1

Consumer Bankruptcy Pathologies
by
Edward R. Morrison and Antoine Uettwiller∗

This paper questions several longstanding descriptions of consumer bankruptcy
in the United States. We focus on Chapter 13, which discharges debts after consumers pay disposable income to creditors for up to five years. Many studies
document pathologies, including high failure rates, racial disparities, low creditor
recoveries, and attorney biases. We observe the same patterns in new data drawn
from Cook County, Illinois, but show that these pathologies are central tendencies that ignore substantial heterogeneity across consumers. Several are driven by
subsets of consumers; some disappear once we account for account for consumer
heterogeneity. We present new evidence that some pathologies reflect biases in
non-bankruptcy law, not in the bankruptcy process itself. (JEL: J22, K35, D14)
Keywords: personal bankruptcy, Chapter 13, homeownership, race, attorneys,
creditor recoveries

1

Introduction

The United States is one of the few countries in the world to offer consumers alternative
paths to achieving a discharge of debt in bankruptcy court. One path is liquidation
in Chapter 7: The consumer obtains a discharge by liquidating assets. Another is a
“reorganization” in Chapter 13: The consumer obtains a discharge by complying with a
repayment plan, which involves paying all disposable income to creditors during a three
to five year period.
An emerging empirical literature documents the characteristics of consumers who
select Chapter 13 and their case outcomes. The literature points to puzzling patterns and
pathologies: Although Chapter 13 is primarily attractive as a way to avoid liquidation of
assets, it rarely does that in practice. The vast majority—over two thirds—of consumers
∗

The authors are from Columbia Law School; Morrison is the corresponding author. We are
grateful for helpful comments from our discussants, Anthony Casey and Jasmin Gider; Arpit
Gupta, Robert Lawless, and former bankruptcy judge Eugene Wedoff; conference participants
in Sibiu, Romania, and workshop participants at Columbia Law School. We thank the National
Data Center and the Bankruptcy Court for the Northern District of Illinois for providing
core data used in this project, and thank Konstantinos Tzioumis for sharing his data on the
demographic aspects of first names. Excellent research assistance was provided by Sungmin
An, Harry Brett-Butcher, Albert Chang, Vincenzo Guido, Christopher Hayden, Owen Keiter,
Soren Larson, Ziang Li, Anh Nguyen, Seyma Ozel, Cameron Phillips, Zhigong Shang, Miguel
Suetedjo, Emma Sun, and Alexander Watkins-Goodman. We gratefully acknowledge financial
support provided by the Charles Evans Gerber Transactional Studies Program Fund.

Electronic copy available at: http://ssrn.com/abstract=2845497

 2
fail to complete their repayment plans. Their cases are terminated—either dismissed or
converted to Chapter 7—exposing their assets to the very liquidation they tried to
avoid. This pattern is especially puzzling because Chapter 13 cases are substantially
more expensive for the consumer: Fees charged by attorneys and trustees (who assist
the court in administering the bankruptcy process) are at least three times as large as in
Chapter 7. Why do consumers pay such high fees to commence a process that is highly
likely to fail?
Other studies have pointed to racial disparities in Chapter 13: African American
consumers are substantially more likely to choose Chapter 13, instead of Chapter 7, than
other racial and ethnic groups. Cases filed by African Americans are also substantially
more likely to terminate prematurely, leading to liquidation of their assets. These racial
disparities are thought to be driven, at least in part, by attorneys who systematically
“steer” African American clients into Chapter 13. Indeed, a related literature suggests
that the high fees available in Chapter 13 lead attorneys to push consumers, regardless
of race, into Chapter 13 even when there is little financial benefit (relative to Chapter 7)
for the consumer. And although attorneys may benefit from Chapter 13, an emerging
set of studies suggests that creditors obtain little or no benefit. One study reports that
the median recovery to both secured and unsecured creditors is zero in Chapter 13 cases.
These patterns and pathologies—high failure rates, racial disparities, attorney agency
problems, and low financial benefits to both consumers and creditors—raise questions
about (i) why rational consumers select Chapter 13 even when the apparent benefits are
low and (ii) whether these pathologies can be mitigated by legal or other reforms.
The goal of this paper is to present a new battery of facts drawn from bankruptcy
cases filed in an urban setting, Cook County, Illinois, which includes Chicago and immediately surrounding suburbs and is within the jurisdiction of the Bankruptcy Court for
the Northern District of Illinois. In some respects, these facts complement the findings
of prior scholars. But the paper also presents surprising new patterns that cast doubt
on inferences drawn from prior studies. In particular, we present the following findings.
First, prior studies ignore substantial heterogeneity in the benefits of Chapter 13 cases
to consumers. Some consumers have incurred fines that are dischargeable in Chapter 13,
but not in Chapter 7. Some have become delinquent on mortgages and seek additional
time to “come current” on past-due amounts. Some must use Chapter 13 because their
incomes disqualify them from filing for Chapter 7. Once we account for this heterogeneity
in “case type,” a number of patterns and pathologies become questionable.
Second, it is often said that Chapter 13 is a way to “save your home” from liquidation,
but our data from Cook County show that this isn’t true for over a third of consumers.
A large proportion of Chapter 13 filers—between one-third and a half—are filing because
local governments have suspended, or are threatening to suspend, their driving licenses or
seize their cars because they have accumulated excessive fines (usually parking tickets).
These consumers tend to have few or no assets and incomes near the poverty line. They
appear to be filing to prevent the government from holding their licenses as hostages for
repayment.
Third, failure rates vary substantially by consumer type in our data. They are half
as large among consumers who file Chapter 13 in order to save their homes as among

Electronic copy available at: http://ssrn.com/abstract=2845497

 3
consumers with excessive fines.
Fourth, racial disparities observed in prior work appear to be a product, at least in
part, of racial disparities in the incidence of fines. At least in Cook County, African
Americans may be substantially more likely to incur fines. Among other case types (i.e.,
consumers without parking tickets), we observe smaller disparities in the proportion of
cases filed by African Americans. Moreover, even though African Americans make up
the bulk of consumers with fines, case outcomes among these consumers exhibit few
of the racial disparities found in prior studies. Paradoxically, the category of cases
generating the appearance of racial discrimination—consumers with fines—is also the
category where we are least likely to observe race-based differences in case outcomes.
Finally, creditor recoveries vary substantially with the value of the assets at risk of
liquidation, but in a counterintuitive way. Unsecured creditors achieve higher returns in
Chapter 13 (relative to Chapter 7) when their expected recovery in Chapter 7 is smaller.
This appears to be due, in part, to efforts by bankruptcy trustees to require consumers
in Chapter 13 to pay at least 10% recoveries to unsecured creditors, even when these
creditors would receive nothing in Chapter 7. The policy applied by trustees might also
contribute to Chapter 13 failure rates, because consumers agree to pay more than they
can potentially afford.
We present these and other facts in this short paper for two reasons: to raise questions
about prior work, and to motivate future scholarship. Section 2 describes the institutional setting that we study here. Section 3 summarizes the patterns and pathologies
documented in prior work. Sections 4 and 5 describe our data and present summary
statistics that confirm what was found in prior work. Section 6 presents our results. Section 7 concludes. Because our results are drawn from Cook County, Illinois, future work
is needed to assess whether patterns observed here are evident in other areas too. In
many respects, as shown below, the characteristics of Cook County consumers are very
similar to those documented in other studies. There are, however, features of the institutional environment in Cook County that could raise doubts about the generalizability
of our findings. We discuss these issues in Section 7.
2

Institutional Background

Bankruptcy is a collective proceeding to remedy mass default by a consumer. Most
consumers use either Chapter 7 or Chapter 13 to conduct this proceeding. Chapter 7
allows a consumer to trade assets for a discharge of most debts. She gives up assets
that are not “exempt” under state or federal law. In Illinois, for example, the consumer
is permitted to keep retirement savings, up to $2,400 of the value of a motor vehicle,
$15,000 in home equity, and $4,000 of other property. The value of property in excess
of these limits must be distributed to creditors. In practice, however, the vast majority
of Chapter 7 bankruptcies involve consumers who give up no assets because all of their
property is “exempt.”
Chapter 13 offers a different bargain: The consumer trades her future disposable income for a broader discharge of debts. She keeps most or all of her assets. The consumer
pays her disposable income during a three to five year period. The payments are made

Electronic copy available at: http://ssrn.com/abstract=2845497

 4
to a trustee (“Chapter 13 trustee”), who distributes the payments to creditors in order of
priority and charges a fee for this service. If the consumer makes all payments scheduled
under her “Chapter 13 plan,” she receives a discharge of most debts. Importantly, the
discharge in Chapter 13 is broader than in Chapter 7. In particular, a consumer can
discharge fines owed to government agencies in Chapter 13, but not in Chapter 7.
A Chapter 13 “plan” is equivalent to an agreement in which creditors lease assets
to the consumer in exchange for monthly license payments. The value of the assets (A)
is equal to the consumer’s nonexempt property. The lease term (N ) is largely fixed
by statute: It is three years for consumers with incomes below the state median, it
is five years for those with higher incomes, and it can be a shorter period either if the
consumer agrees to pay unsecured creditors in full or if the parties consent. The monthly
payments (b) are also fixed by statute: They must have a present value (W ) at least as
large as the assets A and not less than the consumer’s disposable monthly income (y).
In practice, consumers propose plans that pay all disposable income (b=y). If r is the
monthly discount rate, a Chapter 13 plan promises the following payment stream:
N

(1)

W =
t=1

1
1+r

t

b≥A

Notice that all of the parameters except N are fixed either by statute or by the existing
value of the consumer’s assets.
The foregoing suggests that a consumer may choose Chapter 13 instead of Chapter 7
in order to prevent liquidation of assets or take advantage of the broader discharge. There
is a third reason: Some consumers are ineligible for Chapter 7 because their incomes
exceed a “means test” threshold or because they have already obtained a Chapter 7
discharge in the recent past.
The bankruptcy judge has two primary tasks. One is to decide whether to approve
the consumer’s plan. A judge will terminate a case—that is, dismiss it or convert it to
Chapter 7—if the plan violates the statute or the consumer is highly unlikely to be able
to complete the plan of payments. The second is to decide whether a case should be
terminated after an event of default. Consumers commonly miss one or more scheduled
payments. A judge can terminate the case, offer forbearance by deferring payment of
overdue amounts to a later date, or grant the consumer’s motion to modify the plan
(perhaps to reduce the payments due under the plan).
In the typical case, there are three types of creditors: Secured, priority, and general
unsecured. Secured creditors include mortgage lenders and auto lenders. Priority debts
are unsecured claims that receive priority over general unsecured claims under federal
law. These include debts owed for federal taxes and for domestic support obligations.
General unsecured claims are a residual category often dominated by credit card lenders.
A Chapter 13 case generally cannot be confirmed unless it promises to pay secured debt
in full or according to its contractual terms (or secured creditors consent to different
treatment) and unless it promises to pay most priority debts in full.1 Unsecured creditors
1 Certain

priority debt arising from domestic support obligations—i.e., debt held by governmental entities—can be paid less than in full under 11 U.S.C. §1322(a)(4).

 5
need only be paid at least what they would receive in a Chapter 7 liquidation. Somewhat
paradoxically, however, unsecured creditors often benefit from premature termination. If
a case terminates prematurely, these creditors keep payments received so far and can still
take steps to liquidate the consumer’s assets, worth A. But if the consumer completes
the plan without defaulting, unsecured creditors lose the right to liquidate A. They keep
only the payments received.
3

Patterns and Pathologies in Prior Scholarship

Empirical bankruptcy scholarship in the United States presents several patterns and
pathologies—some better established than others and some more puzzling than others—
about consumers who select Chapter 13 and their case outcomes.
Perhaps the most durable pattern is that Chapter 13 is primarily attractive to consumers seeking to prevent liquidation of an asset, such as a home or car, as documented
by White and Zhu (2010), among others. Indeed, this proposition is seemingly selfevident, because the principal distinguishing feature of Chapter 13, relative to Chapter
7, is avoidance of liquidation.
Another durable pattern is the high rate of termination: Around two-thirds of Chapter 13 cases terminate before the consumer has completed the repayment plan. Li (2007)
and Sullivan, Warren, and Westbrook (2003) summarize various studies documenting
this pattern. If a case terminates prematurely, it is either converted to a liquidation
under Chapter 7, or it is dismissed, allowing creditors to pursue state-law remedies to
liquidate the consumer’s assets. Thus, a “failed” Chapter 13 case merely delays liquidation. Given the relatively high costs of Chapter 13, which has substantially higher
attorney and other fees than Chapter 7, it has long been puzzling why Chapter 13 cases
fail as often as they do and why consumers choose Chapter 13 when failure rates are so
high.
Chapter 13 cases also exhibit racial disparities and, perhaps, racial discrimination.
Braucher, Cohen, and Lawless (2012) show that, among bankruptcy filers, African Americans are substantially more likely than other racial or ethnic groups to file a Chapter
13 case. Using a field experiment, they present evidence that lawyers are more likely to
counsel (“steer”) African American clients toward Chapter 13 than clients from other
racial or ethnic groups.2 Case outcomes also exhibit racial disparaties, as Van Loo (2009)
shows using 2001 data: The success rate (defined as obtaining a discharge in Chapter
13) for white consumers was 28% but only about 20% for African Americans. Braucher,
Cohen, and Lawless (2012) also find that the probability of termination during the first
ten to fourteen months after case filing is substantially higher for African Americans
(36%) than for other groups (about 26%).
Another pattern (or pathology) emerging from the literature is that a non-trivial
proportion of consumers file for Chapter 13 even when there is no obvious financial ben2 Lefgren,

McIntyre, and Miller (2010) and McIntyre, Sullivan, and Summers (2015) present
additional evidence that attorneys steer clients toward Chapter 13 because these cases are
more lucrative.

 6
efit. This phenomenon is a potential implication of the previous two: If some consumers
are being “steered” to Chapter 13 even though they are better suited to Chapter 7,
these consumers may derive little financial benefit from the Chapter 13 filing. McIntyre,
Sullivan, and Summers (2015) present preliminary evidence from Texas, comparing consumers with different amounts of collateral at risk of liquidation. If a principal goal of
Chapter 13 is to prevent liquidation of assets, consumers with relatively little collateral
should derive less benefit from Chapter 13 than consumers with large amounts of collateral at risk of liquidation. They find that the likelihood of filing for Chapter 13 depends
on the consumer’s attorney: Consumers represented by attorneys with a high propensity
to use Chapter 13 are more likely to file for Chapter 13 than consumers represented by
other attorneys, even if the consumer has little collateral at risk of liquidation.3
Finally, Creditor recoveries in Chapter 13 are thought to be meager. Using Delaware
data from 2001-02, Eraslan, Li, and Sarte (Forthcoming) find that the median recovery
rate is zero for both unsecured and secured creditors. Norberg and Velkey (2005–06)
find that unsecured creditor recoveries average about 19% overall and about 34% in
cases that reach completion. Lupica (2012) finds a slightly lower recovery rate (26.4%)
to unsecured creditors in completed Chapter 13 cases after 2005.
4

Data

We link two datasets describing Chapter 13 cases filed in Cook County, Illinois. We
selected Cook County because of its size and diversity (along economic, racial, and
ethnic dimensions), because its inclusion among jurisdictions cited by Braucher, Cohen,
and Lawless (2012) as those exhibiting the highest racial disparities, and because of
the availability of data. Our primary dataset is provided by the National Data Center
(NDC), which provides case management assistance to Chapter 13 trustees. The NDC
data include nearly 81,000 cases filed or closed between 2011 and 2015. The data include
information about the plan proposed by the consumer, the amounts owed to various
creditors, and the consumer’s monthly payment history. Because we are able to track
monthly payments and distributions to each creditor, we can measure—at a monthly
frequency—the delinquency status of every consumer and the recoveries of each creditor.
We link the NDC data to court filings maintained by the Bankruptcy Court for the
Northern District of Illinois, whose jurisdiction includes Cook County. From this court,
we obtained a copy of the docket text, bankruptcy petition, financial schedules, Chapter 13 plan, plan modifications, and other documents (“Court Data”) for every case.
We searched these documents mechanically or by hand to extract financial and demographic information about each consumer, including name, income, number and ages of
household members, property address, assets and liabilities, and exempt and nonexempt
property. We limit our sample to cases filed by consumers living in Cook County. The
Court Data include bankruptcy filings for a longer period (1981 to present) than the
NDC data and include both Chapter 7 and 13 filings. Although we focus primarily on
3 Because

the authors do not observe collateral values, they use the value of secured debt as
a proxy for the value of collateral.

 7
the intersection between the NDC and Court Data, we use the non-intersecting Court
Data to illustrate differences in the characteristics of Chapter 7 and 13 consumers.
Because we have each consumer’s name and property address, we can also estimate
gender, race, and ethnicity. We estimated gender using a database (Genderbase) purchased from a vendor. We estimated race by combining Census Data (which provides the
probability of race and ethnicity conditional on the consumer’s last name or zip code)
and data provided by Tzioumis (2015) (providing the probability of race conditional on
the consumer’s first name). We applied an algorithm similar to the one used in Elliott
et al. (2009). We assign a person’s race if the algorithm estimates a probability greater
than 70%.
TABLE 1
Chapter 13 Cases by Filing Year
Observations

2006 2007
484 1,357

2008
3,064

2009
5,126

2010
2011
7,940 10,110

2012
12,232

2013
13,561

2014
15,303

2015
11,436

Total
80,613

After linking our data, we drop cases filed during any calendar year during which
we have fewer than 100 cases. Table 1 shows the number of cases by filing year. The
total is 80,559, and over three quarters of the cases were filed between 2011 and 2015.
Our final database is a mixture of retrospective data (cases closed during 2011-15) and
prospective data (cases originated during 2011-15). The retrospective data are subject
to a survivorship bias; the prospective data are subject to censoring because we cannot
follow them beyond December 2015. Although we generally present results using the
full sample, we obtain closely comparable results in the 2011-15 sample.
5

Summary Statistics

Table 2 describes the financial, demographic, and plan characteristics of consumers in our
sample. The median consumer is 46 years old, lives in a two-person household and has
annual income equal to about $35,000, which is about two-thirds of state median income
($53,234) and double the poverty line in 2011 ($16,000 for a two-person household). The
median consumer’s debt-to-assets ratio exceeds three. The vast majority of households
are single adults with one or more dependent children. Although the table does not
report gender, consumers were equally likely to be male or female. These statistics are
broadly consistent with prior work.4
4 Using

a national sample of both Chapter 7 and 13 filings during 2007, Braucher, Cohen, and
Lawless (2012) report median annual income of about $27,000 and that the median consumer
had one dependent. However, the debt to assets ratio in their sample was only 1.7, perhaps
reflecting the inclusion of Chapter 7 filers with lower debt levels (they are less likely to have
mortgages). In a study collecting data from filings during 1994 in seven judicial districts,
Norberg and Velkey (2005–06) reports that consumers had income equal to about 60% of state
median household income, were equally likely to be male or female, and had at least one
dependent in at least 62% of cases. Using a national sample, Dobbie and Song (2015) report
an average age equal to about 43.

 8
TABLE 2
Characteristics of Chapter 13 Consumers
Mean
Median Std. Dev.
Panel A: Demographic characteristics
Age
45.71
46.00
13.54
Household size
2.48
2.00
1.58
% households with children
60.97
48.78
% households with > 1 adult
26.73
44.25
Panel B: Financial characteristics
Assets
89,504.86 20,450.00 163417.38
% with non-exempt property < $1000
74.90
43.36
% homeowner
40.30
49.05
% not homeowner and non-exempt property < $1000
54.83
49.77
Debt
127,700.82 61,571.83 150786.11
% with mortgage
37.46
48.40
% with auto debt
58.92
49.20
Annual income
41,747.41 34,596.00 194577.26
% below poverty line
7.17
25.80
% below 150% of poverty line
23.81
42.59
% above state median
15.39
36.08
Panel C: Plan and case characteristics
Terminated (%)
51.15
49.99
Discharged (%)
14.42
35.13
Open (%)
34.43
47.52
% recovery to general unsecured creditors
17.21
0.00
31.98
- % recovery in discharged cases
63.26
88.10
39.31
- % recovery in terminated cases
3.87
0.00
12.53
Trustee %
3.29
3.00
0.85
Attorney fee
2,626.50
3,400.00
1498.71
Observations
80599

Only about 40% of bankruptcy filers owned real estate (“homeowners” in Table 2),
and 37% had mortgages, indicating that “saving your home” is a likely motivation for
less than half of consumers.5 Saving your automobile may be the more common goal
of Chapter 13, as Panel B shows: Nearly 60% of filers had auto debt with an average
balance of about $15,000. However, a majority of consumers have few, if any, assets
(“non-exempt property”) that would be liquidated in Chapter 7. Panel B reports that
nearly 75% have less than $1,000 in non-exempt property. We chose this threshold
because McIntyre, Sullivan, and Summers (2015) and Lupica (2012), among others,
have estimated average attorney fees in Chapter 7 around $1,000. Over half of consumers
neither own a home nor have less than $1,000 in non-exempt property. The financial
benefit of Chapter 13 is not obvious for these consumers.
5 This

is somewhat below the mean (52%) reported by Dobbie, Goldsmith-Pinkham, and
Yang (2015), who analyze a random sample of credit users during the period 2002-06. It is
substantially less than the 95% homeownership rate observed by White and Zhu (2010) in a
study of Chapter 13 filers in Delaware during 2006.

 9
Panel C shows that most cases terminate prematurely. Over fifty percent of cases
have failed, and this represents a lower bound because a third of cases remain ongoing.
Similar termination rates are reported by Dobbie and Song (2015) and Li (2007), among
others. Also consistent with prior work, our data show that creditor recoveries are
generally “meager.” The mean recovery is 13.78%; the median is zero. Recovery rates,
however, are much more substantial among discharged (37% median recovery) than
terminated (0% median recovery) cases.
TABLE 3
Consumer Characteristics by Race

%
Panel A: Race
Chapter 13 Cases
African American
44.04
Hispanic
7.35
Other
48.61
Chapter 7 Cases
African American
23.06
Hispanic
15.44
Other
61.50
Panel B: Case Characteristics by race
African American
% terminated
54.65
- Income < poverty line
9.41
- Income < 150% of poverty line
30.59
- non-exempt property < $1000
79.86
- % homeowner
33.29
- % not homeowner and non-exempt property < $1000 62.54
Hispanic
% terminated
45.32
- Income < poverty line
4.44
- Income < 150% of poverty line
19.02
- non-exempt property < $1000
67.69
- % homeowner
56.03
- % not homeowner and non-exempt property < $1000 38.60
Other
% terminated
48.80
- Income < poverty line
5.56
- Income < 150% of poverty line
18.41
- non-exempt property < $1000
71.13
- % homeowner
44.72
- % not homeowner and non-exempt property < $1000 49.82

These statistics confirm some longstanding patterns and pathologies reported by the
literature, including a substantial proportion of consumers using Chapter 13 to save

 10
assets (homes or cars) and high failure rates. Table 3 confirms other patterns. Panel A
shows that African American account for a substantially higher proportion of Chapter
13 cases (44%) than Chapter 7 cases (23%), consistent with the argument by Braucher,
Cohen, and Lawless (2012), among others, the Chapter 13 exhibits a disparate treatment
by race.6
Panel B analyzes case characteristics and outcomes by race, confirming that termination rates are substantially higher for African Americans (about 55%) than for other
groups (between 45 and 49%). Van Loo (2009) and Braucher, Cohen, and Lawless (2012)
report a similar pattern. Equally important, African American consumers are substantially more likely to be in poverty and less likely to have assets—a house or other assets
(”non-exempt property”)—that are protected by a Chapter 13 filing. Non-exempt assets
are property that would be liquidated in Chapter 7. This finding is consistent with the
work of McIntyre, Sullivan, and Summers (2015), who find that many consumers file
Chapter 13 cases when there is no apparent financial benefit for doing so.
6

Results

Although the foregoing summary statistics confirm patterns and pathologies documented
in other studies, our data allow us to explore whether these statistics vary across subgroups of consumers. This is an important exercise because the “pathologies” of Chapter
13 may reflect the behavior of particular types of consumers. This is indeed the case,
as we show in subsection 6.1. Our data also allow us to identify patterns in trustee and
attorney behavior that have been difficult to study using prior datasets. We present evidence in subsection 6.2 that one of Chapter 13’s pathologies—high termination rates—is
driven, in part, by the decisions of trustees (who appear to require consumers to pay
creditors more than the statute requires) and attorneys (whose cases tend to terminate
soon after they are paid in full). Finally, in subsection 6.3, we document the recoveries of unsecured creditors. Our data allow us to compare recoveries in Chapter 13 to
expected recoveries in Chapter 7, something prior literature has not done. Although
our results are drawn from Cook County, Illinois, and may differ from patterns in other
jurisdictions, they show that a number of longstanding patterns and pathologies may
merit reexamination.

6 According

population.

to the 2010 Census, African Americans account for about 25% of Cook County

 (I)
(II)
(III)
(IV)
(V)
Means Homeowner, Homeowner Tickets & Auto debt,
test
no arrears
arrears
Fines
no tickets
Terminated
36.59
35.28
46.65
53.15
44.41
< poverty line
0.00
1.58
0.37
12.69
3.63
< 150% poverty line
0.00
8.31
4.87
39.14
15.00
Homeowner
74.37
100.00
100.00
19.31
48.61
Non-exempt property < $1000
51.42
43.67
54.65
86.57
74.13
Not homeowner and non-exempt property < $1000 19.65
0.00
0.00
75.98
46.98
African American
31.17
37.64
40.48
58.94
40.67
Hispanic
8.23
10.77
9.82
4.95
7.93
Other
60.42
51.31
49.70
36.11
51.40
% of cases
5.97
14.51
19.50
33.95
24.41

TABLE 4
Heterogeneity Across Consumers:
Stratifying Consumers by Potential Motivation for Using Chapter 13

51.81
10.71
31.79
0.00
86.74
86.74
43.51
7.37
47.78
8.28

93.08
11.58
29.22
50.47
63.09
40.06
50.36
6.73
32.34
5.99

(VI)
(VII)
Other Pro Se

11

 12
6.1

Case Heterogeneity

The statistics reported in Section 5 conceal substantial heterogeneity across consumers,
as Table 4 illustrates. We stratify consumers based on characteristics that affect the
consumer’s ability or incentive to use Chapter 13.
The bankruptcy statute restricts access to Chapter 7 by high-income consumers,
who face a presumption of “abuse” if they use that style of bankruptcy and can have
their cases dismissed. These consumers are said to fail the “means test.” Parra (2016)
documents a discontinuous drop in the probability of a successful (i.e., non-dismissed)
Chapter 7 filing as consumer income rises above the income thresholds set out by the
“means test.” In other words, higher-income consumers face severely limited access to
Chapter 7. They file for Chapter 13 because they have few (or no) other options. We
identify these consumers in Column I.
It has long been thought that Chapter 13 is an avenue for “saving your home.”
Columns II and III include homeowners, but we separate owners who have become
delinquent on their mortgages (“arrears”) from those who are not delinquent. We make
this distinction not only because delinquent homeowners may be higher-risk consumers,
but also because a delinquent homeowner may use the Chapter 13 process to take advantage of the automatic stay, not to obtain a discharge. The automatic stay halts collection
efforts by the mortgage lender. The homeowner can use the Chapter 13 process as an
opportunity to repay outstanding arrears. Once those are paid, the original mortgage is
reinstated, as discussed by White and Zhu (2010). At this point, the homeowner may
allow the process to terminate (without obtaining a discharge). Thus, homeowners with
arrears may have relatively high termination rates because they are using Chapter 13
to obtain temporary forbearance, not to obtain a discharge. Jacoby (2007) discusses
this phenomenon and collects relevant literature, but argues that the phenomenon is
probably rare.
Column IV focuses on the subset of consumers with government fines—usually parking and traffic tickets—in excess of $500.7 The bankruptcy statute gives two reasons
why Chapter 13 is attractive for these consumers: First, traffic and parking tickets and
other fines can be discharged in Chapter 13, but not in Chapter 7. Second, the Chapter
13 process triggers an automatic stay that prevents the state or city government from
suspending the consumer’s driver’s license or seizing or disabling the consumer’s vehicle
(and the government must return licenses or vehicles that have been seized or disabled).
In Illinois, a driver’s license can be suspended if the driver has accumulated ten or more
unpaid parking tickets, or at least unpaid tickets for certain moving violations. The
median fine is $60.8 Among consumers with tickets or other fines, the average consumer
has over $4,000 in such debt (the median consumer has over $2,700).
Column V identifies consumers with auto debt but no tickets or other fines. These
7 We

assume a consumer has fines if his or her creditors include Cook County or the City of
Chicago. We verified in a random sample of cases that debts to these entities are highly likely
to be parking or traffic tickets.
8 Fines are summarized at this web address: http://www.cityofchicago.org/city/en/
depts/fin/supp_info/revenue/general_parking_ticketinformation/violations.html

 13
FIGURE 1
Hazard of Termination by Race, Ethnicity, and Case Type

.06
Hazard
.04
.02
0

0

.02

Hazard
.04

.06

.08

Termination Hazard

.08

Termination Hazard

0

20

40
Months from Case Filing
Other
African American

(a) All cases

60
Hispanic

80

0

20

40
Months from Case Filing
Other
African American

60
Hispanic

(b) Cases with Tickets and Other Fines

consumers, like homeowners, are thought to see Chapter 13 as an avenue for preventing
liquidation of their property.
Columns I though V are not mutually exclusive. Columns VI and VII identify two
residual categories: Consumers who did not exhibit any characteristic listed in prior
columns (“Other”) or who were not represented by an attorney (“Pro Se”). The latter
consumers are a high-risk group, most of whom fail to file required documents and have
their cases dismissed within the first two or three months.
The most striking pattern in Table 4 is the percentage of cases—about a third—in
which consumers have tickets or other fines that, in total, amount to at least $500 (if we
do not apply this floor, over 50% have tickets or fines). Putting aside Pro Se and Other
cases (the latter accounts for only 5% of the sample), the cases in column IV are extreme
in multiple respects: They exhibit the highest termination rates by a wide margin, lowest
homeownership rates, highest rates of consumers with no apparent financial benefit from
filing (“Not homeowner and non-exempt property < 1000”), and the highest proportion
of African American filers. Although the proportion of African Americans in the other
categories is greater than the proportion in Chapter 7 cases (see Panel A of Table 3),
the difference is substantially smaller after excluding cases with tickets or other fines.
Put differently, although prior work has pointed to many pathologies in Chapter
13 bankruptcy, in Cook County these pathologies appear to be driven primarily by
consumers using Chapter 13 to cope with fines, such as parking tickets. Additionally,
Table 4 is pointing to a potential confound ignored in prior work documenting racial
disparities in Chapter 13: African Americans may be more likely than other groups to
accumulate debt related to parking tickets and other fines. Because of this, they are also
more likely to use Chapter 13, which is the only avenue by which these debts can be
discharged and by which the government can be stopped from seizing a driver’s license

80

 14

0

.05

.1

Density
.15

.2

.25

FIGURE 2
Distribution of Months in Which Homeowner Stops Payment
Following Full Payment of Mortgage Arrears

0

10
20
30
Month of Termination Following Payment of Arrears

40

or vehicle.9
The importance of this confound is illustrated in Figure 1, which compares the
monthly hazard of termination—the probability of termination in month t, conditional
upon surviving to month t—for all cases and the subset of cases with tickets and other
fines. In the full sample, shown in Panel (a), African American cases have higher termination hazards in every month of the case, consistent with prior studies pointing to racial
disparities in case outcomes. But when we limit the sample to cases with tickets and
other fines, as Panel (b) does, the difference between African Americans and Other (not
Hispanic) consumers shrinks substantially. The hazard curves are virtually on top of
each other for most months.10 This pattern indicates that, although African Americans
are more likely to accumulate tickets and other fines, African Americans with this type
of debt have similar case outcomes to non-Hispanic consumers. Hispanic consumers,
however, have the lowest hazard rates, both in the full sample and in the subset with
tickets and other fines.
Table 4 also points to a phenomenon that is sometimes thought rare: Homeowners using Chapter 13 to pay arrears, not to obtain a discharge. Notice first that the
9 It

is possible that, among consumers with parking tickets, African Americans are more
likely than other groups to be “steered” by attorneys into Chapter 13. Although we cannot
rule out this possibility, Figure 1 offers evidence against it. If African Americans are being
steered into Chapter 13, even though they are a poor fit for it, they should have higher failure
rates than other groups. Panel (b) of Figure 1 shows that African Americans and Others have
similar hazard rates.
10 In competing-risk survival models, race is a large and highly significant predictor of failure.
When we subset on consumers with at least $500 in debt related to tickets and other fines, the
effect of race falls by over 50% and is insignificant.

 15

0

.05

.05

.1

Density
.15

Density
.1
.15

.2

.2

.25

.25

FIGURE 3
Distribution of Promised Payoffs to General Unsecured Creditors
Actual versus Imputed Plans

0

0
0

20
40
60
80
Proposed % to GUC from the first chapter 13 plan

(a) Promised Payment to
Unsecured Creditors

100

20

40
60
GUC percentages
Actual GUC %

80
Imputed GUC %

(b) Actual Plans versus
Imputed Plans

termination rate is over eleven percentage points higher for homeowners with arrears
(III) than for those without (II). Otherwise, the consumers are comparable across most
dimensions. The elevated termination rate for homeowners with arrears could reflect
their incentive to abandon the Chapter 13 case after repaying arrears. Figure 2 provides evidence supporting this hypothesis. Here we plot the probability that a consumer
stops payment during the months following repayment of arrears (the x-axis, in other
words, measures time relative to the month in which arrears are paid in full). We see a
spike in the probability of stopping payment in the same month that arrears are paid in
full. The probability gradually declines in subsequent months. We view this as evidence
consistent with the hypothesis that one of the pathologies of Chapter 13—high failure
rates—reflects, in part, decisions by homeowners to abandon their plans after paying
arrears.
6.2

Other Drivers of Early Termination: Trustee and Attorney Behavior

Prior scholarship has pointed to potential biases (agency problems) in attorney and
trustee behavior. Braucher, Cohen, and Lawless (2012), Lefgren, McIntyre, and Miller
(2010), and McIntyre, Sullivan, and Summers (2015) present evidence indicating that
attorneys “steer” clients, especially African Americans, into Chapter 13 cases instead of
Chapter 7. Van Loo (2009) observes that trustees file motions to terminate a case more
frequently when the case is filed by an African American. Our data point to different
behavioral patterns that may contribute to Chapter 13 termination rates.
Trustees in our Cook County data appear to require or strongly encourage consumers
to submit Chapter 13 plans that pay at least 10% recoveries to general unsecured creditors. Panel (a) of Figure 3 plots the distribution of promised payoffs for the first proposed

100

 16
plan, showing spikes at 10% and 100%. These spikes could reflect the distribution of
income and assets among consumers. A Chapter 13 plan must pay unsecured creditors
no less than they would receive in a Chapter 7 liquidation. Additionally, the consumer
must promise to pay all of her disposable income.11 Using those statutory requirements,
and assuming that the typical consumer has disposable income equal to about 11% of
her monthly income (the average in our data was 89%), we imputed for each consumer
the minimum payoff that must be promised to unsecured creditors in a Chapter 13 plan.
(The procedure for calculating this payoff is described in an Online Appendix.) Panel
(b) compares this “imputed plan payoff” to the actual payoff proposed in each plan,
showing that the spikes at 10% and 100% are substantial deviations from what the
statute requires. Nothing in our data indicates that these deviations are attributable to
the trustees, but we have been told by judges on the bankruptcy court that trustees will
not recommend confirmation of plans that do not provide for at least a 10% payoff to
general unsecured creditors. Braucher (1993) observed a similar pattern, with trustees
and judges resisting plans that offered less than a “floor” recovery to unsecured creditors
(between 10% and 100% in her data).
TABLE 5
Termination Rates by Promised Payout to General Unsecured Creditors:
Comparing Plans that Promise More or Less Than Statutory Requirement
Plan Payoff >
Plan Payoff ≤
% of cases
Statutory Requirement Statutory Requirement
Plan promises payoff equal to...
Under 10%
10%
10 to 99%
100%
% of cases

41.71
49.87
37.16
32.69
85.88

33.76
42.12
36.00
38.46
14.12

11.15
50.86
17.07
20.92
100.00

If trustees in Cook County do resist plans that offer less than a 10% floor recovery,
consumers seeking to use Chapter 13 may understate their monthly expenses in order to
show that they have sufficient disposable income to pay the floor recovery. Because they
pledge income that may be needed for expenses, these consumers are more financially
fragile, and will likely have higher failure rates, than consumers who propose plans that
are more consistent with their ability to pay. We explore this phenomenon in Table 5,
which compares termination rates of consumers whose plans exceed the statutory requirement and consumers whose plans do not. Consumers with 10% plans have higher
termination rates than consumers with any other promised payoff to unsecured creditors. Among consumers with 10% plans, those who are paying more than the statutory
requirement have a termination rate of about 50%, substantially higher than the 42%
rate among those who are not paying more than the statutory requirement. These pat11 This

requirement is binding, however, only if a creditor or the trustee objects. This rule is
set out in 11 U.S.C. §1325(b). We do not know how often consumers propose plans that will
pay less than disposable income and that do not face objections.

 17
FIGURE 4
Hazard of Case Termination
By Month in Which Attorney Was Paid in Full
Termination Hazard

0

0

.02

.1

Hazard

Hazard
.04
.06

.2

.08

.1

.3

Termination Hazard

0

20

40
Months from Case Filing

Attorney Paid in month 3

60

80

0

Attorney not yet paid

20

40
Months from Case Filing

Attorney Paid in month 6

(a) Survived to Month 3

60

80

Attorney not yet paid

(b) Survived to Month 6

Termination Hazard

0

0

.02

.02

Hazard
.04

Hazard
.04

.06

.06

.08

Termination Hazard

0

20

40
Months from Case Filing

Attorney Paid in month 9

60

80

Attorney not yet paid

(c) Survived to Month 9

0

20

40
Months from Case Filing

Attorney Paid in month 12

60

80

Attorney not yet paid

(d) Survived to Month 12

terns suggest that, by objecting to plans that offer less than a 10% payoff to unsecured
creditors, trustees are exacerbating Chapter 13’s termination rate.
Attorneys, too, may exacerbate the failure rate, but not just by “steering” consumers
into Chapter 13 even though they would have greater success in Chapter 7. Figure 4
plots the hazard of failure for cases that survive at least three, six, nine, and twelve
months. Among cases that survive t months, we compare the hazard rate of cases that
paid attorneys in full during month t to the rate of cases that did not pay the attorney in
month t or any prior month. Thus, we are comparing two groups of cases, both of which
survived t months and neither of which paid the attorney in full in any prior month.
The only difference between the groups is that one paid the attorney in full in month t.
For each month t in Figure 4, we observe a sharp increase in the failure rate during the
months immediately following payment of the attorney. In subfigures (a), (c), and (d),
we see an increase both relative to subsequent months and relative to cases in which the

 18
attorney had not yet been paid. These patterns suggest, tentatively, that attorneys may
devote less attention and care to cases after being paid, thereby elevating failure rates.12
6.3

Creditor Recoveries

Although prior scholarship has studied creditor recoveries, we are unaware of studies
comparing creditors’ Chapter 13 recoveries to their expected recoveries in Chapter 7.
Under the bankruptcy law, creditors should receive a stream of payments with present
value no less than what they would be paid in Chapter 7.
Table 6 computes the difference between the payoff (in percent) that general unsecured creditors received in Chapter 13 cases relative to what they would have received
in a Chapter 7 liquidation. That is, we compute the percentage recovery in Chapter
13 (x%) and subtract from this the percentage recovery expected in Chapter 7 (y%)
to obtain the marginal gain to general unsecured creditors (x% - y%). For example,
among cases in which creditors would have received nothing in Chapter 7 (0%), the median Chapter 13 recovery was 51% among discharged cases and 0% in terminated cases.
Similarly, among cases in which creditors would have received a 0 to 10% recovery in
Chapter 7, the median Chapter 13 recovery was 62% for discharged cases and -2% for
terminated cases.
TABLE 6
Difference Between Percentage Recovery in Chapter 13 and
Percentage Recovery Expected in Chapter 7
Marginal Gain from Chapter 13
Mean Gain Median Gain Std. Dev. % of Sub-sample
Panel A: Discharged Cases
0
0 to 10
10 to 20
Over 20
Panel B: Terminated Cases
0
0 to 10
10 to 20
Over 20

56.70
56.58
46.21
2.34

51.20
61.70
47.87
0.00

40.22
39.19
39.18
37.26

57.83
8.44
4.72
29.01

2.76
0.80
-8.58
-60.65

0.00
-2.32
-12.93
-60.85

10.08
12.89
15.41
34.03

77.58
6.65
29.57
12.82

We observe a similar pattern in both panels: As the expected recovery in Chapter
7 increases, the marginal gain from Chapter 13 declines. For both discharged and terminated cases, the marginal gain from Chapter 13 in the median case is zero when the
expected recovery in Chapter 7 is greater than 20%. This might seem consistent with
the statutory mandate that unsecured creditors receive no less than they would recover
in Chapter 7, but it is not clear that it is. The statute requires that they receive no
less in present value. Put differently, the internal rate of return (IRR) for discharged
12 The

same patterns are evident in competing-risk regressions that estimate the effect of
attorney payment on case termination, conditional on a battery of consumer demographic and
financial characteristics.

 19

0

.5

Median annual IRR
1
1.5

2

FIGURE 5
Internal Rate of Return (IRR) to General Unsecured Creditors
Subsetting on Completed Chapter 13 Plans with Expected Chapter 7 Recoveries > 0%

0

.2

.4
.6
Expected % recovery to GUC in Ch. 7

.8

1

cases should be positive for all cases, but it is zero for the median case (and negative
for over 30%) when the Chapter 7 recovery exceeds 20%. We plot the annualized IRR
in Figure 5, though we exclude cases with expected Chapter 7 recoveries equal to zero
because the IRR for these cases is infinite.13 For every expected recovery in Chapter 7
(x-axis), we plot the IRR for the median Chapter 13 case (y-axis). Although returns
to general unsecured creditors are hardly meager in discharged cases, especially when
expected recoveries in Chapter 7 are relatively low, they decline sharply as expected
recoveries in increase. Among cases plotted in Figure 5—that is, discharged cases with
expected Chapter 7 recoveries greater than zero—over 34% have an IRR that is zero or
negative.
Returns in terminated cases do appear meager (and often negative relative to Chapter 7), as Table 6 shows, but these statistics are misleading. After a case terminates,
creditors can seek to liquidate the consumer’s assets and obtain additional recoveries.
Thus, Panel B of Table 6 significantly understates the marginal recovery to unsecured
creditors. Indeed, if the value of the consumer’s property does not change during the
pendency of the Chapter 13 case, creditors will generally have a positive marginal return from Chapter 13 cases: They receive cash flows through the plan and, after it
terminates, obtain the liquidation value of the debtor’s nonexempt assets, which is what
they expected from a Chapter 7 case. As long as the cash flows are sufficiently large
to compensate creditors for the delay in obtaining the liquidation value of the debtor’s
13 We

are able to compute the IRR because the NDC data provide the size and timing of
payments to creditors.

 20
assets, creditors always do better from a Chapter 13 case that fails than from a Chapter
7 filing.
7

Discussion and Conclusion

This paper presents new evidence—drawn from cases filed in Cook County, Illinois—that
raises questions about patterns and pathologies documented in the consumer bankruptcy
literature. Prior studies show that Chapter 13 cases have high (and difficult to explain)
termination rates, exhibit racial disparities in filings and outcomes, and yield meager
recoveries to creditors. Our data suggest that, at least in Cook County, Illinois, these
pathologies are largely driven by a subsample of consumers for whom Chapter 13 is
an avenue for bargaining with state and local governments. These consumers have
accumulated fines, usually parking tickets, and are at risk of having their licenses or
vehicles (or both) seized by the government. In these cases, the government has a
“hostage taking” power that few creditors possess: They can seize property (a driver’s
license) that is valueless to the government or any other party, but is highly valuable to
the consumer because it reduces the cost of commuting to work, especially for people
with limited access to mass transit. These cases have very high failure rates, in part
due to the fact that a substantial number of these consumers have near-poverty incomes
and little or no property that could be seized in liquidation. It appears that African
Americans are particularly vulnerable to this hostage-taking. They account for well over
fifty percent of people with tickets and other fines. Consumers in this category exhibit
the “pathologies” commonly associated with Chapter 13. Those pathologies are much
less pronounced among other consumers.
This finding suggests that some of the aberrational features of Chapter 13 may be a
product of two intersecting features of bankruptcy and non-bankruptcy law: (1) Chapter
13’s automatic stay, which can last for years and allows the consumer to stop collection
efforts and recover property, and (2) government policy regarding tickets and other fines,
which appears to impact African Americans more than other consumers.
Our data also confirm and extend other patterns observed in prior work, including
potential biases in the behavior of trustees and attorneys. Our data suggest that Chapter
13 termination rates are elevated by trustee preferences for plans that pay at least
10% recoveries to unsecured creditors. We also observe a spike in termination rates
immediately after the consumer pays her attorney in full. Finally, our data show that
creditor recoveries are not necessarily as meager as some have thought. Among cases with
very low expected recoveries in Chapter 7, creditors’ marginal recoveries are substantial
in Chapter 13.
Because our results are drawn from a single geographic area (Cook County, Illinois)
within the jurisdiction of a single court (the Northern District of Illinois), we cannot
say whether the same patterns would be evident in other areas of the United States. In
many respects, as Section 5 showed, the demographic, financial, and case characteristics
of consumers in our sample are comparable to the characteristics of consumers in samples
studied by other scholars, who have focused on different geographic areas. But there are
features of Cook County and the Northern District of Illinois that may distinguish it

 21
from other areas. One is the reliance of low-income consumers on personal automobiles
for transportation. Limitations of Cook County’s mass transit system may lead to
greater reliance there than in other areas. Similarly, local policy regarding enforcement
of traffic and parking tickets may be more aggressive, or have more disparate impact
on African Americans, in Cook County than elsewhere (although recent media reports,
including Lithwick (2016), suggest otherwise). Another potentially distinctive feature is
the jurisprudence of the Northern District of Illinois. In 2009, it joined a number of courts
in recognizing the consumer’s authority, under the bankruptcy law, to force creditors to
return property to the consumer, including vehicles and drivers’ licenses.14 One more
potentially distinctive feature is the trustees’ preference for plans with a minimum 10%
payoff to general unsecured creditors. Although this preference is not unique to Cook
County—Braucher (1993) observed similar preferences in other areas—we do not know
whether such a preference is commonly observed throughout the United States.
Although the generalizability of our results is a question for future work, we believe
that this paper raises questions about underlying heterogeneity in consumer bankruptcy
cases and points to potentially fruitful lines of inquiry, including the impact of government policy regarding fines on the use of Chapter 13 bankruptcy.
Online Appendix:
Procedure for Imputing Chapter 13 Plan Payoffs to General Unsecured Creditors
1

Expected Payoffs in Chapter 7

We calculated expected payoffs in Chapter 7 to general unsecured creditors (GUC)
using the Schedules filed with the consumer’s bankruptcy petition. We first summed
(a) the value of real estate in excess of mortgage debt and (b) the value of personal
property in excess of non-mortgage secured debt. From this sum, we subtracted the
value of exemptions available under Illinois state law, as reported by the consumer in
the Schedules. This yielded an estimate of the value of total non-exempt assets. From
this, we subtracted the value of priority unsecured debt. We then divided this number
by total unsecured debt, which is equal to (a) total unsecured claims plus (b) secured
debt in excess of the value of collateral. If this number was negative, we assumed the
payoff to GUC in Chapter 7 is zero.
14 In

Thompson v. General Motors Acceptance Corp., 566 F.3d 699 (7th Cir. 2009), the
Seventh Circuit held that creditors must return property after a consumer files for bankruptcy.
Several other jurisdictions have reached the same conclusion, including the Second and Eighth
Circuits in Weber v. SEFCU (In re Weber), 719 F.3d 72 (2d Cir 2013) and Knaus v. Concordia
Lumber Co. (In re Knaus), 889 F.2d 773 (8th Cir. 1989), and Bankruptcy Appellate Panels
in the Sixth, Eighth, and Ninth Circuits (as summarized in Weber v. SEFCU ), but others
have disagreed, including the 11th Circuit in Bell-Tell Federal Credit Union v. Kalter (In re
Kalter), 292 F.3d 1350 (11th Cir. 2002).

 22
2

Actual Payoffs in Chapter 13

We calculated actual payoffs in Chapter 13 to GUC using the NDC data. We first
summed payments made to unsecured creditors and then divided that sum by the total
value of general unsecured debt for which claims were filed. When this calculation
yielded a payoff less than what was promised under the most recent plan (as recorded in
NDC records), we used the promised plan payoff. We assumed that a debtor must pay
at least what was promised in order to obtain a discharge. Additionally, we assumed
that GUC received 100% payoffs if the consumer obtained a discharge in less than 36
months. This is required by the bankruptcy law.
3

Imputed Payoffs in Chapter 13

We imputed each consumer’s statutorily-required payoff to GUC as follows. First, we
computed monthly income available for payments to creditors through the Chapter 13
plan. We observe monthly income in the Chapter 13 plan (“Plan”).
Next, we estimated the percentage of income absorbed by expenses. We observed
that this percentage varied for consumers with and without mortgages. Those with
mortgages sometimes paid their mortgages “outside the plan” (i.e., the consumer paid
the lender directly instead of paying the trustee first, who then paid the lender). If a
mortgage was paid outside the plan, the mortgage payments were treated as expenses
in the consumer’s bankruptcy forms. If the mortgage was instead paid “inside the plan”
(i.e., the consumer paid the trustee, who then paid the lender), the mortgage payments
were not treated as expenses in the consumer’s forms. To account for this heterogeneity,
we estimated the percentage of income absorbed by expenses for four groups: nonhomeowners, homeowners without mortgages, consumers with mortgages paid through
the plan, and consumers with mortgages paid outside the plan.
We used this percentage to compute the amount of monthly income that was “disposable” and therefore distributable to creditors through the Chapter 13 plan. We then
multiplied this amount by the proposed length of the plan (the proposed duration, in
months, is also reported in the Plan). This gave us total disposable income. From this,
we subtracted the value of secured debt that would be paid through the plan and the
value of priority debt, as reported in the Plan. The remainder was the total income
available for payment to general unsecured creditors, which we divided by the total
debt owed to such creditors as reported in the schedules included in the Chapter 13
petition. We compared this payoff (percent payoff through the plan) to the payoff that
GUC would receive in Chapter 7 and chose the greater of the two as the “imputed,”
statutorily required payoff to GUC.
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Edward R. Morrison
Columbia Law School
435 W. 116th St., NY, NY 10025
U.S.A.
erm2101@columbia.edu

Antoine Uettwiller
Columbia Law School
435 W. 116th St., NY, NY 10025
U.S.A.
au2197@columbia.edu