Forgive Us Our Debts: How should we think about bankruptcy?

The Gospel reading for the 25th Sunday in Ordinary Time (Mt 20:1-16) turns our usual understanding of economic values on its head. It flies in the face of the sturdy work ethic instilled in most of us from childhood. Even the Apostle Paul said, “If any one will not work, let him not eat” (2 Thes 3:10). So how is it that Jesus came to tell a story in which those who worked only the last hour of the day were paid as much as those who worked all day long? Why is it that those of us born to privilege, or at least with the talents and means to work our way toward privilege, cannot seem to still that interior puritanical whisper: “I must be one of the elect, for see how I have been rewarded! I’m glad I’m not like that one over there. If she had only worked a little harder (as I did), she would be chosen, just like me.”

I have served as one of the bankruptcy judges for the Western District of Tennessee for almost 12 years. I sit in Memphis, often called the “bankruptcy capital of the world,” because it has the dubious distinction of having had the highest per capita bankruptcy filing rate of any federal judicial district for more than 30 years. The reasons for this are complex. They include the city’s demographics, the local legal culture and some peculiarities of Tennessee law (which permits wage garnishment to collect debts and foreclosure of deeds of trust on homes in less than 30 days).


The Chandler Act of 1938, better known as Chapter 13 or “Wage Earner” Bankruptcy, is named for Congressman Walter C. Chandler, of Tennessee’s Ninth Congressional District in Memphis. In a Chapter 13 plan, bankruptcy debtors repay some or all of their debts over a three- to five-year period. Memphis consistently has one of the highest percentages of Chapter 13 filings, as opposed to Chapter 7 or “straight” bankruptcy in the country.

The United States began a great experiment in 1978, when Congress enacted the most liberal personal bankruptcy law in the world, called the Bankruptcy Code (to distinguish it from the prior Bankruptcy Act). The Bankruptcy Code did away with any requirement that a person prove himself or herself to be insolvent in order to obtain relief from creditors and permitted refiling without consequence and discharge every seven years. Under this system, personal bankruptcy filings rose at an unprecedented rate, soaring to 1,588,895 in 2004 from 287,564 in 1980. During that same period, consumer debt also rose steadily and dramatically, fueling a large expansion in the U.S. economy.

The Reform

At the time of my appointment in 1997, there was already talk of bankruptcy reform. There was a general feeling that something had gotten out of hand—that too many people were gaming the system and that what was needed was a return to those old-fashioned values of honesty and hard work. After many years of discussion and steady lobbying by the credit industry, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became law. Also known as the Bankruptcy Reform Act, it was intended to make it more difficult to file a bankruptcy case by re-imposing an eligibility test for filing (the so-called means test), limiting the protection provided to multiple filers and lengthening the period between discharges. After a huge run up leading to the Oct. 17, 2005, effective date, the number of personal bankruptcy filings plummeted to 597,388 in 2006. (In the bankruptcy world we thought that happened because everyone who could possibly file had already filed in 2005.)

Some of the more interesting provisions of BAPCPA, from a judge’s point of view, are the provisions limiting the duration or availability of the automatic stay (one of the most fundamental protections of those in bankruptcy) in second and subsequent filings. The automatic stay stops all collection efforts, including telephone calls, upon filing. One provision limits the automatic stay to 30 days in a second case; another prevents the stay from coming into effect in a third or subsequent case filed within a 12-month period. The Bankruptcy Code provides, however, that the stay may be extended or imposed if the debtor (or trustee) can prove that the repeat filing was “in good faith.” The code makes this difficult by providing that the subsequent filing is presumed not to be in good faith unless the debtor can show a substantial change in his or her financial or personal circumstances.

What these provisions meant for me as a judge, at least initially, was more hearings early in my consumer cases. I tried to respect the letter of the new law and required debtors to come to court to provide testimony to prove their change in circumstances. I heard stories about the reasons people find themselves filing two and sometimes three bankruptcy cases in a single year. Because the majority of cases in our district are Chapter 13 cases, often these were stories about why their first or second plan did not work out: they were laid off, they were injured or sick, they became responsible for the care of a sick or aging relative, or they had to pay funeral expenses. Often I thought that it might be a good idea for the members of Congress to hear these stories. I no longer hold these hearings routinely. Instead of asking bankruptcy debtors to miss another day of work (often without pay), I allow their lawyers to appear on their behalf with a sworn statement of facts in support of their applications. Unless a creditor objects, which hardly ever happens, the extension or imposition of the stay is routine.

Expected Rate Increase

In all my years as a bankruptcy judge, both before and after the passage of BAPCPA, I have never heard anyone say, “Judge, I am so happy to be here!” or “Can’t wait to see you again!” For most Americans, the filing of a bankruptcy petition continues to be a sign of inadequacy and a cause for shame. It is one of our last dirty little secrets, one we dare not share with our neighbors, friends or co-workers, and certainly not with our children. Yet it is projected that more than one million bankruptcy petitions will be filed in 2008. The initial and substantial drop in bankruptcy filings following the effective date of BAPCPA is over, and we are quickly climbing back to the filing levels that preceded it.

Approximately 30 percent of bankruptcy petitions are filed by married couples, so that one million bankruptcy petitions filed could actually represent as many as 1.3 million individual persons filing. In addition, Elizabeth Warren, a Harvard Law School professor, has shown that households with children are much more likely to file for bankruptcy protection than those that have none, and that unmarried mothers with children are substantially more likely to file than women with no children or women with another adult partner in the household. The effect on these children and the shame felt by their parents can only be imagined. With each day bringing new headlines about the credit crisis, the real story is about everyday people, who once again find themselves turning to the federal bankruptcy courts for assistance.

Judges are by definition not policy makers. The Constitution and laws of the United States go to great lengths to protect the independence and integrity of federal judicial officers. Judges are intended to be neutral, applying laws written by someone else. Lawmakers and the general public justifiably become frustrated when judges are seen to be activists, meddling in affairs properly reserved to legislators. But we judges are people, too. We live in your neighborhoods, attend your churches, synagogues and mosques, and send our children to school with your children. Bankruptcy judges cannot help observing the impact of the bankruptcy laws upon the people around us.

And we wonder, is it possible that in our puritanical zeal, we have forgotten the Lord’s little parable about workers in a vineyard? Have we convinced ourselves that we somehow deserve all that we have been given?

Comments are automatically closed two weeks after an article's initial publication. See our comments policy for more.


The latest from america

Women served as deacons in Europe for about a millennium in a variety of ministerial and sacramental roles.
Brandon SanchezJanuary 15, 2019
In preparation for the gathering in Abu Dhabi, I find myself asking why my conversations with the future Pope Francis so powerfully affected both of us.
Abraham SkorkaJanuary 15, 2019
Photo: iStock
Included on the list is John T. Ryan, S.J., who from 1989 to 1994 was an associate editor for development at America.
Michael J. O’LoughlinJanuary 15, 2019
Did you ever wonder why Jesus was baptized? What sins did Jesus have to repent of? Nothing.
James Martin, S.J.January 14, 2019