BOOK REVIEW
186
187
P RE FACE ...........................................
I.
II.
188
III.
188
IV.
PROBLEMS IN THEIR APPROACH TO EMPIRICAL RESEA R CH .. .. ... .. .... .. .. .... .. .... .. ... ... ..
V.
VI.
VII.
SITES ...........................................
CRITICISMS OF THE ADMINISTRATIVE OFFICE STAT ISTIC S . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . . . . . . .
PROBLEMS IN THEIR METHODS ...................
A.
B.
VIII.
IX.
XVI.
XVII.
19 7
198
198
199
201
205
206
X.
X I. M EDICAL D EBT ..............................
XII. CREDIT CARD DEBT ..........................
XIII. DEBTORS' PREVIOUS FILINGS .....................
XIV. CHAPTER 13 PLANS ..............................
XV.
190
192
FINANCIAL AND SOCIAL VARIABLES ARE NOT PRED ICTIVE ... .. ... .. ....
.. ... .. ... .... .... .. ...
DIVORCE AND BANKRUPTCY ....................
DEFICIENCIES OF THE ECONOMIC MODEL .........
208
209
210
211
2 13
213
214
Newark, N.J.
R UTGERS LA W RE VIEW
XVIII.
XIX.
XX.
G.
XXII.
13 ...
A.
B.
C.
D.
E.
F.
XXI.
[Vol. 43:185
221
223
224
226
229
233
235
235
236
237
FROM
238
241
PREFACE
For readers unfamiliar with bankruptcy jargon, the person filing in bankruptcy is called the debtor. Spouses may file together
in a joint petition. Filing in chapter 7 results in a liquidation of
the debtor's assets. The debtor surrenders his non-exempt assets
which are sold ana the proceeds paid over to his creditors. Exempt property is retained by the debtor. What is exempt is determined by reference to varying state laws in about two-thirds of
the states, and by the debtor's selection of federal or state exemptions in the rest. In 1981, when Sullivan, Warren and Westbrook's
sample of debtors filed for bankruptcy, about one-third of the
states had "opted out" by enacting legislation to foreclose use of
the comparatively generous federal exemptions.
Chapter 13 is the individual's reorganization. The debtor retains all his property, exempt or not, but has to pay his creditors
at least some of his debts pursuant to the debtor's plan, which
must be approved and confirmed by the bankruptcy court.
I report my own interest as a part of this essay. I was deputy
director of the Commission on the Bankruptcy Laws, and am the
author of three of the empirical studies listed below.' I was also
1. The following abbreviations are used throughout this book review:
SWW: T.A. SULLIVAN, E. WARREN & J.L. WESTBROOK, As WE FORGIVE OUR DEBTORS:
BANKRUPTCY AND CONSUMER CREDIT IN AMERICA (1989).
NJ Debtors: Shuchman, New Jersey Debtors 1982-1983: An Empirical Study, 15 SETON
HALL L. R v. 541 (1985).
HeinOnline -- 43 Rutgers L. Rev. 186 1990-1991
BOOK REVIEW
1990]
This book is the report of an empirical study of personal bankruptcy filings in 1981. The authors are two law teachers and a
demographer. They took information from 1529 files in Illinois,
Pennsylvania and Texas. The authors had this information coded
and tabulated, and used various statistical tests to analyze the
information taken from the files. They compared their results
with other data bases, largely federal figures of various kinds.
This book has been six years in the research and writing. The
authors' data were eight years old at publication. Nineteen
eighty-one was a recession year. Unemployment has decreased
and remained low in the eight years since then. Interest rates
were very high in 1981, but were sharply lower within two years
and have remained quite low relative to 1981. There were substantial amendments to the Bankruptcy Code in 1984. These factors make it almost impossible to gauge the present value of the
authors' data. Only a study over time and an impact analysis of
the 1984 amendments could show whether their findings, if accuNine Sts.: Shuchman, The Average Bankrupt: A Description and Analysis of 753 Personal Bankruptcy Filings in Nine States, 88 CoM. L.J. 288 (June/July 1983), errata at 88
COM. L.J. 395 (Aug./Sept. 1983).
GAO: U.S. GENERAL ACCOUNTING OFFICE, BANKRUPTCY REFORM ACT OF 1978-A BEFORE
AND AFTER LOOK (1983).
CRC: CREDIT RESEARCH CENTER, CONSUMER BANKRUPTCY STUDY (1982).
CT: Shuchman & Rhorer, Personal Bankruptcy Data for Opt-Out Hearings and Other
Purposes. 56 AM. BANKR. L.J. 1 (1982).
Brookings: D. STANLEY & M. GIRTH, BANKRUPTCY: PROBLEM, PROCESS, REFORM (1971).
HeinOnline -- 43 Rutgers L. Rev. 187 1990-1991
[Vol. 43:185
The authors began this work, they tell us, "because of our realization that so little was known about this important legal and
social phenomenon."'4 In particular, they point out that
"[blecause existing data were inadequate, we had to collect data
on the characteristics of bankrupt debtors, their assets, their liabilities, their jobs, their marital status, whether they were homeowners, and so forth. ' By the middle of 1983, when they began,
2.
3.
4.
5.
BOOK REVIEW
1990]
all the other studies listed above,6 except for NJ Debtors, had
been published. To claim that they began their work because so
little was known and what was known was inadequate is not only
untrue, but is also something of a put-down to other toilers in
this field. The authors make up for that, however, by virtually
replicating the previous studies and confirming most of their
findings, and doing that now with data from nine years ago.
The little new information in this book is of minor consequence.' The most interesting different findings are that 52% of
the authors' sample of all debtors in bankruptcy are homeowners,
and that chapter 7 debtors own homes about as often as do chapter 13 debtors." These findings are in sharp disagreement with
those of earlier studies with data from about the same time,9
which show chapter 7 debtors' home ownership at 16% to 28%,
and with the GAO study which concluded that chapter 13 debtors
owned homes twice as often as those in chapter 7, about 50% to
25%. Had the authors compared their findings with others' of
about the same time, they might have paid attention to why these
other studies apparently all went astray and in the same
direction."1
. .
tending that this is a direct test which disproves what they term the economic model.
They do not mention that GAO had previously found that "chapters 7 and 13 debtors
have similar income to debt relationships." GAO, supra note 1, at 53.
8. SWW, supra note 1, at 129.
[Vol. 43:185
They claim also to "examine the increasing fragility of the consumer credit system,""' but the authors do not tell the reader
what they mean by "fragility" in this context. They make no effort at showing whether the consumer credit system was more or
less fragile earlier or later than their references. Without such information, the question whether its fragility is increasing remains
unanswered. There is no fragility from the lenders' standpoint.
Consumer credit remains for most large lenders a very profitable
part of their portfolios.
The authors claim that they will test "the unspoken premises
of the bankruptcy debates against hard data about how bankruptcy actually works."' 5 I know of no unspoken premises and the
authors tell us of none.
They say the reader "will learn about the pathology" of the
consumer credit system. 6 From this book a reader could not find
out what distinguishes a healthy from a pathological consumer
credit system, assuming those adjectives have specifiable
meanings.
The scientific flavor of the book is neatly illustrated at the very
beginning. "This book is based on . . .the largest study of consumer bankruptcy ever undertaken. It required . . .a sample of
2400 bankruptcy pbtitioners . . . .,'v That claim is reducible to
the examination of 1529 bankruptcy files. The 2400 petitioners is
reached by counting as two joint filings by spouses, which all
other researchers count as one. Both the CRC and the GAO studies are based on larger samples. Including those debtors not interviewed (SWW also did not interview debtors), the CRC sample is
2249 files. The GAO sample is 1699 files, including 415 mailed
responses to questionnaires.
IV.
1990]
BOOK REVIEW
cover time periods other than 1981 filings," but are temporally
close to the present sample. The findings of these studies are not
mentioned and are not compared.""
We deal here with the pervasive and vital problem of the external validity-the generalizability-of the SWW study's findings
and conclusions."' External validity is often established by replication. Using these other studies provides several advantages: we
see these matters over more time and in other places and we can
compare the same or similar research done by other investigators.
Also, there is the possibly great advantage resulting from the interviews of debtors conducted by CRC and NJ Debtors. The information from those interviews which supplemented their archival studies, even if less reliable than the bankruptcy files, could
have been of great importance to the SWW study.
The only comparisons the authors undertake are with those of
the Brookings Institution study of some twenty-five years before
which was under a very different bankruptcy law and much
changed debtor-creditor laws in most states.2 Those comparisons
LAW AND THE SOCIAL SCIBNCBs 637, 643 (1986) (citation omitted).
Researchers have lately been applying the statistical techniques termed "meta-analysis."
Meta-analysis "is like an ordinary scientific review of research, except that ordinary reviews provide a qualitative-and often subjective-assessment of a few studies; meta-analysis. .. promises a quantitative synthesis of all available data." Mann, Meta-Analysis in
the Breech, 249 Sc. 476-80 (1990).
Other researchers confirm that meta-analysis "produces more robust evidence than any
single study. The convergence of evidence produced under differing conditions helps to
ensure that the effects observed are not the inadvertent result of some [other unrecognized
factors]." FAmNuss IN EMPLOYMENT TESTING, supra note 10, at 120.
19. Two of the important characteristics of legal behavior are variability (1) across settings and (2) over time. Diamond, supra note 18, at 660. The authors' one slice in time
approach cannot take account of the second threat to generalizability. Part V,infra, shows
that their site selection probably does not protect against the first.
20. The exception is their attack on the CRC estimates of the feasibility of compulsory
chapter 13 paybacks.
21. See generally T. CooK & D. CAMPBELL, QUASI-ExPERMENTATION 70-80 (1979).
22. A partial list of the more important changes since the Brookings research follows:
Since 1970, the bankruptcy courts, not the state courts, have had exclusive jurisdiction to
decide the dischargeability of debts. This jurisdictional change had the desired result of
sharply reducing the frequency of such actions and reaffirmations as well. The 1978 Bankruptcy Code made it even more difficult and slightly hazardous for the creditors to obtain
reaffirmations. These are both apt to result in considerable empirical changes. Despite
these two major changes in the past 20 years, the authors compare their apparently fragmentary data on reaffirmations with Brookings "25 years earlier." SWW,supra note 1, at
327 n.15.
The 1978 Code in its important aspects created a federal exemption and resulted in
larger state property exemptions in most states.
in
[Vol. 43:185
SITES
UNIFORM
LAws
ANNOTATED
(Master ed.
1985)(1968 Act), 15 U.S.C. 1601 et seq. (1988), adopted in 1968, and the Uniform Consumer Credit Code, as adopted, greatly changed the laws on exemptions from wage garnishment and deficiency judgments following personal property repossession.
23. See Sullivan, Warren & Westbrook, Limiting Access to Bankruptcy Discharge:An
Analysis of the Creditors' Data, 1983 Wis. L. REv. 1091, 1138.
24. "Many superfluous data are collected because it is too difficult or confusing or unconvincing or unglamorous to assemble and examine what is known already." FAIRNESS IN
EMPLOYMENT TESTING, supra note 10, at 120.
25. See Maier, Maier's Law, 15 AM. PSYCHOLOGIST 208, 211 (1960).
26. SWW, supra note 1, at 18.
HeinOnline -- 43 Rutgers L. Rev. 192 1990-1991
1990]
BOOK REVIEW
not told what criteria were used to reject other possible candidate
states. The authors should have tried to maximize the heterogeneity of the states with respect to what might be the important
variables.
A significant factor, which SWW did not investigate, is the severity of wage garnishment laws in the states. Brookings had
found that "bankruptcy rates in various states appeared to be related to their garnishment laws.""7 That increased wage exemptions from garnishment result in reduced bankruptcy rates was
confirmed in a Bankruptcy Commission study that examined the
impact of the federal law requiring of the states a minimum exemption from wage garnishment. 2 This relationship was tested
again for the years just before and after the Bankruptcy Reform
Act when it was again confirmed that bankruptcy rates were consistently lower in states that prohibited or severely restricted
wage garnishment. The relationship was more pronounced in 1980
than in 1978.2s
Bankruptcy Reform Law, 36 J. ECON. & Bus. 95, 103 (1984). See also id. at 101 n.4 for
other similar studies.
30. Of the 50 states, only these two states and Florida had a complete exemption of
wages from garnishment.
31. See infra Part XVII.
HeinOnline -- 43 Rutgers L. Rev. 193 1990-1991
194
[Vol. 43:185
1990]
BOOK REVIEW
00
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ujm
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[Vol. 43:185
1. Mean income reported in table G of study adjusted to include 21 cases with zero income. Nine
Sts., supra note 1, at 10.
2. CRC, supra note 1, at 78.
3. GAO, supra note 1, at 23.
4. Debtors owned a home in 167 of the 753 caes. Nine Sti., supra note 1, at 47.
5. Debtors owned a home in 332 of 1199 cas. CRC, supra note 1, at 78.
6. "A greater percentage of chapter 13 debtors were homeowners compared to chapter 7 debtore--50 percent compared to 25 percent respectively." GAO, supra note 1, at 49. GAO's responses to
mailings revealed more homeownership, but the ratio of chapter 13 homeowners to chapter 7 homeowners remained about two to one (chapter 13 - 66%; chapter 7 - 32%; N - 415). Id. at 20-21.
7. Income in the calendar year before the petition was filed was not reported for 78 cases and was
zero for 21 cases. These cases were classified as unemployed for purposes of this comparison.
8. The percentage of sample that reported positive wage income on the petition for year before
filing. Only 78.6% of sample had at least one person employed at the time the petition was filed. CRC,
aupra note 1, at 33.
9. GAO, supra note 1, at 34.
10. CRC, supra note 1, at 78.
11. GAO, supra note 1, at 48.
12. The average total debt was calculated by summing the totals of mortgage, unsecured, nonmortgage secured, and priority claims and dividing by 753 cases.
13. CRC, supra note 1, at 78.
14. GAO, supra note 1, at 51.
15. Total debt minus average mortgage debt (for whole sample).
16. Average total debt minus an average debt secured by home/mobile home of $9561. GAO, supra
note 1, at 27.
17. This figure differs from the 132% figure reported in Nine Sts., supra note 1, at 56, because of the
recalculation of average nonmortgage debt and the use of average income from previous year rather
than the average income for the previous two years. Both of these changes necessary to make a valid
comparison with the other two studies.
18. For 350 cases filed using the federal bankruptcy exemption law only.
19. Weighted average for 1980 and 1981. N.J. Debtors, supra note 1, at 658 table 19.
20. Id. at 575.
21. Id. at 560 table 21. Total N,186 of which 173 were employed.
22. $4129 personal property + 58677 real property (averages for those reporting equity). Id. at 583.
23. Id. at 565.
24. SWW, supra note 1, at 64 table 4.1.
25. Id. at 129.
26. Id. at 86.
27. Id. at 64 table 4.1.
28. Id.
29. Id. at 69.
30. Id. at 64 table 4.1.
31. Id. at 64 table 4.1, 66-69.
32. Id. at 260 table 13.7.
1990]
BOOK REVIEW
The authors' very strongly stated criticisms of the Administrative Office ("A.O.") statistics are (1) its one-time decision to
count joint petitions as two filings; and (2) that the A.O. cannot
accurately decide which filings are business-related and which are
personal."2
The one-time blip was obvious and persons involved with these
figures knew about the counting of joint filings as two. The 1978
Bankruptcy Code was a new law on joint filings which allowed
spouses to have a single case with one filing fee. Before 1979, the
estates of spouses were treated as separate cases with two filing
fees paid; they were usually then consolidated for processing. In
the event, both sets of figures were published by October, 1981.31
Also, concerned persons have known for years that 10% or
more of the personal bankruptcy filings were business-related.
There was abundant evidence in the journal literature on the proportion of business-related personal bankruptcy filings.3 4 The authors say that "[a]ny analyses that depend on that [personal-bus32. SWW, supra note 1, at 40-41. The authors claim that they discovered how misleading the A.O.'s gross statistics are as their research developed. Id. at 338. That must be a
mistake. They started their research in mid-1983. Well before that time the matter of joint
filings as two estates had been clarified, with both sets of figures published. There had
also been discussion of the business-related personal bankruptcies in the literature from
long before.
33. See Bankruptcy Reform Act of 1978 (Future Earnings) Hearings Before the Subcomm. on Courts of the Senate Comm. on the Judiciary, 97th Cong., 1st Ses. 187, 190
table III (1981) [hereinafter Future Earnings Hearings).
34. See infra table 3. A separate category would be helpful to researchers and probably
[Vol. 43:185
For the most part, the authors' sample (all from 1981) of 938
chapter 7's and 591 chapter 13's are treated as one group. This is
a departure from previous studies of this type, and may distort
some of their findings. For one small example, the average legal
fee in the SWW sample is five hundred dollars37 which, because it
includes both chapter 7's and 13's, is much higher than CRC's
four hundred" and NJ Debtors four hundred forty dollars.
There are, however, two more serious problems with their
methods.
A.
36. If an analysis merely took account of the observation in Brookings, supra note 1, at
47, that 13% of its sample of personal bankrupts had been in business, it would have been
in line with the later empirical studies of the 1980's, although far from the authors' anomalous finding of 20%. See infra Part IX, table 3.
37. SWW, supra note 1, at 43 n.19.
38. CRC, supra note 1, at 52.
39. NJ Debtors, supra note 1, at 587. Later in the book the authors break down the
average fees. Chapter 13's are $535 and chapter 7s are $459. SWW, supra note 1, at 250.
40. United States Bankruptcy Court Official Form No. 7 (for chapter 7), questions 2.d
and 2.e, ask about income "during each of the 2 calendar years immediately preceding the
filing .... "
41. United States Bankruptcy Court Official Form No. 10, question 1.f(11).
42. See SWW, supra note 1, at 64 table 4.1.
HeinOnline -- 43 Rutgers L. Rev. 198 1990-1991
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1990]
[Vol. 43:185
50. The authors might have tried small similar samples after the Bankruptcy Amendments and Federal Judgeship Act of 1984, 28 U.S.C. 151 et seq. (1988), which then used
Official Form 6A (based on the chapter 13 form) to get some broader and better notion of
how chapter 13's and 7's compared in these regards. They did not attempt any tentative
confirmation.
51. SWW, supra note 1, at 73.
BOOK REVIEW
1990]
VIII.
INCOME CHANGES
The authors "explore the possibility that debtors may have suffered income interruption or sharp earning declines . .
."" In-
income comes reincarnated with a different name, "income volatility." When a person becomes unemployed or is working fewer
hours, his or hen income declines. If that is unexpected or unanticipated, debts previously incurred cannot be repaid. Some of
those persons who cannot pay will file in bankruptcy. (Some
think newly re-employed persons are apt to file.)
One of the two reasons the writers give for the great increase in
personal bankruptcies is "income volatility."" I have taken their
figures on income changes in the two calendar years preceding
bankruptcy and prepared Table 2 below which compares their
numbers with those of Nine Sts. and NJ Debtors, and with some
percentages from CT.
202
[Vol. 43:185
TABLE 2
Income Changes
SWW
Nine Sts.
NJ Debtors
CT
SWW
Nine Sts.
NJ Debtors
CT
% of Cases
Av $ Increase
c.50%
57%
56%
c.50%
$3500
$3289
$3831
+70%
+27%
+25%
% of Cases
Av $ Decrease
% Decrease
25%
23%
26%
c.20%
$5000+
$3663
$3675
-37%
-25%
-21%
% of Cases
No Change
-
No Change
-
c.20% +
15%
18%
SWW
Nine Sts.
NJ Debtors
CT
% Increase
c.30%
Sources:
SWW, supra note 1, at 98-99.
Nine Sts., supra note 1, at 293 tables H-K.
NJ Debtors, supra note 1, at 560 table 21.
CT, supra note 1, at 11.
1990]
BOOK REVIEW
ors . . .
Nine Sts., which had 42% of its sample of filings from 1980 and
the last four months of 1979, reported on incomes for calendar
year 1978. The frequencies of changes are comparable to those
which the SWW study finds unusual. NJ Debtors, which includes
four years of incomes from 1978 through 1981, also shows closely
comparable frequencies of change. That two additional years of
debtors' incomes in different places show similar frequencies of
changes suggests that the SWW findings are not unusual.
The authors say that "[n]early 62% of the debtors had a
change in income, up or down, of more than 10% from 1979 to
1980. Even for turbulent times, these figures portray highly volatile income streams, making a mismatch between debts and income likely."6 NJ Debtors had shown average income increases
for the entire sample of debtors for the years 1978 through 1981:
7.7%
11.3%
13.5%
1981 = 10.4%"
1978
1979
1980
=
=
[Vol. 43:185
1980
$16,251
1981
$19,010
$14,898
$15,705
Had the writers used both the income and BLS benchmark figure for 1981, the ratio of these figures would be .8261 ($15,705
divided by $19,010). The ratio arrived at by SWW was .9664
($15,705 divided by $16,251). The difference, i.e., the extent of
SWW's error, is .1403 (.9664 - .8261 = .1403), which translates
into a result for the SWW analysis which is about 17% lower than
the correct ratio of income to the BLS benchmark. The authors'
error may be much larger because half of their sample showed
average increases of 70% while only a quarter showed decreases
averaging about 37%.
If, by "income volatility," the authors meant unemployment
variables (rate of unemployment and average number of hours
worked per week), those data are available regionally and nationally for almost the whole post-war period, from 1945. They do not
even examine those figures over time, nor do they attempt to find
out what relationship exists, if any, between employment condi7
tions and bankruptcy.'
About all that the authors can say with confidence is that their
data confirm what most previously published studies found. Most
bankrupt debtors are employed, but their unemployment rate
(10% to 20%) is higher than the whole population of wage earners. Since they provide no adequate measure and no history of
"volatility," they cannot say that an increase in personal bank66. NJ Debtors, supra note 1, at 558 table 19.
67. Peterson and Aoki found that much of the increase in the rate of bankruptcies from
1978 to 1980 could be accounted for by changes in the level of unemployment or the average work week. Unemployment rose and weekly hours of work declined during that time.
The effects of these factors seemed to them to be greater in 1980 than in 1978. Peterson &
Aoki, supra note 29, at 95.
Other research suggests that this relationship may be more complex than simple models
can describe. See Luckett, Personal Bankruptcies, 74 Fed. Res. Bull. 591, 595 table 1
(1988).
HeinOnline -- 43 Rutgers L. Rev. 204 1990-1991
BOOK REVIEW
1990]
The title and the content of this material make clear the work-
ings of Maier's Law. What had previously been called businessrelated personal bankruptcies, taken to be the result of small business failures, are now called "entrepreneurs," those who formerly, or at filing, were self-employed in some business venture.
Table 3 below puts the authors' figure in perspective.
TABLE 3
Frequency of Business-Related Personal Bankruptcies
SWW
CT
Nine Sts.
20%1
13%2
12%3
CRCU
15% 4
NJ Debtors
11% 5
[Vol. 43:185
nor bad, but the SWW definition is not useful because it precludes comparison with other empirical studies. Again, the generalizability of this finding might have been gauged by the other
studies, which were conducted by different researchers, in other
places, and at the same and different times. There is another
problem in comparability created by the SWW study, which combined chapter 7's and chapter 13's, but did not separately calculate the chapter 7's for this purpose. All the other studies examined only samples of chapter 7 debtors, 3except for GAO, which
7
had samples of both calculated separately.
The self-employed earned about the same amount (average
$17,700) as did the ordinary wage earners (average = $15,600),
with the difference reported by the writers as not statistically significant. 4 Nine Sts. also showed about the same incomes for personal bankruptcies and business-related bankruptcies (all in
chapter 7) with but one exception.7
X.
FEMALE DEBT6RS
17%
40%
Nine Sts.
31%
47%
NJ Debtors
24%
44%
Sources:
SWW, supra note 1, at 149.
Nine Ste., supra note 1, at 289.
NJ Debtors, supra note 1, at 553 table 13.
not the definition used by Brookings: "A bankrupt who is not engaged in a business ven.
ture at the time the bankruptcy petition is filed but whose financial problems result from
earlier involvement in business." Brookings, supra note 1, at inside cover. Brookings found
these "former business" debtors were about 13% of their liquidation (now chapter 7)
cases. Brookings, supra note 1, at 44.
73. See GAO, supra note I.
BOOK REVIEW
1990]
Males
Females
Clerical
Service
Professional & Technical
Managerial
$ 9,699
$14,725
$17,872
$16,352
$12,028
$10,269
$14,649
$16,596
The SWW figures 79 show that males filing alone have much
higher incomes than those of females filing alone. Nine Sts. and
NJ Debtors showed substantially the same difference. The findings of all three studies and CT are tabulated together for comparison in Table 6 below.
TABLE 6
Average Incomes
SWW1 2
Nine Sts.
NJ Debtors 3
CT,
Males
Females
$15,591
$13,750
$14,300
$10,809
$10,113
$10,427
$10,100
$ 9,703
57).
Female % Of
Male Incomes
64%
75%
70%
90%
208
XI.
[Vol. 43:185
MEDICAL DEBT
Average
Amount
51%
56%
46%
65%
Percentage
of Total
Unsecured Debt
Median
11%
12%
12%
-
$616
$567
$492
-
$1755
$1878
$1420
$ 775
$1840
7's
13's
13's as % of
7's
SWW1
GAO
$2032
$1154
$775
$360
57%
46%
BOOK REVIEW
1990]
209
XII.
than any of the other categories." Nine Sts., supra note 1, at 289.
86. Id. at 296 table 0.
87. NJ Debtors, supra note 1, at 571 table 33.
88. Id. at 550 table 9.
89. SWW, supra note 1, at 186.
HeinOnline -- 43 Rutgers L. Rev. 209 1990-1991
[Vol. 43:185
TABLE 9
Credit Card Debt
% of Debtors
Av. $ (for debtors
scheduling)
$37414
% of total Av. $
unsecured debt for
debtors scheduling
credit card debt
SWW 1
88%
Nine Sts. 2
71%
NJ Debtors3
88%
$20105 Ord.
$2933 Mdse.
$2537 Ord.
$3621 Mdse.
$2633 Ord.
$3155 Mdse.
11%6 Ord.
37% Mdse.
16% Ord.
28% Mdse.
28% Ord.
22% Mdse.
XIII.
SWW
NJ Debtors
CRC
GAO
Brookings
3.
4.
5.
6.
1 CRC, supra note 1, at 79. Ten percent for respondents; 11% for non-respondents.
GAO, supra note 1, at 22.
Brookings, supra note 1, at 59.
Chapter 13's.
90. They tell us "these figures are of the same magnitude as those found in the Brookings Study although they are not directly comparable." SWW, supra note 1, at 198 n.7.
The empirical studies from about 1981 are not mentioned.
HeinOnline -- 43 Rutgers L. Rev. 210 1990-1991
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1990]
SWWI(N=591)
GAO 2(N=-589)
51%
36%
3%
57%
28%
4%
determining "good faith." The 1984 amendments, 11 U.S.C. 1325(b)(1)(B) (1988), require that the debtor apply all his disposable income to the plan if any unsecured creditor
objects.
92. SWW, supra note 1, at 199.
93. Id. at 208.
94. See supra Table 11.
HeinOnline -- 43 Rutgers L. Rev. 211 1990-1991
212
[Vol. 43:185
96. In an effort to test how much some homeowner debtors could pay if their homes
were sold, the writers use what they say is a bankruptcy court standard, that the real
estate should bring 70% of its market value at execution sale by auction rather than
through the regular real estate market. They therefore discount the values of the debtors'
homes by 30%. Id. at 204.
The 70% rule of Durrett v. Washington Nat'l Ins. Co., 621 F.2d 201, 203 (5th Cir. 1980)
is the lower limit of allowed real estate execution sale prices that will not be subject to
attack as a fraudulent conveyance. This refers to sales under state law, not in the bankruptcy courts. Others think the bankruptcy courts do better. See LoPucki, A General Theory of the Dynamics of the State Remedies/Bankruptcy System, 1982 Wis. L. Rav. 311,
315-21. That is consistent with my experience. The reasons have to do with the great
differences between state court execution sales and the "judicial sales" in bankruptcy
under the control of the bankruptcy court and the trustee. In bankruptcy there is wider
discretion in the terms and conditions and the conduct of the sale, including the notices
and advertising. A real estate broker may be retained. The property can be examined in
advance by prospective buyers. The court can provide that the buyer take title free and
clear of liens or encumbrances. In most states execution sales have little of this flexibility
and there is rarely any guarantee by the sheriff or other auctioneer even that a marketable
title will be delivered.
97. SWW, supra note 1, at 216 figure 12.
98. Claude L. Rice, whose firm provides data processing services for chapter 13's for
various courts, found that about 29.6% of a huge 20,235 case sample of chapter 13's went
through to completion; about 42.5% were dismissed. Future Earnings Hearings, supra
note 33, at 52. The authors' much smaller sample more or less tends to confirm Mr. Rice's
earlier data.
Research in the Western District of New York on a 1971 sample of chapter 13's which
was reexamined in 1976 showed that 27.5% of the original cases in the sample had been
dismissed and 5% adjudicated into straight bankruptcy (liquidation). But 47.5% of the
chapter 13 plans had been successfully completed. Girth, The Bankruptcy Reform Process: Maximizing Judicial Control in Wage Earners' Plans, 11 U. MIcH. J.L. Ru. 51, 59
table 1 (1977). These different findings are not mentioned by the writers.
In Wage Earner Plans Under the Bankruptcy Act: Hearings on H.R. 1057 and H.R.
5771 Before Subcomm. No. 4 of the House Comm. on the Judiciary,90th Cong., 1st Sess
48 (1967) [hereinafter 1967 Hearings], it appeared that about 44% of the chapter 13's had
been concluded, another 44% had been dismissed, and the rest were pending.
HeinOnline -- 43 Rutgers L. Rev. 212 1990-1991
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XV.
100. The Economics of Bankruptcy Reform, 41 LAw & CorrEP. PROBS. 1 (Autumn
1977).
101. SWW, supra note 1, at 235.
102. Id. at 236-37.
214
[Vol. 43:185
possibly contributing to the 1980's increase in personal bankruptcy filings and choice of chapter. Also, divorce is an area in
which they say there is that paucity of information which caused
them to begin their study and gather information on, among
07
other things, the marital status of bankruptcy debtors.
The only information the writers had relating to divorce was
from local rule "interrogatories" from chapter 7's in the Western
District of Texas. Very few of the seventy-five chapter 7 debtor
sample (3.4%) reported that divorce and related family problems
were the cause of bankruptcy.'
The authors did not know
whether the chapter 13's in the Western District of Texas were
similar to the chapter 7's in this regard as was the case for family
size. l09 But the chapter 13 filings provide enough information so
that most recent or pending divorces could be discovered." 0
Given the several consistent studies over time and the available
data on rates of divorce and personal bankruptcy, one supposes
this would be a key social (i.e., noneconomic) variable to be examined."' But in testing marital status for its power to predict
debtors' choice of chapter 7 or 13, they apparently recorded only
married or single status and found but a weak correlation between joint (i.e., married debtors) filings and choice of chapter
13.112
XVII.
direction.
109. Id. at 81 n.13. See also supra Part VII.A.
110. Official Form No. 10 for chapter 13 asks about separation, alimony, maintenance or
support payments, dependents and codebtors (usually a spouse). Question 4 calls for a
detailed family budget which might also reveal information on divorce.
111. In CRC's respondent sample, 20% were divorced and 9% were separated at the
time of filing. 11 CRC, supra note 1, at 6 exhibit 1-3.
GAO's analysis found that bankruptcy and divorce correlated with a moderately strong
7.2 coefficient. GAO, supra note 1, at 17-18.
112. SWW, supra note 1, at 245. The 1973 Bankruptcy Commission Report would have
been correct in its statement of correlation at least until the mid 1980's because the rates
of bankruptcy and divorce appeared reasonably well-correlated during those years. Although the national divorce rate has leveled off since 1980 (5.2 per thousand persons in
1980 to 4.8 per thousand in 1986), the frequency of personal bankruptcies continued to
rise during most of those seven years. This is yet another example of why time series
studies are so important in establishing the external validity of a (perhaps causal) relationship between bankruptcy and any other variable.
HeinOnline -- 43 Rutgers L. Rev. 214 1990-1991
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114. Id. at 232. The choice of chapter 7 or 13 was not an issue at the Conference on the
Economics of Bankruptcy Reform which emphasized the question of incentives to file and
13 more attractive. Others were merely noting or opining that the new Code had resulted
in more filings, but most agreed that the new law did not account for the entire increase
[Vol. 43:185
23
choose chapter 13. They say they will test each prediction of the
economic model to see if exemption levels influence the decision
to file or the choice of chapter 7 or 13 among those who ulti120. Id.
121. See supra Part V.
122. See Woodward & Woodward, Exemptions as an Incentive to Voluntary Bankruptcy: An Empirical Study, 88 CoM. L.J. 309 (June/July 1983), reprinted in 57 AM.
BANKR. L.J. 53 (1983). GAO found that "States within both groups--those opting out and
those not opting out-experienced a wide range of increases and/or decreases which indicates that factors other than exemptions may have influenced an individual's decision to
file bankruptcy." GAO, supra note 1, at 28. This is supported in a series of state by state
tables of those states that did and did not opt out (the former with smaller exemptions)
which show no consistent pattern of increases or decreases in the frequencies of chapter 7
and chapter 13 filings. Id. at 83-88 appendix 11. CT had preliminarily noted the lack of
any consistent relationship between frequency of filings and smaller exemptions (states
that had opted out) or larger exemptions (states that still retained the federal exemptions). CT, supra note 1, at 3 tables A-B.
123. It is not clear what they mean by "can pay" debtors. SWW, supra note 1, at 235.
The ability to pay can come from income. Hence debt to income ratio is a variable to be
examined. The ability to pay can also come from the sale of assets. Most of the persons
using such a model refer to assets. This is evidently what Professor Vukowich meant when
he spoke of reduced bankruptcy exemptions as a disincentive resulting in fewer filings. His
examples are debtors who "surrender some valued assets," debtors who "retain significant
wealth," and "debtors with nonexempt assets [who] would have a stronger incentive to file
in chapter 13, which permits debtors to retain all their property." Vukowich, Reforming
the Bankruptcy Reform Act of 1978: An Alternative Approach, 71 Gzo. L.J. 1129, 1152
(1983).
Similarly, CRC concludes that "consumers with few assets and great quantities of unsecured debts have much to gain by declaring bankruptcy. Conversely, those with a great
amount of assets relative to liabilities have little to gain by declaring bankruptcy." IICRC,
supra note 1, at 142.
HeinOnline -- 43 Rutgers L. Rev. 216 1990-1991
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127. Id. at 241. These are not new findings. GAO's study in New York, Ohio, Kentucky
and California had found that "chapters 7 and 13 debtors have similar income to debt
relationships." GAO, supra note 1, at 73, 53.
128. SWW, supra note 1 at 242.
HeinOnline -- 43 Rutgers L. Rev. 217 1990-1991
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1990]
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220
[Vol. 43:185
the curve showing increases in filings only begins to rise and become predictive when the difference between the federal and
state exemptions is greater in amount, and the state exemptions
remain much less useful. Posit a state in which less than $1000 of
any type of property is exempt. If the state has not opted out, the
' I suppose if
federal exemption will be selected by more debtors. 88
this state had opted out, the very small exemption without spillover would result in a greater frequency of chapter 13 elections.
These assumptions are as realistic as concluding from data on
three states that all property exemptions have no influence, or at
least no predictive power, on filing and choice of chapter. It
would be prudent and more accurate to say that within the property exemption ranges of their three states, the arguably causal
factor of debt to income ratio appeared not to predict choice of
chapter 7 or 13. This also presents another reason for choosing
more states with greater variations in exemption laws.
Although the authors refer to "The Spherical Chicken,"' 9 I
think they misunderstand its import. The purpose of that article
was not to argue "the lack of empirical verification" of the economic model, as they believe. 4 ' That does not invalidate a theory. It is an attempt to show that there are too many rebutting
instances to the general laws which the economists claim that
their models describe, a more formidable objection.
One can, of course, as the writers have done, claim that a rebutting instance (a widespread result which would not be predicted
by the model) is a direct and dispositive test of the economic
model. They fail in this undertaking because property exemptions
within this range are not predictive even of filing and because
their data on debt-income ratios do not present rebutting instances. Even were the debt to income ratio a direct test, the calculations based on their data are inaccurate and not apt to be
probative because the incomes are for the preceding calendar year
and will be significantly lower than present (year of filing) incomes of their sample of debtors. The debts, however, are as of
138. Apart from the economic model, that much seems clear from their Pennsylvania
data, where only 6% of their debtors took the Pennsylvania state exemptions. SWW,
supra note 1, at 43 n.19. In the similar New Jersey situation (New Jersey, with small state
exemptions, had not opted out), none of the 186-debtor sample chose the state exemption.
NJ Debtors, supra note 1, at 553 n.33.
139. Shuchman, Theory and Reality in Bankruptcy: The Spherical Chicken, 41 LAW &
CONTEMP. PROBs. 66 (Autumn 1977).
140. SWW, supra note 1, at 264 n.8.
HeinOnline -- 43 Rutgers L. Rev. 220 1990-1991
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the filing date and may have been reduced over that time.
XVIII.
13
clue that there were significant influences at the local level came
initially from the reports published by the Administrative Office
of the Courts indicating .. .what proportions of . . .debtors
file in Chapter 13. . . . [Ilt is clear that there are huge differ-
VAND.
L.
[Vol. 43:185
states....
145. More discussion may be found in the H.R. Doc. No. 137, 93d Cong., Ist Sess., pt.1,
at 157-58 (1973) (Report of the Commission on the Bankruptcy Laws of the United
States), S. REP. No. 989, 95th Cong., 2d Sess. 12 (1978), and H.R. REP. No. 595, 95th Cong.,
1st Sess. 117 (1977). See also Shuchman, supra note 139, at 84-85.
146. Brookings, supra note 1, at 74-76.
147. H. JACOB, DEBTORS IN COURT 67 table IV-11 (1969).
148. Id. at 66.
149. SWW, supra note 1, at 343.
150. Shuchman, supra note 139, at 85.
HeinOnline -- 43 Rutgers L. Rev. 222 1990-1991
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223
TABLE 12
Chapter XIII Filings as Percentage of all
Personal (Nonbusiness) Bankruptcies]
1970
1971
1972
1973
1974
1975
New York
Northern District
Total Nonbusiness
Chapter XIII
%
1,851
4
0.2%
2,092
14
0.7%.
1,869
11
0.6%
1,571
8
0.5%
1,711
10
0.6%
2,481
19
0.8%
Eastern District
Total Nonbusiness
Chapter XIII
%
617
3
0.5%
921
11
1.2%
957
11
1.1%
884
5
0.6%
1,094
9
0.8%
1,991
26
1.3%
Southern District
Total Nonbusiness
Chapter XIII
%
446
3
0.7%
718
6
0.8%
816
4
0.5%
703
1
0.1%
875
12
1.4%
1,354
26
1.9%
Western District
Total Nonbusiness
Chapter XIII
%
1,999
52
2.6%
2,423
280
11.6%
2,393
303
12.7%
2,304
369
16.0%
2,639
546
20.7%
4,199
1,196
28.5%
In the second part of their book, the authors discuss what they
claim is their pioneering research on the creditors commonly
151. Girth, supra note 98, at 56.
152. Id. at 56 n.36.
153. Id.
HeinOnline -- 43 Rutgers L. Rev. 223 1990-1991
[Vol. 43:185
CONSUMER CREDITORS
225
BOOK REVIEW
1990]
0
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[Vol. 43:185
Undersecured Creditors
1990]
BOOK REVIEW
emphasis of most of the empirical studies and most of the congressional hearings is on the general creditors and the debtors.
Their table 17.3 shows the unsecured portions of secured
loans.' The authors do not know whether the creditor was undersecured when the original loan was made or whether there was
a refinancing. The undersecurity is at bankruptcy, given the valuation of the collateral by the debtor and the balance of the secured debt also given by the debtor.
For many secured loans there is reaffirmation, because of the
opportunity costs of replacing a car, for example.
Secured cred-
. .
. . .
228
[Vol. 43:185
CRC had found "that average secured debt holdings on bankruptcy petitions is less than the market value of property used to
secure the debt.
'170
ence is small, about 2% of the debt, or $314, in more than a thousand chapter 7 bankruptcies. 171 In CRC's set of nonrespondents,
the creditors are oversecured on average only about $10.1'
CRC cast these data as undersecured loans rather than as undersecured creditors. '7 The CRC format, by type of security, is
probably better because different types of collateral depreciate at
very different rates, and are more or less easily replaceable by the
debtor. The most common types of collateral, cars and household
furniture and appliances, are especially different in these regards
as well as in cost and ease of resale.
Since most types of creditors sell secured money for various
types of c6llateral, any advice from the authors would be better
addressed to the kind of collateral rather than to a particular
type of creditor. Perhaps only the captive financers of the auto
manufacturers restrict themselves to motor vehicles. But they analyze their losses very carefully, lobby very effectively and need
no advice from law teachers.
TABLE 14174
Nonmortgage Secured Credit
Collateral
Cars
Household
Furniture &
Appliances
% of Debtors
50%
41%
Average $
$3,719
$ 859
55%
=
=
39%
61%
173. Id.
174. II CRC, supra note 1, at 33.
HeinOnline -- 43 Rutgers L. Rev. 228 1990-1991
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They have no basis for defaming these lenders.177 What the authors do tell us is that automobile finance companies are owed
B.
[Vol. 43:185
BOOK REVIEW
1990]
tion on net writeoffs of consumer credit from all sources, including bankruptcy. Such figures were presented in the 1982 Hearings
for several years for several large consumer creditor firms."'
The American Bankers Association Retail Bank Credit Report
gives annual statistics covering net loss rates on consumer lending
at commercial banks and also the proportion of losses associated
with bankruptcy, a part of which would very likely have been
written off without bankruptcy. For the years 1978 to 1986, banks
charged off about 0.5% of their closed-end installment loans in a
year. Losses identified with the borrowers' bankruptcies are in
the range of 15% to 24% of that 0.5% charge-off. Bankruptcy
losses were, therefore, about 0.1% to 0.2% of their outstanding
7
18
consumer credit.
Although banks lose more on credit cards, and a higher proportion of those losses are due to bankruptcy, still the credit card
losses due to bankruptcy appear in recent years to range from
0.32% to 0.51%. The credit card business is one of the most profitable lines of business in banking and has been a major growth
segment in the lending business.
It was recently reported that during the first quarter of 1990,
more than $6 billion of bonds backed by credit card debt were
issued, most witR the highest (Triple-A) ratings. 88a Although the
authors speak of the pathology"" of the consumer credit market
and its fragility,"90 from these recent reports one would infer that
the large institutional buyers of such bonds judge this entirely
unsecured credit card consumer debt to be healthier and sturdier
than real estate backed bonds and most business firms' own
bonds. 19'
186. 1981-82 Hearings, supra note 165, at 565-66; see also infra Table 15.
187. Luckett, supra note 67. Luckett adds that the Federal Reserve's Annual Functional
Cost Analysis has higher credit loss ratios "but are still reasonably close and show the
same patterns year to year." Id. at 598.
188. Wall St. J., Mar. 26, 1990, at C1, col. 4. The reporter also related that one large
bank's own bonds were trading at a discounted price with a yield of 12.35%. "Yet the bank
. . . yielding
9.37%." Id.
at C21, col. 1.
189. SWW, supra note 1, at 3.
190. Id. at 8.
191. A recent $1.25 billion bond issue backed by credit card receivables yielded 9.46%,
or only about 88 basis points more than U.S. Treasury securities. See N.Y. Times, June 22,
1990, at D14.
HeinOnline -- 43 Rutgers L. Rev. 231 1990-1991
[Vol. 43:185
TABLE 15*
Losses on Consumer Credit Extended by Banks
and the Proportionof Such Losses
Due to Bankruptcy, 1978-86
Losses net of
recoveries as a
percent of
credit
outstanding
Year
Percent of
losses due to
bankruptcy'
Losses due to
bankruptcy as
a percent of
credit
outstanding2
....
....
......... .
....
... . ......
....
....
1983 ....
1984 ....
1985
1986 ....
.. . . .
.38
.44
.63
.50
.40
15.1
16.4
19.9
23.1
23.6
.06
.07
.13
.12
.09
.36
.28
.39
.47
21.8
21.9
23.0
22.7
.08
.06
.09
.11
Bank-card credit
1978 .............
1979 .............
1980 ..............
198 1 ..............
1982 ..............
1983 ............
1984 ..............
1985 ..............
1986 ..............
* Source: Luckett, Personal Bankruptcies, 74 Fed. Res. Bull. 591, 598 table 2 (1988).
1. The ABA reports data for five asset-size categories of banks, but no overall average figure for all
banks. For this table, the average for all banks was caluclated by weighting the ABA's figure for each
size group by the proportion of total consumer installment credit (or total bank-card credit, as appropriate) held by the given group.
2. Calculated for this table by multiplying column 1 by column 2.
n.a. - not available.
1990]
BOOK REVIEW
During the years 1978 through 1986, "loss rates . . . have not
been the prime determinant of variation in net earnings on
closed-end installment loans. Net earnings have fluctuated considerably more than have credit losses for this type of lending."1"
The cost of money to consumer lenders, their interest expense, is
a far larger factor in profitability than the loans written off. 1"
Luckett concludes that, with losses at 0.1% to 0.5% of consumer credit receivables which constitute less than a fifth of total
bank lending, even more personal bankruptcies will make little
difference. The incremental loss rate has an almost negligible impact on profitability. "[C]reditors may well have little incentive to
change lending standards in view of the relatively small impact of
bankruptcies on earnings and the uncertain outcome of a shift in
strategy."1 9 '
C.
[Vol. 43:185
C4 -a-
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1990]
BOOK REVIEW
235
CT
NJ Debtors
CRC
Nine Sts.
GAO
SWW
40%
44%
33%
Repossessions,
Attachments, and
Wage Garnishments
17%1
20%
33%2
36% 3
10%
2. Four percent of the CRC respondents (those debtors who were interviewed) identified wages
actually garnished as one of the two most important factors leading to bankruptcy. II CRC, supra
note 1, at 37 exhibit 2-9.
3. GAO, supra note 1, at 22 (allowing for no overlap in the 27% and 9% figures).
305.
1, at 586 table 48, shows wage garnishment in 11% of the
frequency of wage garnishments. CT, supra note 1, at 11.
269 n.37.
[Vol. 43:185
1990]
BOOK REVIEW
237
[Vol. 43:185
business firms.2
Although they "cannot separate the entrepreneurs' debt into its
commercial and consumer components," they claim that their
data "show that a substantial amount of lending to individuals is
commercial lending."'21 How do they proceed from this first barrier to the second proposition, which is the basis for some widereaching conclusions? They assert that the differences in the average amounts of debts enable them "to draw inferences about
which creditors have extended commercial credit to the entrepreneurs."'1 s The debts of those to whom they refer as the "ever selfemployed" are larger than the loans to those who reported no
self-employment. The authors assume that some part of the
larger average debt is the commercial loans. Those "ever self-employed" are 20% of their sample. They suppose that debt totaling
much more than 20% of the total is commercial. From the information provided by the SWW study, we cannot know whether
their inference is warranted or supported at all. It is an unproven
assumption on the basis of which the authors conclude that most
small commercial credit is unsecured. They also assert that many
academics are wrong in assuming that incorporation insulates
small business owners from personal liability. This is a strawman
argument which is discussed and dismissed later.'
41
(P.
216. The quoted statement must be rhetorical. SWW details the incomes, debts, and
assets of their sample of debtors, which is similar to those in the other empirical studies.
Id. at 64-65.
217. SWW, supra note 1, at 329.
HeinOnline -- 43 Rutgers L. Rev. 238 1990-1991
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those of their chapter 7 sample who could pay taxes and their
creditors in full and whose remaining income would be at or
above the BLS intermediate budget and (2) those who could pay
and have 80% or more of their take-home pay left. These two
groups make up about 5% of their chapter 7 debtors." ' Again,
although not mentioned, they use 1980 incomes which are compared to 1981 BLS benchmarks, thereby substantially distorting
their comparisons.
3. Women are worse off financially than men and earn less.
These facts are reflected in bankruptcy. Earlier studies had
shown this.
4. "One discovery in these data is a group of formerly self-employed debtors."' About 10% were in business at filing and another 10% were formerly self-employed. This newly found distinction, according to the authors, should be part of the published
bankruptcy statistics.23 0 Like so much of the book, this is not new
information and should not have been called a discovery.
5. They say that "[many academics have dismissed the financial problems of small business owners, suggesting that they are
protected by corporate limited liability so that personal discharge
is irrelevant in coping with business debt. Our data thoroughly
22 No citations are given
dispose of that complacent assumption.""
because these are strawmen statements. Academics seem well
aware that much small business credit is guaranteed by the owners and their spouses, who are often sureties for the corporate
business loans.2
218. See id. at 211 table 12.3.
219. Id. at 330.
220. Nine Sts. had recommended that another category be created for the business-related personal bankruptcy filings. "[T]he known cases strongly suggest that lumping all
personal bankruptcy filings together leads to distortions and, for better description, the
business-related filings should be treated separately." Nine Sts., supra note 1, at 306.
221. SWW, supra note 1, at 330.
222. See Nimmer, Negotiated Bankruptcy ReorganizationPlans:Absolute Priorityand
New Value Contributions,36 EMoRy L.J. 1009, 1013 (1987) ("Even if there is a corporate
format, the individual owner often has most of her wealth tied up in or encumbered by the
business enterprise.").
See also Herbert, Consumer Chapter 11 Proceedings:Abuse or Alternative, 91 CoM. L.J.
234 (1986).
Even if the [business] is incorporated, the informality common to very small
businesses virtually ensures that corporate and individual funds are commingled
and corporate debts individually guaranteed. . . . (It is generally true that the
joint filings of coordinate Chapter 11 proceedings by a small corporation and its
principal is . . . unremarkable, because the principal's major obligations (e.g.,
HeinOnline -- 43 Rutgers L. Rev. 239 1990-1991
[Vol. 43:185
has been discussed in nearly all the literature on the causes and
correlates of personal bankruptcy filings for more than twenty
years. The 1967 Hearings addressed the issue in some detail and
with great concern 2 as did Brookings in 1971.228 Their suggestion
is not new or different and, most importantly, they offer no proof.
There is no check of their suggested correlation over time, despite
the existence of such data from some forty years ago, 22 ' nor is
there even any present comparison. Table 128' compares the rathose ubiquitous bank guarantees) arose out of her business activities and are
inextricably linked with the obligations of the corporation. Id. at 235.
223. The "startling increases in consumer bankruptcy filings in the 1980's," of which the
authors speak, SWW, supra note 1, at 12, are that bankruptcies per thousand persons rose
from 1.25 in 1980 to 2.03 im 1987. Luckett, supra note 67, at 595 table 1.
224. The 1967 Hearings used data from 1945 to 1965. Those showed that nonmortgage
consumer credit increased by 1500% while bankruptcy filings increased by 1400%. 1967
Hearings, supra note 98, at 48. This is a larger increase in bankruptcy filings, proportionately, than over the ten years from 1979.
225. Over the decade from 1979 to 1988, there was a total increase of about 267% in
non-business bankruptcy filings, from 196,976 to 526,066. That this increase is not due to
consumer credit may be inferred from the increase in business filings during the same
time. From 1979 to 1988, business filings increased from 29,500 to 68,501, about 232%.
Reports of the Proceedings of the Judicial Conference of the U.S., Annual Report of the
Director of the Administrative Office of the U.S. Courts 146 (1979), id. at 31 (1988).
226. SWW, supra note 1, at 331.
227. Over the period from 1949 to 1966, the average debt service as a percentage of
family income about doubled. 1967 Hearings,supra note 98, at 102, 48.
228. When the Brookings Institution had completed its empirical study of the bankruptcy system, the question of the causes of personal bankruptcy remained. One member
of the Brookings group apparently could not discern any significant differences between
persons who filed in bankruptcy and others, in similar financial situations, who did not
file. He posited, "a propensity to file in bankruptcy," his admission that he did not know
what caused bankruptcy filing. Brookings rejected his draft and the chapter was rewritten
to explain personal bankruptcy filing by examining income to debt ratios. A range of this
ratio may be a fact about the debtors who filed, but it does not explain why their cohort
group did not file.
229. Future Earnings Hearings, supra note 33, at 188-189 table II, shows personal
bankruptcy filings and debt-income ratios by year from 1950 through 1980.
230. Supra Part V.
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BOOK REVIEW
1990]
tios of nonmortgage debt to pretax income in previously published studies. The other three recent studies cluster very closely.
The apparently anomalous findings of SWW may be due to their
combining chapter 7's and chapter 13's for this purpose.
7. The second of their claimed causes of increased bankruptcy
is "the increased volatility and instability of economic life, an accelerating change to which" everyone, it seems "has failed to adjust. '281 They state that since about 1971, "the American economy has become more volatile and unstable . . . ."' What do
these propositions mean? How can we know whether they are
true? The authors give us no measure and no history of volatility
or stability.
8. Many debtors and many creditors are irresponsible in matters of borrowing and lending. The creditors lend too much and
the debtors borrow too much. Both groups, but especially the
lenders, should know, according to the writers, that repayment is
unlikely. The consumer creditors' net writeoffs strongly imply
that they are wrong.
9. They contend that they have proved that the legislation to
make chapter 13 more attractive has had little of its intended effect, and has generated some undesirable results. The authors
have not provided enough information, in particular, nothing on
payments to creditors, upon which to base a considered judgment.
10. Bankruptcy "provides a safety valve to avoid the formation
of a deeply angered debtor class. 232 How do they know that?
There are no data in their book to support the existence of this
potentially far-reaching threat to the Republic. This conclusion is
distressing. It suggests to me that, despite their protestations
.,),234
OMISSIONS IN THE
SWW BOOK
[Vol. 43:185
important and matters which are important to creditors. Considering their claim to have focused on the consumer creditors for
the first time, etc., they hardly discuss what most others have
taken as matters of interest and concern.
(1) Most scheduled creditors do not file proofs of claim. " " The
authors mention this in passing2" but provide no information and
no discussion of the significance of so many scheduled creditors'
failure to file proofs of claim. This is vital information about
creditor behavior.
(2) The SWW study refers also to creditors' objections to discharge"' and their efforts to have their debts excepted from discharge.M But they provide no data on the frequency, the results,
or the effects of such proceedings. These issues have been of great
concern to creditors and to Congress.
(3) They estimate that about 19% of their wage-earning debtors in chapter 7 reaffirmed one or more debts and they found
considerable evidence of informal reaffirmations, which were at
least as prevalent as formal ones.2 0 Most of the reaffirmations
appeared to them to be of secured debt.
Reaffirmations are very important to creditors as the authors
point out. Yet they do not tell us how much debt was reaffirmed
and which types of,creditors benefited from reaffirmations. The
issues in reaffirmation were a major concern in the drafting of the
Bankruptcy Code and its amendments.
(4) Exemptions, they say, "are often the key issue" at Code section 341 initial creditors' meetings "because many debtors claim
all their assets as exempt, leaving nothing for liquidation and dis1
tribution among their creditors.''
236. "Of the 17 or 18 scheduled creditors to whom notice is sent, only three or four...
file . .
. . Hence
the creditors who do file proofs of claim sometimes get surprisingly large
dividends." Shuchman, Little Bankruptcies in New England, 56 B.U.L. REv. 685, 702
(1976).
Brookings found that proofs of claim were filed only for a small percentage of the scheduled debts. Brookings, supra note 1, at 88-89.
GAO concluded "lpjroofs of claim are not always filed by secured creditors." GAO,
supra note 1,at 57-58. There were no filings for about 38% of the scheduled total amounts
in GAO's sample of chapter 13's.
237. SWW, supra note 1, at 81 n.20.
238. The authors say they found no "creditor objections to a debtor's discharge based
on the
239.
240.
241.
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1990]
(5) They tell us nothing about distribution to unsecured creditors. How much was paid out to those creditors in chapter 7242 or
13 we do not know.
(6) Their data on the use of exemptions, they tell us, "are not
entirely clear, but it is fair to say that debtors in our sample often
escaped bankruptcy with somewhat more of their property than
the law allows."2 4"
They do not tell us how this was accomplished, which property
was claimed as exempt and, more importantly for the creditors,
for what amounts. All we are told is that in a set of 938 chapter
7's and 531 chapter 13's, an average of $14,498 in exempt property was listed.2 4 '
(7) In order to claim all assets as exempt in 1981, many debtors, especially those in Pennsylvania, with then sharply-limited
state property exemptions, would have had to use the spillover
provisions of the federal exemption law.2 45 Although there is some
property had been claimed as exempt generally or by a specific provision of 522 of the
Bankruptcy Code. NJ Debtors, supra note 1, at 542-43.
246. SWW, supra note 1, at 29.
247. Perhaps only the payments to creditors in their sample of chapter 13's would require calculation (or inquiry with the chapter 13 trustee).
248. SWW, supra note 1, at 339.
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'
[Vol. 43:185
dent check of the raw data in the files from which they took their
information.2 0
This book is incomplete in other ways. The authors should
have data on such matters as (1) how much was paid to the creditors in the confirmed chapter 13 plans, (2) the number and size of
reaffirmations, (3) the frequency of requests to have debts excepted from discharge with the results tabulated by type, creditor, and average amounts, (4) the use of exemptions under state
laws and federal law and (5) the use of the federal exemption law
spillover provisions.
249. "Although the files we used are public documents, the petitioners ... had become,
for the social scientist, human subjects, and we used normal safeguards for the protection
of human subjects. These safeguards included the use of identifying numbers rather than
names on all the date tapes prepared, and careful storage, under lock, of any data with
identifying information." Id. at 350.
The exempt categories in The Department of Health and Human Services' "Policy for
Protection of Human Subjects" includes "[r]esearch involving the collection or study of
existing data, documents, and records, . . . if these sources are publicly available ....
"
45 C.F.R. 46.101(b)(5) (1989). "Human Subject" is defined as a person about whom a
researcher obtains "data through intervention or interaction with the individual .
I...
Id.
46.102(f)(1). The authors had no contact with any debtors. Hence the debtors are not
human subjects for this purpose and these court records are in an exempt category.
250. A common instance of misconduct in science occurs when "there [is] no way to
verify whether or not [the] research was accurate." Woolf, Deception in Scientific Research, 29 JURIMERICS J. 67, 83 table 5 n.4 (1988).
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