[House Hearing, 111 Congress]
[From the U.S. Government Publishing Office]
BANKRUPTCY JUDGESHIP NEEDS
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON
COMMERCIAL AND ADMINISTRATIVE LAW
OF THE
COMMITTEE ON THE JUDICIARY
HOUSE OF REPRESENTATIVES
ONE HUNDRED ELEVENTH CONGRESS
FIRST SESSION
__________
JUNE 16, 2009
__________
Serial No. 111-42
__________
Printed for the use of the Committee on the Judiciary
Available via the World Wide Web: http://judiciary.house.gov
U.S. GOVERNMENT PRINTING OFFICE
50-452 PDF WASHINGTON : 2010
-----------------------------------------------------------------------
For sale by the Superintendent of Documents, U.S. Government Printing
Office Internet: bookstore.gpo.gov Phone: toll free (866) 512-1800; DC
area (202) 512-1800 Fax: (202) 512-2104 Mail: Stop IDCC, Washington, DC
20402-0001
COMMITTEE ON THE JUDICIARY
JOHN CONYERS, Jr., Michigan, Chairman
HOWARD L. BERMAN, California LAMAR SMITH, Texas
RICK BOUCHER, Virginia F. JAMES SENSENBRENNER, Jr.,
JERROLD NADLER, New York Wisconsin
ROBERT C. ``BOBBY'' SCOTT, Virginia HOWARD COBLE, North Carolina
MELVIN L. WATT, North Carolina ELTON GALLEGLY, California
ZOE LOFGREN, California BOB GOODLATTE, Virginia
SHEILA JACKSON LEE, Texas DANIEL E. LUNGREN, California
MAXINE WATERS, California DARRELL E. ISSA, California
WILLIAM D. DELAHUNT, Massachusetts J. RANDY FORBES, Virginia
ROBERT WEXLER, Florida STEVE KING, Iowa
STEVE COHEN, Tennessee TRENT FRANKS, Arizona
HENRY C. ``HANK'' JOHNSON, Jr., LOUIE GOHMERT, Texas
Georgia JIM JORDAN, Ohio
PEDRO PIERLUISI, Puerto Rico TED POE, Texas
MIKE QUIGLEY, Illinois JASON CHAFFETZ, Utah
LUIS V. GUTIERREZ, Illinois TOM ROONEY, Florida
BRAD SHERMAN, California GREGG HARPER, Mississippi
TAMMY BALDWIN, Wisconsin
CHARLES A. GONZALEZ, Texas
ANTHONY D. WEINER, New York
ADAM B. SCHIFF, California
LINDA T. SANCHEZ, California
DEBBIE WASSERMAN SCHULTZ, Florida
DANIEL MAFFEI, New York
Perry Apelbaum, Majority Staff Director and Chief Counsel
Sean McLaughlin, Minority Chief of Staff and General Counsel
------
Subcommittee on Commercial and Administrative Law
STEVE COHEN, Tennessee, Chairman
WILLIAM D. DELAHUNT, Massachusetts TRENT FRANKS, Arizona
MELVIN L. WATT, North Carolina JIM JORDAN, Ohio
BRAD SHERMAN, California DARRELL E. ISSA, California
DANIEL MAFFEI, New York J. RANDY FORBES, Virginia
ZOE LOFGREN, California HOWARD COBLE, North Carolina
HENRY C. ``HANK'' JOHNSON, Jr., STEVE KING, Iowa
Georgia
ROBERT C. ``BOBBY'' SCOTT, Virginia
JOHN CONYERS, Jr., Michigan
Michone Johnson, Chief Counsel
Daniel Flores, Minority Counsel
C O N T E N T S
----------
JUNE 16, 2009
Page
OPENING STATEMENTS
The Honorable Steve Cohen, a Representative in Congress from the
State of Tennessee, and Chairman, Subcommittee on Commercial
and Administrative Law......................................... 1
The Honorable Jim Jordan, a Representative in Congress from the
State of Ohio, and Member, Subcommittee on Commercial and
Administrative Law............................................. 2
The Honorable John Conyers, Jr., a Representative in Congress
from the State of Michigan, Chairman, Committee on the
Judiciary, and Member, Subcommittee on Commercial and
Administrative Law............................................. 3
WITNESSES
The Honorable Barbara M.G. Lynn, United States District Court for
the Northern District of Texas, on behalf of the Judicial
Conference of the United States
Oral Testimony................................................. 5
Prepared Statement............................................. 7
The Honorable David S. Kennedy, United States Bankruptcy Court
for the Western District of Tennessee, on behalf of the
National Conference of Bankruptcy Judges
Oral Testimony................................................. 55
Prepared Statement............................................. 58
Mr. William Jenkins, Jr., Ph.D., United States Government
Accountability Office
Oral Testimony................................................. 74
Prepared Statement............................................. 76
Ms. Carey D. Ebert, Ebert Law Offices, P.C., on behalf of the
National Association of Consumer Bankruptcy Attorneys
Oral Testimony................................................. 94
Prepared Statement............................................. 96
LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING
Prepared Statement of the Honorable Henry C. ``Hank'' Johnson,
Jr., a Representative in Congress from the State of Georgia,
and Member, Subcommittee on Commercial and Administrative
LawNames here.................................................. 4
APPENDIX
Material Submitted for the Hearing Record
Response to Post-Hearing Questions from the Honorable Barbara
M.G. Lynn, United States District Court for the Northern
District of Texas.............................................. 118
Prepared Statement of the Financial Counseling Research
Roundtable..................................................... 124
BANKRUPTCY JUDGESHIP NEEDS
----------
TUESDAY, JUNE 16, 2009
House of Representatives,
Subcommittee on Commercial
and Administrative Law,
Committee on the Judiciary,
Washington, DC.
The Subcommittee met, pursuant to notice, at 11:14 a.m., in
room 2141, Rayburn House Office Building, the Honorable Steve
Cohen (Chairman of the Subcommittee) presiding.
Present: Representatives Cohen, Conyers, Watt, Scott, and
Jordan.
Staff present: (Majority) James Park, Counsel; Adam
Russell, Professional Staff; and (Minority) Zachary Somers,
Counsel.
Mr. Cohen. This hearing of the Committee on the Judiciary,
Subcommittee on Commercial and Administrative Law, will now
come to order.
Without objection, the Chair will be authorized to declare
a recess of the hearing. I will now recognize myself for a
short statement.
Bankruptcies have been steadily on the rise since October
2006, well before the current economic downturn. With the
significant recession that the country is currently
experiencing, particularly when combined with the related
foreclosure, consumer credit and health care crises, this trend
has been exacerbated significantly.
According to the Administrative Office of the U.S. Courts--
there were over 1 million bankruptcy filings nationwide for the
12-month period ending March 31, 2009, representing a 33
percent increase over the 12-month period ending March 31,
2008.
Moreover, the sharpest increase in filings was in Chapter
11 cases, where there were--nearly 70 percent increase over the
previous year. And bankruptcies involving primarily business
debts were up almost 60 percent in that same period of time.
We have had some hearings in this Committee on Chapter 11
and problems associated therewith. We have been hearing for
some time that the country is facing the greatest economic
crisis since the great depression, and these numbers are stark
evidence of that assertion.
A well-functioning bankruptcy system is absolutely critical
to helping individuals and businesses weather this economic
storm, and having a sufficient number of bankruptcy judges is
key to making that system work.
Bankruptcies are extremely high in my district, in the
Western District of Tennessee, and one of my predecessors,
Walter Chandler, had a lot to do with drafting the bankruptcy
laws back in the late 1930's.
Today we consider the recommendations of the Judicial
Conference of the United States with respect to bankruptcy
judgeships.
The Judicial Conference recommends the authorization of 13
new bankruptcy judgeships, the conversion of 22 temporary
judgeships to permanent status, and the extension of two
temporary judgeships for another 5 years.
In total, the recommendation affects 25 judicial districts
in nine of the 12 geographically based Federal judicial
circuits.
The Judicial Conference's recommendations are based on its
comprehensive study of bankruptcy judgeship needs.
Last time Congress authorized or even addressed the issue
of bankruptcy judgeships was almost 4 years ago, when it
authorized 28 temporary judgeships in the Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005 that are now
about to expire.
Unfortunately, that is not all that is about to expire, but
that is all.
It is well past time that we revise and revisit the
critical issue of bankruptcy judgeships needs and I am
gratified that we are able to do so today. Accordingly, I look
forward to hearing testimony this morning.
And I would now like to recognize Mr. Jordan, who is the
Ranking Member once removed, for his opening remarks.
Mr. Jordan. Thank the Chair for recognizing--for that nice
title.
Mr. Chairman, I, too, want to begin by thanking you for
holding this hearing and thank our witnesses who are here today
for taking time out of their schedule.
As some of you know, additional permanent bankruptcy judges
have not been authorized since 1992. Although the House has
passed on more than one occasion legislation authorizing
additional permanent bankruptcy judges since--since that 1992
date, the Senate, unfortunately, has not acted on this
legislation.
Obviously, judges are crucial to the bankruptcy process.
They, with the help of bankruptcy trustees, ensure that the
work is completed, creditors are paid, assets are properly
disbursed.
If judicial workloads become overburdened, it prevents
bankruptcy cases from advancing as they should. This either
prolongs the bankruptcy process or subtracts from the amount of
time judges can dedicate to each of the cases on their dockets.
As consumers and businesses seek to use bankruptcy as a
means to receiving a fresh start from the economic stress
they--the current recession has caused, it is important that we
have a sufficient number of judges to make the system work
properly.
The need for additional judges is premised on a
comprehensive study of judicial resource needs conducted by the
Judicial Conference. With the expertise of our witnesses,
today's hearing should provide a useful opportunity for us to
obtain a greater understanding of how the Judicial Conference
assesses the Nation's bankruptcy judgeship needs and assures
that all currently authorized judicial resources are maximized.
I do want to note that I have some concerns that the 1991
case weights that are the basis for the current study of
bankruptcy judgeship needs are woefully out of date. There are
understandable reasons as to why the study is so out of date.
Nonetheless, I will be interested in the witnesses'
testimony regarding the current study, whether it can be relied
on, and what the cost to the bankruptcy system will be of
waiting until an updated survey and study--which I understand
is currently in the works--is, in fact, completed.
I look forward to our witnesses' testimony. Of course, I do
have to leave here in about a half an hour, so--look forward to
the--their testimony nonetheless, and yield back my time.
Mr. Cohen. I thank the gentleman for his statement.
And I now recognize Mr. Conyers, the most distinguished
Member of the Subcommittee, from the great city of Detroit,
which is having some interaction with the bankruptcy courts, I
believe, for an opening statement and welcome him.
Mr. Conyers. Thank you, Mr. Chairman.
I am here to commend you for taking this subject up as
rapidly as you have with the Committee. I am very proud of the
witnesses that have joined us for this discussion.
And I don't think it is tipping off anybody to anything,
but we have a roughly bipartisan agreement, a consensus, on the
need for more judges. Now, I won't say that that is elementary,
because nothing in the Congress is elementary. You may think it
is elementary, but it is very important.
And I hope with the distinguished group that you have
gathered here today for this discussion that we go underneath
the--call a need for more numbers. I mean, that is--I don't
know how you could argue that.
But what else do we need to look at in--in this whole
unique part of the Federal judiciary? What else needs to be
examined? This is the Committee that has that jurisdiction.
So we don't want to just have a superficial discussion
about how many numbers we need, how fast we need them, how we
need to make permanent all the temporaries that are about to
expire, but what--what about the bankruptcy court and the
procedures and rules and conduct in which it operates, and the
tragedy that millions of people are now being forced into this
as a way out?
This is a relief valve. It is no longer an embarrassment.
It used to be a disgrace. Nobody would ever want to talk about
it. That period of time in our culture is gone. You are hoping
you can get into bankruptcy.
And now the problem is there is long lines. You can't even
get there in a timely fashion. So a lot of damage goes on in
the meantime, while you are processing a person, a family, a
small business for this economic circumstance that has befallen
them.
So I am proud to be on your Committee.
Mr. Cohen. Thank you. Appreciate your statement. Likewise,
I reciprocate. I am proud to be on your Committee.
Without objection, other Members' opening statements will
be included in the record.
[The prepared statement of Mr. Johnson follows:]
Prepared Statement of the Honorable Henry C. ``Hank'' Johnson, Jr., a
Representative in Congress from the State of Georgia, and Member,
Subcommittee on Commercial and Administrative Law
__________
Mr. Cohen. I am now pleased to introduce the witness--the
first witness, and we introduce our witnesses just prior to
their speaking in this hearing today.
I want to thank everybody here for their appearing and
their testimony. Without objection, your written statements
will be placed in the record. We ask you limit your oral
remarks to 5 minutes.
There is a lighting system. It shows that if you--green
light means you have started and you have got anywhere from 5
to 1 minute left. When it hits yellow, you are in your last
minute. And when it goes to red, you should have--be concluding
promptly.
After each witness has presented his or her testimony,
Subcommittee Members will be permitted to ask questions, also
subject to the 5-minute limitation. And you have got a button
there when you do start to push to turn on your microphone.
Our first witness is Ms. Barbara Lynn--it is to your right
hand, your index finger, kind of like when you are going on the
airplane on that clear deal.
Our first witness is Barbara Lynn. Judge Lynn took the oath
of office as United States district judge for the Northern
District of Texas on Valentine's Day 2000.
Judge Lynn is chair of the committee on the administration
of bankruptcy systems, the Judicial Conference of the United
States, and been very involved in different ABA activities. And
we appreciate Judge Lynn for being here.
And you can begin your testimony.
Judge Lynn. Good morning.
Mr. Cohen. Good morning.
Is she on?
Are you on?
TESTIMONY OF THE HONORABLE BARBARA M.G. LYNN, UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF TEXAS, ON BEHALF OF
THE JUDICIAL CONFERENCE OF THE UNITED STATES
Judge Lynn. Better? Yes. All right. Good morning.
Chairman Cohen, Chairman Conyers and Members of the
Subcommittee, as Chairman Cohen has told you, I am a district
judge in Dallas, Texas. I am also the chair of the
administration of the bankruptcy system committee of the
Judicial Conference, and it is in that capacity that I appear
before you today.
I am pleased to testify in support of the recommendations
for bankruptcy judges. Sufficient judicial resources are
essential to ensure that our bankruptcy courts can effectively
and efficiently determine the rights and the responsibilities
of parties in cases before them.
In performing its statutory duty to advise Congress on the
need for bankruptcy judgeships, our Judicial Conference makes
biennial recommendations for the authorization of additional
bankruptcy judgeships, the continuing need for existing
bankruptcy judgeships and other judgeship actions.
In exercise of that duty, as the chairman has advised, we
recommend that Congress authorize the following: 13 new
permanent bankruptcy judgeships, the conversion of 22 existing
temporary judgeships to permanent status, and the extension of
two temporary bankruptcy judgeships for 5 years.
The need for these judgeships is critical. Our filings are
approaching near-record levels, just as the bankruptcy courts
are in peril of losing many of their judicial resources--
specifically, the temporary judgeships, which were created or
extended by Congress in connection with the passage of the
Bankruptcy Abuse Prevention and Consumer Protection Act, which
we in the field call BAPCPA.
Today I urge your assistance in passing the judgeship
legislation which will alleviate these overcrowded dockets and
assure that the bankruptcy system can satisfy its vital
mission, which is much in the minds of the public in our
current economic circumstances.
These judgeships are, I submit to you, essential to the
administration of justice. Although the Judicial Conference
sought 47 additional permanent and temporary judgeships in
early 2005, the year when BAPCPA was passed, only 28 temporary
judgeships were authorized, and most of those were based on an
outdated 1999 judicial conference recommendation.
All of the temporary judgeships authorized or extended by
BAPCPA are now approaching their lapse dates, after which the
next vacancies in those districts cannot be filled.
At the same time, the workload of bankruptcy judges has
substantially and steadily increased since the first full year
after BAPCPA took effect, and filings are nearing pre-BAPCPA
levels.
Without congressional action on the judicial resources
recommended by the conference, bankruptcy courts could
simultaneously face record filings and a reduction in judicial
resources needed to handle them.
Both business and non-business case filings are increasing
dramatically. Pro se filings, which require additional judicial
time to equitably adjudicate, are among these increased
filings.
Moreover, the provisions of BAPCPA have added to the
particular work required of bankruptcy judges in each case.
To be specific about the picture of bankruptcy over the
last several years, I note that bankruptcy case filings have
increased steadily. The Chairman mentioned these numbers, so I
will not repeat them, but I will simply say that as of the year
ending March 31, 2009, the number of filings from 2006 had
doubled.
We are now at 1.2 million as of that time frame, without
even accounting for seasonal adjustments. And that is nearly 60
percent higher than it was during the first year following
BAPCPA's passage.
The judicial conference fully understands the current
budget climate, and its recommendation for authorization of
additional judgeships is not undertaken lightly. The districts
that require additional resources have shown a sustained need
for additional judgeships, and they remain overburdened by
crushing caseloads.
I will cite the Eastern District of Michigan as an example,
and we have requested additional resources there since 1993.
In the Western District of Tennessee, where my colleague
Judge David Kennedy sits and Representative Cohen, of course--
is your district, a permanent judgeship has been recommended
since 1997.
If the temporary judgeship authorized by BAPCPA expires
with the next vacancy in or after July 2011, that district will
revert to the number of judges it had in 1992 before it
experienced a dramatically increased workload.
The conference takes seriously its role as a steward of
taxpayer dollars, and I assure you that we have requested
judgeship vacancies be filled only where there is a workload
need after exploring all alternatives to filling the need for
additional resources.
It is our view that bankruptcy judgeship legislation is the
necessary solution to cure the problem of inadequate resources
to fill these needs.
The survey that we conducted was mentioned. I will be happy
in the question period, if you like, to detail all of the
factors that we consider in addition to the weighted caseload.
And, Mr. Jordan, I will happily entertain any questions you
might choose to ask me about the weighted case load and how
that works.
But we believe we have sufficient data to fully justify
that each of these judgeships be filled. We believe that to
ensure that the bankruptcy court system operates as Congress
has intended that we need all of these resources to fill a
critical void in our system.
I thank you very much for your kind attention, and I will
be happy to answer any questions you might choose to ask me.
[The prepared statement of Judge Lynn follows:]
Prepared Statement of the Honorable Barbara M.G. Lynn
__________
Mr. Cohen. Thank you, Judge Lynn, and we appreciate your
testimony and your willingness to participate.
Our second witness is Judge David Kennedy. Chief Judge
Kennedy was appointed to the bankruptcy bench for the Western
District of Tennessee in November 1980, became chief judge in
1988.
He has served the United States Judicial Conference in the
bankruptcy area for quite a few years, and he is an esteemed
member of the bench in my home town and the Western District of
Tennessee, and it is my honor to have you here.
Will you begin your testimony, Judge Kennedy?
TESTIMONY OF THE HONORABLE DAVID S. KENNEDY, UNITED STATES
BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TENNESSEE, ON
BEHALF OF THE NATIONAL CONFERENCE OF BANKRUPTCY JUDGES
Judge Kennedy. Thank you, Mr. Chairman--good morning--and
Members of the Subcommittee.
My name is David Kennedy. I have had the honor of serving
as a United States bankruptcy judge for about 28-1/2 years in
the Western District of Tennessee at Memphis, where I live and
primarily hold court. Over the years, I hold court in Jackson,
Tennessee from time to time on an as-needed basis.
Chairman Cohen, you are right about Memphis having some
deep roots in the field of bankruptcy with the Honorable Walter
Chandler having had the 1938 amendments named after him and
actually created the rehabilitory features of the bankruptcy
code that we now know as Chapter 11--Chapter 13, a
congressional policy that has existed in America since 1938,
favoring repayment plans over liquidation where possible, and I
emphasize where possible, because not all individuals who are
unemployed would qualify to be eligible for relief in Chapter
13.
But I greatly thank you and the Subcommittee for this
opportunity and pleasure to testify before you to discuss the
bankruptcy judgeship needs.
I appear before you today as a representative of the
National Conference of Bankruptcy Judges. I strongly agree with
everything that Judge Lynn has said regarding judgeship needs
and also the standards used by the Judicial Conference in its
thoughtful, deliberate, reality-based process.
I also support strongly the Judicial Conference's
recommendations regarding the 13 requested new judgeships,
converting the 22 temporary conversions to permanent status,
and the extension of the two temporaries.
And it is my understanding that my friend Mr. William
Jenkins of this panel will testify in a moment regarding the
methodology used by the Judicial Conference in these matters,
so I will not step on his turf either.
And since I have previously submitted a prepared written
statement that really speaks for itself, I thought my oral
statements instead might focus more now on how this current
workload impacts the day-to-day lives of bankruptcy judges,
their staffs, the court security officers, the bankruptcy
trustees, debtors, creditors and other litigants in the system,
and also the public as a whole and, if time allows, to just
briefly discuss how very carefully the Judicial Conference
evaluates a district's request for a new judgeship and--and
related needs.
The work of the bankruptcy judges today is seemingly more
complex and time-consuming than ever before. No doubt the
attorneys and trustees are more sophisticated today. There are
more pro se litigants, more pro se debtors. Additionally, case
filings are increasing at, I think, an alarming rate, which
makes a bad situation even worse.
As you, Chairman Cohen, mentioned a moment ago, the filings
for the 12-month period ending March 31, 2009 were up 33.3
percent over bankruptcy filings for that same 12-year period
ending March 31, 2008.
Many are predicting that calendar year 2009 will result in
approximately 1.5 million bankruptcy cases being filed. In
fact, last week I heard the senior economist at the A.O.
Bankruptcy Judges Division make that prediction, and others
have as well.
And that is significant for a number of reasons, but it is
further significant because that is almost the same level that
existed the year before the enactment of this controversial
2005 bankruptcy act.
Although the 2005 bankruptcy act certainly has positive
provisions, even historic provisions, nonetheless it also has
many provisions that are very complicated and are very time-
consuming. Approximately 35 new motions have been created by
the 2005 act, and many of them are extremely time-sensitive.
Actually, there are times and days when I feel like the
bankruptcy court today is more a de facto emergency room for
financially distressed consumer and commercial debtors.
Costs under the 2005 act have increased, resulting in more
individuals debtors and small creditors representing
themselves--that is, acting pro se--and pro se litigants and
debtors just ordinarily are more time-consuming, and usually it
is a judge nightmare to have both parties pro se, and that is
happening more and more--a real dilemma, but we just have to
work our way through it.
Because of these factors and others, the judges' workload
within the cases have increased. Judges faced with overcrowded
dockets are having to work late hours, requiring court staff,
court security officers to also work late. The attorneys, the
debtors, the creditors are having to stay late. And of course,
their families--at least they are not there, but they are
affected by all this.
And as judges, I note that sometimes we can just get too
busy. And I believe that the perception of justice is
important, perhaps sometimes more important than the reality
itself. But it is critical that debtors and creditors feel that
they have had their full day in court.
People sometimes just need an outlet. They want to appear
before a judge and be heard and have an attentive judge hear
them. So I think there is a public confidence consideration
involved in all this, too.
And it goes without saying that the overcrowded dockets
sometimes may result in different kinds of problems. For
example, because of the lack of judges, hearings may be
delayed, continued, or postponed or fast-tracked, or judicial
decisions may be delayed.
Although creditor distribution under Chapter 11, 12 and 13
confirmed plans and in asset Chapter 7 cases may be delayed,
last calendar year in the Western District of Tennessee I am
very pleased to report that over $260 million were distributed
to creditors under Chapter 13 plans.
So it could be said that a delayed distribution to
creditors is, in essence, a denial of lost opportunity cost.
And today's creditor may be tomorrow's debtor.
Now to very briefly discuss how carefully the Judicial
Conference evaluates a district request for a judgeship, I have
served on many Judicial Conference judgeship survey committees,
and I can personally attest to how very carefully the
conference evaluates these judgeship requests and related needs
based on this personal knowledge.
And as noted a moment ago, it is a well conceived,
implemented and reality-based process. That is set forth much
more in detail in my written comment.
And in summary, the need for these additional judgeships,
the conversion of the temporaries to permanent status, the
enlargement of the two temporary positions is real and acute.
And simply put, we ask for your help. The needs exist.
And please know that we greatly appreciate your time and
attention. And I also would be happy to try to attempt to
answer questions that you may have later.
[The prepared statement of Judge Kennedy follows:]
Prepared Statement of the Honorable David S. Kennedy
__________
Mr. Cohen. Thank you, Judge Kennedy. I appreciate it.
Our third witness is William Jenkins. Mr. Jenkins joined
the Government Accountability Office in 1979 as a faculty
fellow. Since February 2003 he has served as director of
homeland security and justice issues, with a portfolio that
includes emergency preparedness and response, elections and the
judiciary.
And we appreciate your testimony today, Mr. Jenkins. Will
you proceed?
TESTIMONY OF WILLIAM JENKINS, JR., Ph.D., UNITED STATES
GOVERNMENT ACCOUNTABILITY OFFICE
Mr. Jenkins. Chairman Conyers and Chairman Cohen, Members
of the Committee, I appreciate the opportunity to be here today
to discuss our work reviewing the workload measures that the
Judicial Conference uses to assess the need for additional
bankruptcy judgeships.
These workload measures, called weighted case filings, are
now 18 years old. Their accuracy has almost certainly been
affected by changes in the intervening years, such as changes
in the nature of the workload, case management practices and
the many new requirements of the Bankruptcy Abuse and
Prevention and Consumer Protection Act, some of which Judge
Kennedy discussed.
Some of these changes may have increased judges' workload
and some decreased it. To the extent that the current case
weights understate or overstate the time demands on judges, the
weights could potentially result in the Judicial Conference
understating or overstating the need for new bankruptcy
judgeships.
The Federal Judicial Center has a study now under way to
revise and update the current case weights. The time demands on
bankruptcy judges are largely a function of the number and
complexity of the cases on their dockets, with some cases
taking time--more time than others.
To measure these differences, the Judicial Conference uses
weighted case filings, a statistical measure of the average
estimated judge time that specific types of cases are expected
to take.
A weight is assigned to each case filed in a bankruptcy
court, and the sum of those weights divided by the number of
authorized judgeships in the court results in the number of
weighted filings per judgeship for that court.
The Judicial Conference considers 1,500 annual weighted
filings per judgeship an indicator, and only an indicator, of
the need for additional judgeships in that court.
Thus, in assessing the need for judgeships, the Judicial
Conference relies on the weighted filings to be a reasonably
accurate measure of a judge's case-related workload.
Whether they are, in fact, reasonably accurate depends, in
turn, on the soundness of the methodology used to develop the
weights. The current weights were developed using data judges
recorded on the actual amount of time they were spending on
cases filed in their courts over a 10-week period.
In 2003, we reported that we found first that the
methodology was reasonable and, second, that the resulting case
weights, as approved by the Judicial Conference in 1991 and
1996, were likely to be reasonably accurate at the time they
were developed.
The Federal Judicial Center began a study in 2005 to review
the current case weights but suspended it after the enactment
of the Bankruptcy Reform Act. This was prudent, given the fact
that the act was expected to have an impact on bankruptcy
filings, at least in the short term, and that the act included
many new provisions whose effect on judges' workload could not
be immediately known.
And in fact, personal bankruptcy filings surged to more
than 2 million in 2005 due to the surge in filings prior to the
October 2005 effective date of the reform act. In calendar year
2006, filings dropped to 600,000. Filings have since grown
steadily, as mentioned, and reached about 1.2 million filings
for the year ending in March 2009, at roughly the same level as
calendar year 2004.
The FJC began a new study in 2008 to review the current
case weights. The study is designed to collect data on the time
bankruptcy judges spend on cases filed during five 10-week data
collection periods from May 2008 through May 2009.
Active and recalled bankruptcy judges participate in the
study during one of these five reporting periods. This study
design permits the development of new case weights based on the
same type of objective time data as the current weights, which
we found to be reasonably accurate.
Importantly, it permits the calculation of a statistical
estimate of the error associated with each case weight.
Finally, the accuracy of case weights as a measure of
judicial workload is dependent upon accurately assigning each
case file to the appropriate case weight category.
In 2003, we identified the steps the Administrative Office
takes to ensure the accurate categorization of case filings,
but we did not evaluate how effectively these measures may be
in ensuring data accuracy, and we have not reviewed the current
judgeship request.
That concludes my statement, Mr. Chairman. I would be
pleased to respond to any questions you or other Members of the
Subcommittee may have.
[The prepared statement of Mr. Jenkins follows:]
Prepared Statement of William Jenkins, Jr.
__________
Mr. Cohen. Thank you, Mr. Jenkins. Appreciate it.
Our final witness is Carey Ebert. She is a partner in the
Fort Worth law firm of Ebert Law Offices, focusing on consumer
and small business bankruptcies. She was president of the
National Association--or became president of the National
Association of Consumer Bankruptcy Attorneys this January 1,
2009.
She served two terms previously as vice president and
serves as a panel trustee in the Northern District of Texas. So
three of our four witnesses are from Conference USA, more or
less--once removed, I guess, with CCU.
Thank you, Ms. Ebert, and if we can proceed with your
testimony.
TESTIMONY OF CAREY D. EBERT, EBERT LAW OFFICES, P.C., on behalf
of the NATIONAL ASSOCIATION OF CONSUMER BANKRUPTCY ATTORNEYS
Ms. Ebert. Thank you. Thank you. Thank you, Mr. Chairman.
Good morning. By way of background, the National
Association of Bankruptcy Attorneys, or NACBA, on whose behalf
I appear today, is the only national organization dedicated to
serving the needs of consumer bankruptcy attorneys and
protecting the rights of consumer debtors in bankruptcy.
Formed in 1992, NACBA has more than 4,000 members located
in all 50 states and Puerto Rico.
Before I begin my statement in support of additional
bankruptcy judgeships, I want to take just a minute to thank
this Subcommittee, the full Judiciary Committee and, indeed,
the entire House of Representatives for your tireless efforts
on behalf of homeowners facing foreclosures.
Perhaps the single most effective thing this Congress could
do to stem the rising tide of foreclosures would be to give
bankruptcy judges the ability to modify mortgages on primary
residences in Chapter 13, as currently can be done for vacation
homes, yachts, family farms and investment property.
The House of Representatives passed legislation that makes
this common-sense change to the bankruptcy code in instances
where homeowners were unsuccessful in getting a sustainable
loan modification from their lender. Regrettably, that
provision was killed in the Senate.
I understand there is some belief the foreclosure crisis is
behind us. Based on what I see every day in my practice, I can
assure you that it is not, and I suspect we will be taking up
this issue again in the near future. And thank you for allowing
this digression.
NACBA supports the 2009 recommendation of the Judicial
Conference of the United States for additional bankruptcy
judges.
We agree that additional judgeships are critical to ensure
that the bankruptcy courts have sufficient judicial resources
to effectively and efficiently adjudicate the rights and
responsibilities of parties in bankruptcy cases and
proceedings.
There have been no permanent judgeships authorized by
Congress since 1992, despite a surge in consumer and business
case loads and the increased complexity of cases since the
October 2005 implementation of the Bankruptcy Abuse Prevention
and Consumer Protection Act of 2005, BAPCPA.
Although bankruptcy filings initially declined in the wake
of BAPCPA's implementation, there has been a tremendous
increase in recent years. It is estimated that filings this
year will again exceed the 1 million mark, with an increase of
27 percent in 2009, to more than 1.2 million cases.
The state of the economy, particularly as it impacts home
foreclosures, rising unemployment and credit availability, is a
major factor in the rising number of personal bankruptcies,
which traditionally constitute the majority of bankruptcy
cases.
The economic downturn is causing an increase in small
business and corporate bankruptcies, some of which are very
large and complex Chapter 11 cases.
But the number of filings alone is not the sole indicator
of the overall workload of the judiciary or those involved with
the bankruptcy process. Perhaps the biggest impact of the 2005
law has been the enormous increase in the cost and burdens of
filing an individual bankruptcy case.
While it may not have been the intention of some of those
who voted for the bill, BAPCPA has increased documentation
requirements, bureaucratic paperwork and other costs so much
that the honest, low-income and working family, not the high
rollers at whom the amendments were supposedly aimed, are
deterred--are prevented from obtaining the bankruptcy relief
that they need.
Consider some of the new requirements as a result of the
2005 law changes. Before a debtor can even file their petition
for bankruptcy, that debtor must obtain all payment advices for
the 60 days prior to filing, 4 years of their most recent tax
returns or transcripts, provide their attorney with information
detailing every penny of their income for the past 6 months,
provide bank statements to the trustee and evidence of current
income, attend a pre-petition credit counseling briefing no
matter how hopeless their situation, and, regardless of whether
their problems were caused by imprudent credit decisions or
unavoidable medical catastrophes, attend a financial management
course in order to receive a discharge. And the attorney must
complete numerous additional forms, including a six-page means-
test form that requires arcane calculations about which there
are many different legal interpretations.
As such, bankruptcy has gone from being a low-priced
proceeding that could be handled quickly and efficiently to an
expensive minefield of new requirements and traps and tricks
that can catch the innocent and unsuspecting debtor.
All of these provisions add to the workload of bankruptcy
judges, and if there are disputes as to whether debtors have
complied with many of these new requirements, this will often
result in additional court hearings and judicial oversight.
In summary, BAPCPA has created new docketing, noticing and
hearing requirements that make addressing the petitions far
more complex and time-consuming for bankruptcy judges.
While the Federal judiciary has implemented a number of
cost-containment measures and continued to identify and explore
new initiatives to further streamline operations to reduce
costs, the bulging case loads demand that additional judgeships
be approved. Thank you.
[The prepared statement of Ms. Ebert follows:]
Prepared Statement of Carey D. Ebert
__________
Mr. Cohen. Thank you, Judge Lynn.
We will now have questioning, and I will begin by
recognizing myself.
First, Judge Lynn, I take it that if you could be king for
a day--or queen, excuse me--you could be king; it is just all
imaginary--would you do away with the counseling provisions in
the 2005 law?
Ms. Ebert. Chairman Cohen, I think that the pre-petition
counseling requirement that has been imposed on debtors is an
utter waste of time and an----
Mr. Cohen. An utter waste of time.
Ms. Ebert. Utter waste of time, yes.
Mr. Cohen. Does anybody on the panel think that it is
getting within--that it is within the frame of--margin of
error, but at least somewhere around there? Do you all agree
with that?
Judge Lynn. Well, since you asked the question of Judge
Lynn, but Ms. Ebert, I think, you were intending to----
Mr. Cohen. It was a trick question.
Judge Lynn [continuing]. Have comment on it----
Mr. Cohen. But I appreciate the---- [Laughter.]
Judge Lynn. I got it. I got the trick, and so I am going to
respond--Judge Lynn now speaking--and respectfully punt on your
question, Mr. Chairman.
From my perspective--I am a district judge, so I only hear
bankruptcy matters on appeal--as a matter of policy, the
Judicial Conference comes to this Committee asking for
additional judgeships when there is a need based on whatever
law you in your wisdom deem to be appropriate.
I do not have a personal view----
Mr. Cohen. So you don't have an opinion, but Ms. Ebert has
a definite opinion.
Ms. Ebert. Absolutely.
Mr. Cohen. And, Judge Kennedy, do you have an opinion on
that?
Judge Kennedy. I do, and I think it is important to note
exactly what this pre-petition credit counseling is. It is
really a mere briefing that outlines the opportunities for
credit counseling and, if desired, a detailed budget analysis.
But if somebody is unemployed, it serves no purpose. In
fact, I don't think I have--I go to various CLE seminars, and I
don't think I have heard anybody praise this pre-petition
credit counseling. It has been said--is a waste of time, waste
of money.
It is done over the telephone by either an individual or a
group session. It lasts 30 minutes to an hour, I am told. The
charge is $50 to $100. And it is just not serving the purpose
intended.
In fact, I think Ms. Ebert's organization has done some
private studies and has talked with these credit counseling
agencies, and they come back and say that approximately 97
percent of the Chapter 7 debtors are unable to pay any debts
under their plans.
I think it is a waste of their time.
Mr. Cohen. Is there another type of counseling at the end
of the bankruptcy that might be--is worthwhile or might be
worthwhile, or is not worthwhile?
Judge Kennedy. I like what I call the post-petition
instructional course better. I mean, we all support financial
literacy. I have gone into schools in Memphis for many years
trying to teach financial literacy and how to avoid abusive use
of credit cards and the like.
So I have no great opposition to the--to the debtor
completing a post-petition instructional course concerning the
debtor's personal financial management, but I would hope,
Chairman Cohen, that the provision could be fine-tuned a little
bit to give the bankruptcy judge some discretion as to whether
or not to order that specific individual debtor to undergo
post-petition instructional course training as a precondition
of granting the discharge.
I have had Ph.D.s in economics that have filed bankruptcy
cases, very highly literate people. And to ask them to pay a
$50 or $100 fee and then go sit in to a course that they ought
to be teaching, if anything, I think is a little insulting on a
case-by-case basis.
So my response to that--yes, I do support--strongly support
financial literacy, and I think the post-petition instructional
course can serve some meaningful purpose, but I would like to
see the bankruptcy judges have some----
Mr. Cohen. Discretion.
Judge Kennedy [continuing]. Discretion as to whether or not
to order a particular debtor to undergo that program or not.
Mr. Cohen. Thank you, Judge Kennedy.
Ms. Ebert, do you concur?
Ms. Ebert. I do, Mr. Chairman. I think that the debtor
education, the post-filing--what we call the financial
management course--many of my clients have felt they have
really obtained something that was of a benefit to them. And it
has helped them hopefully not to be back in my office in the
future.
And the pre-petition counseling briefing session that Judge
Kennedy referred to serves no purpose when--when they are
already unemployed, facing foreclosure and they are--they have
already tried all the other options that were available to
them.
Mr. Cohen. Thank you.
Judge Kennedy, let me ask you a question. The issue of
venue is important in our area where we border Mississippi and
Arkansas. Do you believe the venue laws ought to be changed in
bankruptcy?
Judge Kennedy. Chairman Cohen, I strongly urge Congress to
at least reexamine the case venue issues. I think that issues
exist within bankruptcy cases where venue is technically
improper. I also think that venue issues exist in cases that
are technically proper.
Currently the issue of whether a bankruptcy judge, upon the
filing of a timely motion, can dismiss a case or transfer it
for another district or can retain this improperly venued case,
if it is for the interest of justice or for the convenience of
the parties, has resulted in a split of authority in the lower
courts.
Since 1984, the answer has not been clear. But by way of
very, very brief background, the 1978 codes accompanying Title
28 venue provisions expressly and clearly provided that a
bankruptcy court could retain jurisdiction over a technically
improperly venued case if it were for the convenience of the
parties or the interest of justice, or it could transfer that
case to another district for the convenience of the parties or
the interest of justice. That was former Section 1477 of Title
28 that is entitled ``Cure or Waiver of Defects.''
What the 1978 code's venue provisions did was really to
rely upon its transfer provisions, more so than its technical
venue provisions, to assure a fair place to administer a
bankruptcy case or a proceeding.
However, as a result of the 1984 restructuring that
occurred of the bankruptcy court system, Section 1477, the one
entitled ``Cure or Waiver of Defects,'' was just deleted, and
it is not clear whether or not the deletion was by design or
whether or not it was intentional. I have my thoughts about it.
But since 1984, this split of authority has developed in
the lower courts. I took the view, and I generally don't talk
about cases that I get reversed in, but I will get there in a
moment.
But I took the view that since there was no express
statutory 28 provision, or an express Title 11 provision, or an
express Federal Rule of Bankruptcy Procedure express provision
prohibiting me from retaining a technically improperly venued
case for the convenience of the parties or the interest of
justice, I must have the inherent authority on a case-by-case
basis of considering the convenience of the parties or the
interest of justice. I was reversed by the Sixth Circuit Court
of Appeals.
Other courts have held--the other split of authority has
held that the--that since there is no express prohibition that
nonetheless the per se rule must exist that the bankruptcy
court can't retain these cases that are filed technically in an
improper district.
In Hurley, the case that you talk about--as you know,
Chairman Cohen, I could put my left foot in Southaven,
Mississippi, a so-called bedroom community of Memphis. I could
put my right foot in Memphis in the Western District of
Tennessee.
The debtor in my case actually lived in Mississippi. He
worked in Memphis, had a bank account in Memphis, had two
creditors in Memphis, had eight national creditors, no
Mississippi creditors.
The United States trustee for Region 8, Kentucky and
Tennessee, filed a motion to dismiss or to transfer the case to
another district because of the technically improperly venued
case.
I looked at it. I struggled with it, and I worried with it,
because there was a split of authority. And I came to the
conclusion that there was no express prohibition that I had the
inherent authority, and I was reversed.
But at least when the Sixth Circuit reversed, it urged
Congress to fix the problem. The Sixth Circuit said in that In
re Thompson case, the cited case at 507 F.3d 416, 1997, that
fixing any perceived bankruptcy case venue problem is a job for
Congress and not the courts.
And I urge Congress to accept the invitation of the Sixth
Circuit and legislatively fix this problem and thereby
eliminate this unfortunate split of authority which is time-
consuming, it is expensive, and it also frustrates the
bankruptcy goal of Bankruptcy Rule 1001 about securing the
just, speedy and inexpensive determination of all these
bankruptcy cases and proceedings.
I would hope that Congress would go back to the venue
concept that existed in 1978 where the emphasis was on the
transfer provisions and not technical traditional venue
provisions.
It could be a real easy legislative fix just re-number and
re-introduce former Section 1475, the ``Cure or Waiver of
Defects,'' and that would take care of it.
Mr. Cohen. Thank you, Judge Kennedy.
And now, and most appropriate, as the Supreme Court--or the
Sixth Circuit has urged a congressional fix, the man who can
fix that, the Chairman of the Judiciary Committee.
Judge Kennedy. Well, can I repeat my statements----
[Laughter.]
Mr. Conyers. You don't have to. I have been listening to
them.
Mr. Cohen. The Honorable John Conyers, you are recognized
for--Mr. Jordan had to leave.
Mr. Conyers. Oh, okay. I was hoping we could continue our
great relationship with him during this hearing.
But this hearing stirs up some sad memories of what
happened 4 years ago in this Committee and in this Congress in
terms of the bankruptcy act, and I don't know how much--well,
probably counsel remembers.
The credit card people lobbied us for 8 or 9 years before
they could finally persuade enough people to come in and do
what we did. And that is part of the problem right now.
Much of that is the fallout from all that horrible
antidebtor bias that they carefully nurtured with the K Street
lobbyists to help get us into this fix. It is terrible. Counsel
has gone over some of it. It is not all of it.
And then there is the problem of foreclosure relief. Now,
here is a Congress--we have put the American people in hock for
generations, trillions of dollars.
And when you say, ``Let's help out a poor schlub who is
losing his house, and he is under water, let's open it up and
lower the rate, and lengthen the terms,'' what did they say in
the other body?
They said, ``Well, how do you know these people are in good
faith? Didn't they read their contract? I mean, why do--why do
I have to''--as she points out, everybody--the judge can do it
for everything else except a home, the one last thing that most
people have--the only thing that many people have. So this
really gets me off to a very unhappy set of remembrances.
And then, as the President has commanded that we do
something about health care reform, the number of individual
bankruptcy filings keep going up in terms of what it is that
brings you to the court in the first place.
Well, I would like each of you, starting with the lawyer,
to either make me feel better or worse about my point of view
of things.
Ms. Ebert. Mr. Conyers, I agree that the reason many, many
individuals are filing for bankruptcy are due to either
underinsured or have no medical insurance, and they end up in
bankruptcy because they have expended all of their resources
trying to pay their medical bills, or they have to use credit
cards to pay for their health care costs.
And without some form of relief--obviously health care
being a relief for many, many people in this country who have
no health insurance or underinsured--I hope that this Congress
will continue to fight for those people and allow them relief
through bankruptcy that their--and to continue to push.
For them to say the only thing that they have, which is
their home--not only are they filing bankruptcy but they are
having to walk away from a home that they simply can no longer
afford because they were victimized by mortgage lenders,
brokers and unscrupulous Realtors attempting to make a sale on
a home that they never could have afforded by selling them a
product that was simply not financially feasible.
And I am certain that based on the numbers that I have
been--there has been several reports done--that the second wave
of foreclosures that will be coming through between 2009 and
2011 will be just as many as there were in the last 2 years.
This is not over, and we will need to revisit this again,
and I hope that this Committee will take up our cause.
Mr. Conyers. Your Honor, Judge Kennedy?
Judge Kennedy. I will say the second wave--I think that is
the wave it is contemplated will be not of subprime mortgages,
that these have been traditionally sound, solid mortgages for
years, 30-year mortgages.
Some people are 20 years into them, and now they have lost
their jobs and they can't pay for the mortgage. Now they have
lost their job, now they have lost their health insurance as
well--that indeed, these bankruptcy laws are a safety net.
In talking about the home, one thing that I was really
struck by--I know over the--since the 1800 bankruptcy act, and
1841, 1867, 1898, and 1978 code and amendments in between, it
seems like there is a little ``catch me if you can'' going on,
and the pendulum swings back and forth, this debtor, creditor,
and they--going through their exercises.
But I must say, talking about this home mortgage
modification, the matter--that I was particularly struck by the
letter written back in January of 2009 to the congressional
leadership from the attorney generals from the 22 states and
the District of Columbia, whereby they thought--and they
supported the mortgage modification provision--somewhat of an
independent voice, I thought, that supported the legislation.
And in their opinion, in their collective opinion, in their
independent view--that such legislation would actually
stabilize the housing market, the financial market and also
state and local tax bases, and it could be done without--
without any taxpayer expense.
The bankruptcy court is already in place with personnel.
There would be no need to create a new agency, create new
personnel. We got courthouses, already got the facilities for
it, wouldn't have to build any new buildings--with no cost to
the taxpayer.
I support that.
Judge Lynn. Mr. Conyers, may I? I am not sure if I am going
to be able to make you feel better about the past, but I would
like to address some of the comments you made, particularly as
it affects the request that we have made.
I very much respect Dr. Jenkins' comments on the case
weights, and I would like to comment on that as it relates to
your question. As has been mentioned, the case weights, which
are in part the basis for our request, are 1991 case weights.
We considered doing a study much earlier than we did, but
for the same reasons that you have mentioned--that long 8-or 9-
year period when we were hearing that there might be an
amendment to the bankruptcy statute--we waited, and we waited,
and we waited and we concluded we couldn't wait any more, so we
began the study.
It is like watering your lawn. And of course, thereafter it
rained. So we were 40 percent through our new study in 2005
when BAPCPA was passed.
I think prudent administration of our Judicial Conference
and of our Committee in particular caused us to think that we
should stop the study, and I believe Dr. Jenkins in his comment
indicated that that was prudent, and I feel that it was, to
wait and see what would happen under BAPCPA.
There was a time shortly after BAPCPA was passed when we
came over here with some technical amendments that we were
pursuing--and I take your comments, Representative Conyers, as
an indication that perhaps we should do so again.
We still have that book of technical amendments, and I
think that you may be talking about more than technical
amendments. But at the least, you would want the statute to
read in a way that makes sense on its face, and frankly, there
are some deficiencies there.
So we are at your service in assisting you if you would
like to hear from us on that.
With respect to BAPCPA and its impact not only on consumers
but on businesses, those who come to the bankruptcy courts for
justice and disposition of their cases, they want to achieve
that within a reasonable time frame, and at the least they
should be able to achieve that.
And if we have overloaded courts such as in Michigan, where
the case weights are 3,032 when they should be 1,500--we could
come here and legitimately on those numbers ask for five new
bankruptcy judgeships. We are not. We are asking for three.
And we believe that these 1991 case weighs--I appreciate
from an academic perspective they could either be over--they
could be under. But in reality, we know that they are low.
We had to make a decision whether to come to you now and
seek judgeships where there was a critical need and then come
back to you again when the case weight study is fully completed
and analyzed, and that is what we will do.
We are here now for urgent, critical need. We took a peek
at the 40 percent study that was done immediately before the
statute. We have taken a peek at the numbers we have gotten in
the new case weighting study. And I feel completely confident
in telling you that we come to you with a very conservative
approach.
These numbers have to be low. BAPCPA requires 35 new
motions that were not even present before. The workload of
bankruptcy judges in these courts where we seek permanent
positions and new positions is critical. It is terribly
overloaded. We cannot achieve the paradigm of justice to which
I know we all aspire.
And I urge you, Congressman Conyers and all Members of the
Committee, to consider that we can achieve justice, even in the
face of some provisions of BAPCPA that you think do not achieve
that, if we allow people to enter our courts and get a fair
disposition within a reasonable time frame. Thank you.
Mr. Conyers. We need a considerable number of additional
good bankruptcy judges. And we are tasked--our Committee is
tasked to that. We need to go back to this incredible piece of
so-called legislation called the 2005 bankruptcy act. I mean,
we need to really go through that again.
We could hold, under our new Chairman, some tremendously
important hearings that we hope will impress or impact the
other body as well.
We need foreclosure relief. We can't walk away. They told
us that it was hopeless, we couldn't get it in the housing
bill. We have got to go back over to the Senate. House is in
good shape on that.
But it is a disgrace that the same body that votes out
trillions of dollars tells the little schlock that is losing
his house that we can't do that, we don't have enough senators
to do it, sorry. When we know there are a few good people--but
how do we know that everybody is on the up and up?
I mean, the whole thing is so outrageous, and now we are
passing it on to generations. They are stuck whether this
bailout works or not. And the guy that loses his home--he is
never going to--there is no return in an economy like this from
what the system has done to him and then what the Congress has
done to the homeowner after that.
So I welcome any ideas from this hearing on--that you could
provide us with recommendations. We would love to continue this
dialogue.
And I thank you, Mr. Chairman.
Mr. Cohen. Thank you, Mr. Chairman.
I appreciate as well the responses.
Now I would like to recognize the gentleman from North
Carolina, Mr. Watt.
Mr. Watt. Thank you, Mr. Chairman.
And I am going to try to go back to the subject of the
hearing itself and start by expressing a sentiment that you
must have found yourself in a very difficult position trying to
do what we normally do with these hearings.
Having served as a Ranking Member of this Subcommittee and
some other Subcommittees on Judiciary, and now serving as a
Chair of some Subcommittees--a Subcommittee and--on Financial
Services, I always try to follow a policy of having both a pro
and a con at a hearing.
I would almost be willing to bet that there was probably
nobody you could find to give a counter view of whether we need
additional bankruptcy judges. You were in an unenviable
position, I--no doubt.
And so I was kind of glad when we got to Ms. Ebert that she
changed the subject of the hearing, taking only 1 of her
minutes to talk about the subject of this hearing, whether we
need some additional judges, and taking the other 4 minutes to
talk about other things. And I see that the hearing has
wandered off in that direction.
But I do want to ask a serious question, because on a
number of different fronts, we could probably reach a fair
amount of bipartisan consensus that things are needed. Where we
run into real problems is trying to figure out how to pay for
them.
And so the question I want to ask is I know we need new
judges, but--Ms. Lynn--Judge Lynn, I think you would probably
be able--maybe Dr. Jenkins would probably be able to answer
this question. Is the fee schedule that we set up for
bankruptcies paying for judges?
Is the system generating enough revenues that the taxpayers
are not subsidizing the bankruptcy courts? Or do we know that?
Judge Lynn. Representative Watt, I think the fair answer to
your question is in part we would pay for new bankruptcy judges
and staffs associated with them out of filing fees but not in
full.\1\
---------------------------------------------------------------------------
\1\ Judge Lynn appends: Let me provide a fuller explanation of how
our judiciary budgeting and appropriations work. Funding for the
bankruptcy system is not directly linked to bankruptcy filing fee
revenue. We tally up and justify to Congress' Appropriations Committees
the total amount of money we need to operate the courts. We also tell
them how much we collect in fees. They then subtract from the total
amount that we need to operate the amount that we collect in fees. The
difference is what they give us for our appropriation. Therefore, the
amount we collect in fees offsets or lowers the amount that we need to
get through our appropriation. Now, in the case of statutory bankruptcy
filing fees, the judiciary does not keep the entire amount. The
judiciary keeps a percentage, but a portion also goes to the U.S.
Treasury, in part for deficit reduction as specified by the Deficit
Reduction Act of 2005. Other portions go for other costs, including the
U.S. Trustee system in the Department of Justice, and private Chapter 7
trustees. It's therefore important to realize that when the
appropriators are calculating the amount of our appropriation, only the
portion of the statutory filing fees that are actually kept by the
judiciary is available to offset our need for appropriations. So, to
the extent that our appropriation can be partially offset by the
portion of the statutory filing fee that is kept by the judiciary, one
might view the fees as partially paying for bankruptcy judgeships (or,
for that matter, other costs of operating the bankruptcy courts), but
there is no direct relationship between the two.
---------------------------------------------------------------------------
Mr. Watt. Okay.
Judge Lynn. And let me----
Mr. Watt. What about the existing number of bankruptcy
judges? Are we paying for them in full? Are we----
Judge Lynn. We are covering those out of our current budget
submission to Congress, and----\2\
---------------------------------------------------------------------------
\2\ Judge Lynn appends: We are covering those out of our current
appropriation that Congress provides after taking into account the
amount of fee revenue that the judiciary is projected to receive.
---------------------------------------------------------------------------
Mr. Watt. Okay. So then my next question would be should
this bankruptcy system be self-sustaining, I suppose, is it--
and if it should be, how can we get it self-sustaining--
financially self-sustaining without imposing this cost on
taxpayers and without being unfair to people who really need to
be going into bankruptcy?
Who ought to be paying for this system? And I guess----
Judge Lynn. Well----
Mr. Watt [continuing]. That is the question I am asking.
Judge Lynn [continuing]. That is the $64,000 question, or
to bring it more to what you might be thinking of, that is
probably the $64 million question.
In our view, it is inappropriate to raise bankruptcy filing
fees every time there is a financial need within the bankruptcy
system. The taxpayers----
Mr. Watt. I happen to agree with you. And I am asking these
questions genuinely, not as an adversary----
Judge Lynn. Right.
Mr. Watt [continuing]. But just because since Mr. Jordan
isn't here, he can't ask these questions.
Judge Lynn. That is fine.
Mr. Watt. So I have----
Judge Lynn. I appreciate the opportunity, and I----
Mr. Watt. I have to ask him--ask them for him so we can
build the record here, because I know--I mean, I know Mr.
Jordan. Probably nobody on the other side of the aisle is going
to raise a question about the need for judges.
But I also know that every time we talk about a need, we
also have to talk about a ``pay for.''
Judge Lynn. Right. Well, let me begin--of course, our--the
temporary judgeship positions are already being paid for. That
is not new expense that we would----
Mr. Watt. Paid for from what source?
Judge Lynn. Well, we are paying for them now because they
exist now, and----
Mr. Watt. From what source, though?
Judge Lynn. From the----
Mr. Watt. Are taxpayers paying for it, or----
Judge Lynn. From the judiciary budget and in part from
bankruptcy filing fees, which are on the revenue side.\3\ I
don't think that we have made an effort to necessarily equate
all aspects of the judiciary budget to filing fees to see what
percentage of judges' salaries and staff salaries is paid for
out of filing fees.
---------------------------------------------------------------------------
\3\ Judge Lynn appends: This is because the amount the judiciary
gets in appropriations is reduced by the amount of the filing fees we
are projected to receive.
---------------------------------------------------------------------------
But filing fees, in large part, support judgeships and
their staffs, not in full. So part of the money for the
judiciary budget, indeed, comes from the taxpayers. That is
true now and will be true then.
I was simply making the limited point that with respect to
temporary judgeships, making them permanent does not add to the
pot of money that we would be seeking.
Mr. Watt. All right. My time actually has expired, and I am
a great admirer of the 5-minute rule----
Judge Lynn. All right.
Mr. Watt [continuing]. Until they apply it to me.
I think the question I want to ask is maybe for you all to
do some thinking about this and maybe give us some ideas,
because there is a school of thought that the bankruptcy system
ought to be a--based on a user fee system. I mean, you know,
the people who use it ought to pay for it.
I am not subscribing to that notion, don't get me wrong. I
actually think there is some public benefit to having a
bankruptcy system and a bankruptcy court.
There is probably public benefit to having any judicial
system, but the people who never use it don't always understand
that public benefit, and they want it to pay for itself.
So I guess what I am seeking is if you--if any of you have
any good ingenious ideas about we might be able to generate
some revenues and who ought to be paying them, people who are--
who may be going through reorganizations as opposed to people
who are doing regular filings.
You know, I don't know what would be----
Judge Lynn. Well, if I----
Mr. Watt [continuing]. What it would look like.
Judge Lynn [continuing]. If I might, let me just close by
saying that the only good news about the dramatic increase in
bankruptcy filings is that we are generating substantial
additional bankruptcy fees. And those do contribute to the
budget of the judiciary.
For the judgeships we are requesting, I believe that we can
almost completely fund them out of what we have in our
resources. There may be some additional supplementals that we
would have to come back to Congress about, but I think they are
quite limited.
So without even raising fees, these are increased, of
course, by increased filings, and I think that does cover most
of it. We in our Committee look very frequently at fees as a
means of revenue generation, tempering that with administering
justice to those who need it in the bankruptcy courts.
Mr. Watt. Mr. Chairman, you have been generous with the
time, and--as you were with your judge, I noticed.
I told him--I said, ``Don't you dare cut your judge off.''
[Laughter.]
He might be practicing law before this judge again one of
these days. [Laughter.]
That is a no-no. I mean, you waive the rules for the--for
your judge, especially your hometown judge. See, I am trying to
educate him on some of these nuances of the rules here.
[Laughter.]
Mr. Cohen. Thank you. And I appreciate----
Mr. Watt. Thank you, Mr. Chairman.
Mr. Cohen. Thank you for your questioning and for your
advice. I learn much from you and other more senior Members,
and I will be practicing law at some time in the future, but I
will be very, very, very, very old. [Laughter.]
I now recognize the distinguished Subcommittee Chairman
from the State of Virginia, Mr. Scott.
Mr. Scott. Thank you, Mr. Chairman.
Judge Lynn, did I understand you to say that there was
essentially no additional cost for converting a temporary
judgeship to a permanent judgeship?
Judge Lynn. Yes, Representative Scott. Of course, there are
mandatory increases from year to year--cost of living--cost of
living kinds of adjustments. But beyond that, that is correct.
Mr. Scott. Now, there has been a question about whether or
not the need for the additional judges will continue after the
economic collapse--if the economy improves, we might not need
additional judges.
I know in Virginia, for our district court vacancies, we
have a process that requires a certification--that is, if
someone retires, we certify that the judgeship is still needed
based on case loads, and if not, the judgeship is not filled.
Is there such a thing for the bankruptcy judges?
Judge Lynn. Yes, sir, there is, and we have a number of
positions that were authorized--I mentioned in connection with
the 2005 statute Congress acted on an old judgeship request,
and there were--I believe it was five judgeships that were
authorized that we had not requested, and those have not been
filled because there was, in fact, not a need for those.
And before we come to Congress with a request for
additional judgeships, we make sure that the circuits
understand that they should only come if there is a significant
need.
And there are many examples that I could give you of
circumstances where there was an authorized judgeship that had
not been filled, or even where there might be a technical need
that they have met in other ways.
Mr. Scott. Now, we talk about need and weighted case load.
Obviously, the different cases have different needs. Some
individual cases could take a judge pretty much full time and
others are fairly routine.
How accurate is the case weighting formula? And how do we
know that 1,500 is not too high or too low?
Judge Lynn. Well, the case weighting study takes into
account the different mix of cases and the workload required to
administer them. We all know that since 1991, 1992 time frame,
there have been many mega bankruptcies, very large Chapter 11s
which really we did not have many of back under the old case
weights.
Mr. Scott. Well, is G.M. counted as one?
Judge Lynn. Well, it counts as one, but the amount of time
that it takes to administer it is obviously more significant
than a routine Chapter 7 case. All of that comes into play in
formulation of the case weights.
Mr. Scott. Well, the formulation is whether it is a
business or non-business, whether it is Chapter 7, 11 or 13. Is
a G.M. bankruptcy the same as----
Judge Lynn. No.
Mr. Scott [continuing]. John Doe, Incorporated?
Judge Lynn. It doesn't take the same amount of time, and
the case weights take that into account. All of the functions
that a bankruptcy judge would perform in connection with
different kinds of bankruptcy matters--that is why we have
surveyed all of the bankruptcy judges of the United States,
handling small cases, large cases. These adjust for that.
As I have indicated to you, it is our considered judgment
that the case weights of 1991 are understated, not overstated,
because of what has happened since and because many of these
needs long pre-date BAPCPA. We had needs that were not related
to the current economic climate. We have looked at that
historically.
That is definitely true in the Eastern District of
Michigan. And I keep mentioning it not just because of
Representative Conyers being here--because it is the most
compelling of the needs we have and has remained so for more
than a decade.
Mr. Scott. Well, I haven't looked at the numbers, but I
assume that bankruptcy reform increased the number of Chapter
13s. Is that not right? And that would be----
Judge Lynn. Yes, that is true, but I----
Mr. Scott [continuing]. Which would be----
Judge Lynn [continuing]. Don't have more detailed numbers.
Mr. Scott [continuing]. Which would mean that more judicial
work needed to be done.
Judge Lynn. That is true. And BAPCPA itself requires more
work on all of the matters that are handled after the reform
act.
Mr. Scott. Now, how much of the case load problem could be
solved with more trustees rather than more judges?
Judge Lynn. I am of the opinion that none of the need could
be solved by more trustees. The functions that are before--
being performed by judges should be performed by judges.
We need trustees. I am certainly not speaking negatively
about that. But I don't think that these functions can be
passed to trustees to perform.
Mr. Scott. Most of the kind of accounting work and getting
the case together is not done by the trustees?
Judge Lynn. The trustees do that work now, and they will do
that work. What I am talking about judges doing are judicial
functions. I don't think you see many cases where the judges
are doing routine kind of accounting work.
Mr. Scott. Okay, and what effect does the lack of judges
have on time it takes to resolve a case?
Judge Lynn. That is a very good question, Representative
Scott. I do not have that, except sort of stories I am told. We
have not worked those numbers. That is a sophisticated analysis
to do.
But from talking to bankruptcy judges, I believe
disposition time has increased rather than decreased. Judges
are working as hard as they can. They can't process things as
quickly and as efficiently as they used to because they have
more work to do. And that is part of what requires us to come
here and ask for additional----
Mr. Scott. As the representative from the ``rocket docket''
Eastern District of Virginia, is there a standard time after
filing that these things ought to be resolved?
Judge Lynn. I am not prepared to tell you that there should
be a time from filing to disposition. I think the devil is in
the details. For example, I am well familiar with the ``rocket
docket'' as a former trial lawyer. But cases vary from one to
one.
I don't think--you know, certain bankruptcies come out real
quick when they are pre-packed. But if you have 10,000
creditors spread across the country in a medium-sized
bankruptcy, you may not be able to resolve it that quickly. I
don't think this is a one-size-fits-all problem.
Mr. Scott. Thank you.
And, Judge Kennedy, you mentioned venue. I thought there
was a difference between venue and jurisdiction, that venue was
permissible--if nobody complains, you could stay where you are.
Who complained in the case that removed it from Tennessee to
Mississippi?
Judge Kennedy. Under 11 USC Section 307, the United States
trustee has very broad standing. It can raise and appear and be
heard on any issue. It was the United States trustee that filed
the motion to dismiss or to transfer the West Tennessee case to
the Northern District of Mississippi.
Mr. Scott. And your suggestion would be for good cause
shown you could keep it where it is?
Judge Kennedy. If it is for the convenience of the parties
or the interest of justice, absolutely. And that is exactly,
Congressman, what the former Section 1477 provided for.
It was styled ``Cure or Waiver of Defects,'' and it
expressly provided that the bankruptcy court could retain
jurisdiction over a technically improperly venued case if it
were for the convenience of the parties or the interest of
justice, or the court could transfer it to another district if
it were for the convenience of the parties or the interest of
justice, again relying more on these transfer--these flexible
transfer provisions to promote a fair place to administer a
bankruptcy case or to try an adversary proceeding.
Mr. Scott. Okay. As one that doesn't like to reinvent the
wheel, is there anything wrong with just recodifying the old
language?
Judge Kennedy. Not at all. It would have to be slightly
remodified and renumbered and merely reintroduced and passed,
and that is it. It would be a--it would be the simplest
legislative fix I can think of.
Mr. Scott. Thank, you, Mr. Chairman.
Mr. Cohen. Thank you. Sounds like something right up my
alley. [Laughter.]
Judge Kennedy, according to a recently updated Harvard
study, 62 percent of bankruptcy debtors could trace the cause
of their bankruptcy to medical debt.
If this Congress is successful in passing affordable health
care for all people in this country, how much would that, do
you believe, would relieve bankruptcy courts of the cases that
they see?
Judge Kennedy. I, of course, can't give you a definite
answer, but----
Mr. Cohen. Right.
Judge Kennedy [continuing]. But my answer would be I think
it would reduce the number of filings. As you know, currently
medical problems are a measure of contribution to bankruptcy
filings, and if they were to be substantially eliminated, yes,
indeed, I think the case filings would decrease.
Now, job losses is another problem. Marital problems,
domestic problems--some people are financially illiterate. I
mean, there are other causes of bankruptcy besides medical
problems. But medical problems is one of the major, if not the
major, contributor.
And yes, my answer is it would reduce the filings, but I
don't know to what extent.
Mr. Cohen. Yeah. I was just thinking if that happened,
there are so many repercussions, and if you didn't have the
medical debts--there are other debts, and people wouldn't go
into bankruptcy, and other debts they have they could handle,
and so the medical--the affordable health care not only helps
the folks with their health care but it helps a lot of
creditors out there who otherwise would be paid.
Judge Kennedy. Yes.
Mr. Cohen. Do you think that the bankruptcy judges are
capable of handling--if we had the so-called cram-down
provision pass, that the present bankruptcy--the judges could
handle the--the case load increase?
Judge Kennedy. I think bankruptcy judges are well
qualified, Mr. Chairman, to do that. After all, as someone
noted, we have been doing this for years with family farms,
second homes, vacation homes, rental properties, investment
properties.
Actually, I think if the mortgage modification legislation
were to pass, some even say it might result in a slight
reduction of cases. Some draw the analogy of being what
happened in the mid 1980's regarding family farms.
You will recall that there were family farms being lost
left and right in America due to foreclosures. Commodity prices
were falling. Congress stepped in and responded to allow for
the cram-down.
Yes, bankruptcy judges tried a few valuation hearings. Word
travels real quick at the bar once the predictability factor
kicks in for a bankruptcy judge. After a short period of time,
the lawyers started settling many of these valuation hearings.
And after a while, they got together and said, ``Well, why
even file the case? We know pretty much how these judges are
going to rule anyway. Let's just settle it and don't have to
file at all, save the money to be paid for something else.''
So yes, to be responsive to your question, I, indeed, think
bankruptcy judges are very well qualified. And again, the home
mortgage secured only by the debtor's principal residence is
the only home that can't be subject to being modified.
Mr. Cohen. Thank you.
Judge Lynn, the conference recommended the 13 new judges
and the conversion of the 22 to permanent status and the
extension of two temporary judges, so that is a total of 37. Is
there, in fact, a need for more judges, do you believe?
Judge Lynn. When the results of the new case weighting
study are completed and analyzed, my informed judgment is that
there will be some additional need shown. But we don't feel
that at this moment in time we have a legitimate basis to ask
you to authorize those.
So we have elected to go forward with those that we think
are critical and crucial, and if the numbers and the other
factors that we consider support additional judgeship requests
in the future, then we will come to you with those.
Mr. Cohen. Thank you.
I believe that finishes our questioning. The second round
is finished. I thank all the witnesses for their testimony
today.
Without objection, Members will have 5 legislative days to
submit any additional written questions which we will forward
to the witnesses and ask you promptly to answer them. They will
be made part of the record.
Without objection, the record will remain open for 5
legislative days for the submission of any other additional
materials. Again, I thank you everyone for their time, their
patience, their contribution.
I believe that this hearing will result in legislation soon
introduced in a bipartisan fashion that will result in action
taken by this Congress to help improve the--and remedy the
problems to some extent that we have heard about.
So this hearing of the Subcommittee on Commercial and
Administrative Law is therefore adjourned.
[Whereupon, at 12:35 p.m., the Subcommittee was adjourned.]
A P P E N D I X
----------
Material Submitted for the Hearing Record
Response to Post-Hearing Questions from the Honorable Barbara M.G.
Lynn, United States District Court for the Northern District of Texas
Prepared Statement of the Financial Counseling Research Roundtable
ATTACHMENT