§ 3.4     Three: Don’t Trust Judges
Cite as:    Keith M. Lundin, Lundin On Chapter 13, § 3.4, at ¶ ____, LundinOnChapter13.com (last visited __________).
[1]

As Jeff Tassey, a lobbyist for the credit coalition put it: “They’re part of the . . . problem . . . . They’re not real judges.”1 Together with anti-debtor2 and anti-lawyer3 themes, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA)4 arrived on a wave of anti-bankruptcy-judge rhetoric.

[2]

As if blaming the court system for too many people with debt trouble, BAPCPA was packed with provisions intended to “reduce the discretion” of bankruptcy judges. The self-proclaimed backbone of BAPCPA—the abuse test in § 707(b)—purports to be a mindless mathematical formula with fill-in-the-blank numbers and presumptions.5 When debtors fail to file required documents or fail to perform certain duties, bankruptcy cases are now dismissed “automatically”—without interference from judicial discretion.6 The “reasonable and necessary” standard for expenses for Chapter 13 debtors with current monthly income greater than applicable median family income was replaced with the mathematical test for abuse in § 707(b).7

[3]

The credit community should have been more careful about what it asked for. Creditors are not willing to risk that an (invisible) “automatic” dismissal is not quite as dismissed as a dismissal ordered by one of those loathsome bankruptcy judges. Creditors quickly learned from their local counsel that “automatic” dismissal means one more motion for an order of dismissal,8 at—guess whose cost.

[4]

The abuse test in § 707(b) rewards and grotesquely underestimates the ingenuity and resourcefulness of bankruptcy lawyers and their clients. Did any credit union member or banker actually look at the categories and allowances in the IRS Manual before their lobbyists incorporated the laundry list of deductions in § 707(b)(2)?9 Substituting IRS guidelines for “(substantial) abuse” has been a colossal failure as gatekeeper for access to Chapter 7.10 Creditors are measurably worse off with a formula that bases distributions in over-median-income Chapter 13 cases on deductions of contractually scheduled payments to secured creditors without regard to reasonableness or necessity?11

[5]

Of course, “abuse” does not mean exactly the same thing to every bankruptcy judge—before or after BAPCPA. “Reasonable and necessary” expenses will not reduce to certainty across all districts and all Chapter 13 cases.12 But it is surely true that hundreds of appellate decisions in consumer bankruptcy cases over 26 years of Code practice before BAPCPA substantially narrowed the exercise of discretion by bankruptcy judges in many of the areas that BAPCPA attacked with formulas and automation. Nearly a decade of decisions attempting to divine what Congress had in mind in BAPCPA demonstrates only that legislated formulas never produce the mindless precision imagined by the drafters.13 Ironically, in many post-BAPCPA cases, it has been creditors arguing to the appellate courts “that’s not what we meant” when literal application of BAPCPA leads somewhere the creditor community does not want to go. And you can bet that the lobbyists who delivered BAPCPA14 will be the first to claim it is the bankruptcy (non)judges who are impeding and distorting all their good work.


 

1  Peter G. Gosselin, Judges Say Overhaul Would Weaken Bankruptcy System, L.A. Times, Mar. 29, 2005, available at http://www.latimes.com/news/nationworld/nation/la-na-bankrupt29mar29,1,20503816.story?coll=la-headlines-natio

 

2  See § 3.3  Two: Don’t Trust Debtors.

 

3  See § 3.5  Four: Don’t Trust Lawyers.

 

4  Pub. L. No. 109-8, 119 Stat. 23 (2005).

 

5  The calculations are discussed in § 94.1  Big Picture: Too Many Issues, § 94.2  Netting Issues, Including Exclusion of Payments for Debts, § 94.3  Accounting for Spouses, § 95.1  In General, § 95.2  National Standards, § 95.3  Local Standards: Housing and Transportation, § 95.4  Other [Necessary] Expenses—In General; All Categories, § 95.4  Other [Necessary] Expenses—In General; All Categories, § 95.6  Other [Necessary] Expenses—Charitable Contributions, § 95.7  Other [Necessary] Expenses—Child Care, § 95.8  Other [Necessary] Expenses—Court-Ordered Payments, § 95.9  Other [Necessary] Expenses—Dependent Care, § 95.10  Other [Necessary] Expenses—Education, § 95.11  Other [Necessary] Expenses—Health Care, § 95.12  Other [Necessary] Expenses—Involuntary Deductions, § 95.13  Other [Necessary] Expenses—Life Insurance, § 95.14  Other [Necessary] Expenses—Secured or Legally Perfected Debts, § 95.15  Other [Necessary] Expenses—Unsecured Debts, § 95.16  Other [Necessary] Expenses—Taxes, § 95.17  Other [Necessary] Expenses—Optional Telephones and Services, § 95.18  Other [Necessary] Expenses—Student Loans, § 95.19  Other [Necessary] Expenses—Internet Provider/E-mail, § 95.20  Other [Necessary] Expenses—Repayment of Loans to Pay Federal Taxes, § 95.21  Health and Disability Insurance, § 95.22  Family Violence Expenses, § 95.23  Five Percent More Food and Clothing, § 95.24  Elderly, Ill or Disabled, § 95.25  Administrative Expenses, Sorta, § 95.26  Education Expenses, § 95.27  Home Energy Costs, § 95.28  ABLE Program Contributions, § 96.1  Average Monthly Payments on Account of Secured Debts, § 97.1  Total Priority Debts and Divide by 60, § 98.1  Additional Expenses or Adjustments to CMI, § 99.1  In General, § 99.2  Amounts Paid by Others under § 101(10A)(B), § 99.3  Child Support, Foster Care and Disability Payments, § 99.4  Pension Loan Repayments, § 99.5  Employee Benefit Plan Contributions, § 99.6  § 1325(b)(2)(A)(ii): Charitable Contributions (Again?) and § 100.1  Applicable Commitment Period Calculation.

 

6  See 11 U.S.C. § 521(i), discussed in § 42.2  Consequences of Failure to File Required Information, Including “Automatic Dismissal”.

 

7  11 U.S.C. § 1325(b). See § 94.1  Big Picture: Too Many Issues.

 

8  See 11 U.S.C. § 521(i)(2) (With respect to a case “automatically” dismissed under § 521(i)(1), “any party in interest may request the court to enter an order dismissing the case.”), discussed in § 42.2  Consequences of Failure to File Required Information, Including “Automatic Dismissal”.

 

9  See § 92.1  In General and § 94.1  Big Picture: Too Many Issues.

 

10  See Lois R. Lupica, Am. Bankr. Inst., The Consumer Bankruptcy Credit Distribution Study Final Report (2013) [hereinafter Lupica, Distribution Study]. See also § 3.2  One: Those Who Can Pay Should Pay.

 

11  See Lupica, Distribution Study.

 

12  See, e.g., § 94.1  Big Picture: Too Many Issues.

 

13  See, e.g., decisions interpreting the formula for calculating projected disposable income for Chapter 13 debtors with current monthly income greater than applicable median family income in § 94.1  Big Picture: Too Many Issues, § 94.2  Netting Issues, Including Exclusion of Payments for Debts, § 94.3  Accounting for Spouses, § 95.1  In General, § 95.2  National Standards, § 95.3  Local Standards: Housing and Transportation, § 95.4  Other [Necessary] Expenses—In General; All Categories, § 95.4  Other [Necessary] Expenses—In General; All Categories, § 95.6  Other [Necessary] Expenses—Charitable Contributions, § 95.7  Other [Necessary] Expenses—Child Care, § 95.8  Other [Necessary] Expenses—Court-Ordered Payments, § 95.9  Other [Necessary] Expenses—Dependent Care, § 95.10  Other [Necessary] Expenses—Education, § 95.11  Other [Necessary] Expenses—Health Care, § 95.12  Other [Necessary] Expenses—Involuntary Deductions, § 95.13  Other [Necessary] Expenses—Life Insurance, § 95.14  Other [Necessary] Expenses—Secured or Legally Perfected Debts, § 95.15  Other [Necessary] Expenses—Unsecured Debts, § 95.16  Other [Necessary] Expenses—Taxes, § 95.17  Other [Necessary] Expenses—Optional Telephones and Services, § 95.18  Other [Necessary] Expenses—Student Loans, § 95.19  Other [Necessary] Expenses—Internet Provider/E-mail, § 95.20  Other [Necessary] Expenses—Repayment of Loans to Pay Federal Taxes, § 95.21  Health and Disability Insurance, § 95.22  Family Violence Expenses, § 95.23  Five Percent More Food and Clothing, § 95.24  Elderly, Ill or Disabled, § 95.25  Administrative Expenses, Sorta, § 95.26  Education Expenses, § 95.27  Home Energy Costs, § 95.28  ABLE Program Contributions, § 96.1  Average Monthly Payments on Account of Secured Debts, § 97.1  Total Priority Debts and Divide by 60, § 98.1  Additional Expenses or Adjustments to CMI, § 99.1  In General, § 99.2  Amounts Paid by Others under § 101(10A)(B), § 99.3  Child Support, Foster Care and Disability Payments, § 99.4  Pension Loan Repayments, § 99.5  Employee Benefit Plan Contributions, § 99.6  § 1325(b)(2)(A)(ii): Charitable Contributions (Again?) and § 100.1  Applicable Commitment Period Calculation.

 

14  See § 2.2  Brief History, Including “Legislative History,” of BAPCPA.