Something Might Be Broke, but Abolishing Chapter 13 Ain’t the Fix

By Professor Michaela M. White

Last week, I discussed Professor Katherine Porter’s study, The Pretend Solution: An Empirical Study of Bankruptcy Outcomes, 90 Texas L. Rev.103 (2011).  Henry E. Hildebrand, III, Chapter 13 Trustee for the Middle District of Tennessee, has already written a response to Professor Porter’s study entitled A Response to a Pretend Solution. This week, as promised, I summarize Mr. Hildebrand’s criticisms of Professor Porter’s study.

Mr. Hildebrand takes issue with Professor Porter’s conclusion that Chapter 13 is a “pretend solution,” especially in light of her study’s sample:

Professor Porter tested the success of the Chapter 13 option, not by testing a random sampling of debtors who have successfully navigated a Chapter 13 case, or even a random sampling of debtors who filed a Chapter 13 case. Rather, her sample is drawn from debtors whose cases have failed. Asking a random sample of debtors whose cases did not finish whether they accomplished the goals they had when they embarked on their bankruptcy journey is like asking a runner who could not finish a race whether he achieved the goal he had when he left the starting line. It is a rare runner who takes the starting gate without the goal of at least crossing the finish line. (Footnotes omitted).

Hildebrand at 5.

Mr. Hildebrand concurs with Professor Porter’s observation that Chapter 13 is complex, but he argues that its complexity is to some extent inevitable given the nature of a statute that is “designed to restructure every secured debt, cure all debts, and commit all disposable income” to a plan filed by debtors whose goals are to repay, not avoid, debts. Moreover, Chapter 13 was intended to be, and even after the 2005 Amendments remains, strictly voluntary. It is properly viewed as an alternative to the not-so-tender mercies of state law or nonbankruptcy budgeting and repayment strategies for financially swamped families. Hildebrand at 4.

“Chapter 13 is a consumer bankruptcy program that gives debtors a choice and a chance,” writes Mr. Hildebrand. Hildebrand at 7. Professor Porter’s own data shows that debtors themselves recognize this distinction, argues Hildebrand. The vast majority of the sample debtors felt that the decision to file Chapter 13 was either a very good or a somewhat good decision despite the fact they were unable to complete their plans. This indicates the debtors themselves saw Chapter 13 as an opportunity rather than a guaranty.

Hildebrand acknowledges that many debtors do not complete their plans. However, he says, inability to complete Chapter 13 plans should be addressed in the first instance by the debtor and the debtor’s counsel by taking account of risk in assessing plan feasibility.  Behavioral research shows that people systematically underestimate their personal risks even when they know the probability of unfavorable results for others.  No doubt, suggests Hildebrand, Porter’s sample debtors shared this optimism at the initial stages of Chapter 13. It is up to their lawyers and judges to help them formulate more realistic repayment goals.

However realistic at the beginning stages, plans also “fail” after unanticipated setbacks such as a health crisis or job loss.  The present Chapter 13 system takes this into account through the possibility of plan modification. Chapter 13 plan modifications, argues Hildebrand, not necessarily dismissal or conversion, ought to be sincerely offered and made more readily available to Chapter 13 debtors facing plan default. Hildebrand argues that “the pretend solution” is not a failure in the system – it is a failure of individuals to obtain the appropriate assistance to implement a flexible Chapter 13 plan.” Hildebrand at 6.

Hildebrand concludes that while there may be a case for “scrapping our existing consumer bankruptcy system for one that is fairer, cheaper, or easier to navigate,” Professor Porter’s study of debtors in failed cases whose goals were not realized does not adequately make that case. In his view, this study, as well as Porter’s earlier work, may indeed show that consumer bankruptcy – not simply Chapter 13 – has failed the American consumer. However, this is because bankruptcy can deal only with existing debt and cannot deal with insufficient or nonexistent income. In Hildebrand’s view, Porter’s findings that “approximately 50% of  Chapter 13 debtors did not “finish the race” or “achieve their goals” and experience financial problems after they leave bankruptcy “may demonstrate a problem, but the problem may not be the bankruptcy system.” Hildebrand at 8.

Please tell us what YOU think.  Did Mr. Hildbrand make all the arguments you would make? Do you agree that taking plan feasibility more seriously and plan modification more readily accessible and obtainable will fix the “problem” of plan “failure?” Or do you think that there is a problem at all?  We want to hear from you.

Something Might Be Broke, but Abolishing Chapter 13 Ain’t the Fix

By Professor Michaela M. White

Last week, I discussed Professor Katherine Porter’s study, The Pretend Solution: An Empirical Study of Bankruptcy Outcomes, 90 Texas L. Rev.103 (2011). Henry E. Hildebrand, III, Chapter 13 Trustee for the Middle District of Tennessee, has already written a response to Professor Porter’s study entitled A Response to a Pretend Solution. This week, as promised, I summarize Mr. Hildebrand’s criticisms of Professor Porter’s study.

Mr. Hildebrand takes issue with Professor Porter’s conclusion that Chapter 13 is a “pretend solution,” especially in light of her study’s sample:

Professor Porter tested the success of the Chapter 13 option, not by testing a random sampling of debtors who have successfully navigated a Chapter 13 case, or even a random sampling of debtors who filed a Chapter 13 case. Rather, her sample is drawn from debtors whose cases have failed. Asking a random sample of debtors whose cases did not finish whether they accomplished the goals they had when they embarked on their bankruptcy journey is like asking a runner who could not finish a race whether he achieved the goal he had when he left the starting line. It is a rare runner who takes the starting gate without the goal of at least crossing the finish line. (Footnotes omitted).

Hildebrand at 5.

Mr. Hildebrand concurs with Professor Porter’s observation that Chapter 13 is complex, but he argues that its complexity is to some extent inevitable given the nature of a statute that is “designed to restructure every secured debt, cure all debts, and commit all disposable income” to a plan filed by debtors whose goals are to repay, not avoid, debts. Moreover, Chapter 13 was intended to be, and even after the 2005 Amendments remains, strictly voluntary. It is properly viewed as an alternative to the not-so-tender mercies of state law or nonbankruptcy budgeting and repayment strategies for financially swamped families. Hildebrand at 4.

“Chapter 13 is a consumer bankruptcy program that gives debtors a choice and a chance,” writes Mr. Hildebrand. Hildebrand at 7. Professor Porter’s own data shows that debtors themselves recognize this distinction, argues Hildebrand. The vast majority of the sample debtors felt that the decision to file Chapter 13 was either a very good or a somewhat good decision despite the fact they were unable to complete their plans. This indicates the debtors themselves saw Chapter 13 as an opportunity rather than a guaranty.

Hildebrand acknowledges that many debtors do not complete their plans. However, he says, inability to complete Chapter 13 plans should be addressed in the first instance by the debtor and the debtor’s counsel by taking account of risk in assessing plan feasibility. Behavioral research shows that people systematically underestimate their personal risks even when they know the probability of unfavorable results for others. No doubt, suggests Hildebrand, Porter’s sample debtors shared this optimism at the initial stages of Chapter 13. It is up to their lawyers and judges to help them formulate more realistic repayment goals.

However realistic at the beginning stages, plans also “fail” after unanticipated setbacks such as a health crisis or job loss. The present Chapter 13 system takes this into account through the possibility of plan modification. Chapter 13 plan modifications, argues Hildebrand, not necessarily dismissal or conversion, ought to be sincerely offered and made more readily available to Chapter 13 debtors facing plan default. Hildebrand argues that “the pretend solution” is not a failure in the system – it is a failure of individuals to obtain the appropriate assistance to implement a flexible Chapter 13 plan.” Hildebrand at 6.

Hildebrand concludes that while there may be a case for “scrapping our existing consumer bankruptcy system for one that is fairer, cheaper, or easier to navigate,” Professor Porter’s study of debtors in failed cases whose goals were not realized does not adequately make that case. In his view, this study, as well as Porter’s earlier work, may indeed show that consumer bankruptcy – not simply Chapter 13 – has failed the American consumer. However, this is because bankruptcy can deal only with existing debt and cannot deal with insufficient or nonexistent income. In Hildebrand’s view, Porter’s findings that “approximately 50% of Chapter 13 debtors did not “finish the race” or “achieve their goals” and experience financial problems after they leave bankruptcy “may demonstrate a problem, but the proble

Something Might Be Broke, but Abolishing Chapter 13 Ain’t the Fix

By Professor Michaela M. White

Last week, I discussed Professor Katherine Porter’s study, The Pretend Solution: An Empirical Study of Bankruptcy Outcomes, 90 Texas L. Rev.103 (2011).  Henry E. Hildebrand, III, Chapter 13 Trustee for the Middle District of Tennessee, has already written a response to Professor Porter’s study entitled A Response to a Pretend Solution. This week, as promised, I summarize Mr. Hildebrand’s criticisms of Professor Porter’s study.

Mr. Hildebrand takes issue with Professor Porter’s conclusion that Chapter 13 is a “pretend solution,” especially in light of her study’s sample:

Professor Porter tested the success of the Chapter 13 option, not by testing a random sampling of debtors who have successfully navigated a Chapter 13 case, or even a random sampling of debtors who filed a Chapter 13 case. Rather, her sample is drawn from debtors whose cases have failed. Asking a random sample of debtors whose cases did not finish whether they accomplished the goals they had when they embarked on their bankruptcy journey is like asking a runner who could not finish a race whether he achieved the goal he had when he left the starting line. It is a rare runner who takes the starting gate without the goal of at least crossing the finish line. (Footnotes omitted).

Hildebrand at 5.

Mr. Hildebrand concurs with Professor Porter’s observation that Chapter 13 is complex, but he argues that its complexity is to some extent inevitable given the nature of a statute that is “designed to restructure every secured debt, cure all debts, and commit all disposable income” to a plan filed by debtors whose goals are to repay, not avoid, debts. Moreover, Chapter 13 was intended to be, and even after the 2005 Amendments remains, strictly voluntary. It is properly viewed as an alternative to the not-so-tender mercies of state law or nonbankruptcy budgeting and repayment strategies for financially swamped families. Hildebrand at 4.

“Chapter 13 is a consumer bankruptcy program that gives debtors a choice and a chance,” writes Mr. Hildebrand. Hildebrand at 7. Professor Porter’s own data shows that debtors themselves recognize this distinction, argues Hildebrand. The vast majority of the sample debtors felt that the decision to file Chapter 13 was either a very good or a somewhat good decision despite the fact they were unable to complete their plans. This indicates the debtors themselves saw Chapter 13 as an opportunity rather than a guaranty.

Hildebrand acknowledges that many debtors do not complete their plans. However, he says, inability to complete Chapter 13 plans should be addressed in the first instance by the debtor and the debtor’s counsel by taking account of risk in assessing plan feasibility.  Behavioral research shows that people systematically underestimate their personal risks even when they know the probability of unfavorable results for others.  No doubt, suggests Hildebrand, Porter’s sample debtors shared this optimism at the initial stages of Chapter 13. It is up to their lawyers and judges to help them formulate more realistic repayment goals.

However realistic at the beginning stages, plans also “fail” after unanticipated setbacks such as a health crisis or job loss.  The present Chapter 13 system takes this into account through the possibility of plan modification. Chapter 13 plan modifications, argues Hildebrand, not necessarily dismissal or conversion, ought to be sincerely offered and made more readily available to Chapter 13 debtors facing plan default. Hildebrand argues that “the pretend solution” is not a failure in the system – it is a failure of individuals to obtain the appropriate assistance to implement a flexible Chapter 13 plan.” Hildebrand at 6.

Hildebrand concludes that while there may be a case for “scrapping our existing consumer bankruptcy system for one that is fairer, cheaper, or easier to navigate,” Professor Porter’s study of debtors in failed cases whose goals were not realized does not adequately make that case. In his view, this study, as well as Porter’s earlier work, may indeed show that consumer bankruptcy – not simply Chapter 13 – has failed the American consumer. However, this is because bankruptcy can deal only with existing debt and cannot deal with insufficient or nonexistent income. In Hildebrand’s view, Porter’s findings that “approximately 50% of  Chapter 13 debtors did not “finish the race” or “achieve their goals” and experience financial problems after they leave bankruptcy “may demonstrate a problem, but the problem may not be the bankruptcy system.” Hildebrand at 8.

Please tell us what YOU think.  Did Mr. Hildbrand make all the arguments you would make? Do you agree that taking plan feasibility more seriously and plan modification more readily accessible and obtainable will fix the “problem” of plan “failure?” Or do you think that there is a problem at all?  We want to hear from you.

m may not be the bankruptcy system.” Hildebrand at 8.

Please tell us what YOU think. Did Mr. Hildbrand make all the arguments you would make? Do you agree that taking plan feasibility more seriously and plan modification more readily accessible and obtainable will fix the “problem” of plan “failure?” Or do you think that there is a problem at all? We want to hear from you.


Professor of Law, Michaela White received her Bachelor of Arts degree in 1976, and her Juris Doctor degree, magna cum laude, in 1979 from Creighton University, where she was on the Creighton Law Review Editorial Staff and a member of the Moot Court Honors Board. She was law clerk to The Honorable Donald R. Ross of the United States Court of Appeals for the Eighth Circuit and for The Honorable Fallon Kelly of the Minnesota Supreme Court. She practiced law in Minnesota from 1980-1983, and then served as the Assistant Attorney General for the Nebraska Department of Justice. Prof. White joined Creighton after serving for six years as a Professor of Law at McGeorge School of Law. Most recently, Prof. White authored the book, When Worlds Collide: Bankruptcy and Domestic Relations Law, 4th Ed. (American Bankruptcy Institute, 2010).


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