Professor Elizabeth Warren provides a cup of bitter coffee at the TPM Cafe Blog in her post entitled “The Bankruptcy Wars Continue.” Here, she summarizes current attacks on BAPCPA’s harsher anti-consumer provisions, including a citation to an article from the Yale Law Journal in support of the proposition that “despite the claims of the bill’s supporters that the bankruptcy laws would help those trying to collect child support, no one has been fooled by the rhetoric; the new law undermines the relative position of support claimants.”
Professor Warren’s conclusion surely will not sit well with Volokh’s Professor Todd Zywicki’s, whose recent post strongly disagreed with the conclusions drawn in that same student note (and made elsewhere, including recent updates to bankruptcy casebooks).
In Professor Zywicki’s post, he first describes the argument that BAPCPA’s provisions will disadvantage those seeking to collect domestic support obligations from their divorced spouses or parents as “going something like this”:
A more important but less widely perceived consequence of the 2005 Act is that it indirectly jeopardizes support creditors by increasing competition for scarce postbankruptcy resources. Whereas support creditors once occupied a privileged position as one of the few classes of creditors with “nondischargeable” claims, the 2005 Act allows certain lenders, such as commercial creditors, to more easily pursue their claims beyond the point of bankruptcy, pitting these lenders against support creditors in an unstructured battle for the debtor’s future income and assets. Because support creditors are far less adept than credit card companies at recovering debts in this unregulated environment, the 2005 Act effectively reduces support creditors’ chances of receiving much-needed compensation. (Emphasis in original).
Professor Zywicki characterizes this argument as “intuitively plausible,” but “confused on many levels.” He writes:
[I]t on a misunderstanding of the nature of debt-collection outside bankruptcy (or as in this situation, after bankruptcy). Outside bankruptcy there are two relevant types of creditors–regular creditors and these support creditors. Making debt of regular creditors nondischargeable after bankruptcy is functionally the same as the nonbankruptcy world, so it is the same analysis.
While intuitively plausible, it turns out that this argument is confused on many levels and rests on a misunderstanding of the nature of debt-collection outside bankruptcy (or as in this situation, after bankruptcy). Outside bankruptcy there are two relevant types of creditors–regular creditors and these support creditors. Making debt of regular creditors nondischargeable after bankruptcy is functionally the same as the nonbankruptcy world, so it is the same analysis.
Ceteris paribus i[t] is certainly the case that in a hypothetical “unregulated environment,” institutional creditors could be more adept than support creditors in collecting debts–this is the intuitive argument. But is the non-bankrutpcy world an “unregulated environment”? Of course not. Precisely because of this potential imbalance in power, support creditors have a multitude of protections that regular creditors lack, regardless of how big and bad those creditors may be. These protections include intercept of tax refunds, suspension of drivers licenses and passports, government assistance in collection including interstate collection, and last but certainly not least, prison. So the argument is based on an incorrect premise.
But one need not even be familiar with all of the advantages for support creditors in order to recognize the fallacy of the argument. Again, the relevant benchmark here is simply nonbankruptcy debt collection. Thus, any scenario about life under the bankruptcy reform legislation is identical to life outside bankruptcy generally. As a result, the notion that credit card companies somehow can “beat” domestic support creditors would be reflected in practice outside bankruptcy today. I am not aware of a single shred of evidence that suggests that this supposed scenario actually exists under nonbankruptcy law today. None. (Emphasis in original).
Professor Zywicki quotes from the testimony of “nationally-respected child support enforcement expert Philip Strauss, who “observes, given the many, many advantages provided to support creditors under nonbankruptcy law, the notion that there is a ‘competition’ either outside bankruptcy or after bankruptcy simply rests on an erroneous understanding of how such debts are collected.” According to Strauss, “[t]he biggest problem support creditors faced, therefore, was debt-collection inside bankruptcy, not this supposed conflict outside bankruptcy.
After a lengthy quote from Strauss’s testimony before Congress, Professor Zywicki asks critics of BAPCPA’s provisions regarding the rights of support claimants to honor one simple request:
I would hope that commentators and scholars studying the effects of the legislation going forward would focus on what the bill actually does and the actual impact it will have, rather than speculative claims and basic factual errors about how debt collection works outside bankruptcy. I have yet to see a critic of these provisions who is either aware or acknowledges the massive protections given to support creditors and to discuss why these are insufficient or insufficient only for post-bankruptcy debts but not nonbankruptcy debts generally.
In my view, Professor Zywicki wins this debate (and not just because of his Polish heritage), but please feel free to weigh in on this important debate below.
© Steve Jakubowski 2005