Living with a New Bankruptcy Law

Living with a New Bankruptcy Law

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As this article is being submitted, the Senate has just passed the Bankruptcy Reform Act. House and Senate conferees now need to meet to work out the differences between the Senate and House versions, and the further negotiations will need to be pursued to obtain the president's support. Thanks to timing, it appears that a bankruptcy law will be enacted before the end of this year.

Many in the bankruptcy community have opposed significant aspects of this bankruptcy bill, some because it seemed to be a reaction to a nonexistent emergency, some because the bill seemed to punish innocent debtors for the transgressions of careless creditors, some because the bill did not in fact live up to its billing—it is supposed to encourage use of chapter 13 over chapter 7, but may in fact have the opposite effect.1

Some have strongly supported the bankruptcy reforms proposed and are delighted to see a tightening up in the rules. They note that the open gate of bankruptcy has invited lawyers (and petition preparers) to encourage filings with advertising that makes bankruptcy look like an easy fix for financial problems. They also argue that a "cheap discharge" has eroded the moral dimension of debtor-creditor relationships. And some maintain that the cost of credit for everyone is higher because of how easy it is for someone to walk away from their debts in bankruptcy.

Ever since the debate began to heat up in 1997, shortly after the National Bankruptcy Review Commission finished its work, bankruptcy judges have not been shy about voicing their opinion about the wisdom of the various draft bills that were floated in Congress. Most were critical, though many were supportive. They expressed their opinions in law review articles, seminar programs and even columns such as this one. A few offered their testimony at Congressional hearings.

Bankruptcy judges are somewhat unique in the federal judiciary, having concentrated experience (and a presumed expertise) in a particular area of federal law that renders what they have to say of some value to policymakers. Our colleagues on the district bench frankly have a similar expertise in criminal law and procedure as a result of the heavy volume of those kinds of cases that they must handle year in and year out, and their input is similarly valuable to policymakers when they propose changes in that area of law. So it is not surprising that bankruptcy judges offered their insights, drawn from their day-to-day experiences, while Congress pursued bankruptcy reform.

One would like to think that our input was helpful. In our democracy, the marketplace of ideas is as free as is the marketplace for commerce. Judges offering their views while new legislation is under consideration is perfectly appropriate, consistent with the free flow of opinion and information that makes our legislative process vibrant. I know, I know, it is far from perfect. We all know the old saw about law and sausage. Still, the legislative process is no worse than what one will find in other parts of the world, and quite a bit better than what one finds in most parts of the world. I am proud to be a participant—and proud to live in a nation where I am allowed to be a participant in the process. I have no doubt that judges' views were considered by Congress in that process.

But things change substantially for judges once a bill becomes law. We are still free to offer our opinion of what we think of Congress' work, but we are no longer free to resist the law that Congress passes and the president signs. We are constrained by our oath of office to uphold and defend the Constitution and laws of the United States—even laws we may personally disagree with.

My personal views about some aspects of the new bankruptcy law are well known to many of you. You are probably just as familiar with the personal views of many other bankruptcy judges around the country. Once the law becomes law, those views become largely irrelevant. My task is to apply the law that Congress wrote, not the one I might have wanted them to write. If some aspect of that law proves to be ambiguous, then it will be my task to faithfully seek out and then apply the intentions of Congress, not the intentions of my gut.

The same goes, of course, for my colleagues around the country. This is not just idle talk, either. Judges take this task seriously. We may differ on our views about what a particular legislative enactment means, but we will not differ on what the proper methodology is for arriving at that view. We will adhere to our Constitutional responsibility to apply the law as written, and not to rewrite the law by judicial fiat.

The point is worth making because this particular bankruptcy legislation has proven to be more contentious and controversial than any previous enactments since the 1984 amendments that altered the structure of the bankruptcy courts. Many a practitioner might well believe that the new bankruptcy law, once passed, will be eviscerated by judges bent on blunting the effect of a law they oppose. They need to be disabused of that notion in no uncertain terms. Bankruptcy judges, more than most other federal judges, I think, are acutely aware of their duty not to rewrite the statute. Lawyers should not expect to be able to talk their way out of distasteful provisions in the new law with an appeal to what they believe to be the judge's similar distaste. Instead, they will have to do what lawyers have always done with legislation that may not accurately match up with reality—they will have to be creative. It will then be the task of judges to evaluate whether their creativity transgresses the law as written.

If Congress has done its job well, then the new law will be internally consistent and clear on its face, leaving little new work for us. Unfortunately, one of the chief criticisms that had been leveled at earlier drafts is that they contained internal conflicts. As of this writing, I cannot say whether those conflicts will or will not have been ironed out. If they haven't, however, Congress should not be surprised to find its handiwork yielding unexpected outcomes. That too is part of our job. We are not permitted to rewrite the law to finish Congress' work—we can round off rough edges and reconcile where rules of statutory construction permit, but we cannot rewrite.

These observations ought to be self-evident. If this legislation had not generated such contention in the bankruptcy community, no one would even think to suggest otherwise. But this legislation has been contentious and controversial. The law, once passed, is likely to generate many new opinions, and many appeals as well. It is worth stepping back for just a minute, to recall what our respective roles are. Judges are not practitioners. We do not represent the debtor. We do not represent the creditor. And judges are not legislators. The "new law" that we "make" when we publish a decision falls well short of legislation (as it should). Keep these thoughts in mind when you bring your first challenge before the court under this new bankruptcy law.


1 Both Senate and House versions impose significant new adequate protection obligations that could render it impossible, as a practical matter, for many persons who now file chapter 13 to handle the cash-flow burden under the new law. By the same token, many of these same persons would not be barred from filing chapter 7 under the new law because they fall well beneath the means-test threshold. Therefore, many persons who now opt for chapter 13 are likely under the new law, to opt for chapter 7. Return to article

Journal Date: 
Wednesday, March 1, 2000