Faculty Bibliography

Every policy prescription, economic analysis, or news report about consumer bankruptcy rests on one or another unspoken image of the estimated 1.6 million families that will file in a single year. Data from the 2001 Consumer Bankruptcy Project permit a systematic analysis of the composition of those who file for personal bankruptcy, focusing on their educations, occupations and home ownership status. These attributes serve as a proxy for class identification. Based on these indicia, more than 90 percent of the families in bankruptcy qualify as middle class. These data are a powerful reminder that whatever else might be said about those in bankruptcy, these people are not some sub-group of Americans safely distanced from the middle class, but instead are co-workers, neighbors and families woven throughout the fabric of American society.

A vigorous market for scholarly data exists, as journalists, lobbyists and legislators search for facts to pepper their public statements and better influence public opinion. In the bankruptcy area, data providers, such as the Credit Research Center located at Georgetown University, have taken money from the consumer credit industry to produce studies supporting the credit industry's political positions. In the case of the CRC, the studies bear the University logo, but the Center describes the data as "proprietary," belonging exclusively to the industry funders who decide what data are released and what data are held private. This paper explores the implications of such funding arrangements on independent research and ultimately on the public debates.

A number of political issues have become publicly identified as women's issues, actively promoted by women's groups and supported by politicians eager to portray themselves as supporters of women. By contrast, some issues are gender-neutral, such as economic or business issues that are of no special concern to any gender-based constituency. The 2002 bankruptcy bill, advanced by the consumer credit industry as its highest legislative priority, features a number of provisions that would fall especially hard on households headed by women and on women with children. Far more women will be affected by changes in the bankruptcy bill than almost any other legislation pending in Washington in the past several years, yet the bill has not become a rallying point for those committed to equal justice and fairness for women. Why? This essay explores how some issues become "women's issues," while bankruptcy remains low on the agenda of most politically active women's groups.

The missing players in bankruptcy are the families whose economic well-being will be tied to that of the filing debtor. They remain in the shadows in the legal and policy debates, while the focus remains almost exclusively on the acts of parties who file and how to adjust incentives to influence their behavior. If the families of those who file for bankruptcy are ignored, it is impossible to assess either the cause or the impact of a bankruptcy filing. Based on data from the 2001 Consumer Bankruptcy Project, this paper offers an analysis of the number of previously-uncounted children, spouses, ex-spouses, elderly relatives and others who are swept through the bankruptcy system with those who file formal petitions. The data indicate that families with minor children are at exceptional risk for bankruptcy, and that women rearing children alone are at even higher risk. This paper suggests a promising new line of inquiry about the causes of economic collapse that focuses on the financial impact of child rearing.

In 1999, Professors Jacoby, Sullivan, and Warren undertook an empirical study of bankruptcy filings to understand better the circumstances that brought middle-class families to a state of financial collapse. The information gathered in the study, known as Phase III of the Consumer Bankruptcy Project, revealed that an estimated more than half a million middle-class families turned to bankruptcy courts for help after illness or injury that year. The findings of the study illustrate how bankruptcy files document the economic problems families encounter when bills mount and incomes fall in the aftermath of a medical problem. In this Article, Professors Jacoby, Sullivan, and Warren present the data from their study to illustrate that hundreds of thousands of middle-class families in the United States are devastated economically each year under the current health care finance system. Their data indicate that focusing on the presence or absence of health insurance alone would lead to an incomplete solution. Instead, the authors suggest that since bankruptcy effectively serves as part of the health care payment system, bankruptcy policy should be included in any comprehensive review of health care financing policy.

This paper explores the financial impact of medical problems, using data from Phase III of the Consumer Bankruptcy Project, a survey of 1,974 individual bankruptcy petitioners conducted during the first quarter of 1999 in eight federal judicial districts. Although the questionnaire covered a variety of topics, this paper focuses on debtors' identification of illness or injury as a reason for filing, medical debts, and health insurance coverage. One out of four debtors, or an estimated 326,441 families in 1999, identified an illness or injury as a reason for filing for bankruptcy. One third of the debtors said that they had substantial medical bills, i.e., that they had incurred $1,000 or more in medical bills not covered by insurance. Combining those identifying medical reasons with those indicating substantial medical debts (an overlapping but not perfectly coextensive group), the financial consequences of medical problems were a factor in the bankruptcy cases of an estimated 596,198 families in 1999. Health insurance coverage was sparse for the group, with one in five debtors reporting that they had no health insurance for any family member. The absence of insurance, however, did not correlate with a debtor's identifying a medical problem. Those who had insurance and those who did not were about equally distributed among those who identified a medical problem and those who did not. The data were re-analyzed by separating the responses of single filing men, single filing women, and joint filing married couples. Households without a male present were nearly twice as likely to file for bankruptcy giving a medical reason or identifying a substantial medical debt as households with a male present. The proportion of debtors providing medical reasons for filing also varied with the debtors' age. Of debtors 65 or older, 47.6 percent listed a medical reason, as compared with 7.5 percent of debtors under 25. Previous studies considering medical problems and bankruptcy in the United States are summarized, although the methods used and results obtained are not directly comparable with the current findings.

The Business Bankruptcy Project is a five-year empirical study of about 3,200 business cases originally filed in Chapter 7, Chapter 11 and Chapter 13 in 23 judicial districts during 1994. This first report focuses on financial and demographic data, creating a statistical profile of the businesses in bankruptcy. The data reported in this paper include assets, debts, solvency, corporate or individual debtor type, classification of industries, number of employees, and reasons for filing; the data are reported in the aggregate, by chapter of filing, and by district. These data are used to test a number of hypotheses about the operation of the business bankruptcy system. The report also reveals anomalies in the system, such as certain large debtor companies that file no bankruptcy schedules at all. The sample is marked by its diversity, which includes a large number of small businesses and a small number of large businesses. Among the business debtors are a surprising number of natural persons in Chapter 11, a procedure designed around a corporate template. Across all three chapters there is substantial overlap of consumer and business debt, with many business debtors reporting a combination of business and personal reasons as triggers for their bankruptcy filings. Financially, the sample as a whole is solvent, with more than 25% of Chapter 11 business debtors claiming balance-sheet solvency. The social impact of bankruptcy is emphasized by its effect on employees. Although many of businesses are small by most measures, extrapolation from the reported data suggest that as many as 2 million employees a year find their employers going into bankruptcy. Real estate companies are prominent in Chapter 11, and more than half of them claim to be solvent.

Americans love records, statistics, and amazing numbers. Home runs, rushing yardage, presidential-approval ratings, smoking-related deaths, and murder rates-all offer great material for attention-grabbing headlines. In 1996, the bankruptcy system stepped into the spotlight by supplying an attention-grabbing number of its own: more than a million bankruptcies were filed in a single year.' The filing rate had increased sharply over the previous year, but this was nothing new. Rather, the magic of "one million" made bankruptcy a newsworthy subject to be covered in virtually every newspaper, news magazine, and national television news program during the year. Bankruptcy, like baseball and public opinion polls, had become a sport of numbers, perhaps not widely understood, but the subject of breathless reports, as the benchmark of a million-plus consumer filings was passed. The million-filing mark might have been a short-lived subject for the popular press but for one factor: the filing rate gave the credit industry an opportunity to plead its case publicly that Congress should significantly restructure the bankruptcy laws. The fact that one million families filed for bankruptcy signified a crisis, namely that it is too easy to file for bankruptcy. The credit industry also offered the blueprint for a solution: make it more difficult for families to file for bankruptcy.

The question of guiding principles has, by necessity, been more than rhetorical for the National Bankruptcy Review Commission. The Bankruptcy Reform Act of 1994 outlined the duties of the Commission: 1. to investigate and study issues and problems relating to title 11, US Code, 2. to evaluate the advisability of proposals and current arrangements with respect to such issues and problems, 3. to prepare and submit to the Congress, the Chief Justice, and the President a report in accordance with section 608, and 4. to solicit divergent views of all parties concerned with the operation of the bankruptcy system. Clearly understood principles that transcended the bounds of pleasant generalization were needed to guide the actual process of making the recommendations Congress requested. The process that influenced the development of the Commission's approach to understanding and recommending changes in the consumer bankruptcy system is discussed. One of the fundamental premises that lies behind the reforms recommended by the Commission is also discussed.

A logical construction for the Symposium on the Priority of Secured Debt would have been an introduction to highlight the issues, followed by a panel of commentators supporting full priority, a panel opposing full priority, and a panel discussing the optimal implementation for any constraints on priority. ... Professor Schwartz revived an old debate in the newly discovered language of law and economics by asking whether secured debt is efficient. ... The first Committee brought order out of chaos, turning assets in which no security interest could reliably be enforced at state law into valuable collateral. ... Nor is it possible to hypothesize an unsecured creditor who lost a fortune while the secured creditor walked away with all the assets of a business saying much more than no. ... The full priority system gives full priority against only the unfavored groups who failed to persuade a legislature to pass a friendly statutory lien. ... A full priority system of secured credit permits some creditors to make a partial opt out from the bankruptcy system. ... Notwithstanding the features of bankruptcy that curtail the power of the secured creditor, the ability of the secured creditor to demand adequate protection and to insist on a priority repayment of assets effectively gives the secured creditor the power to block a reorganization.

This paper describes certain central aspects of the operation of the consumer bankruptcy system in the United States. It combines government data with the investigators' empirical data from two large studies done over a decade to explore two types of questions. The first area of investigation relates specifically to bankruptcy policy. The object is to identify the categories of persons principally served by the consumer bankruptcy system and to determine if suggestions of widespread abuse of that system by debtors are well-founded. The paper reports that the system is used primarily by the middle-class. It also reports that there is no evidence of widespread abuse. The second area of investigation is explanation of differences in the operation of the system in different regions of the country, differences that have persisted over twenty years despite major changes in legal rules and economic conditions. The paper argues that these differences are not explicable in terms of formal legal rules or a simple economic model and that a better explanation of the data is that the differences are the product of a "local legal culture" in each region.