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So what does it say about our audience that you're all on that side of the room? I'm curious. Good morning. My name's Denise Neary. You can speculate on that later. My name's Denise Neary, and I want to welcome you on behalf of the American

00:00:14.359 - 00:00:32.340

College of Bankruptcy. The college is an honorary group of bankruptcy and insolvency professionals, and one of our many missions is some public outreach on the role of bankruptcy in the world and that's why we're having this program and that's why we're so glad

00:00:32.340 - 00:00:49.209

all of you are here for this program. Interesting to talk in particular about consumer practice, which this is kind of a state secret, varies a little bit place to place, so we have some a fine faculty here to talk through those issues. I

00:00:49.209 - 00:01:06.029

wanted to first thank the Georgetown University Law Center. For several years they've hosted our program. We're very grateful to them, to Dean Treanor, and to Kiana Graham. A housekeeping note we're being videotaped, so while I encourage your boisterous comments, keep in mind that they will be

00:01:06.029 - 00:01:20.720

recorded for posterity. I will also say that students are getting ready for exams, so be nice to your neighbors and say hello to them if you see them. If you've got your phone on, you might want to turn that off. So we'll

00:01:20.720 - 00:01:34.319

set the table for the day. We're gonna have a debate. Our debate's gonna be led by two people that I adore so much. I worry that I might have to pick a side. Craig Goldblatt, who's a partner at Wilmer Hale, and Tara Twomey, who's of counsel

00:01:34.319 - 00:01:49.449

to the National Consumer Law Center. I will say that we've assembled a faculty and a panel so wonderful that I could spend our entire time this morning talking about them, and while they think that's a good idea, I think you might not. So I will just

00:01:49.449 - 00:02:05.169

say who they are, and this is, and I'm embarrassed that I'm saying such tiny things about people for whom my admiration is so great. Judge Joyce Bihary is a retired judge from the Northern District of Georgia, which has, I believe, a fairly heavy consumer

00:02:05.169 - 00:02:21.160

docket. Judge Shelley Chapman is a bankruptcy judge in the Southern District of New York, which has, I believe, a fairly substantial business docket and a consumer docket as well. Professor David Epstein, in addition to being one of the funniest human beings in the history of

00:02:21.160 - 00:02:41.070

mankind, is a professor at Richmond. And we're so happy to have him here. Professor Troy McKenzie, who is pretty funny himself, a professor at NYU. Judge Brendan Shannon sits as a bankruptcy judge in this district of Delaware, and Danielle Spinelli is a partner

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in Wilmer Hale's litigation and controversy development. And you know, while I don't want to pick favorite panelists, I'm very inclined to think good things about Chapter 11 people who are interested and engaged in talking through consumer issues. So we're so grateful to have

00:02:56.990 - 00:03:11.270

all of you here. More important, we're so grateful to have all of you here. We will start with a debate with Craig and Tara. We'll then take a break. We'll then hear a little bedlam from the faculty, and we'll hear some bedlam from

00:03:11.270 - 00:03:30.389

you as well. So Craig. Thanks, Denise and thanks to, well, to Denise, to everyone, and to all of you for coming. I very much hope that this is interactive, that the idea of listening to to myself talk about anything for more

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than 2 or 3 minutes strikes me as really painful. So I hope that we have this interactive. Tara's already promised me that she'll jump in, um, but I hope the rest of you do too, and that this is an interactive discussion. I've got to

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say that this set of issues that that we're gonna talk about, I find to be a sort of extremely interesting cluster of problems. Maybe I should start by just sort of describing how we ended up starting to think about these issues.

00:04:06.080 - 00:04:26.880

I grew up as a lawyer like that many you know know large firms as a bankruptcy lawyer, I grew up doing mostly corporate reorganization work and in 2009 during the midst of the foreclosure crisis, we were retained by one of the major servicers

00:04:26.880 - 00:04:41.730

to sort of help puzzle through what should our practices be and how do we fix some of the problems that have come to light in regards to servicing the loans of individual debtors who are in chapter 13. And I knew a little bit

00:04:41.730 - 00:04:59.040

about individual consumer bankruptcy from having worked with Tara a little bit on some pro bono projects, but not that much. As I dug into it, I thought, wow, these are interesting problems. Gee, I don't know the answer to this. How do you

00:04:59.040 - 00:05:15.920

figure out the answer to that? And the deeper we got into it, the more it seems to me that that there are there are lots of different issues and lots of different disputes, but there are sort of profound differences of sort of

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first principles of what are we doing here, that I found really interesting. Something that people don't talk about, I was sort of saying we were sort of talking beforehand and like in the corporate reorganization context if like some court of appeals

00:05:35.920 - 00:05:51.709

writes something goofy about anything about the way credit bids work about whether your piece of paper should be captioned findings of fact and conclusions of law as opposed to final judgment, like there are 18, you get your emails are inundated with like webinars and seminars

00:05:51.709 - 00:06:06.049

and it's all people want to talk about. And here these cases like they affect millions of actual human beings and there's real deep disagreement, I think, and we'll talk a little bit about that, about how it's, what are we doing here? How does this work? What

00:06:06.049 - 00:06:19.489

are we supposed to, what is it supposed to be about? You can't get anyone's attention. To sort of puzzle through the answer to the questions, that overstates it a bit and you know, Troy and the group that's worked on the model plan,

00:06:19.940 - 00:06:33.779

you know, there's work being done by thoughtful, smart people, but I do think that in terms of first principles there isn't a lot of discussion about it and I should say as we launch into this discussion, this is not to disappoint Denise, which is something

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no one should ever do, while this is structured as a debate, I just to be clear, you know, we're all lawyers representing clients and like any human being, you get in the mindset of thinking that the position that your client's view is the

00:06:50.790 - 00:07:05.779

right view and you go out and argue it and you know, there's a point at which the line between what's the right answer and what's in my client's interest kind of like what's the difference. I really want to step back

00:07:05.779 - 00:07:18.480

from that for this discussion, and sort of view this in the, in the really in the, you know, best traditions of the American college and say, look, I'm beginning to form views and I think I've got ideas, but this isn't like, here's the right

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answer if you don't agree with me, you're an idiot. It's more gee, these are interesting questions. Here's an approach, you know, is this right? Let's talk about it. So that's that, so as I described this, I don't wanna, you know, overstate

00:07:34.059 - 00:07:49.929

my own confidence in my views, really sort of sketching it out, and I very much hope in this discussion we can all flesh out the contours a little bit more clearly. So that's, how I, you know, what I see

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is the purpose of the conversation. So when we first began jumping into chapter 13 problems and I came at it from the perspective of a lawyer who grew up doing corporate reorganization work, I thought well this is actually really interesting

00:08:08.980 - 00:08:25.859

because we all know from from the chapter 11 context that the starting point is you have to understand what happens in a liquidation and we all understand how liquidation works and the, you know, as it's taught to us, the great genius of American corporate reorganization

00:08:25.859 - 00:08:45.380

law is the insight that the going concern is worth more than if you take the pieces and auction them off in a fire sale and the, you know, while insolvency has existed since the dawn of time, the American innovation was that it's better for everyone

00:08:45.760 - 00:09:03.349

rather than to hold a fire sale to see what we can do to keep the thing together because it might be worth more as an existing going concern than sold off in pieces and at bottom, right, the core chapter 11 theory is, you

00:09:03.349 - 00:09:19.460

know, in the paradigmatic plan, you distribute the shares of the debtor, the reorganized debtor to the creditors on account of their pre-petition claims, right? Well, what the shares of the debtor are are essentially the value that will be derived from its future business operations.

00:09:19.780 - 00:09:32.909

And so the theory is, OK, this thing is going to make money in the future, let's take that that value and use it to pay off the prepetition creditors. And at some level when I first started thinking about chapter 13, I said, oh, I see

00:09:32.909 - 00:09:48.210

this is sort of the same idea. We're the debtor instead of taking all of its assets now and liquidating them, the debtor's gonna go out and have a job and generate income and generate revenues, and we can take that money. That value and distribute it to

00:09:48.210 - 00:10:04.760

pay pre-petition creditors rather than just liquidating it today and of course I don't want to overstate the the identity between Chapter 13 and chapter 11. It is true, and I get it that the chapter 11 debtor, while we call it a person, is a fictional person.

00:10:05.049 - 00:10:26.270

It may have free speech rights, but it's a fictional religion. We can talk about that more later. So they're obviously are I don't want to overstate the analogy. I get the limitations to it, but in some

00:10:26.270 - 00:10:40.760

ways it's sort of premised on the same idea and when I, I at least began thinking about, OK, how is this working, I began thinking about it as a lawyer who grew up doing Chapter 11 cases, thinking about it structured that way. And so

00:10:40.760 - 00:10:56.590

if you think about it in many ways, that is what actually happens, right? In both cases, there's this snapshot element. You, as of the petition date, you take a look at the financial affairs as of the petition date. If things are frozen as

00:10:56.590 - 00:11:11.080

of there, the automatic stay serves to freeze that the assets as the petition date are there and are available, and people don't go get them. The liabilities as of the petition date is the universe of claims that you handle and you distribute the assets

00:11:11.090 - 00:11:38.969

to satisfy the claims. There are these interesting, OK, and then after the plan is confirmed, the debtor then goes about its business largely free of bankruptcy court supervision. At least that's clearly the case in Chapter 11, and the question of

00:11:38.969 - 00:11:58.320

whether that is or should be the case in Chapter 13 is the question that I think is an interesting one because the answer is in some jurisdictions pretty much yes and in other jurisdictions very much no. Right, so take a chapter 13

00:11:58.320 - 00:12:14.559

debtor, after the confirmation of its plan, but during the 5 year period or 3 to 5 year period in which it is performing on the plan, and there's a funny question about whether you call that during the bankruptcy or after the bankruptcy in a

00:12:14.559 - 00:12:31.130

Chapter 11 case post confirmation we describe that period all the time as after the bankruptcy. In a chapter 13 case, we call the same period, post-confirmation before the plan obligations are satisfied, just in vernacular, we call that during the bankruptcy, which strikes me as right,

00:12:31.260 - 00:12:50.989

funny, maybe right, maybe wrong, but funny. But in that period, the debtor's got an obligation to meet its plan obligations. What we did is we took a snapshot, right? So as of the day we confirmed the plan, we said, what's the

00:12:50.989 - 00:13:08.020

debtor's projected disposable income. It was a guess, right? Bankruptcy lawyers are used to guessing. That's what we do when we decide is the plan gonna be feasible. We guess, right? I mean, I'm cartooning it, but obviously what we're, you've got imperfect information and you're

00:13:08.020 - 00:13:23.090

making the best judgment you can with the information you have, um, and so just like in a chapter 11 when we're asking a question of feasibility, we're asking all sorts of questions about what the future is gonna be. In chapter 13 when we confirm

00:13:23.090 - 00:13:35.400

a plan, we say, OK, what do we think the income is going to be over the future, and that's the money that's available is negotiated between creditors and the debtor and the trustee over what's gonna under the plan is gonna go to pay

00:13:35.400 - 00:13:56.789

prepetition creditors and so we say, OK. Um, let's call it $1000 a month. We think that this debtor can afford to pay $1000 a month into the plan to pay pre-petition creditors after meeting their regular living expenses in that period. What happens if the

00:13:56.789 - 00:14:17.849

debtor has an unexpected expense, medical expense? The answer is, well, there's a mechanism for amending the plan if there's a material change, and absent a plan amendment, absent a material change that warrants a plan amendment, the debtor sort of bears the ups and downs.

00:14:17.859 - 00:14:32.030

So if the debtor, if their electric bill is more or less than they thought it was gonna be after confirmation, the delta is borne by the debtor. Again, absent amendments, if the debtor gets a raise, the trustee can come in and see how

00:14:32.030 - 00:14:45.380

you can afford to pay more to creditors. If that doesn't happen, the debtor gets the benefit of the raise and that sort of makes sense analytically like post consistent with the theory post confirmation here we are, the debtors on their own, they get the upside

00:14:45.380 - 00:15:02.010

and downside. What struck us, me, as a little bit odd and this is coming at it from the perspective of thinking about mortgages, and in Chapter 13, mortgages are sort of a big deal. It's the principal, not the only, but the principal reason that

00:15:02.010 - 00:15:16.049

someone will choose to file a 13 is to keep their house, The answer is in some jurisdictions, if you're, you know, mortgages, some of that is just paying down a prepetition debt, but there are all sorts of things that get bundled in

00:15:16.049 - 00:15:28.289

with the mortgage. So your taxes and your insurance that get escrowed. There are times when your interest rates are variable, so the amount that you pay can go up or down, and so what your mortgage is gonna be is gonna change, could change over the

00:15:28.289 - 00:15:46.799

five year period. And so the question is, is that like your electric bill changing? So if it goes up or down, you can amend the plan, but by and large that's on the debtor, or not, and the thing that struck me as so interesting and

00:15:46.799 - 00:16:05.869

unusual is that the answer is: it depends on the jurisdiction you're in. You know what I'm actually, you're gonna have to humor me for a second. Can I ask an informational question as someone who with some consumer experience but not a whole lot, uh,

00:16:05.880 - 00:16:26.020

while you're looking for what you're looking for. Are you saying that if a mortgage adjusts, we're in a chapter 13, forget about that the municipality may raise your property taxes? Ok, I'm getting away from the electric bill analogy. We know right now your mortgage

00:16:26.020 - 00:16:49.380

is gonna adjust in 4 years. Are you heading towards the position that that adjustment does not get baked into the plan at the outset, assuming that the adjustment occurs within the plan period? I think, I think. I think the situation comes up

00:16:49.380 - 00:17:01.219

because you don't know in advance that it's gonna change so it's based on an interest rate value you don't know that. I mean you know that there's, it's an adjustable rate, you don't know what the change is gonna be. I think the other circumstance where you

00:17:01.219 - 00:17:17.698

see a big change in a mortgage payment is a loan modification where you see a dramatic decrease in the payment that's owed to and that may not whether that's gonna happen or not may not be known at the time of confirmation. I'm gonna reserve further

00:17:17.698 - 00:17:36.678

comments. No, no, I think you should come now. I think you should go ahead. I mean, because fundamentally why is that? I mean, in my neck of the woods you do that while you're with me, right? And that has the ability for me, for example,

00:17:37.139 - 00:17:57.150

to find Bank of America in contempt because they've taken the 5 requests that the debtors made for their basic loan documents and they've thrown it in the garbage. So that in my view of the world I've got the ability to cause the mortgage servicer or the

00:17:57.150 - 00:18:15.989

bank to actually behave in a way that supports the premise of Chapter 13, which is the fresh start The maximization of the the human capital of the debtor and maximizes the return to the unsecured credit. So is this pre-confirmation or post-confirmation though either one doesn't

00:18:15.989 - 00:18:32.250

matter. OK, so let me just describe, this is really meant to just be descriptive. I'm actually gonna use the chalkboard just because I can. And just describe and sort of vaguely map out two different plans just to describe how

00:18:32.250 - 00:18:45.819

this actually works in different jurisdictions, and I'm gonna pick they're sort of I think of them as sort of the paradigm extremes. There are lots of variants in between, but I'm gonna take the Middle District of Tennessee is one example, and the district of

00:18:45.819 - 00:19:03.270

Colorado as another. So these both are jurisdictions that have foreign plans, sort of, you know, it's if you're doing it in this jurisdiction, it's not like you get to pick, you follow the plan in this jurisdiction. So in the Middle District of Tennessee,

00:19:03.349 - 00:19:17.150

let's just this is just an example, the debtor is going to pay $1500 per month to the trustee for 60 months. That's what the plan says, and the plan says we're going to pay priority claims in full. We're going to cure defaults and maintain existing

00:19:17.150 - 00:19:35.880

payments under the mortgage. So the trustee is going, out of the $1500 a month that the debtor is paying, the trustee is going to pay the arrearage on the mortgage, is going to make post-petition monthly payments on the mortgage, and the creditors required to tell

00:19:35.880 - 00:19:52.979

the trustee if there's any change in the in the interest rate or the like along the way. And then there's, you know, whatever's left after that's done goes to pay unsecured claims. And so that's, essentially, how it works. So let me

00:19:52.979 - 00:20:15.160

just vaguely map this out and apologies in advance to everyone for my handwriting. But what I'm gonna do is let's assume that in the middle of the plan, the mortgage that was $750 a month, so it's goes from $750 to $850 in year 3

00:20:15.160 - 00:20:57.469

because of adjustment in the mortgage for some reason. So, um. Um, OK, that says no increase and that says with increase and so the debtor's paying in either case. At $1500 a month over 16 months, the debtor's paying $90,000. That's true in

00:20:57.469 - 00:21:24.260

both cases. So what does the trustee distribute? And Craig, I take it that amount that he's paying is truly the projected disposable income? That is the judge's best guess as to what the debtor can afford to pay or some other amount that's negotiated

00:21:24.260 - 00:21:39.704

between the debtor and creditors, right? It's the entitlement, is the projected disposable income, but it's bankruptcy world, right. You got, but just to be clear, projected disposable income is what's due to the unsecured creditors now, not the planned payment. So it used to be the

00:21:39.704 - 00:21:54.910

plan payment, right? That's disposable income used to be given to them. Now the code is very clear in saying that projected disposable income, however you calculated it, is what's due to the unsecured creditors. So right, but we don't need to argue about that term, but the

00:21:54.910 - 00:22:11.089

reason is because when you figure out what the projected disposable...Should we duck? Can you see the board? Oh, sorry, right. When you because that's because when you're figuring out what is projected disposable income you're, the disposable element of it means after you've paid your mortgage,

00:22:12.050 - 00:22:29.319

right, so the mortgage, so that's baked in already into the determination of what your projected disposable income is. But it is alternatively then a negotiated sum or the maximum amount that could be paid, taking into account the mortgage payment. Right, I think that's right, um, I

00:22:29.319 - 00:22:44.239

take in your story where you have this increase, Craig, is that a formula increase? Is it a predicted increase? No, that's an actual increase and it could be for any reason. It could be because the interest you've got a variable rate mortgage and the interest rate

00:22:44.239 - 00:22:56.849

goes up, as Judge Chapman says it could be because so Judge Chapman doesn't really know at the time she confirms the plan. I may or may not, but under their scenario we want to say let's say that they don't. You don't, I'll tell you this. If

00:22:56.849 - 00:23:26.839

anyone knows it's Judge Chapman. But that's why I felt like I needed to hypothesize, but you know, it could be, you know, a tax bill, it could be all sorts of reasons. I understand, right, right, right. To discretionary needs. Yeah. All right, so just

00:23:26.839 - 00:23:45.359

to play this out so folks see how this works. In this example, debtor pays $90,000 into the plan to the trustee. The trustee will distribute let's say $5000 to priority claimants. We'll pay the mortgage arrears in full, let's say that's $20,000. Um, we'll pay

00:23:45.650 - 00:24:02.479

the next payment goes to pay the current mortgage. In scenario A, it was 45, it was projected as of the plan, it was expected to be $45,000 so that there'd be remaining $20,000 to distribute to unsecured creditors. Mortgage went up. So now it's 486 that

00:24:02.479 - 00:24:21.760

gets paid to the current goes paid to the mortgage holders and so the recovery for unsecured goes down to $16,400. Now this makes the mortgage different from the electric bill, right? If the electric bill had gone up by $150 a month, that would have come

00:24:21.760 - 00:24:40.930

out of whatever's the debtors what the debtor gets to keep. But unsecured creditors would get what they get. This treats changes in the mortgage different post-confirmation changes to the mortgage differently from other post-confirmation changes to the debtor's financial affairs. But I don't think that's true. OK,

00:24:41.010 - 00:24:54.685

I don't think that's true, and I don't think it's true for this reason. If the debtor's expenses went up, let's say their electricity bill went up $150, they could go back and ask for this decrease which would you know, have the same effect,

00:24:54.724 - 00:25:10.925

and they do that all the time. That's right. There is the question of amendments and it wouldn't happen automatically and in some jurisdictions this will happen automatically. I think the debtor would have to actually make an affirmative request to the court and prove up these new

00:25:10.925 - 00:25:28.790

expenses and there's a day a week and most busy course where those modifications happen, it happens all the time. I disagree there. OK, so now I wanna just sort of take the analogous situation debtor in the same financial circumstances who happens to live in Colorado

00:25:28.790 - 00:25:46.430

instead of in Memphis, and here's what happens differently. There, the plan is going to say let's for the same situation where the mortgage was $750 as of confirmation, the plan is going to say the debtor is going to pay the trustee $750 a month. That

00:25:46.430 - 00:26:05.819

gets distributed to creditors. Priority claims are going to be paid in full, secured claims are going to be, you know, the defaults will be cured and regular ongoing payments will be made, and allowed unsecured claims are going to share the share pro rata out of the

00:26:05.819 - 00:26:30.680

$20,000 that's left and just to do that math for a second. So right now this is gonna be. OK, I will. I will speak up. You can take the mic off the stand. Oh, OK. All right, I will yell, um, I think I'll probably be

00:26:30.680 - 00:27:02.060

easier, so I'm just gonna do the same thing in Colorado, that says no increase on the left and. Why did you think that needed to be said, Tara? I don't understand. These people can read. All right, so here the debtor is gonna

00:27:02.060 - 00:27:30.750

pay in $45,000 in both scenarios. Trustee pays out priority claims. Same. Here I've got $2500 in priority claims. While he's continuing to write in his incredibly legible, uh, script, I just want to say that you're witnessing something pretty remarkable. There are

00:27:30.750 - 00:27:50.979

really not many Chapter 11 business lawyers who could do this actively, actually do this, let alone even understand what he's doing. So, it's pretty cool, but he does represent Bank of America for whom this information is helpful, so it's not just an idle hobby.

00:27:50.989 - 00:28:31.530

It's not like it's...Not just pure hobby. This is not a hobby, never a hobby. Nice. So. You know, before experiencing my handwriting, I was saying earlier that isn't this great that instead of having fancy slides like PowerPoint, I was actually

00:28:31.530 - 00:28:48.479

going to draw it on the board the old fashioned way. I'm now thinking maybe technology isn't as bad as it sometimes is described, but here's the point, and maybe maybe one didn't need to draw this in order to make this clear, but in this situation, um,

00:28:49.050 - 00:29:09.989

the difference is that in the District of Colorado, the same debtor in the same situation ends up paying the delta, unsecured creditors get the same $20,000 that they were expected to get and the difference again absent an amendment to the plan,

00:29:10.329 - 00:29:35.579

the difference is borne by the debtor who in Colorado in this case ends up paying on their mortgage over the 60 months $48,600 instead of $45,000. And so, what I guess I wanna suggest is that and this may be the subject of disagreement, but let

00:29:35.579 - 00:30:00.859

me take a make a run at this. These can't, these positions about how this works can't both be right. And that they're I mean, just to be pompous about it, under Article 1, Section 8 Clause 4 of the US

00:30:00.859 - 00:30:19.439

Constitution, the power to adopt bankruptcy law says the Congress shall have the power to establish uniform laws. Last refuge of a scoundrel. On the subject of bankruptcy throughout the United States. And what I'm I guess I'd like to see is that this, this is not

00:30:19.439 - 00:30:39.729

uniform. As I said at the outset, you know, I'm not actually pushing too hard any one construction as the better view of the theory of chapter 13, but to raise the question of, you

00:30:39.729 - 00:31:04.479

know, is one of these views more consistent with the design and architecture of the code than another. And this turns out this question turns out to have enormous implications for the operation of bankruptcy. Let's imagine the question let's say

00:31:04.479 - 00:31:27.270

there's a disagreement about whether the mortgage company servicer is correct in asserting that there's been an increase of $150. OK, it's disputed for whatever reason. In the Middle District of Tennessee, the resolution of that dispute is going to drive the recoveries of unsecured creditors.

00:31:27.390 - 00:31:48.119

There's no question that that is a matter that the bankruptcy judge is there to resolve, right? That affects the estate. It's within the subject matter jurisdiction under 1334B and it's a bankruptcy problem. In Colorado we're post bankruptcy. There's a dispute about the mortgage

00:31:48.119 - 00:32:07.310

it's a dispute between a post-confirmation debtor and a creditor over post confirmation events and at least arguably that's a dispute that is outside the bankruptcy jurisdiction. The subject matter it's hard to articulate exactly what the subject matter jurisdiction is over that claim. Judge Shannon looks

00:32:07.310 - 00:32:23.760

like he disagrees. Well, I'm not certain that I disagree. There's a, I think a lot of bankruptcy lawyers embrace a jurisdictional proposition that sort of starts from the premise that, well, we're all here. Right, right. And so I, one of the challenges that I

00:32:23.760 - 00:32:39.640

see to the idea that this is a post-confirmation debtor and they should be able to deal with adjustments by exercising whatever their state law remedies are to challenge, you know, either through an administrative process or frankly to litigate. That I understand that as

00:32:39.640 - 00:32:55.900

as a practical, as a theoretical proposition, but you said it at the outset. I mean the purpose of probably 95% of all Chapter 13 cases is to keep a house, so the mortgage is front and center. This is not

00:32:55.900 - 00:33:12.599

a random question about whether Visa or the electric company or the car company get paid. The overriding purpose of this exercise is to allow someone to keep their house. And so I start from the proposition that if that's the purpose, and

00:33:12.599 - 00:33:36.219

if the adjustments are the subject of post-confirmation litigation which has less than ideal dynamics to it, an individual shareholder or an individual homeowner versus the mortgage company, then am I well advised to assert jurisdiction over it simply to vindicate or to give

00:33:36.219 - 00:33:51.969

effect to the purpose that's already started in front of? So Judge Shannon, I agree with, I understand that point. Let me, let me just read a paragraph for a moment in a brief that we wrote in a case. It's chapter 11 case. OK. And

00:33:51.969 - 00:34:07.670

it reads as follows. Bankruptcy jurisdiction is extremely limited after a plan is confirmed, citing a case. Once the bankruptcy court confirms a plan of reorganization, the debtor may go about its business without further supervision or approval. The firm is also without the protection of the bankruptcy

00:34:07.670 - 00:34:24.250

court. It may not come running to the bankruptcy judge every time something unpleasant happens, citing Craig's stories from the Fifth Circuit. Put differently, bankruptcy courts may not keep the debtor, the debtor in perpetual tutelage by assuming jurisdiction over controversies between the reorganized corporation and third parties.

00:34:24.550 - 00:34:38.569

A firm that has emerged from bankruptcy is just like any other defendant in a tort case. It must protect its interests in the way provided by the applicable non-bankruptcy law. Now this that paragraph was in a brief. It was a mass tort bankruptcy, um,

00:34:38.729 - 00:34:59.148

it was a dispute post confirmation between the the trust that existed to pay creditors and an insurance company over the scope of coverage, right? One could say just as you did. The whole reason we're doing this is for the trust to work to collect

00:34:59.148 - 00:35:12.789

the insurance and pay creditors. Well, there are fundamental differences. When I get my. Yeah so actually maybe I mean I think that it's worth kind of talking a little bit about what the code actually says and then

00:35:12.789 - 00:35:33.919

because, yes exactly. Next refuge of a scoundrel. Another difference here which you may or may not recognize which is out of this amount there is a payment to the trustee of probably 10%. So these numbers actually this recovery is

00:35:33.919 - 00:35:49.469

much I mean you still may end up having that, right? And out of this one, the trustee payment that what goes to the trustee is...Ok so, and these are, these are two, this is what we call a conduit

00:35:49.469 - 00:36:05.739

payment where the trustee is making and the difference comes in. Right here, right, this is, and whether the trustee pays that forward going mortgage payment or doesn't make them can makes the difference that you're talking about. Right, that's right. I don't

00:36:05.739 - 00:36:19.370

actually think that that's a big deal um and I think that through modification or some other process you can always end up at the same place. You may have to make either the question is whether there's an affirmative responsibility on debtor

00:36:19.370 - 00:36:31.986

to make the change or whether it just happens. But I think you get to the same place and I don't think any judge would have a I mean judges can tell us if you would have a problem, you know, with the debtor coming in

00:36:31.986 - 00:36:47.246

and making the change in this scenario. Filing a modification, because their mortgage payment went up, but I think the other thing is kind of this question about conduit payments in general and I think debtors have differing views about whether that's

00:36:47.246 - 00:37:03.912

the right thing to do because you know, $9000 versus $4500 can be a big amount, and I will tell you that if you are in a place like California, maybe New York, Florida, where property prices are very high, mortgage payments are $3000 a month. If

00:37:03.912 - 00:37:16.552

you're paying 10% to the ongoing for ongoing payments, that makes that makes a lot of difference. But so I just wanted to kind of add that component because I think it makes a difference. It doesn't necessarily change the...No, I hear that and that's the

00:37:16.552 - 00:37:45.820

result and that's totally a fair point. But go ahead. Oh, I was going to talk about the coat. That's welcome. Yeah, so please jump in. So the comment being, was that in some jurisdictions the trustees

00:37:45.820 - 00:38:00.129

don't get a percentage of the ongoing mortgage payments. I think what they do, is not that they don't get a percentage of it, it's that they've lowered their percentage. So I think in the Middle District of Tennessee, I think the percentage is maybe 1%.

00:38:00.800 - 00:38:15.159

They didn't take any percentage. I mean, the history of that is that 2528 years ago somebody came up with the idea that people weren't paying them, couldn't get it together to pay their mortgages and it was sort of a paternalistic idea. We'll let the trustee

00:38:15.159 - 00:38:30.199

pay it just so it'll happen and they'll keep their homes and again the goal keep home ownership, keeping the home, and in some this is a big country, this is a big country, it's hard to come up with a one size fits all uniform bankruptcy law we

00:38:30.199 - 00:38:42.159

understand, but we do have different state laws that govern foreclosure in real property and that's what drives a lot of these differences in the plans but I agree with the lady in the back that I always understood that when Tennessee started they had

00:38:42.159 - 00:38:57.570

a special arrangement with the United States trustee where they were not taking a percentage of those payments. That may have changed. And that may be the case. In some districts, you'll see the full 10% come off, which can make a

00:38:57.570 - 00:39:12.610

huge difference to debtors. In terms of kind of going back to this question of post-confirmation. Changes or things that the debtor experiences, I guess you know, for me I think this comes back to kind of

00:39:12.610 - 00:39:26.530

this, if we can kind of step back in history and we look at the chapter 13 with the Roman numerals as opposed to the Arabic numerals, right, the, so when chapter 13 with the Roman numerals was first enacted, one of the

00:39:27.580 - 00:39:39.739

it was, it was really designed similarly to deal with an adjustment of debts, right? And it wasn't about liquidation. It was really about either being able to repay your creditors over time. So some of the very same foundations we see here,

00:39:39.750 - 00:39:57.672

but it had one really big shortcoming which was you could not deal with secured creditors under this chapter. You couldn't, real property mortgage holders, they weren't even, they defined claims as claims or claims against the debtor unless it's secured by real property in

00:39:57.672 - 00:40:11.072

which it wasn't even a claim. That what was really meant by outside the flag exactly. I mean just not you can't even touch these things and and there were other restrictions related to secured creditors and so I think one of the most significant

00:40:11.072 - 00:40:29.793

changes in the 1978 code and in the enactment of Arabic numeral chapter 13 was the debtor's ability to deal with secured debt and so that that is really an important part of chapter 13. And there are, and

00:40:29.793 - 00:40:43.793

so basically I think the new chapter 13 says look you can do whatever you want to and you can modify the claims of secured creditors you can modify the claims of unsecured creditors in your plan. Then we have

00:40:43.793 - 00:40:57.355

you know, we have, we have this exception which turned out to be a really big exception, but that is for homes secured by your primary residence, right? So this is a limitation and a big one, especially in the over

00:40:57.355 - 00:41:09.795

the last 5 years where the market's been crashing but in addition to that provision and its exception, you also have this cure and maintain provision and I know this is an area where we kind of the question what does

00:41:09.795 - 00:41:24.635

it mean to maintain payments and we've kind of disagreed about this and for me for the debtor to say I'm going to cure my age, my $20,000 and I'm going to maintain those payments going forward whether it's paid by the trustee or whether I

00:41:24.635 - 00:41:39.610

pay it directly, you know the first issue that came up, and this was probably 10 years ago, was that debtors couldn't actually get information, right? So the debtor would say, I'm gonna make this payment going forward, and the mortgage company wouldn't

00:41:39.610 - 00:41:55.709

tell them how much they owed. That's because when they did, people said you violated the automatic stay and sanctioned them. I think it's because they know that OK we don't agree with what it was. All right, so you know, we can talk about

00:41:55.709 - 00:42:08.959

that, but I think this is where this comes from, right? This idea of, so borrowers weren't able to figure out how much they owed and I think, putting aside this question of the automatic stay, I think you would agree

00:42:08.959 - 00:42:20.649

with me that borrowers have to know how much they're gonna have to pay, whether it's, you know, the mortgage adjusts and I don't tell you what the adjustment is and so I'm still paying my amount and I get to the end of my chapter 13

00:42:20.879 - 00:42:37.962

and guess what? The bank's gonna foreclose because I didn't pay the extra $3600 that I didn't know about. So I think the roots of this come down to kind of an informational problem. Same thing with escrow changes,. People not knowing about escrow changes.

00:42:37.972 - 00:42:51.292

And I think what the courts ended up doing was saying, and I think this is well within their kind of purview, you know, you read that language about the plan about kind of post confirmation out of your chapter 11 brief, but I really see

00:42:51.292 - 00:43:07.946

this as the first question is whether there's kind of an impairment of the debtor's ability to complete their plan and if creditors are doing something that impairs the debtor's ability to complete the plan like not letting them

00:43:07.946 - 00:43:19.506

know how much they owe. I think that absolutely the bankruptcy court has the ability to come in there and say...Can I push back on that for a second? So, so here's the story, right? So this again, this is the chapter 11 perspective on this. Let's

00:43:19.506 - 00:43:34.750

say you've got a plan. And it provides for the assumption of an executory contract, a very important one, right? And so the plan says the debtor and what the debtor's obligation now is post-confirmation just like the chapter 13 debtor and their mortgage,

00:43:35.000 - 00:43:54.709

they've got to meet their contractual obligations. If there's a dispute about who's right or wrong about the meaning of that contract that arises post-confirmation, it's settled law that there's no bankruptcy jurisdiction over that dispute. If you have a class of claims that is unimpaired in

00:43:54.709 - 00:44:11.179

a plan under Chapter 11 and there's a claims dispute about what's due, it's settled law that there's no jurisdiction to resolve a claim over an unimpaired claim. That what it means to be unimpaired is you just deal with yourself in the non-bankruptcy world. If a debt is

00:44:11.179 - 00:44:25.810

reaffirmed, a secured claim is reaffirmed in bankruptcy, and there's a dispute about the reaffirmed debt, that also is outside the scope of the authority of the bankruptcy court and whether doing all of this was or wasn't important to the reorganization, it might have been, doesn't matter,

00:44:26.100 - 00:44:45.760

um, analytically those are matters where people are left to their non-bankruptcy rights and disputes that arise over the ongoing maintenance of a chapter 13 plan which analytically are very much like those things are a glaring exception to those principles and I'm actually I'm

00:44:45.760 - 00:44:57.639

not really pushing too hard the proposition that they ought to be treated like those other things. I'm just saying it's a little funny and we ought to puzzle through that. But I, but I also think that, OK, so that's the cure and maintain

00:44:57.787 - 00:45:13.257

provision, but I think if you also look at chapter 13 and the way it's structured, there are some important differences that keep I think much more control within the court and one being 1306, which is this this provision that doesn't exist in Chapter 11

00:45:13.257 - 00:45:27.273

that basically says here's the estate, the estate is well for any bankruptcy, right, the estate is what the debtor has at the time of petition filed. What's different about chapter 13 is it has this provision that then sweeps

00:45:27.273 - 00:45:45.194

in everything that happens either during the plan during the bankruptcy, whatever kind of terminology you want to use, but until you know that that plan is complete, everything there's 1306 and so, 1306 is used. I think not just by, it cannot it

00:45:45.194 - 00:45:59.930

is used, I think in part by unsecured creditors to say, hey, you know, your mortgage payment went down, your expenses went down, or actually it wouldn't have to do with the change in expenses. It would be, you got a raise,

00:46:00.571 - 00:46:16.209

you won the lottery, or you know, there's a recent case out of the 5th Circuit. It's called Fluence. It was just a decided a couple weeks ago where the debtor was injured in a car accident post-petition. And so now there's a post-petition you know, cause

00:46:16.209 - 00:46:31.209

of action that the court says that belongs to the estate. Now what that means to belong to the estate, I don't know, but do you need 1306 for that? I mean, isn't that just part and parcel of the requirement that all available disposable income go

00:46:31.209 - 00:46:46.090

to pay unsecured creditors. Whether this is property of the estate or property of the debtor, it seems that an unsecured creditor could file a motion to modify the plan and increase payments on the ground that the debtor's disposable income has increased. But a cause of action,

00:46:46.169 - 00:47:00.060

there's no income. It's just a cause of action. It's an asset. I mean, it's an asset. I misunderstood. Yeah, well, that's actually an interesting question whether that is correct. Yeah, so, this was, this didn't even get to

00:47:00.060 - 00:47:12.830

the point of being litigated and settled. This was just a question of whether that cause of action was property and whether the trustee had the ability to compromise it to settle it on the part of the

00:47:12.830 - 00:47:24.030

estate. Answer is, I mean, depends on the terms of the plan. I think it depends on the terms of the plan, and I think, in this case, we talked a little bit about this, right, this vesting provision, right,

00:47:24.040 - 00:47:41.570

1327 has what I would call a default vesting provision but I think that's all it is is a default which is at the time of confirmation, the property of state vests back to the debtor, but it says unless ordered otherwise

00:47:41.570 - 00:47:58.780

or the plan states otherwise and I think if you then look at 1322, I think it's a 9, you'll see that the code clearly contemplates. Yeah, he's gonna check for me. 132299, thank you B9. The code clearly contemplates this

00:47:58.830 - 00:48:16.870

possibility that the debtor will set the vesting parameters differently than what the default provision is. So I really see 1327 as a default provision. In this Fifth Circuit case, the debtor basically filed a plan that said the property

00:48:16.870 - 00:48:33.030

of the estate will not vest in the debtor until the plan is complete. Yeah, and I'm sorry, Tara, I don't mean to interrupt you. I'm just interested in your thoughts on, you know, is that permissible to the full extent of the language

00:48:33.030 - 00:48:49.360

of the code? I mean, is it OK for a debtor to say, All of my post-petition income is going to remain property of the estate and therefore subject to the automatic stay until the end of the five year plan period. So post-petition, right? I mean, can,

00:48:49.459 - 00:49:09.870

can that possibly be right? Yes, I would agree with the judge. I would, you know, I mean the answer may well be yes. It strikes me as somewhat inconsistent with the notion that chapter 13 is intended to

00:49:09.870 - 00:49:32.100

deal with prepetition debt. Its purpose is to, you know, permit the debtor to keep her property and instead use post-petition income to pay off prepetition debt in a way that is better for everyone than a Chapter 7 litigation than Chapter 7 liquidation would be. But that

00:49:32.429 - 00:49:47.229

after confirmation, the debtor is fully capable of incurring new debt and so they in most jurisdictions they have to get the trustee's permission to incur new debt well, to maybe to take out, maybe to take out a loan, but they can go to the

00:49:47.229 - 00:49:59.030

store and say I promise to pay you if you give me these goods, but they have a sort of a budget. Everyone knows what the budget is and not that a trustee can question what they're spending their money on. See,

00:49:59.139 - 00:50:14.189

the more you talk about this, the analogy when you set that up about 15 minutes ago, you were talking about confirmation in that brief, but then it kind of morphed into the effective date and I think all the

00:50:14.189 - 00:50:31.010

action really is in the fact that in chapter 13, right, we're saying your I think your view is that confirmation is the end of the event. And in my view of the world, confirmation is not the end of the event. It's just starting. It's just the

00:50:31.010 - 00:50:45.120

starting point of the event. It's the beginning. It's the beginning of the end and the end, as Judge Shannon said, is we're all here. The end of the we're all here point is when you get a discharge or you can have a chapter 13 plan

00:50:45.290 - 00:51:04.045

and not get a discharge. And among the many things that we don't have uniformity on is, for example, stripping junior liens and when that goes into effect some of us say that the lien strip doesn't actually go into effect until the complete performance of the

00:51:04.045 - 00:51:20.365

plan, at which point that lien junior lien strip goes into effect. Some people say it goes into effect right away, and if you don't perform the plan, it springs back in. Those of us who say the better way is our way is because intervening because there

00:51:20.365 - 00:51:37.521

might be more debt. That junior creditor who's getting his lien stripped may be bumped down in the priority stream. So philosophically, those of us who view the end as the performance of the plan are much more comfortable with, you know, we get to be involved in

00:51:37.521 - 00:51:50.250

everything along the way. That's the question. I mean, and it's exactly the question. Is the end confirmation or is the end the completion of the plan in terms of the structure of the code and you know, not to pick on Troy, it

00:51:50.290 - 00:52:10.469

does seem that the effort that he nobly has led to get to, you know, uniformity, the resolution seems to have, seems to be everyone supports uniformity so long as it's done their way. And so the

00:52:10.479 - 00:52:24.310

result is a plan that is a total check the box exercise that permits any of these things to happen despite everyone's best efforts to get uniform in that the paper now all looks the same. The font is the same all over the

00:52:24.310 - 00:52:41.679

country. That's an accomplishment. But in terms of the structure of how it works. I'm sorry, Troy, I couldn't help, let me just jump in here because. Before Troy, let me stop him for a second. Because my lawyer

00:52:41.679 - 00:52:57.270

is speaking. That's right. Because I think that kind of is really limits what the plan is able to do and I think if again if you look historically and if you look at chapter 13, the debtor proposes the plan. Nobody

00:52:57.270 - 00:53:11.804

else. Chapter 13 gets to propose a plan. So it's, there are some differences here, right? It's only the debtor and and there's really if you look at the code again and you look at 1322, the mandatory provisions while we're getting more of them over

00:53:11.804 - 00:53:27.629

time are still pretty minimal. The permissive permission provisions that is what you may do in a in a plan are pretty extensive and there's this catch all that says, and by the way you can do anything else that's not prohibited by the bankruptcy code or

00:53:27.639 - 00:53:41.979

or non applicable bankruptcy law. So I think debtors should have the ability to, and so from the debtor's perspective, the concern with the model plan is one of is this constraining our ability to to be able to do whatever we want to

00:53:41.979 - 00:54:04.270

do and I think part of the response is, no, we're just putting it in a format so everybody can find what everybody needs to know instead of substantive. This isn't rebuttal. This is simply engagement. I wanna highlight something Judge Bihary

00:54:04.270 - 00:54:30.879

said earlier. This is a big country. The Rules Committee has a particular limitation which is the Rules Enabling Act. The Rules Committee can affect procedures but is not supposed to modify substance. Right. And that limits the ability to take a

00:54:30.879 - 00:54:49.659

position on something that's considered substantive. Now, of course, in bankruptcy, that's actually quite hard because so much of bankruptcy, even though we call something substantive bankruptcy, really, you know, one way of looking at bankruptcy is simply here is a forum with particular rules and a process

00:54:49.659 - 00:55:07.820

of doing things. So the line between substance and procedure is really quite hard. But that's one limitation. It's a big country. You can't take positions on substance. And so, 11 view, and I think this is the view that is reflected in the

00:55:07.820 - 00:55:31.300

plan that was put out for publication is um try to make things as transparent as possible, try to show the options that are at least available in some parts of the country and also be sensitive to section 1321, which says the debtor. She'll

00:55:31.300 - 00:55:48.649

file a plan, right? And so that and those are those are when you start working the constraints and understanding not just the limitations that are written into the law. I mean there's some things in chapter 13 that are really quite limiting.

00:55:48.649 - 00:56:03.189

The fact that you know Congress has basically put a bookend on when you can have confirmation, you know, which is huge. I mean, when I first, now like you, I shouldn't be taking up your time, but I'm gonna do it anyway.

00:56:03.189 - 00:56:17.425

Like you when I came, I, my background is very much like yours. I was at a big firm. I was a litigator who did lots of of big 11, you know, I did some asbestos work. I

00:56:17.425 - 00:56:29.524

did lots of sort of the standard. I was on Enron for a while, lots of really big 11s, and when I started in as one of the reporters to the rules committee and and this chapter 13 project was working up, the

00:56:29.524 - 00:56:46.060

first thing I realized was, wow, this is really hard. This is very complicated. And my God, would somebody actually figure out what the right answer is to all of these problems? I mean, I can read 30 cases and 17 will go one way, 5 will

00:56:46.060 - 00:57:05.699

go another way, and then there are these others that I don't understand. So this can't possibly be...Don't talk about Judge Shannon's. And, you understand that now part of it is because the stakes involved for an individual are great, but may not

00:57:05.699 - 00:57:21.360

necessarily justify paying a lawyer to take an appeal all the way up. Whereas in a big 11, you know there's money and when there's money that provides a driving force for appellate advocacy and then for clarification. So that's one that's one issue, but

00:57:21.360 - 00:57:34.679

that's a huge deal, right, because let's face it, debtors can barely pay their attorneys, they are not going to be paying for appellate work. Well, and you know, on the flexibility issue, I just want to say the history of this to me is always

00:57:34.679 - 00:57:50.239

so interesting. David Epstein wrote an article years and years ago about before even Roman chapter 13, how it got started and maybe you all have seen that, but some referee in Alabama named Valentine Nesbit, and you can tell the story, but he came

00:57:50.239 - 00:58:02.524

up with the idea, you know, instead of liquidation. These people, it was paternalistic again, it started in the South, these people wanna pay their debts, so I'm gonna point some guy down the street. They didn't call him trustees. I'm gonna call this guy a commissioner and

00:58:02.524 - 00:58:16.324

you go see him and see if you know it was a local credit economy then see if you can figure out a way to pay your debts and that it was very flexible. People work together to figure out how to maximize value and all the cookie

00:58:16.324 - 00:58:33.350

cutter stuff. I understand that the national credit economy dictates it as well as the volume as well as maybe you know some of the case law. But the flexibility was always there and we don't

00:58:33.350 - 00:58:47.919

have the time, but I can explain how different jurisdictions come to this, and I think the model plan retaining the flexibility is brilliant. I really do. I think you can't, when BAPCPA came in I was in a 10

00:58:47.919 - 00:59:02.639

judge court. We tried to come up with a model plan for 10 judges, not 350. We met for 6 months with every constituency of the creditor bar. The trustees, the debtor bar, the US trustee, everybody who had any dog in the fight, and we

00:59:02.639 - 00:59:17.629

came up with finally, but with so many hours of work what we thought was a workable model plan. Never dictated because if somebody wanted to handwrite it we'll take it, you know, but 99.9% of people pro se and otherwise use that form and that's the best

00:59:17.629 - 00:59:34.159

one right in the whole country but it works with the way the trustees can get the money paid. Millions of dollars get paid, which is the object, one of the objects of the thing, and it works in the perception of fairness and I think the

00:59:34.159 - 00:59:49.739

reality of fairness, which is another goal. You know could we make changes? Sure, and when people have changes they propose them and we listen to them they make sense they're good, they're not good, but I think the idea of Congress' intent,

00:59:49.780 - 01:00:06.850

it's a vague statute for a reason. People that were working on these statutes even in 2005 understood the need to keep it kind of loosey goosey because there's there are different state laws, there's different stuff on garnishment, real property, and you can't. Judge, you're being

01:00:06.850 - 01:00:22.010

too kind to the people in 2009. I'm glad you said that. I just thought to see if anyone was listening here but you know, kind of back to Troy's point about kind of this appellate advocacy at the 11th Circuit, I think that one of

01:00:22.010 - 01:00:36.149

the things that I mean in the last year, I think there are 10, if you look at the consumer law, there are 10 splits in the circuits on consumer law issues just in the last year. That aren't gonna be resolved and so it's in

01:00:36.149 - 01:00:48.149

I think in Chapter 11 those things get resolved. They get up to the Supreme Court. There's a decision on them and and they're done and that doesn't, you know, and so, and so they're constrained somewhat by not taking a position on the law, whereas if the

01:00:48.149 - 01:01:01.030

Supreme Court had said, you know, here's the answer, then we'd have an answer and we could just move forward from that. But we don't have that. We have instead the question I was gonna say and and there's also the other issue which is

01:01:01.030 - 01:01:18.760

that in Chapter 11, although they're chapter 11s all over the country, obviously, there are, you know, clearly a couple districts, a handful of districts that have the mega 11s that generate a ton of litigation. And although you get authority from around the

01:01:18.760 - 01:01:30.189

country, those sort of tend to be the leading edge that can then, even if it doesn't get to the Supreme Court, you get a sense of what's happening in in those districts and then maybe the 2nd or the 3rd or the 7th will sort of take,

01:01:30.280 - 01:01:43.379

you know, take a case and then that set sort of sets a little bit of a trend. You know, maybe there's a split, but it's not as profound as in 13 where there are 13s all over the country. And you don't tend to get the

01:01:43.379 - 01:02:06.669

sort of here's the sharp edge of the law. So just to explore, right? I think we agree the statute as written is not crystal clear about which of these visions, it doesn't clearly eliminate either of these approaches. There are two

01:02:06.669 - 01:02:22.850

different ways to read the vagueness of the way it's written. One is, OK, it's a drafting problem, it's not clear, but there is a right answer. And the other is Congress intended the law to be applied differently in different parts of the country, and I understand

01:02:23.250 - 01:02:41.189

it the it's a big country. I agree that there's something in between, which is the Congress intended debtors to have flexibility in proposing that plan whether it's a plan that vests it at confirmation or doesn't vest at confirmation

01:02:41.189 - 01:02:55.001

or that steps up to deal with creditors or that they go back and they seek a modification. So I think that there are certainly are some questions out that need to be there. There are legal questions that need to be resolved.

01:02:55.041 - 01:03:10.602

There's no question about that, and that resolving those questions would produce more uniformity across the country. Whether you can strip a lien, whether that stripping is done at confirmation or whether it's done at plan confirmation, you

01:03:10.602 - 01:03:23.694

know, that's a dispute that's all over the place. Part of it has to do with which section you're using to strip. And whether you're using 506D to strip or 522 to strip and that's just, it's an unresolved in that

01:03:23.694 - 01:03:38.523

question that is unresolved, right, and that's an unresolved legal question, but remember, so the notion is that Congress makes the laws, right, not so much lately they don't make laws, but generally speaking, whatever they've done, we're sort of stuck with right. But the laws reflect

01:03:38.523 - 01:03:59.946

a non-uniformity of our legislators, right, and there's a substantial body in Congress who were very concerned to protect the credit markets and the large institutions who provide credit, and you can see that in various provisions of the code. Stepping back even more abstractly, there are those

01:03:59.946 - 01:04:21.040

who think that people who don't pay their debts are dead beats. OK, and that they are not good people and that this is a, you know, a question of morality. And that is reflected that tension between that view of poor people versus people who because of

01:04:21.040 - 01:04:39.426

their circumstances are unable to pay their debts that's reflected throughout the code as well. So I agree with Professor Epstein's implicit commentary on that BAPCPA and Chapter 13 in general but the notion that we could actually go back to Congress and

01:04:39.426 - 01:04:54.025

say, hey, look, you know, all this hanging paragraph stuff there's like all this here's like 20 things we don't understand please fix it. It's not gonna happen. So therefore I think we have to do what Tara's saying and I think what we may have

01:04:54.025 - 01:05:11.612

more agreement here than we're actually willing to agree that we do. We need uniformity with flexibility. Because it is a big country, there are varying local laws, and there's just gonna be this irreconcilable tension that exists about how people view the purpose and

01:05:11.612 - 01:05:30.610

the function of the reorganization chapter for individuals. But some of this is also. Sorry, go ahead. I think part of the problem is that in various ways each of us is conflating three related but different concepts. And I think there really are 3 questions

01:05:30.610 - 01:06:00.449

before us. I think one is the question of uniformity. Should debtors In Colorado have different choices from debtors in Tennessee. A second question that's related but I think different is the question of flexibility. Should the debtors in both Tennessee and Colorado have multiple choices?

01:06:01.209 - 01:06:24.570

I think the third concept is more different than the first two, but is still being talked about a lot and that's the question of substantive uncertainty. That there are many places in the bankruptcy code that we just don't have an answer. And that to some

01:06:24.570 - 01:06:41.625

extent affects the other two, but that's not something that the rules committee can in any way fix and that's just a different question. That's a different question and some would law review Professors which don't have enough to do come up with these vague theories

01:06:41.915 - 01:07:01.719

and so for a while one of the big sort of theories in law review writing, particularly for those professors that were just writing for other professors, was...You mean all of them. Was the mud theory, the mud theory, crystal or mud that there is a virtue

01:07:01.719 - 01:07:21.620

in having muddy laws as opposed to crystal laws and you know we could, we could debate that, but I think, you know, we can get a lot more accomplished if we try to distinguish among uniformity, flexibility, and uncertainty. I look at it

01:07:21.770 - 01:07:39.409

I guess I have 22 observations. The first is, you know, there, I think was some hope that that 28 USC 158D give rise to more appellate level jurisprudence, which is the direct appeals provision and I've done it a number of times, but again you

01:07:39.409 - 01:07:58.080

run into the same problem whether it's appealing to the district court or appealing to the circuit. It's an expensive time consuming exercise, but a bargain at any price. But I share the frustration about the you know the number of sgnificant identifiable

01:07:58.469 - 01:08:11.590

splits between circuits on issues that come up in every single case or in the overwhelming majority of cases and then you look, you're not gonna get any help from Congress as a practical matter and then you look at the Supremes and you get decisions on the

01:08:11.590 - 01:08:28.080

word defalcation, not an everyday issue. Yeah a great deal of attention spent on my jurisdiction as core or non core. And that is, I would like to know a little bit more about who gets to keep the car or the house. But what

01:08:28.080 - 01:08:46.410

I'd like to do is actually kind of circle back to where we started on this about the idea of continuing jurisprudence or jurisdiction and control. Because in our jurisdiction, the mortgage, the current mortgage payments are paid outside the plan directly. Directly by the trustee?

01:08:46.410 - 01:09:01.020

No trustee, the trustee makes the payments on the arrearages which are which are set in and so the question at that point then... You're right, you've got I have a post-confirmation debtor that is making payments on a monthly basis on a go forward basis to their

01:09:01.020 - 01:09:16.959

mortgage company, and that mortgage company is also getting a check presumably on a monthly basis for that 1/60 of the arrearage on a go forward basis and we discussed a moment ago the idea that if there's a dispute post confirmation what's the what's the insurance or

01:09:16.959 - 01:09:34.080

actually what what really creates a complex issue for me is not necessarily just has the mortgage increased consistent with its terms, but why are you doing a drive-by inspection once a month? You know, why is there that $20 fee once a month and is the debtor

01:09:34.080 - 01:09:50.859

obliged to, or is the creditor obliged to advise the debtor of that? And we'll talk about that at some point, but one of the issues as a practical matter that occurs most of my docket on, my 13 docket is spent for post-petition, post confirmation, motions

01:09:50.859 - 01:10:04.740

for relief from stay on account of a post-petition default on that current direct pay, not on the most of my debtors are current on their plan. I would like, but for whatever reason they fall off the roof, they're out of

01:10:04.740 - 01:10:18.459

work for 4 months. They stop paying on a post-confirmation basis. By the time that that machinery is started up again, a lift stay, which is what it is, then they're back to work and they cut a deal and we have stipulations over that

01:10:18.459 - 01:10:36.509

and I think a lot of jurisdictions are like that but it doesn't implicitly then say that the the lift stay practice and the provisions of the plan that so provide mean that I do have continuing jurisdiction over that post confirmation relationship. About whether

01:10:36.509 - 01:10:55.089

or not payments are being made consistent with the contractual obligations. And does that not, if the creditor is coming in with that motion, essentially acknowledging my jurisdiction. Then don't I then have authority to say this is the economic relationship and the contractual relationship between you.

01:10:55.089 - 01:11:11.649

These are your rights, this is what you're allowed to to charge and we go forward from there. I think the answer to that is no, um, and let me try to explain why. The stay by its terms as to the debtor right terminates on confirmation.

01:11:11.759 - 01:11:29.959

The reason people are in front of you is because it's not because of an in personam dispute. It's only with respect to the in rem dispute, right? Um, and, and even that is, I think interesting and maybe even contestable, right, because just to back up

01:11:29.959 - 01:11:47.839

to the chapter 11 metaphor for a second, right, if there's, a default under an executory contract that was assumed under a plan, you just sue and knock yourself out, right? And here, but because of the revesting, the home revests under the

01:11:47.839 - 01:12:05.270

plan, it stays property of the estate and therefore it's subject to the stay, but I guess a couple of things. One, there's an interesting question of a post-petition the state doesn't apply to a post petition obligation, right? Query whether an obligation

01:12:05.270 - 01:12:21.270

that is embraced under the plan might not be viewed as an ovation and therefore a post petition obligation such that you don't actually need state relief and no one's really tested that proposition, but it's at least analytically an interesting question, right? Plan obligation you don't typically

01:12:21.270 - 01:12:39.609

think of as prepetition obligations. Is this a plan obligation? Is it a prepetition debt? Sort of a funny question after confirmation practical matter though most or many creditors prefer as we said earlier, we're all, here we have a dispute you know this case and

01:12:39.609 - 01:12:53.745

the resolution of the dispute is often that the post petition payments get rolled into the plan payments so without the plan. And without involving the bankruptcy, it's chaos. You really don't want to be litigating the amount owed in some, to be sure, and I'm not advising

01:12:53.745 - 01:13:13.970

anyone, a secured creditor who's, you know, who lives in Delaware who where there's a default. I'm not advising secured creditors to say, don't worry about Judge Shannon, just go for a close. But at the extreme, you could say that once that vests,

01:13:14.020 - 01:13:28.299

then it's, you should be able to do whatever you want. And I mean that's correct again, historically, there were jurisdictions in the late 80s that in their plans said the stay lifts as to everything as soon as there's confirmation. They found that was a

01:13:28.299 - 01:13:41.939

disaster. That really didn't work. You can't run the program that way. And so everything that's being suggested, I know at the beginning you said this is we need the discussion it's not being had. In fact I think it is being had and it has been had

01:13:41.939 - 01:13:55.899

for a long, long time. All these many of these issues, but the uncertainty in the law, and I don't know if people would agree with this. I often wonder if that's because of the drop in the prices of residential real estate. In fact so

01:13:55.899 - 01:14:11.740

many of the issues that are uncertain now are really a function of the new methods of financing and then of course what we experienced in '08 and '09, there didn't seem to be as much uncertainty in 2006, you know, except about credit counseling or something, but

01:14:11.740 - 01:14:23.959

I mean I think when whenever you have big changes in the economy you have uncertainty I think it's a combination of big changes in the economy and a big change in the law in 2005 I think there are still a number of unsettled issues out

01:14:23.959 - 01:14:35.870

of, I mean there are there are a huge number of unsettled issues out of the 2005 law, but I think you're right, the kind of, the changes in the economy also you know, we're back to a point since the code was

01:14:36.080 - 01:14:47.799

enacted I don't think we've seen a drop in real property prices like we've seen in the last 5 years, right? So that's that really changes and actually as we were getting ready for this, I was also thinking like going back and looking at when

01:14:47.799 - 01:15:02.044

the code was written, you know, installment credit was actually probably more common than credit card credit and so you know when it was written, I think the way people thought about credit is a little bit different. And so there's

01:15:02.044 - 01:15:17.305

certainly an evolution of the credit markets and all of these other things that aren't accounted for and you know in some ways that's the flexibility of the code. It's actually you know as long as it's pretty short, it's shorter than tax code

01:15:17.305 - 01:15:42.819

and you know it's ability to address these very diverse situations and evolve over time. I think it's pretty remarkable. Terrific. Excellent, thank you. [Break in Session]

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[Session Resumes] So I

01:31:23.629 - 01:31:38.439

think we're jumping back in. And so we kind of ignored the as we tend to, the rules about who was going to say what and when. Because we're all here. Exactly. Therefore there are no rules. The tennis without a net view.

01:31:44.109 - 01:32:02.479

So I guess yes please yes that's that's what I was trying to say. OK, let me just first preface this a little bit with some of the folks have told you their background and I just briefly,

01:32:02.560 - 01:32:15.600

I was on the uh bankruptcy court. I was a judge for 25 years, so a quarter of a century in Atlanta, Georgia in the Northern District of Georgia, a district that is consistently ranked 12 or 3 in numbers of chapter 13s filed, so I did

01:32:15.600 - 01:32:30.180

handle a lot of them. Before I went on the bench I did not, so I learned on the job, but I learned a lot on the job. And you know, in the course of it probably handled well over 110,000 cases and probably over

01:32:30.180 - 01:32:44.009

half of them were chapter 13 so and we experimented through the years because of the flexibility that David pointed out. We experimented with do you have confirmation. You know, 10 months out after all the claims are resolved and then we and the order do you

01:32:44.009 - 01:32:58.580

do it early and then of course Congress changed but we've been doing it early for the last 20 years in the 3 to 4 month period. I speak very strongly I think when I, when I wanna say that, please, all these distinguished

01:32:58.580 - 01:33:18.200

guests, panelists, please don't equate Chapter 11 with chapter 13. They are really different, different systems and Senator Warren wrote an article 20 years ago in the Michigan Law Review about Chapter 11 and the disagreement, some of the policy issues in Chapter 11, but

01:33:18.200 - 01:33:32.930

at the end of it she said. Please, I warn you of the danger of trying to model Chapter 13 after Chapter 11. They are very different. They serve different purposes and the debtors are different, and you and an individual cannot be dissolved the way a corporation

01:33:32.930 - 01:33:50.169

can or business entity, and we have to remember these are people who are about to lose their home. They are. They've had so many with horrible medical debt and such misfortune, bad luck, some bad decisions. There's always some people who may be defrauding the system, but

01:33:50.169 - 01:34:09.620

by and large it's people that are much less fortunate than the people sitting in this room, and we can't lose sight of that. And one of the roles of the court in a Chapter 13 case I believe pre-confirmation, post-confirmation whenever is to be there,

01:34:10.450 - 01:34:28.049

to help resolve disputes to rule because people want somebody in charge without somebody in charge. There is chaos and the idea that post confirmation you could take all the different squabbles that come up in a mortgage these days and tell people you're gonna have to

01:34:28.049 - 01:34:43.950

just go to state court really is not workable. I come from a district where there's non-judicial foreclosure in Georgia, so you have, uh, within 4 weeks you can lose your home. Somebody advertises in the county and then the first

01:34:43.950 - 01:35:01.100

Tuesday of every month they call out the property description, bingo, you've had the foreclosure. Bankruptcy stands in the way of that if you went to your system where the property revested in the debtor and everybody was on their own after confirmation. I guarantee

01:35:01.100 - 01:35:15.740

you with the illegal force placing of insurance and the drive by fees and all the different abuses that we all know so well all the debtor could possibly do would be to go to the bankruptcy court for reimposition of the stay,

01:35:16.270 - 01:35:29.189

go to a state court to seek an injunction. The expense and the confusion would be tremendous, and I don't think creditors want it. I mean, maybe some of the folks you guys represent do, but, but by and large, most creditors are happy to have the

01:35:29.189 - 01:35:44.720

story heard. And fair treatment and bankruptcy courts that I'm familiar with around the country lift the stay if the facts warranted and keep it in place if it doesn't. But if the debtor can afford to keep the house and it's feasible, that there are the provisions

01:35:44.720 - 01:36:00.680

to allow that to take place. I also want to say, you know, in the line that I think Denise quoted from, the butcher case, Judge Talman, about nothing is less uniform than Chapter 13, but then he went on the next

01:36:00.680 - 01:36:15.060

sentence of that decision was something to the effect it's remarkable though how many courts have the same practices and procedures. And so I think we have to to note that too. People always take the extreme with Tennessee and I think for

01:36:15.060 - 01:36:30.680

all kinds of historical reasons things have been done with the mortgage paid through the plan and by the trustee and that causes some differences but in the studies that we've done through the years and that I've participated in many, many seminars that

01:36:30.680 - 01:36:49.209

the FJC has put together, when the courts get together and the trustees, we find more similarities than we do differences and I worry about this. This stressing that it's so chaotic, the system is so unpredictable, everybody's

01:36:49.209 - 01:37:03.009

doing what they wanna do. I don't really think it works like that and I just, what it cost you on that. I also want to mention the in one of the pieces that you wrote, you mentioned you quoted a footnote in

01:37:03.009 - 01:37:18.029

the Supreme Court Hall decision to the effect that bankruptcy cases are supposed to be over in 4 months, something to that effect on average they last 4 months, and you sort of use that as your argument that there should be no judicial supervision after confirmation that

01:37:18.029 - 01:37:30.229

Congress intended the court to have a very short life and I wanna just, I went back and I listened to, I looked at the footnote and it referred to the oral argument and I went back and listened to the oral argument in Hall

01:37:30.229 - 01:37:46.649

which was a chapter 12 case dealing with the farm sale provision. And in the oral argument, as is often the case, the justices asked questions about well gee, how does chapter 13 work? And of course the people arguing it really didn't know, but they didn't say

01:37:46.649 - 01:38:00.410

I don't know they said, well I think this is and it was about tax, how taxes are handled post petition taxes are handled. But then somewhere in there, and you know these were great lawyers but one of the lawyers said something to the effect, well

01:38:00.410 - 01:38:17.430

we saw some data and in the chapter 13 on average they are 4 months. Now what happens in 4 months? Well, that's because so many get dismissed early because of nonpayment or the pro se population, which is 16 to 17%

01:38:17.430 - 01:38:32.209

in many districts of the filings in Chapter 13. So, so but for a case that is confirmed, it lasts 3 to 5 years, not 4 months, and for those cases the court does stay involved and so I think that you know courts

01:38:32.209 - 01:38:50.970

struggle with how much guidance to give, but if there's a bona fide dispute and in the case of these mortgages and what we've seen in the last 8 or 10 years it's markedly different from the way it used to be and this notion that

01:38:50.970 - 01:39:03.810

Judge Chapman mentioned, you can't get anyone to tell you what is owed if they won't even tell the court what is owed and show us the documents you can imagine how the debtors feel it is. Even to me it's even worse because now you're seeing increasing

01:39:03.810 - 01:39:21.149

instances of most discharge in the in circumstances because the debt has changed hands from one service to the next and the solution we found for that in some cases if you do an order saying you're not entitled to this fee and you cannot

01:39:21.149 - 01:39:34.959

add it on afterwards and then you file it in the have the lawyer file it in the county record, make that a requirement. Then if they foreclose based on that they're in such enormous contempt I'm gonna just flip I'm flipping to a slightly different point

01:39:34.959 - 01:39:53.049

because in the credit card area you're now having after the debt's been discharged you're now having credit card companies and the servicers to whom they sell the discharged debt continue to try to collect the debt. So they send the debtor who's gotten the debt

01:39:53.049 - 01:40:12.839

discharged a piece of paper that says this is for your information only, but you better pay this and we're gonna keep calling you to tell you that you better pay this. So, provide a solution to that problem though, right? I mean you have ample authority

01:40:12.839 - 01:40:27.669

to. I'm making a, let me just to respond to this particular point because I see it from the consumer side and what the debt collector will argue is that the entity that has purchased the debt has purchased it

01:40:27.669 - 01:40:46.069

without knowledge of the bankruptcy. And so they say, hey, we didn't know about it you can't sanction us, right? And so, so then the question is, well, who's responsible here? Well, you know, you think you can they're just saying that they don't have any knowledge

01:40:46.069 - 01:40:58.140

of the bankruptcy. And so how, why are you, why should you, why do they have to be penalized if if they didn't have any knowledge of the bankruptcy? And if you think you can sanction them, then I think that's terrific, but I think

01:40:58.140 - 01:41:13.299

the, you know, the behavior after the case is over is one whole other issue, but during the case to remove the judge during the case is a very dangerous idea and the analogies to Chapter 11 just don't fit. They just, they don't fit because

01:41:13.299 - 01:41:30.009

of the statute. They don't fit because of 35 years of practice, and they don't fit because of the practicalities of the situation and I think Congress intended, I mean we talk about congressional intent. Well, they intended at least in 1978 they intended broad authority

01:41:30.009 - 01:41:43.189

for the court. I don't think anyone would disagree with that. I mean, the Supreme Court said that doesn't work and we understand where that's going, but in terms of congressional intent, it was for a court to have broad authority in reaction to the very split and

01:41:43.200 - 01:42:00.859

and limited authority that was had pre 1978, so I think we know what that was, and Congress has never said the judge can't decide anything afterwards. The number of issues that come before us, or, not me anymore, but for you all. The after the

01:42:00.859 - 01:42:18.299

confirmation are tremendous. I mean you have, you do have these very important motions for relief from stay modification motions, motions to deal with tax refunds, motions to incur debt, so many problems in a debtor's life that come up that involve their finances and do

01:42:18.299 - 01:42:33.660

affect the feasibility of the plan come before the court. And to say these shouldn't come before the court because it's only only intended for 4 months, confirm a plan and you're out, is just another effort to sort of limit the court as we know it.

01:42:33.669 - 01:42:48.209

I really caution against that and I mean just to comment on that a little, I don't think, I hope that it's understood that nobody is suggesting that the debtor that the bankruptcy court has no role post confirmation. I think the

01:42:48.209 - 01:43:04.870

question, which is, you know, a question to which I'm not entirely sure what the answer is, and I think it's a really hard one is, I mean there is a limit to bankruptcy court jurisdiction which is, you know, in section 1334 bankruptcy

01:43:04.870 - 01:43:22.229

court jurisdiction is limited to matters that are related to the bankruptcy case, which means matters that could have a conceivable effect on the property of the estate. There's, I mean, Tara was talking about this before. There's a very difficult set of issues in chapter 13 about

01:43:22.680 - 01:43:42.149

what property of the estate is post confirmation, and I think I mean this is what and I also come from a chapter 11 background, part of what has really, I found troubling and challenging about Chapter 13 practice is, you know, what I think

01:43:42.149 - 01:44:00.750

Professor Epstein described as the, you know, the crystal versus mud problem. As a practitioner, you know, I, and maybe just because of personality, I prefer to view statutes as, you know, crystals rather than mud. And Chapter 11 has always seemed to me to have, you

01:44:00.750 - 01:44:19.189

know, that crystalline aspect, notwithstanding that, you know, as Judge Chapman was saying, there's always going to be, you know, differing constituencies and differing interests that go into making a statute like that and so you can't ever say there's one unifying intent behind every single provision.

01:44:19.740 - 01:44:36.580

Chapter 11 nonetheless seems to fit together and make sense whereas that may be because the practice became so concentrated in two districts. I mean truthfully you don't have, you don't have 94 districts handling lots of chapter 11 and if you took all the chapter 13s and

01:44:36.580 - 01:44:49.220

said just put them in Tennessee and Colorado and nobody can do it in the other 48 states, you'd probably get a more uniform you'd have more certainty. Yeah and and I think a lot, you know, a lot of what creditors want I mean speaking from the

01:44:49.220 - 01:45:05.200

point of view with a of a creditor, it really is just certainty and understanding what their obligations are and right now that's very difficult. Question on the topic of uniformity because we're touching on it now and Craig spoke about it as well.

01:45:05.330 - 01:45:22.209

Is there a constitutional issue with the uniformity or the lack of uniformity across the jurisdictions? I mean, treatment of tax claims or environmental claims are gonna be dealt with differently in Chicago in a federal court in Chicago than they will be down in Tallahassee because there's

01:45:22.209 - 01:45:38.189

a body of case law that goes one way or the other? The result may be different construing the same statute in Florida versus Illinois versus Alaska. Is there something different about bankruptcy? Is that the word uniform in the constitution? It's not a

01:45:38.189 - 01:45:55.709

constitutional issue. I mean that's certainly not the way the Supreme Court has construed the bankruptcy uniformity clause, but I do think it, you know, it goes to the fact that there, the more uniform we can have practice and procedures be, I mean, taking, you

01:45:55.709 - 01:46:09.395

know, realizing that there has to be some flexibility to account for different state law, the easier it's going to be for disputes to be resolved. Fault rules are understood right and I mean as to the meaning of federal law, right? I don't claim

01:46:09.395 - 01:46:22.794

to be the world's greatest expert, but I would think, I mean, the Supreme Court's reason for being most of the time is to see to it that that federal law has uniform application across the country and but the fraction of cases that get decided by the

01:46:22.794 - 01:46:40.149

it's a minute fraction of cases that actually make it up there and I'm sure that Troy and David can reflect on what it is that drives what the Supreme Court actually takes because as a practitioner now as

01:46:40.149 - 01:46:58.990

a judge, when I read what they've granted cert on sometimes, I'm astonished. I'm astonished they should grant more of our petition. We agree as practitioners, we're often surprised by that. I mean, I understand certainly there's an importance in determining whether the Affordable Care

01:46:58.990 - 01:47:15.089

Act is constitutional. Those I get, but then there's this other very, very narrow esoteric thing. So but I think the principal driver in those cases is lack of uniform. When you, I mean, the principal determinant, I think, I mean others should chime

01:47:15.089 - 01:47:32.839

in who have. At least, if you see the Fifth Circuit, look, we're the respondent in a bankruptcy case where the Supreme Court granted cert two weeks ago. It's about whether inherited IRAs are exempt. The reason that was granted, not, it's a very

01:47:32.839 - 01:47:50.225

narrow fit. Exactly your description. There's a clear circuit split, right, but Judge Easterbrook wrote the Fifth Circuit is wrong and it's not even close. Exactly, and that gets there, those cases get granted, and there was someone who's willing to represent the

01:47:50.225 - 01:48:04.169

debtor pro se. I mean, that's the other big, big piece here. Pro bono. Yeah, sorry, I think of the trustee pro bono for the record. Um, well, this may be a good time for me to say one thing that I did want to

01:48:04.169 - 01:48:19.549

say about Chapter 13 before the Supreme Court, and I'm so pained every time I think of the Espinoza decision because of that it was there and that it's been represented to be the way it is when that is not the way it

01:48:19.549 - 01:48:34.279

is. That was just a really aberrational case, but I'm struck. I was struck. I went back and listened to the oral argument in that case, and it's just chilling if you are a part of the system. The theme over and

01:48:34.279 - 01:48:46.319

over again is the judge was a complete idiot and I don't even know who it was and I made it a point of not looking to see who the original judge was but over and over the judge made a mistake. The judge made a mistake. This

01:48:46.319 - 01:49:01.299

was the student loan issue in the plan. And you know, Justice Scalia, it's clear the bankruptcy judge made a mistake. Ginsburg, judge got it wrong. Sotomayor, legal error by the judge. Breyer, the judge violated the statute. The tone, they sound angry. They sound as angry and

01:49:01.299 - 01:49:17.740

impatient as a bankruptcy judge in a 300 case docket. They have to be wondering why did they take a case involving $4500 and a 12 year old chapter 13 case where it appeared that neither the creditor, the trustee, nor the judge looked at

01:49:17.740 - 01:49:35.439

the plan. Justice Scalia says, doesn't the judge read the law? He's incredulous. Kennedy, Kennedy refers to the confirmation hearing as a charade, you know, add to this, the justices ask a number of questions about how dischargeability issues are dealt with and the folks

01:49:35.439 - 01:49:48.339

arguing it don't really answer. They don't know and they don't say I don't know they just make it sound like, well, every judge kind of does what he wants. That's just not the way it is. You all, if you practice, you know that 523, you know,

01:49:48.459 - 01:50:02.799

A3 talks about undisclosed claims. There are rules about it. There's a statute about it and there's a great body of law on it. I, I just, I hope that you folks that are appearing before the Supreme Court, which a number of these wonderful people on

01:50:02.799 - 01:50:20.060

the panel do, make an effort to not make this particular court. Well that too, but also not to make the court look so negligent because most of the people do, I mean know, Judge Laney goes home in Columbus and reads every Chapter 13 plan.

01:50:20.140 - 01:50:36.609

Judge Brown in Vermont makes every Chapter 13 debtor testify about feasibility. I mean just because you have one situation that got got astray and didn't get corrected at a lower level, which it probably could have, you know, if someone brings to any to

01:50:36.620 - 01:50:52.339

to Shelley or Brad's attention, this is about a problem of something they did, you can always correct your order. You make mistakes you correct them. So that it would get to the Supreme Court on that case to me it's just that really. So

01:50:52.339 - 01:51:07.379

can I actually, I wanted to say something about the importance of Espinoza. 11 of the reasons why the rules committee undertook this project of trying to come up with a with a plan form that would be an official form was in part Espinoza.

01:51:07.390 - 01:51:28.450

A number of suggestions came in after Espinoza because remember Espinoza does two things. It first says a confirmation order confirming a procedurally improper plan is still res judicata. Doesn't matter that it was procedurally improper, the order is binding. And you didn't object, you're stuck with it.

01:51:28.700 - 01:51:47.640

So on the one hand, it raised the importance of of confirmation, it also then has this language saying as judged by Harry sort of suggested from the oral argument, the judge has an independent obligation and squaring that circle is actually quite hard. I mean, what,

01:51:47.660 - 01:52:04.520

what does that mean? if if no one objects, and you know, does it mean that the judge is supposed to start litigating for either side? And the approach taken by the rules committee is well how can we make things at least more clear and

01:52:04.520 - 01:52:21.959

transparent so that those who want to object know exactly where to look if there's a some term that at least raises an issue and those judges who are trying to look through many, many, many, many plans at least can look to where the problems are probably

01:52:21.959 - 01:52:37.009

going to lie. I mean, because it's true. Espinoza is this very odd case. This kind of drive by discharge doesn't happen in these types of cases, but what gets to the Supreme Court is what gets to the Supreme Court. But last refuge

01:52:37.009 - 01:52:57.359

for scoundrels, I mean, Espinoza clearly has become, you know, the paradigmatic last refuge in. I can't tell you the number of individual cases in which someone proposes something that is unlawful. We come in and object. And the principal response is, but if you do it

01:52:57.839 - 01:53:14.919

and it's not appealed, it's final and binding, therefore you can do it, and we deal with that argument all the time and it's, you laugh, but someone proposes something that's substantively unlawful, OK? We come in and object and say no you can't do that because

01:53:14.919 - 01:53:31.020

the code says the opposite. And the response by, I think sincere lawyers on the other side is, but Espinoza says that once it's done, it's done, and so therefore you can do it. But it ain't done yet. Exactly. So imagine the practical example would be someone

01:53:31.020 - 01:53:42.419

cram tries to cram down your principal, your mortgage on your principal residence. They put that in their plan and they say, well, if you don't object to it, then it's OK because even though it's completely contrary to the code that if

01:53:42.419 - 01:53:54.819

I get through. But, I think that if you agree to it, that's the harder question. Oh sure if you agree to it, but if you agree to it, then then it's done. Why if I've got an independent duty under Espinoza

01:53:55.075 - 01:54:11.245

follow, for example, the absolute priority rule and you folks over there because we're all here right you're all here and you all agree and nobody in the room says no, but I read the code and what you're doing, making a gift under a Chapter 11 plan

01:54:11.245 - 01:54:27.509

we could come up with 16 examples is contrary to the specific provision of the code. Now maybe the Supreme Court this term in Law versus Siegel is gonna answer that question because the question is under 105. Does the bankruptcy code have inherent equitable power to

01:54:27.509 - 01:54:45.080

do something that's directly contrary to a specific provision of the code? So the Espinoza headache that we all have is, but if everyone agrees, how do you square your duty under Espinoza with the fact that everybody in the room agrees? Well, hold on. There are

01:54:45.080 - 01:54:59.720

two different situations. I mean, I'm having warnings that we're getting off the track here, but it's interesting. Right, there are two, there are two different situations, it seems to me. One is express consent, right? The party comes in and says we agree, we

01:54:59.720 - 01:55:16.080

have these rights, we're compromising them. Yes and the other is, the guy doesn't show up and there's no one there and the question is are we gonna run them over because they didn't show up? And I get the notion that maybe we

01:55:16.080 - 01:55:28.200

should pause before running over the guy who hasn't shown up. If he's here and says, you know what, I've got and and you know I've got these rights, I'm gonna trade them in exchange for something else. I don't see any reason you can't do that

01:55:28.200 - 01:55:42.729

and no one mentions the issue. No, I understand that's the harder case. Judge the obligation to at least by the way, I flag this term in the plan. Are you fine with that? Um, I mean, you know, some term in the plan that

01:55:42.729 - 01:55:54.879

you know someone that could be objectionable but no one has mentioned it or no one has raised an objection. Isn't that essentially what Espinoza holds? Oh yeah, I mean, I think that's, that's what keeps us up at night, what we're supposed to do

01:55:54.879 - 01:56:09.759

in that circumstances a good relationship between the court and the bar and the Chapter 13 trustee goes a long way to taking care of these problems. It really does. I mean, obviously something broke down there who knows what. But I think that is really

01:56:09.759 - 01:56:22.279

the aberrational case. It would be interesting to go back to that district and see how many plans had a provision like that during that era from that lawyer. I don't know if anyone's done that to see how many other student loans they did

01:56:22.279 - 01:56:36.399

that never came. There's actually a pretty good piece in the ABI journal from shortly after Espinoza, and I'm blanking on the name of the author who goes through the history of these types of plans and at one time they were common, but the point

01:56:36.399 - 01:56:51.040

of the article was that they really weren't common anymore because bankruptcy judges had basically beaten them all back and lawyers knew they were gonna get smacked if they tried it, so this was sort of really the oddball case. Bob Ginsburg used to refer to a bankruptcy

01:56:51.040 - 01:57:07.370

judge like a hockey goalie. You're constantly just like people were just throwing stuff at you and you can't keep up with them on both sides. You know, I think that that, in going back to the analogy to chapter 11, I do think the analogy does

01:57:07.370 - 01:57:25.419

break down and one of the reasons is, my colleague and good friend Ray Mullins talks about this virtually every time he talks about bankruptcy, which fortunately for us is a lot, is the parallel universe, and the Chapter 13 system for the most

01:57:25.419 - 01:57:45.370

part when in districts such as Northern District of Georgia, not so much in the Southern District of New York, but in lots of other high volume districts, is addressing problems that people you really don't understand the depth and complexity of the problems and challenging challenges that

01:57:45.370 - 01:58:03.549

those debtors are facing. I see a glimmer of it every once in a while. Two days ago I had a debtor struggling to keep a property in the Bronx in an individual 11. It became completely clear that he had made major misrepresentations on his schedules

01:58:03.850 - 01:58:22.589

and throughout. Because he was a bad guy? No, he didn't understand what was going on, you know why he couldn't hear. He couldn't hear so there are problems that these individuals have that most of the people in this room have an experience, don't know what they

01:58:22.589 - 01:58:40.879

look like, and you just can't understand the complexity. It is this parallel universe and because most of the people in my view who come into Chapter 13 either pro se, which is a whole different parallel universe, OK, or represented by not Craig Goldblatt. Not to

01:58:40.879 - 01:58:59.870

disparage the consumer bar because they are hardworking and for the most part extremely capable. They do an amazing job but there are instances where, the analogy being you you're really sick and you go to a doctor and the doctor takes

01:59:00.359 - 01:59:13.790

the last amount of money you have in your bank account and then tells you, yeah, I've never really done heart surgery before but you know I'll figure it out right? So you go to a practitioner who says oh you're bankruptcy yeah I'll find the form

01:59:13.790 - 01:59:29.294

right? I I'll do that for you and then it turns out they have no idea how to really do it and they've taken your last $3000. So where I'm going with this slight rant is that, you know, were we to go back before Congress

01:59:29.584 - 01:59:48.129

and go through this issue, I would hope that there would be a lot of testimony that really helps the members of Congress understand who it is that they're legislating for. The lenders and the financial institutions, which I agree have some interest in uniformity and

01:59:48.129 - 02:00:01.330

understanding, you know, what the rules of the road are, they're very well represented and the consumer advocates represent the consumers, but I just think that yeah, I've heard that. I've heard that and I can, I'm seeing that right now but

02:00:01.330 - 02:00:16.000

I just, my point simply is that I think that if you look at the intent of legislation or the purpose rather of legislation that it would be a shame to lose sight of the need to help the people who inhabit this parallel universe. You know,

02:00:16.600 - 02:00:44.410

Judge Mannes. If I can get back to Espinoza, I've handled a few chapter 13 cases and Espinoza would in, in Maryland, the trustees would be throwing themselves as hard as they possibly could against the plan. It's not only

02:00:44.410 - 02:01:02.410

the judge, it's the trustee, and it's a trustee, one of whom is here, in 1000 years wouldn't permit that. You know, I wanna, I think trustees take different positions. I think there are some trustees that particularly when it comes to secured creditors,

02:01:02.419 - 02:01:16.700

for example, say, look, I'm not secured creditors, they need to they need to fend for themselves. Now unsecured creditors, student loan creditors that might be a different story, but I think there's certainly, you know, trustees have have taken on different senses

02:01:16.700 - 02:01:33.000

of what their jobs are and and what their role is. So let me give you my favorite example of a dispute with a Chapter 13 trustee. Imagine the plan says we are going to pay only allowed secured claims and

02:01:33.000 - 02:01:51.520

if there's not allowed secured claim it doesn't get paid. OK, so debtor goes into bankruptcy, gets a chapter 13 plan confirmed, the plan says there's a mortgage, it's due and owing $1000 a month. It's current as of the petition date and

02:01:51.520 - 02:02:11.879

imagine that the servicer in question's policy was not to file proofs of claim where there's no arrearage. OK, fine. Debtor does everything right and every month pays to the trustee an amount of money sufficient to meet the plan obligations under which $1000 is

02:02:11.879 - 02:02:29.220

supposed to go to pay the mortgage. The trustee looks at the claims register. And says there's no allowed secured claim for the mortgage and takes that money and distributes it to unsecured creditors. Case ends, debtor's done everything right, played by the rules and everything they're

02:02:29.220 - 02:02:46.649

supposed to do. The way the code works, the lien rides through and this is a mortgage debt that is provided for under the plan is therefore nondischargeable. So the debtor does everything right, pays the mortgage essentially. And the day after confirmation loses their home. Right

02:02:46.649 - 02:03:01.029

now, that is a problem I would hope that the new model plan might be able to solve. Well one of the the amendments that would come along with the plan is an amendment to Rule 3002 that would require not just unsecured but also secured

02:03:01.029 - 02:03:13.310

creditors to file a proof of claim. Well, no, but in fairness, doesn't want that. No, but no, but that's not actually what it does. In fairness, it requires you to file a claim and you in order to receive a distribution out of the estate, and

02:03:13.310 - 02:03:29.384

that's all. So it doesn't actually solve this problem to the contrary, actually. It just makes clear that this is precisely the problem that you can have. But the trustee was paying the ongoing payments. No, no, because there was no allowed secured. But I'm sorry, the

02:03:29.384 - 02:03:42.774

debtor was paying into the trustee amount sufficient to cover both the rear. There was no rear it was a conduit. It's a jurisdiction. The debtor was doing everything right. The debtor was paying the trustee an amount sufficient to cover the trustee made a mistake and then

02:03:42.774 - 02:03:57.020

and they bonded so what happens is at the end someone moves to set aside the lien on the grounds that you don't have an allowed claim. And the code just says the opposite, and I've, we've litigated that issue half a dozen times and every time

02:03:57.020 - 02:04:07.140

you look at it afterwards and say no I can't do that, the lien rides through. I'm sorry, that's what Dewsnup says. You can like it or not. So there are some trustees that won't pay if there's not a claim. This kind of goes back to

02:04:07.140 - 02:04:19.609

this claim versus plan question, right? So you're in one case you're arguing that the claim controls and in this other case you're saying that the plan should have controlled even though there was no claim, and so it should control, you know what I'm saying what

02:04:19.609 - 02:04:31.370

I'm saying is the system should work such that. But there's a possibility for the system to work, and in some ways I would say that that the debtor kind of missed the boat by not filing the claim for the creditor or the trustee or the

02:04:31.370 - 02:04:43.290

trustee. There is a provision right now that allows the trustee or the debtor to file a protective proof of claim. Let me describe this case a little better, and that's exactly what I do, and those mortgages get paid. OK, here's what happened in

02:04:43.290 - 02:04:59.069

this case. Debtor filed a proof of claim. Trustee objected on the grounds that it didn't attach all the sufficient documentation, and order was entered disallowing the claim. So it wasn't that you didn't have an allowed secured claim. You actually had a

02:04:59.069 - 02:05:15.680

disallowed claim, which I actually think is different than not having had a claim filed. So all of these different permutations. This is huge. I mean that, but that makes that makes a huge difference, a disallowed claim versus

02:05:15.680 - 02:05:27.250

the creditor never filed a claim. The debtor filed one on behalf because the debtor doing everything right was trying to get the mortgage paid. This is, this debtor's a good guy, right? If the debtor filed the claim and the creditor had notice,

02:05:27.399 - 02:05:42.129

where were you? What? Exactly that's a fair question and the answer is no one showed up. Right, exactly. Nevertheless, the lien, the lien still does ride through and the debt has still been provided for under the plan and it's still non-dischargeable. The question

02:05:42.129 - 02:05:56.555

is how much owed. No, that's right. Look, all I'm saying is this is the kind of quest problem that we ought to try to solve. Yes, you've got the debtor trying to pay the mortgage. Obviously from the servicer's perspective, you would rather keep the debtor in

02:05:56.555 - 02:06:08.740

the house and continue to get paid than foreclose, right? So the system how many years does the creditor not get paid and not come to court or do anything? 5 years. Plan completes. Oh, now what do you do about it though? That's right. That's right. And

02:06:08.740 - 02:06:23.330

are they watching this happen for 5 years? Let me, let me say that to the extent we're involved in these cases, there is some analysis of root cause and attempt to try to get to the bottom and not have it happen going forward. But look, I

02:06:23.330 - 02:06:34.959

mean, for the big national servicers that run large businesses, you can have systems in place. Cases that get our attention is when there's been a mistake, but you know who bears the risk in all these situations I understand that right and that's the question but I,

02:06:35.750 - 02:06:50.069

I think in this case, yeah. Professor Epstein, who's the most interesting member of this panel, has said the least. So why don't we, the rest of us give him a chance to chime in? Well, maybe right about the least. I'm not

02:06:50.069 - 02:07:05.569

sure about that. No you're wrong about the most interesting, you know, a lot of the points that that I would think to make had been made and we sort of real quickly hit on them. Just by way of disclosure I have had

02:07:05.569 - 02:07:27.029

far too many, far more different jobs than any reasonable person would have just because I can't hold a job. Done all kinds of different things. Briefly for about 10 years, practiced law with a big law firm doing primarily chapter 11 work.

02:07:27.240 - 02:07:50.120

Our firm, like a lot of big law firms got involved in chapter 13 largely on the appellate level because we were representing major lenders and had recurring issues. I have never done a chapter 13 for the debtor. I just I haven't, so really

02:07:50.729 - 02:08:10.709

out of ignorance on that and don't have the benefit of, you know, sitting on the bench and learning about chapter 13 that way, I think we've really got hard problems with consumer bankruptcy. I don't see Chapter 11 as being any help in resolving

02:08:10.709 - 02:08:32.709

these problems at all, just no help. I think the problems are hard enough without trying to draw analogies and contrast chapter 11. I think there's a big difference in the law. I think there is a bigger difference in the amount of lawyer time that

02:08:32.709 - 02:08:52.990

a chapter 13 debtor can buy. I mean how much do you want people to pay for Chapter 13 in your court and how much can they afford to pay in terms of chapter 13 for your court? That to me is the strongest argument sort of

02:08:52.990 - 02:09:17.720

for uniformity in simplifying all of this in that people just can't afford complexity and the worst thing that happened, we haven't gotten to this at all other than Joyce's judged by Harry's incidental comment, the growth in pro se chapter 13's is scary. In some

02:09:17.720 - 02:09:44.779

places it's north of 20% and in many places it's getting dangerously close to 20% and those pro se chapter 13 cases just don't work, just don't work. It's tempting, although I think it is oversimplifying to go back and sort of look at what's been proposed

02:09:44.779 - 02:10:04.379

through the years, you know, before we had the Chandler Act and this was even before Ben and I were practicing, before the Chandler Commission, there was a Thatcher commission looking at what was wrong with bankruptcy, and you know what Thatcher commission said about consumer

02:10:04.379 - 02:10:31.069

bankruptcy ought to be administrative. It ought to be administrative. Then we get the Brookings Institute report. Marjorie Girth, scholar, very liberal, very pro-debtor, very pro-consumer, uh, the Brookings Institute study in the 1960s said, you know, this all ought to be administrative. Then we get the first

02:10:31.439 - 02:10:50.390

bankruptcy commission. And this was not a political commission at all. I mean it was just a simpler, it was a different time. It was a time when Republicans and Democrats really did work together and there was no political struggle. Frank Kennedy headed up

02:10:50.390 - 02:11:15.049

the commission, honest broker. Consumer bankruptcy ought to be an administrative proceeding. Ken Klee, who will tell you he wrote those parts of the bankruptcy code that are clear. In 1997, Ken bless his heart, that was when he was briefly out of practice and I

02:11:15.049 - 02:11:37.290

guess wasn't thinking he was gonna be coming to judges and ask them to approve his fees. Ken made a presentation in 1997, National Conference of Bankruptcy Judges saying, you know what? This consumer bankruptcy stuff, ought to be administrative. Now I'm not sure that that's the

02:11:37.290 - 02:11:56.990

right answer, you know, I'm sure we've got fundamental questions and I'm sure that Chapter 11 just isn't gonna help us answer those fundamental questions at all and I think what we ought to be asking is can we come up with a consumer bankruptcy system that people

02:11:56.990 - 02:12:18.600

can afford. That people can afford a system that will work either without lawyers or that will only involve lawyers to the extent that people can afford the necessary legal services. That's the danger of calling on me, Craig. It happens to me, happens to me in class

02:12:18.600 - 02:12:35.310

all the time. I call on a student hoping she'll say something and the student goes off on some sort of crazy rant. I wanna say one quick thing in response. Because I've been in so many of those discussions too about whether

02:12:35.310 - 02:12:48.790

you need a court or an administrative agency, and I think what we've seen in the mortgage meltdown and all the issues that have come really show why you need a court. So many of the abuses in the mortgage servicing

02:12:48.790 - 02:13:07.220

industry have come to light through these court procedures. I just don't know if you took an administrative agency with non-lawyers making decisions and having discretion how you would unravel these these complicated methods of financing that we deal with and I think while yes it's expensive

02:13:07.549 - 02:13:24.310

I'm actually amazed that the pro se levels have have not been much greater. I think we all predicted when the law changed in 2005 and there were so many more forms that the consumer bankruptcy lawyers would would exit the scene. Instead, I think throughout the country

02:13:24.310 - 02:13:40.540

we had wonderful CLE and educational programs so that more people came into the fold and I think many courts have adopted creative solutions to deal with pro se clerks at the counter and other things that have

02:13:40.540 - 02:13:54.549

helped. But the one role that the court does play that I don't think an administrative agency could play really is the peacekeeping function. People get very angry when they're about to lose their home. They are desperate and I can't tell you the number of

02:13:54.549 - 02:14:10.319

Chapter 13 calendars with people coming in various stages of disease and walkers and wheelchairs and just someone's gonna take their house in a week or a month and they're armed also you know we have a country where it's not

02:14:10.319 - 02:14:25.020

hard to get a gun. The martials have told us repeatedly that the weapons that are taken at the security checkpoint are primarily people headed to bankruptcy court, not district court. I don't think we can ignore the fact that a peacekeeping function, having

02:14:25.020 - 02:14:41.470

a fair and educated decision maker who can hear a dispute and give people their voice, tell me you really did pay where's the proof and you know some of them really did pay and the payments got misapplied and they shouldn't lose their home just because. There's

02:14:41.470 - 02:14:57.939

an administrative agency somewhere that they can't get to that won't hear it. We read everything. We read every prose, every handwritten thing. We act on it. I think the courts and the Chapter 13 trustees and the debtor's bar doing an amazing job

02:14:57.939 - 02:15:13.620

of peacekeeping and getting the money out and it's not perfect and yes there's Espinoza, but by and large. I think the system works more often than it fails. I 1000% agree with what was just said and to tie it in addition to what

02:15:13.629 - 02:15:31.520

David was saying, the fee issue really is a key driver and the scope of the representation of the services because what I saw not infrequently was you go to a bankruptcy attorney and they charge you a fee and they prepare the

02:15:31.520 - 02:15:54.930

part, they prepare the petition and then if there's preference litigation or as I've found the credit card companies then send the debtor a letter that says dear debtor living on the in 1/4 floor walk up somewhere in the Bronx, you charged $2000 on

02:15:54.930 - 02:16:12.669

your credit card in the 90 days before you filed bankruptcy that's an abuse you owe it to us, you better pay. So she calls her lawyer and the lawyer says, I don't represent you, anymore. I only represented you for the filing of the petition.

02:16:12.959 - 02:16:26.959

And she says, well, what do I do? And he says, well, you know I could represent you but that would cost more than if you were to agree to do what they say in the letter, which is to pay $25 a month on account of

02:16:26.959 - 02:16:39.829

this charge that you had and what does she do? She agrees to pay the $25 a month, right? And you know what, was it abusive? Did she buy a flat screen TV? No. She bought an air conditioner because her doctor said she needed it for her

02:16:39.829 - 02:16:56.789

health in the apartment or if you actually look at the bill from Sam's Warehouse or Costco or wherever it was, you know, it was for milk and cans of tuna fish. It was not for a flat screen TV. So absolutely, there's this issue

02:16:56.789 - 02:17:12.689

of fees and driven but it all comes back to I think Joyce and I are like separated at birth here on this issue because and I'm not subscribing evil necessarily, but because of this imbalance in the participants in the system it's

02:17:12.689 - 02:17:30.330

why it has to be fixed and simplified it's why the analogy to chapter 11 doesn't work but it's why we have to keep trying. Could I just, oh, actually, no, I was just gonna one point out analogies generally and this ties back

02:17:30.330 - 02:17:49.570

to Espinoza and this is really in some sense specific about the Supreme Court and a little bit less so, but also about the courts of appeals. Judges who don't deal with bankruptcy generally and certainly not with consumer cases on a regular basis are always

02:17:49.570 - 02:18:02.559

trying to grasp for the nearest analogy. It's very hard, you know, it just to sort of get a where what what's going on here? Let me see if I can find the nearest analogy. It's not surprising to me that Espinoza turned out the way it

02:18:02.559 - 02:18:20.240

did, because if you're a generalist judge who understands judgments and orders and the binding effect of judgments and orders, the best analogy is, oh, res judicata like any other order, right? I think that's the right answer, but you can see why a court that doesn't

02:18:20.240 - 02:18:34.919

sort of do this on a day to day basis immediately turns to that and and thinks it's easy. Um, it's also the reason why an appellate court judge who knows a little bit about 11, having been a practitioner maybe at a big firm

02:18:34.919 - 02:18:52.239

and being a litigator who occasionally handled a fraudulent conveyance action or something, will immediately turn to the analogy. So even if, um, you know, Craig's point is not one that that persuades everybody. It's something that needs to be kept in mind by those who

02:18:52.249 - 02:19:07.735

mind the fields because those who are going to be deciding cases, especially as you get further up the the judicial hierarchy are, I think, quite likely to make what is the best analogy here and I think Chapter 11 can be a very attractive best

02:19:07.735 - 02:19:21.384

analogy because it's the one that they are most likely to have. At least 9 because the guy in Judge Bennett Birmingham I think wants to keep the jurisdiction over the sewer system for 40 years. So we could just do

02:19:21.384 - 02:19:40.980

it for life, the lifetime system. I came to this topic and the debate between Craig and Tara, really kind of neutral on the issues. I'm certainly sensitive to the jurisdictional concepts and restrictions, I mean, I'm

02:19:40.980 - 02:19:55.190

acutely aware as an Article One judge of the narrow range of action that I'm supposed to have as a matter of law. As a practical matter, I'm certainly inclined and disposed to side with Judge Chapman if only in hopes of getting back

02:19:55.190 - 02:20:14.440

to the speaker's table or getting invited back. But when I look at this, one of the challenges and going back to the topic that came out at the outset about the ongoing review and oversight, there's the word paternalism that

02:20:14.440 - 02:20:29.459

was used. I don't think that that's even remotely a mistaken term. I think that's precisely the concept, and that there is a, this is not simply a court, it's a system. Um, so it's it's not just a code, it's not the environmental code that

02:20:29.459 - 02:20:43.370

you go fight in the federal district court. This is a system and people enter into it, and I see it as a system. And while I really do acknowledge, and maybe this is a sign of what a good lawyer Craig

02:20:43.370 - 02:20:57.750

is because I've listened carefully and I disagree deeply and I can't even begin to articulate why. But you know, when I listen to the restrictions and I think that a lot of it is rooted in a in a chapter 11 analogy, but

02:20:57.750 - 02:21:13.129

a lot of these ideas of look on a post-confirmation basis non debtor or post confirmed debtor can litigate somewhere else with somebody with somebody else in another forum. That is the essence of the concept of a limited jurisdiction court. I get it. The problem that I

02:21:13.129 - 02:21:27.870

struggle with is that I see myself, while I accept that as an intellectual proposition, I see much of what I would do on a day to day basis as being a fool's errand. Because if I don't have

02:21:27.870 - 02:21:46.709

the ability to deal with the problems that I see coming up, I can tell you precisely what will happen. There will be a failure which I can live with. I still get paid, but there will be a refiling and that means that this process simply will

02:21:46.709 - 02:22:02.589

not work. It won't serve the legislative purpose of providing relief. It won't frankly benefit the creditors themselves, and again going back to I think one of the critical points of just the mechanics of the process, you've then got a debtor that probably cannot afford the

02:22:02.589 - 02:22:21.790

representation that they previously had. And so now I do have a pro se debtor whose circumstances are now an unmitigated mess of a failed plan, a foreclosure that's renewed. You've got 362 issues about whether the state comes into effect, so you've got somebody that

02:22:21.790 - 02:22:35.259

you look at and they're already at the end of their rope and to the extent that I can avoid that, that circumstance, I do so. And you know we've, it's been quoted a couple of times, the we're all here theory of jurisdiction

02:22:35.669 - 02:22:50.349

there is something to that because I look at I look at it and I think creditors lawyers often look at the bankruptcy court and say we're actually here too we don't wanna go and try to obtain service over an individual get our default and

02:22:50.349 - 02:23:04.790

get nowhere. I can get a judge that will that will actually understand that this person can't keep this house and I'll get my relief. And that will and I may get perspective or in rem relief so that I don't get blindsided by a subsequent

02:23:04.790 - 02:23:21.320

filing. The issue of whether or not available counsel can assist with that process. I struggle with that because I don't let my, uh, when I've got counsel representing a debtor, it is very difficult to get out from my court. You are in for a

02:23:21.320 - 02:23:33.669

dime and you're in for $1. I'll try to get you paid more if I can, but you know, I don't really, I don't really favorably respond to the, this is not in my job description when there's a lift stay dispute.

02:23:33.839 - 02:23:53.459

You're actually still here and so that, you know, the tensions between these I think are, are really well articulated. And it is difficult to identify or pin congressional intent. In the code, there's just too much wiggle room to say you can

02:23:53.459 - 02:24:10.469

easily say, and I think we've all written opinions that say the code was was created to provide. Frankly it's social legislation, not necessarily commercial or economic in order to deal with the consequences of economic default. And to deal with people and corporations that they

02:24:10.469 - 02:24:23.669

cannot pay their bills and to help promote a credit economy. I mean the growth of this country is because of consumer credit and if you didn't have this consumer failure out you couldn't have the credit and we'd be in a very different place. Would be

02:24:23.669 - 02:24:47.860

back to 1950. So I also think it's a golden opportunity for academia. And the growth of their clinical programs, I shouldn't point, and the growth of their clinical programs and the increasing challenges to their purpose and their mission. That the academic community partnering with

02:24:47.860 - 02:25:06.620

enlightened practitioners like Craig. Bill Clinton. I'm trying to do the the President Obama, can come in here and it's an ongoing process. It's not easy it's not easy, but I think that that you folks are smart enough to be able to do

02:25:06.620 - 02:25:22.709

it and there's enough resources in the in the community. I know that in a lot of jurisdictions, lawyers come and sit in the courtroom during reaffirmation day and nobody has to undergo a reaffirmation without having someone there that they can talk to. Yes, I

02:25:22.709 - 02:25:39.879

get it that's very different than shepherding somebody through with Chapter 13, I get that, but my point is that we can do more to bridge the gap that everyone acknowledges exists and that David, uh, articulated with respect to representation. So Tara can probably talk it

02:25:39.879 - 02:26:05.809

with greater knowledge about this, but at my home institution, we've actually thought about offerings both for students and for society, maybe clinical offerings and consumer bankruptcy. And it's actually it's, it's very hard to structure a pedagogically sound and socially useful clinical program

02:26:05.820 - 02:26:25.019

because again, this chapter 13 chapter 7, yeah, that's right, but with chapter 13, it's, you know, it's not, these aren't sort of easy issues. The length is an issue, and when you have students who maybe are there for a semester

02:26:25.040 - 02:26:38.959

you also have to staff in a way that you can, you have to screen cases coming in and it's sometimes quite hard at the outset to know whether, you know, this is a case that, is a viable one. So there are lots of

02:26:39.080 - 02:26:56.650

limitations. One thing that we've talked about that we're going to try to implement is at least start at the appellate level consumer appeals because that right so district court appeals court of appeals appeals. You know, students that they obviously have to

02:26:56.650 - 02:27:12.589

learn the law, but you're writing a brief and you can so there's pedagogical value and there's also hopefully great social value because it'll help to drive clarification of issues that really need to be clarified on appeal. But I also, I will say that one of

02:27:12.589 - 02:27:28.349

the things that happens though in my sense is that sometimes it's important to have somebody who understands the practice, otherwise you get cases up on appeal like the defalcation case which was brought by a law school, and that's great that issues resolved, but it

02:27:28.349 - 02:27:40.379

wasn't the most pressing issue that that we had I think in the consumer bankruptcy world. I think sometimes the choice of case is driven more is this a clean issue? Can we do this rather than, you know, is this one

02:27:40.379 - 02:27:53.419

of the tough ones that we really need resolution on? Um, I actually had a question, and would we be having this conversation 10 years ago before the mortgage crisis? I'm trying to figure out how much of this is driven by the problems in the mortgage

02:27:53.419 - 02:28:07.219

servicing world as opposed to just chapter 13 in general because I don't remember having these issues. I think you're right. I think that some of the issues. I mean the way the servicing changed and the way you never knew who the lender

02:28:07.219 - 02:28:21.860

was and you they would no one would show you the documents and that whole MERS business I mean that drove a lot of this, but even before that we struggled with the timing of claims coming in after a plan confirmation. I was telling these these folks,

02:28:21.940 - 02:28:36.490

you know, we used to debate this stuff honestly, I remember when Denise convened a group of large 13 districts in 1988, and we all compared notes on how do you deal with the fact that creditors want to get paid quickly. They don't want to wait

02:28:36.490 - 02:28:48.179

10 or 11 months until all the claims have come in and you've resolved them, and we were comfortable with this fluidity of, well, they'll pay the money in and the trust we'll confirm a plan they'll pay the money out and then we'll

02:28:48.179 - 02:29:01.120

worry about claims and we'll just, we'll just figure it out. Because you can't figure it all out, there is no one point in time to figure anything out. I just wonder because, so, so kind of in the last, you know, uh, what are we 2013, so

02:29:01.120 - 02:29:16.799

in the last 7 to 8 years, you know, we see more from my perspective I see more debtors wanting to not vest the property. So, I don't, you didn't used to see plans that did this, this thing where it says,

02:29:16.929 - 02:29:32.320

you know, and by the way, we're not gonna vest this property in back in ourselves because we want the court to maintain jurisdiction over this because we're getting you know kind of mixed messages from the mortgage

02:29:32.320 - 02:29:46.599

creditor that we want, we actually want the court to retain jurisdiction and so you see more vesting the conduit payment plans that we've talked about. Those, I don't remember those being a big deal 10 years ago. They have become more than half of the districts.

02:29:46.679 - 02:29:59.980

In part because of this and the way it's sold is well we can work with your mortgage creditor and better than you can and you will make sure the payments get paid and so I just I wonder how much of our conversation is is really

02:29:59.980 - 02:30:12.469

just resulting from the consequences of kind of what happened in the mortgage markets in general. The servicing which I think has has lagged a little bit behind in terms of technology and being able to to to manage the bank I don't think it

02:30:12.469 - 02:30:26.959

ever managed the bankruptcy system well. And then the number of cases exploded, right? So, you know, I think bankruptcy for most mortgage servicers was handled fairly manually up until a couple of years ago, and I realized there are some software

02:30:26.959 - 02:30:39.653

systems now that may kind of wrap around the existing systems to try to manage the bankruptcy system, but it's pretty challenging, right. I mean, I think you're right. I think the lack of accountability with all the

02:30:39.653 - 02:30:57.373

technological change and the way the mortgages are created and sold has created a a desire to stay in the bankruptcy court under it's guidance longer by both parties but I think there there were always districts where the property stayed vested in the estate because of the

02:30:57.373 - 02:31:10.185

ease with which you could lose a home in a foreclosure even when you had a local creditor, but I think you're right, it's gotten, it's my sense that this issue has really exploded and become much more, much more of an issue

02:31:10.185 - 02:31:23.555

and a controversy since the mortgage crisis and in part response to some of the things that I highlighted in my paper which may or may not exist anymore but were certainly the impetus for judges to say hey how come

02:31:23.980 - 02:31:35.809

you won't tell the debtor how much they owe or how come you know and that just that just makes people go off the deep end because it's just why would you do that and I think that that has then

02:31:35.809 - 02:31:54.099

you know pushed people to wanna maintain more control over these issues. People, I can't emphasize enough how little people seem to understand about their financial circumstance. We have countless with cars. with cars where they don't understand that in addition to the fact

02:31:54.099 - 02:32:11.309

that they're paying 21% for their 2001 Honda Pilot so that at the end of their payments they will have paid, you know, more than a BMW would cost for the Honda Pilot then they come in and they'll say I'm done paying and they won't don't understand

02:32:11.309 - 02:32:28.410

that there was a balloon payment at the end so so they they don't understand and when you read it and you know you're all smart people try reading some of that stuff sometimes and you know just try reading it and try just pretending you don't know

02:32:28.410 - 02:32:46.330

anything about chapter 13 as I didn't when I got my first chapter 130 docket and actually working through what the statute says and how to do the calculations and what the various tests mean it's really hard. So are you prepared to concede, Craig?

02:32:46.400 - 02:33:06.669

Well, look, here's what I'm prepared to say. Regardless of what one thinks about the metaphor to Chapter 11 with respect to the structural operations of the case, there is one really important sense in which there is clearly a metaphor which is as follows,

02:33:07.040 - 02:33:32.429

after the 2008 financial crisis the corporate America was enormously benefited by the smooth operation of Chapter 11 that companies that that absent a well functioning bankruptcy system would have failed. Many survived because of the flexibility and well functioning of a system that allowed reorganizations

02:33:32.429 - 02:33:47.410

to happen, which meant more creditors were paid, more jobs were saved. There was a more robust, you know. To be sure, the economic crisis mattered, but it was very much cushioned by a smooth operating Chapter 11 system. It's in everyone's interest, creditors, debtors, everyone for the

02:33:47.410 - 02:34:03.620

system to work and work smoothly. And large funds from the treasury. Well, that helped too, yeah. And exactly activist government that helps solve people's problems. I agree with that. I think that is also true of Chapter 13. If you're,

02:34:03.620 - 02:34:18.660

the housing crisis was a problem. There were a lot of foreclosures. There were fewer foreclosures than there would have been because Chapter 13 does exist and it does operate as a way for people to stay in their homes and continue to pay on their

02:34:18.660 - 02:34:37.360

mortgage, and that all told is a good thing, and I think it is in everyone's interest for these systems to operate. To operate smoothly and with clarity, um, clarity and flexibility, as Professor Epstein says, are not mutually inconsistent. You can have clarity,

02:34:37.370 - 02:34:53.049

with flexibility and you know, I do think there's a ways to go. I mean we started this, as I said at the outset, not particularly pushing you know, a view, but with questions about what's the right way to think about this and as I, you

02:34:53.049 - 02:35:09.639

know, I acknowledge this limitation very clearly, I came out thinking about these problems from the perspective as a lawyer who grew up understanding Chapter 11. Everyone views life and problems through the prism of their experience, and I'm as victim of that as anyone. And I

02:35:09.639 - 02:35:27.790

think what Troy said is absolutely right. It's, you know, the traditional legal tools are when you confront something you don't know, what box can you put it in? What is there that you do know that you can make this most like? And

02:35:28.080 - 02:35:44.940

that's in many ways you know, too easy as a crutch. On the other hand, it is the traditional tool of lawyering. This discussion about, OK, these are the ways in which those tools are useful to help you get to

02:35:44.940 - 02:35:57.349

the right answer, and these are the ways in which may be those tools are misleading and get you to an answer that's not quite right because these things actually are different is exactly the conversation that I thought this was intended to stimulate and I've actually

02:35:57.349 - 02:36:43.820

found it extremely helpful in puzzling through the answers to those tricky questions. Adam. Absolutely. I'm a practitioner. I've filed both chapter 11 and chapter 13 cases as well as 7. I've often said that chapter 13s are

02:36:43.820 - 02:37:04.759

among the most challenging cases that I've had to do. Partly because the clients lack the sophistication and the means. One of the problems that I've seen is that we have in this country an adversarial model of law and that while that may work

02:37:04.759 - 02:37:24.790

while each side is evenly represented, it doesn't seem to work as well when there aren't the resources to represent the debtors in chapter 13. So I'd be curious to hear what the panel has to say about the role of whether there's a role and

02:37:24.790 - 02:37:45.129

even an ability for collaboration between the bench and the trustees and to a certain extent the bar so that there's more cooperation rather than antagonism. I agree with you, and I think you know one of the things we were talking about last night,

02:37:45.139 - 02:38:00.740

with every time there's a rule change, a national rule change every December. One of the things that in our district we used to do is get together with the trustees and the bar open forum, discuss the rule, how we're gonna make this rule work. This

02:38:00.740 - 02:38:11.700

is a national rule. There would always be a lawyer or two who would say, I want you to pass an administrative order that says this rule doesn't apply in this district, and you know we wouldn't, we said we'd like to do that. We can't do

02:38:11.700 - 02:38:29.830

that, but tell us what will be really angry some districts do do that. The idea of working through rather than litigating, in other words, it's tempting to go hire some and the lenders lawyers in our and among our district

02:38:29.919 - 02:38:44.110

we're always on board and a part of the conversation as well, and the question was how can we everybody get the information going back to basic fairness what's the objective here? You wanna know what you owe you don't wanna tell them, but you really have to.

02:38:44.320 - 02:39:00.754

So how are we gonna do this, you know,. And what's the way, but I think a conversations, you know, local committees of lawyers that get together, communications with the chief judge, regular, I mean we used to have like regular every quarter brown

02:39:00.754 - 02:39:16.709

bag, people come in and the local bar, the city bar very active in spearheading these efforts and our hope was if there was ever something really wrong going on some new thing that came up we'd hear about it and

02:39:16.709 - 02:39:27.110

we always we did. We didn't have to hear about it in a in a litigated sense it would be like gosh this uh this is a problem. This notice doesn't get sent by the right people at the right time so it's gonna be a problem we

02:39:27.110 - 02:39:41.620

could solve it because most of these solutions were really practical solutions and once the discussion took place there was a practical answer that maybe everyone wasn't thrilled with but it was fair. Another take on it is what we've done in our district which is

02:39:41.620 - 02:39:59.709

to enact a loss mitigation program. Which has been enacted in a few districts across the country. Not nearly enough, and what that does doesn't change our substantive power, but it gives us the ability to order the people to talk to each other. And

02:39:59.709 - 02:40:14.750

good things happen when people talk to each other. You could get to a solution an economic solution of a mortgage problem that is good for the debtor and good for the lender, better than the alternative so I think you throw that into the mix and I

02:40:14.750 - 02:40:29.224

completely agree with your premise. I would just observe in our jurisdiction, one of the luxuries I have is it's very small jurisdiction. My consumer and debtor bar would fit mostly around this table, and I have a single trustee, and I'm the only judge in

02:40:29.224 - 02:40:44.980

the handling the 13 for the state. So it is fairly concentrated. It's a collegial group, but one of the things on that, on that issue about addressing these issues and providing for adequacy of representation, this is not a tool that I think is

02:40:44.980 - 02:41:00.830

necessarily transferable, but I came to this docket without any experience in practice and I was, and it's a small enough place that my entire bar knew that, but in candor I spoke with the trustee and with the bar because we

02:41:00.830 - 02:41:15.809

have forums all the time, brown bags and I said look, if there is a significant issue, that is not just who wins today, thumbs up, thumbs down in a cattle call calendar, but something that has been the subject of litigation and

02:41:15.809 - 02:41:27.150

opinions across the board and we need an answer here, I'll give you an answer. You need to tell me, and now I'm, I'm a little bit more clued in so I know when I hear the issue, but I said you need to tell me if

02:41:27.150 - 02:41:41.679

this is a big issue that affects more than the two folks at the podium in front of me, then tell me. And we've administratively consolidated, one time we consolidated 14 cases to spread the briefing cost on the debtor's side over it was a mortgage

02:41:41.679 - 02:41:56.469

issue. And I would like to think that while all lawyers want to win in this practice, you need an answer. I don't really care what the answer is, you just need an answer. And so, I think we've kind

02:41:56.469 - 02:42:10.940

of embraced that concept, and I do struggle with the concern that parties are not evenly or fairly matched, and that was at least a tool that we took again it's something that that lends itself to a small jurisdiction, but

02:42:10.950 - 02:42:23.769

it's something that I think is part of our responsibility to try to get to an answer and to administer the docket as best we can. But you had a question, sir? Uh, my only comment was the creference to collaboration in Chapter 13,

02:42:24.230 - 02:42:39.769

along with Professor Epstein's comment sort of sounds like it cries out for more of an administration kind of proceeding where the judges used to have the striped shirts and the whistles and were referees, maybe in Chapter 13 that's what you're wearing and then in

02:42:39.849 - 02:42:53.330

Chapter 11 you're wearing your judicial robe and just calling balls and strikes. So I think most judges put those dockets on different days for that reason. You're in a different, you're in a really sort of compassionate, more listening mode or more humane mode in a

02:42:53.330 - 02:43:08.150

13 calendar. Well, you need to be because you. That explains my experience in bankruptcy court in Chapter 11. I will say, I will say this though, I won't say the name of the judge, but there was a judge

02:43:08.160 - 02:43:30.450

in a Southern District bankruptcy judge in the Southern District, and I asked. I'm sorry, parochialism. You didn't think he was thinking about Illinois. And I won't identify the judge, but I asked the judge what was the best preparation for dealing with

02:43:30.450 - 02:43:44.230

a particular big mess, Chapter 11. That was on the judge's docket, and this judge said it was, when I was the junior in the Southern District and I had to do the 13 call and I had absolutely no clue what I was doing at first and

02:43:44.230 - 02:44:02.320

all of these needy people were coming at me. And that not in terms of the law, but in terms of the sorting and the dynamic and just understanding how to sort of keep things going, um, that was actually a very good preparation and

02:44:02.320 - 02:44:15.540

I thought that was not the answer I expected. I thought the answer was going to be, well, when I was in practice, I had this really big case that was not the answer. It was actually dealing with 13s at first. The Supreme Court

02:44:15.540 - 02:44:34.610

was going to hear a case involving 401Ks and bankruptcy. I think Mr. Goldblatt, you're representing one party in that case, are you, you have an interest there? Yes, um, to the trust. How do you see that coming out? We're gonna win the argument, wait wait wait

02:44:34.679 - 02:44:53.169

wait wait wait wait wait wait wait wait wait. Yeah I just have to tell you they're gonna lose. Why you think he's gonna lose and you tell me why you think you're gonna win in brief? Well, I mean, the question is a question of statutory

02:44:53.169 - 02:45:19.139

interpretation. The code says that retirement funds are exempt if they are in a fund that is exempt exempt from taxation under a particular provision of the tax code. The issue here is whether an inherited retirement account that one inherits from somebody else's retirement

02:45:19.139 - 02:45:38.610

funds and our position essentially is that they are not because they are not funds that are sequestered for the debtor's retirement. And that's pretty much all there is to it. I mean, there are certainly arguments on the other side, but that is the crux

02:45:38.610 - 02:45:51.990

of our argument. That's it. And the, the other side is that it says retirement funds is one of these accounts and it's, they are retirement funds in one of these accounts. So I think it's, it's gonna be, it's really a question about what does

02:45:51.990 - 02:46:11.410

retirement funds mean. And there's a split in the circuits, the 5th has gone in the 9th Circuit bat. Yeah, I can't remember which it's the 5th Circuit on one side and the 7th Circuit

02:46:11.410 - 02:46:30.259

on the other. So, are you expecting a 5-4 decision, or, the 5th Circuit actually, held that retirement funds were that the debtor was able to exempt the retirement funds and the 7th Circuit, using very bad analogies, going back to analogies,

02:46:30.349 - 02:46:56.049

held that the debtor was not able to exempt those funds. That's just Sherbrooke, yes. Other comments or questions? So with that on our theme of the day, I'm glad we were all here. I am so grateful to the panel. I wanna ask you to join. I

02:46:56.049 - 02:47:10.769

say, most of you, I think, have access to both the papers, but if not they're both Craig and Tara wrote position papers on this issue. They're on the American College of Bankruptcy website and in a couple of weeks, the video for this

02:47:10.769 - 02:47:23.480

program. So we'll look forward to that, and I do ask you to throw away your cups and napkins and the like on the way out so the good students can come use this room shortly. Thanks so much Denise and thank you, Denise, for all you did. [End of Session]

02:47:28.709 - 02:48:03.490

Oh great, thank you.

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