Episode Transcript
[00:00:00] Speaker A: Imagine a justice system built on rigorous evidence, not gut instincts or educated guesses about what works and what doesn't.
More people could access the civil justice they deserve.
The criminal justice system could be smaller, more effective, and more humane.
The Access to Justice Lab here at Harvard Law School is producing that needed evidence. And this podcast is about the challenge of transforming law into an evidence based field.
I'm your host, Jim Greiner, and this is Proof Over Precedent.
This week we're bringing you a student voice.
[00:00:37] Speaker B: Hey everyone, my name is Arushi Solanki and I'm a 1L at Harvard Law School.
And you are listening to Proof Over Precedent.
I am joined by Joe Lieberman today and he'll be talking about a really interesting issue within Access to Justice, or I should probably say accessing financial justice.
Joe, would you want to introduce yourself, tell us a little bit about you and what your podcast is going to be about?
[00:01:10] Speaker C: Thanks, Rushi.
Yes, absolutely. So you're, you're spot on to call this a financial justice podcast. But to tell you quickly who I am first, like you said, my name is Joe Lieberman. I'm a 2L at Harvard Law School.
And before law school, while I was an undergrad, I spent some time working for a legal aid organization in Chicago. One of the things I did there was work at a help desk at the federal courthouse in Chicago helping people file for consumer bankruptcy.
And while I was there, I observed the difficulties of that process, the mounds of paperwork, the time that people had to take off of work to, you know, to file for bankruptcy, which in some ways feels ironic as this is supposed to rescue people from economic hardship. But in a lot of cases, it seemed to be making it worse. So that, you know, motivated me to look more into the topic as part of, as part of this Access to Justice Lab. And that led us to this issue, which I'll just give a brief overview of. Now, for any repeat listeners, this is the same issue we were talking about last time, the issue of no money down bankruptcies. But to any first time listeners, I'll give a quick primer about the bankruptcy system and where this issue came from. So if individuals are filing for bankruptcy as opposed to a business or another entity, they can file in one of two ways. They can either file a Chapter 7 bankruptcy or a Chapter 13.
Chapter 7 is quick and relatively easy. You file, you sell off a bunch of your assets and you use that money to pay down whatever debt you can. And then at the conclusion, most of your debt gets discharged and you're done. It takes four to six months and a lot of people are able to complete it successfully.
It's usually seen as the easier option for folks compared to chapter 13, which takes a lot longer and requires you to stick to a three to five year payment plan to use a portion of your income every month to pay off your debts slowly. And at the end of the process, the rest of your debts gets get discharged. Chapter 13 is more difficult, it takes longer, there's more paperwork involved, but you don't have to sell your property. So it's a trade. It's an attractive option as well, but it is definitely more difficult to do.
And so for, for folks in the most dire financial straits, maybe they don't have a steady income.
We typically see that Chapter seven is the option that would on paper make the most sense. But as we see with the issue of no money down bankruptcies, it's, it's not quite that simple.
[00:04:04] Speaker B: So you just mentioned a term, no money down bankruptcy. For any new listeners, would you mind explaining what exactly you mean and why Chapter seven, while seeming like the more easier, like the easier pathway is not what ends up being used?
[00:04:21] Speaker C: Absolutely. And it does seem a little counterintuitive. So what the problem really stems from this, this difficulty with how bankruptcy filers can pay their attorneys. So even though Chapter seven is a generally more straightforward practice, it's still very advantageous to have an attorney to help navigate the process. It's very difficult to navigate either type of bankruptcy without a lawyer, and the success rates are much higher when you do have one. Given that the process is so complicated.
You know, if you, if you're going alone, if you're filing pro se, you're much more likely to get dismissed before you get to a successful discharge.
The issue with Chapter seven is that because it happens quickly and all of your debts get discharged at the end, you really can't take on any debt to pay your attorney because that debt will just get discharged at the end.
So the idea of, you know, a sort of segmented payment plan, you know, for somebody who can't afford an attorney upfront, is much less doable in a chapter seven.
That said, in comparison, in chapter 13, because you're entering this long term payment plan over time, that's exactly what the system contemplates. You can hire an attorney and pay them whatever amount up front, even if it's zero, AKA no money down, and then you pay them back slowly throughout the process. So there's less risk for the attorney going that route. So what we see is Ironically, the people in the absolute worst financial straits, those with no steady income, no money to pay a lawyer, are probably the folks that should be filing Chapter seven.
But they don't have any money to pay a lawyer. And a lawyer is not going to sign up a client who is just going to have their debts to them wiped out at the end of the process.
So they don't hire or they don't agree to represent those folks. And those folks oftentimes get steered into attorneys who are offering no money down Chapter 13 bankruptcies, which while at the front end more attractive for that reason, is much more difficult to navigate and can actually end up with the person in worse financial straits at the end of the process. You know, if they, if they fail, which a lot of times it will.
[00:06:53] Speaker B: That is. That is really unfortunate to hear and quite counterintuitive. And considering how the number of people that this issue affects, it's really good to hear that this is a problem that you're addressing and bringing attention to. So could you tell us a little bit about what efforts are underway to solve the problem?
[00:07:12] Speaker C: Yeah, absolutely. So, unfortunately, efforts underway might even be stretching it. The last time the Bankruptcy code was, was a, was, you know, substantially overhauled was was 20 years ago in 2005.
And so it's been a long time since the system went and underwent any dramatic reforms. But there are people who are thinking about this issue in some really interesting ways.
In my blog post, I summarize generally four buckets of solutions that either folks are already talking about or things that could potentially have some effect here.
I'll briefly overview those now, and then we can dive deep into them one at a time.
So to start with recapping the solutions that I mentioned in my last blog, proposed by a group of professors, they focus on how do we change incentives. So what I kind of just walked through is that attorneys have incentives to steer clients who would probably be better off doing chapter seven into chapter 13.
And similarly, clients who can't file chapter seven have incentives to go chapter 13.
And so how do we potentially modify that? Well, one set of proposals that these authors threw out there is that judges who are overseeing each bankruptcy could put some more scrutiny on the attorney fee structures that are being proposed in these Chapter 13 filings, which the courts have to approve. The idea being that if the court is sensing that these attorneys are steering folks unnecessarily into chapter 13s, they might not approve their fee structures. If that's the case, then the risk to attorneys maybe not acting in the Best interest of their clients increases, the expected return on this practice decreases, and we might hopefully see some curbing of this practice through an incentive effect.
You know, of course, that would require courts in, in these jurisdictions to take this on themselves. But of course, it's unclear how much this would do.
And that's why, you know, further study is certainly warranted.
And in my last blog post, I talk about one avenue to potentially studying this. If you have judges who are randomly assigned to these cases more or less likely to scrutinize various attorney fee structures, you could potentially see the degree to which more scrutiny leads to better outcomes or no change or, or worse outcomes.
So I think that's an area for potential future study.
The areas or the buckets of solutions that I talk about for the first time in this blog post are mainly about.
At least two of them are about how do we decrease complexity. The bankruptcy process is byzantine.
It's long. It requires a lot of paperwork, a lot of producing duplicative information. It's very difficult for people to navigate.
And so there are several reforms that Congress could make to make the process simpler. There are also some reforms that could be made without congressional authorization in the way that the US Trustee program administers bankruptcies.
And then the fourth bucket of solutions is how do we give more information to people who are filing? You know, if you've got certain lawyers who have high success rates and do a good job of navigating clients through Chapter 7 or Chapter 13, you know, we want clients, you know, or, sorry, we want, we want filers to. To know about that. We want them to know who to go to. We want them to know who's most likely to steer them one way or the other.
But this information is. Is pretty opaque at the moment. And so it's certainly within the power of state bar associations, for example, to require that bankruptcy attorneys publish this information.
Maybe they could even maintain a centralized database or even some sort of Yelp equivalent for bankruptcy lawyers so folks know what they're looking for.
So I'll stop there. I know that was a long. A long answer, but those are the areas that are being contemplated.
[00:11:33] Speaker B: That's really interesting, and it's nice that you've kind of separated them into different buckets.
I was wondering which.
Which of these areas do you think would be easiest to address? Or more most effective, most promising?
[00:11:49] Speaker C: That's a really good question. I think, unfortunately, those two metrics don't exactly line up. I think that the biggest problem with the bankruptcy system is how complex it is. And I Think one of the biggest drivers of that complexity is the way the Bankruptcy Code is currently written. So that would require Congress to make changes, which is likely the most difficult avenue of all of these. To elaborate a little bit on what I mean, in 2005, when Congress last reformed bankruptcy in a major way, they actually did so because they thought too many people were filing for bankruptcy.
The academic literature disputes this, but they were under the impression that people were abusing the system, that people were just using Chapter seven as like a financial reset button, willy nilly, and the credit markets were suffering and that sort of thing.
So they made Chapter seven more difficult. They introduced a means test so that if somebody wants to go Chapter seven, they have to prove that they really are in a financial situation that would warrant it. And that requires a lot of paperwork for people to produce a lot of financial information about themselves.
And the more steps to the process you introduce, and the more complex you make it, the more likely it is for a filer to trip up somewhere along the line and get their case dismissed. There are also a bunch of seemingly unimportant or redundant steps to the process that the 2005 reforms added. They make individual filers complete credit counseling and debtor education before they can file for bankruptcy, despite the fact that there are studies out there showing that these courses don't change anyone's behavior. So it's just another step to an already complicated process.
If we make the process simpler, it becomes more affordable if you're hiring a lawyer, and it reduces the need for lawyers in the first place. There are organizations out there, a group called upsolve, who are trying to make it more.
Trying to make it easier for people who are filing Chapter 7 to navigate the system. But the main impediment they run into is just how complicated the rules are.
So I think that would be the most effective reform. Reforms would be things done through Congress. But that's also the highest barrier to entry. It's very difficult to pass anything through Congress, let alone something that's substantial.
On the other side of the issue, I do think there are things on the margins that we can improve to make the system less complicated. A recent example is around something called the 341 meeting. Basically, when somebody files for bankruptcy, the trustee, which is the. It's, you know, a DOJ office that oversees the bankruptcy system and oversees, you know, each bankruptcy case requires a meeting between the filer and their creditors, the people that they owe money to.
This is designed extensively to verify the filer's identity and you know, reduce fraud, but in reality it's just a step in the, you know, just a box to check that doesn't really do anything because most of the time creditors don't show up for these meetings. But they're required for people who are filing for bankruptcy. So if they miss the meeting, you know, that could spell the end of their bankruptcy.
And, and before COVID these were things that happened in person. So people had to take time off of work, they had to find transportation just to go meet for a few minutes with people who might not even show up. It's also really stressful. You're meeting face to face with people you owe money to. It just is an anxiety inducing event. And lethal aid providers have attested to that. But Covid moved all of these meetings online and the US Trustee program is moving to make that a permanent change. So that's, you know, something relatively small, but could have a big impact and it doesn't need to go through Congress to do so. I'm, I'm interested and optimistic about the effects of reforms like that. And early, you know, qualitative data from, you know, legal aid organizations is promising, but again, you know, this is something that we would need to study.
[00:16:06] Speaker B: Yeah, it sounds really promising and it's interesting how Covid kind of prompted a favorable change for this process.
So, yeah, that was really interesting to learn about and I'm glad that you've been kind of focusing on this issue with all of your blog posts.
Is there, are there any closing thoughts that you might have that you would like listeners to know about?
[00:16:36] Speaker C: Yeah. So, I mean, I think, I think I would just, you know, try to leave with the importance of this issue.
In, you know, the 12 month period that ended in September of 2024, over 500,000 people filed for bankruptcy.
And there are estimates that say that over 10 or around 10% of the population in the US has, has filed for bankruptcy at some point in their lives.
This is something that is really central to the American justice system.
You know, there are more bankruptcies than civil cases filed in federal court in a given year.
And it's central to our, our economic system too.
It can really have positive effects for people who file for bankruptcy. The academic literature bears that out.
But we've made it extremely difficult.
[00:17:31] Speaker A: We'Ve.
[00:17:32] Speaker C: Made it expensive, we've made it in some ways unnecessarily complicated and duplicative.
And that's created sort of a backward system in which these no money down bankruptcies are flourishing. Which is somewhat ironic given the fact that these are people who are trying to get rid of their debt, not take on more debt and leave them in a worse position at the end of the day.
So this is an extremely important issue.
And while it can seem frustrating, given the fact that Congress has in some ways contributed to it and is maybe unlikely to make significant changes, there are a lot of other creative avenues that people were talking about out there to make this system easier for people to navigate and for people to access the economic justice, the bankruptcy.
So I would just encourage everyone to pay attention to those creative options and to study those creative options and really see what might work here because it's a super important issue and it deserves some reform.
Wow.
[00:18:37] Speaker B: This has been incredibly interesting, incredibly interesting conversation and the numbers are striking.
So thank you so much.
[00:18:46] Speaker C: Thank you.
[00:18:48] Speaker A: Proof Over Precedent is a production of the Access to Justice Lab at Harvard Law School.
The views expressed in student podcasts are not necessarily those of the A J Lab.
Thanks for listening. If we piqued your interest, please subscribe wherever you get your podcasts. Even better, leave us a rating or share an episode with a friend or on social media.
Here's a sneak preview of what we'll bring you next week.
[00:19:12] Speaker B: Right to counsel that we all are so familiar with in criminal cases actually doesn't extend to that bail hearing.
So there are lots of folks in the US who don't have counsel then, and they don't have they're not appointed counsel at that point. So they're arguing for their initial release or release conditions without the benefit of counsel. Just in in the Kenya and Tunisia context, we aren't just isolating that instance. We are.
We're also looking at the effect of having early access to counsel, but also kind of what does the quality.
The ILF's theory of change really is that it's not just about having a lawyer present, it is about having a quality counsel present and handling your case.
