Abstract:

One in eleven Americans have filed bankruptcy at some point during their lives. Based on the number of consumer bankruptcy cases initiated during the past several decades, about one million individuals will file every year. This makes bankruptcy courts the leading federal courts with which people have contact. Embedded in people’s cases are a host of legal issues that do not directly implicate bankruptcy law, such as the interpretation of states’ exemptions laws and Article 9 of the Uniform Commercial Code, the avoidance of liens, and defenses to contract claims. Consumer bankruptcy law, via its process, is intertwined with the broader development of laws and the larger United States legal system.

In raising these legal issues, people may want to explain the broader circumstances surrounding the claims, their need to file bankruptcy, or why they are asking for particular relief. Procedurally, bankruptcy courts can offer people an occasion to speak about their financial journeys. Debtors similarly may want to tell their stories to bankruptcy attorneys, and attorneys likely will be called upon to counsel people about if and how to pose legal issues and background stories during their cases.

By highlighting the range of non-bankruptcy law issues that may be raised in consumer bankruptcy cases, this Essay affirms that bankruptcy can continue to offer effective solutions for people’s financial legal problems that they may not have the resources to handle elsewhere. It also contends that a valuable role of bankruptcy attorneys, trustees, and judges is to identify and consider these non-bankruptcy law issues, as well as people’s potential desire to have a voice, and that doing so should be woven into the expected structure of a consumer bankruptcy proceeding. Indeed, this will enhance litigants’ and the public’s perception of the bankruptcy system. Overall, this Essay draws out how the broader values of the United States legal system can be supported by the consumer bankruptcy system. 

Commentary:

This article is an excellent counter to those, whether judges, creditors, or even consumer debtor’s attorneys, who decry and bemoan the inclusion of “alphabet soup laws“, as they disparagingly call the protections and rights consumers have in statutes including FDCPA, FCRA, TILA, UCC, UDTPA, etc., into the bankruptcy courts. 

A missing piece in this article, however, is a recognition that the idea from Prof.  William C. Whitford in his paper The Ideal of Individualized Justice: Consumer Bankruptcy as Consumer Protection, and Consumer Protection as Consumer Bankruptcy “that bankruptcy courts may be the best available venue for some people to air their claims about lenders’ actions regarding consumer debts that they think violated federal and state consumer protection laws” was evangelized  and put into practice by groups like NACBA and in particular by O. Max Gardner, with his Bankruptcy Litigation Model.

This article highlights as an example of consumer protection in bankruptcy how in Scharrer v. First National Bank of Omaha, the Chapter 7 used ECOA to obtain a judgment against First National Bank of Omaha for its illegal actions in the amount of $15,000, but with all of those funds either being paid to the Trustee or other creditors. While pointing out that perhaps the debtor might have brought this action “prebankruptcy in  … state court” and recovered some of those funds for himself,  the article fails to recognize that in a Chapter 13 case, the debtor would have retained control of this cause of action and potentially the recovery as well. That advantage might not, however, fit he academic narrative that is often hostile to Chapter 13.

The Study is Available at: https://ablj.org/the-periphery-of-bankruptcy-law-the-importance-of-non-bankruptcy-issues-in-consumer-bankruptcy-vol-98-issue-3-pdf/