Your Government Prefers Chapter 13

Today, I went looking for the court costs payable by chapter 13 debtors who wants to convert their cases to chapter 7. I admit that like many Americans my starting point was Google. I quickly landed here, at the Bankruptcy Basics page provided by the Administrative Office of the U.S. Courts, a division of the judiciary. The site says that it "provides basic information to debtors, creditors, court personnel, the media, and the general public on different aspects of federal bankruptcy laws. It also provides individuals who may be considering bankruptcy with a basic explanation of the different chapters under which a bankruptcy case may be filed." From this description,  you might expect a factual, value-neutral description of the fundamental choice facing all consumer debtors: whether to chose chapter 7 or chapter 13. But look what I found when I read up on Chapter 7 and Chapter 13 . . .

If you click on Chapter 7, the first heading is "Alternatives to Chapter 7." Therein is a description of alternatives such as not filing, choosing chapter 11 or chapter 13, etc. I didn't think too much about this. People should think about alternatives when they are making the big decision of bankruptcy. But then I clicked on Chapter 13, and was immediately struck that instead of a parallel heading of "Alternatives to Chapter 13" that might discuss Chapter 7, people instead are directed immediately to learn about the "Advantages of Chapter 13."

Hmmm . . . what is the message here? Could it be that our government thinks chapter 13 is better? I thought that was a creditor position but I think it's a fair reading of the Administrative Office's website to say that their presentation of the relative benefits and drawbacks of the two chapters skews toward Chapter 13. The website directs people to think carefully about alternatives to Chapter 7  and to consider the benefits of Chapter 13 , but not do the converse: consider alternatives to Chapter 13 and to consider the benefits of Chapter 7.

I think this is lousy advice because I am increasingly discouraged about Chapter 13 given the problems of today's families, but the real point is that this Chapter 13 preference is an inappropriate perspective for the judiciary. Putting the means test limitations to one side for a moment, the Bankruptcy Code embraces the idea of informed debtor choice between Chapters 7 and 13. Information about the two chapters is a good government service. Prefering one chapter, and doing so in a subtle way that will largely escape anyone's attention, is not a good government service. This is especially true in light of the government's own statistics that show that Chapter 13 debtors are much less likely to receive a discharge than Chapter 7 debtors. That key fact never makes it onto the Bankruptcy Basics website, although it is surely one to balance against the potential benefits of Chapter 13.

p.s. If you think the website is simply ignorant of research on bankruptcy outcomes, consider that it contains this advice:  "A debtor may make plan payments through payroll deductions. This practice increases the likelihood that payments will be made on time and that the debtor will complete the plan." An accurate description of the research, and perhaps good advice, but perhaps just a wee bit less relevant than that less than one-third of filings will end without the debtor getting a Chapter 13 discharge.

p.p.s. The conversion fee from Chapter 13 to Chapter 7 is $25, according to the website. Good to know given that so many people will need to consider conversion when they do not complete their Chapter 13 plans!