of cases with a wage order were dismissed or converted before confirmation, compared to 27.8% of cases with no wage order; and debtors obtained U.S.C. 105(a). 43 A series of non-parametric chi-square tests were conducted for each of the following variables: wage order; ongoing, post-petition mortgage payments through the trustee; attorney fee payment restrictions; standard fee amount; and payment moratoriums. The table below shows the χ² and p values for each of the five comparisons. To control for alpha inflation after multiple tests, only adjusted p values were considered statistically significant. Statistical values for each of the five comparisons Variable Χ² Df p value Wage order Mortgage payment through trustee Fee payment limitation Ns.98 2 Ns Standard fee Availability of plan payment moratorium Ns 44 χ² (2) = 6.95, p <.05. This finding is consistent with findings in several other empirical studies. See Braucher, Empirical Study of Debtor Education, supra note 3, at 579 [reporting finding that [t]he completion rate among debtors in the trusteeships that used wage orders was much greater than in trusteeships that did not (50.1 percent to 26.9 percent) ]; Braucher, Lawyers and Consumer Bankruptcy, supra note 1, at 535.

27 2007) CHAPTER 13 DISTRICT VARIATIONS 127 a discharge in 36.6% of cases with a wage order, compared to 27.4% of debtors in cases with no wage order. Table 8. District Discharge Rates by Wage Order Case Disposition Cases Cases without wage order with wage order Dismissed/converted (27.8%) before confirmation (21.3%) Dismissed/converted after (44.8%) confirmation (42%) Discharged/completed 170 (36.6%) 63 (27.4%) 2. Payment of Post-petition Mortgage Payments Through the Trustee A majority of Chapter 13 trustees now collect and disburse post-petition mortgage payments. 45 The statutory basis for the practice is Code section 1326(c), which states: Except as otherwise provided in the plan or in the order confirming the plan, the trustee shall make payments to creditors under the plan. 46 The statistically significant differences in discharge rates based on the use of wage orders imply that there would have been similar differences based on the payment of post-petition mortgage payments through the trustee. Both practices reduce the debtor s opportunity to use income for purposes other than plan payments. However, the Chapter 13 Project data indicate no significant differences in discharge rates by 45 Gordon Bermant & Jean Braucher, Making Post-Petition Mortgage Payments Inside Chapter 13 Plans: Facts, Law, Policy, 80 AM. BANKR. L. J. 261, 269, 276 (2006) U.S.C. 1326(c). See Bermant & Braucher, Making Post- Petition Mortgage Payments Inside Chapter 13 Plans: Facts, Law, Policy, supra note 45, at (discussing 1326(c) and whether it authorizes plans, confirmation orders and local rules requiring payment of post-petition mortgage payments through the Chapter 13 trustee).