PERRY v. COMMERCE LOAN CO.
Legal provision: Bankruptcy Code, Bankruptcy Act or Rules, or Bankruptcy Reform Act of 1978
Argument of Robert J. Harris
Chief Justice Earl Warren: Number 694, Perry versus Commercial Loan Company -- Commerce Loan Company.
Mr. Harris. Oh, we'll wait just a moment until counsel is ready.
Now, Mr. Harris you may proceed with your argument.
Mr. Robert J. Harris: Mr. Chief Justice and members of the Court.
This matter known as In re Perry comes for this Court to review the judgment of the Circuit Court of Appeals of the Sixth Circuit which judgment was entered on the 25th of January, 1965.
Writ of certiorari was filed here and granted on October 25, 1965.
If it please the Court, there's really no -- there's no question involved here except one very simple claim.
The issues can be resolved to one issue.
Can a wage earner be permitted to file a Chapter XIII proceeding wherein he asks for an extension of time to pay his bills in full, when he has received a prior discharge in straight bankruptcy within six years of filing the extension plan under the Chapter XIII?
Now it's important to the issue to distinguish between a composition and an extension and I mean a wage earner plan by way of composition or wage earner plan by way of extension because provision is made for both proceedings under the Chapter XIII Act, but whether this is a -- for the fact that this is an extension plan, is of primary importance, the decision of this case.
Composition of course is where the debtor would say, “I can't pay my debts in full.
I propose to pay so much on a dollar -- 50 cents, 75 cents on a dollar.
The creditors will go along with me and consent to it, then within the time limits of a Chapter XIII Act of three years.
I could pay off 50 to 75 cents on a dollar,” that's a composition.
He has been paying his debts in full.
An extension plan is where the debtor says to the court, “I want to pay my bills in full, a 100%, I want to pay my secured creditors a 100%, my unsecured creditors a 100%, all I want is time.
I want a three-year period or less in some cases to pay my bills in full.
I want the protection of the court, stay suits against me and garnishments, so that I hold my job and pay my debts,” that's what an extension plan is.
Now that's what Perry filed in the District Court for the Eastern District of Kentucky.
He filed a wage earner plan in which he said, “I owe about $1,400 and I want to pay them -- my debts in full both secured and unsecured creditors.
I make so much money a month and I have to pay my rent, food, utilities, and transportation, and etcetera.
I have $60 left and this $60 a month was taken out of my wages or will pay my debts in less than the three-year period, in fact about 28 months.”
And he asked the court, the referee in bankruptcy to confirm the plan.
But a motion was filed by one of the secured creditors that had a mortgage on certain furniture, it was listed in the plan, it would have been paid in full.
The Commerce Loan objected to confirmation, filed a motion to dismiss and deny confirmation.
The referee sustained the motion, denied confirmation.
The matter was taken to the district judge.
The referee's opinion was affirmed subsequently it was taken to U.S. Circuit Court for the Sixth District and was affirmed, and we're here on this matter today.
Justice Byron R. White: And what was the -- what was the prior bankruptcy?
Mr. Robert J. Harris: The prior bankruptcy was a straight bankruptcy filed about four and a half years prior to the wage earner petition.
It was -- that was recited in his petition.
In his Chapter XIII petition, he indicated an answer to one of the questions in the petition, had he filed any bankruptcy before and he said, “Yes.
I filed a bankruptcy petition in 1959 and received the discharge in 1959” and the Chapter XIII petition was filed about four -- four and a half years later in 1963.
That was a matter of record in the petition itself that he had received a discharge in straight bankruptcy within the six-year period.
Now, there are many --
Justice Byron R. White: There's no -- there's nothing in this case then that raises issue whether a prior wage earner's plan would bar a subsequent one?
Mr. Robert J. Harris: Well, --
Justice Byron R. White: Whether a straight or prior straight bankruptcy was filed?
Mr. Robert J. Harris: Whether you could file two successive wage earner plans?
Justice Byron R. White: Is that the --
Mr. Robert J. Harris: -- in six years.
Well, Holmes -- the Holmes case decided you could, the Tenth Circuit decide --
Justice Byron R. White: It doesn't involve here.
Mr. Robert J. Harris: That's not involved here.
Justice Byron R. White: An earlier straight bankruptcy?
Mr. Robert J. Harris: Earlier straight bankruptcy.
These are not two successive wage earner plans.
Now, there's plenty of argument, if it please the Court, on a philosophical and sociological ground, but we want to meet the statutory objections head-on in this case.
And all the while, we'll dwell on the sociological aspects of it, I still feel that the congressional intent as indicated by the Chapter XIII statutes was that this relief which we seek, wage earner plan by way of extension, is afforded to any wage earner regardless of the fact that he has had prior relief under the Bankruptcy Act within six years.
And I don't want to burden the Court, but these statutes are technical and important and I don't want to even paraphrase them and at time to time I will be verbatim.
A section of the Code, I would like to indicate first to the Court the contents of a petition in Chapter XIII, which is Section 623 of the Chapter XIII Act, and same Section 1023 of Title 11.
A petition filed under this chapter shall state that the debtor is insolvent or unable to pay his bills as they may mature and he desires to effect a composition or an extension out of his future earnings.
And I call the attention of the Court that here a composition or an extension is contemplated or both by the Chapter XIII Act, but in this particular case, the debtor Perry proposed to pay his bills in full and only asked for an extension of time.
The treatment is the crux of the whole case.
Now, it may run through the minds of the members of this Court, “Well, why is it that this debtor having had the advantage of the Bankruptcy Act and proceed to discharge some four years prior -- why is he now again in this financial dilemma?”
And I say that that probably does run to the minds -- run through your minds, but I would add to this, to this question, why is it that this debtor and thousands and thousands of others throughout the country had found that bankruptcy is just not the solution to their problems and there's no question to what -- that a straight bankruptcy does not solve the financial problems of the lower one-third of a segment of our society.
We're dealing with wage earners who live from one pay day to the next.
They're the ones who file bankruptcy.
They're the ones that over extend themselves in installment buying.
They cannot resist the sales pressures for the various credit houses.
They're the ones that have to have credit.
If they get sick or they laid off for matter of few weeks, they need credit to survive.
And of course, thousands and thousands of them find themselves in financial space where bankruptcy has been their hopeful solution.
But why is it that they return to the lawyer and say, “Well, here I am again -- two years, three years, I'm back in financial trouble.”
We lawyers that practicing in the bankruptcy field, find this occurs more and more.
And we've sought a solution and we feel that Chapter XIII is the solution.
But there are several reasons why they get back in financial trouble.
In the first place, they're not of the most intelligent type of person.
They're the low economic group, and they are constantly bombarded by furniture stores, appliance stores, used car dealers, that as soon as they see that bankruptcy petition in the paper, they say, “Well, here is a man that can't go bankrupt for six more years.
He's a pretty good risk.”
So this bankrupt is solicited by various firms selling various merchandise and he's a human being.
He wants to provide things for his family that other people do and he doesn't realize that again, he's over extending himself.
He doesn't look out for the rainy day, but there are two or three other considerations why he gets into trouble.
He can't go to a legitimate financial institutions for help after he's been bankrupt.
An emergency arises and it doesn't take very much to be in an emergency in this man's household, a few weeks off work, and the gas electric may be ready to shut off.
So, where is he to go?
He invariably will go back to a finance company that he has previously discharged in bankruptcy.
He hasn't paid them.
He hasn't paid the deficiency balance.
It may be a deficiency on a car, a furniture, or a just note, well, but he hasn't paid them.
But they haven't forgotten about it or they're still holding that note, the balance.
So one day, he wanders in their office.
He needs money.
He needs a $100.
Maybe it's just to buy Christmas toys for his children but he still needs a $100, maybe it's to turn on the gas electric say.
So they say, “Yes, we'll loan you the $100, but you have to renew our old balance.”
Chief Justice Earl Warren: You have to what?
Mr. Robert J. Harris: You have to renew our old balance, our old -- the balance that you discharged in bankruptcy.
If you reinstate the entire account, we'd loan you this extra money.
Chief Justice Earl Warren: This is after the discharge?
Mr. Robert J. Harris: That's after -- it may not even be after the discharge, maybe after his first meeting with creditors, but generally, it's after discharge.
It may be a year, two, three, four years later.
Chief Justice Earl Warren: What was it in this case?
Mr. Robert J. Harris: In this case, I don't say that's happened in this case.
Chief Justice Earl Warren: Well, how is pertinent then?
Mr. Robert J. Harris: It's pertinent because I'm explaining to the Court that we're not just considering Perry case.
We're considering of thousands of other cases just like Perry that's in financial trouble that needs the help of a Chapter XIII Act.
Now, what relief can we afford this debtor, if Chapter XIII is not available to him?
He can't go bankrupt for six years and he's still within the six-year statute.
That's elementary, he can't file a bankruptcy petition except once every six years.
We feel that the Congress intended that the Chapter XIII Act, the extension plan is provided there under, should be made available to any debtor regardless of the fact that he's received a discharge within six years or not and I would like to call the Court's attention to some of the pertinent statutes.
Now before Chapter XIII was ever enacted, we had Section 14 (c) of Chapter III of the Bankruptcy Act or otherwise known as Section 32 (c) of Tile 11.
This is been on the books.
It's been amended a good many times.
The statute worked long before Chapter XIII was ever enacted.
It provides, if I may read the pertinent part of it, “The Court shall grant the discharge unless satisfied that the bankrupt has committed or failed to do one or more of eight different things.”
Six of these implied guilt such as falsifying the schedules, concealing assets, making false financial statements.
Six of them in applied guilt.
The last one is failure to pay the cost, but number five, the one we're concerned about.
14 (c), paragraph 5, subsection 5, unless the Court shall grant the discharge unless satisfied that the bankrupt has any proceeding, under this title, commenced within six years prior to the date of a filing of the petition in bankruptcy, been granted a discharge or had a composition or a wage earner's plan by way of composition confirmed under this Act.
Now the phrase “or had a composition or a wage earner's plan by way of composition” was added in 1938 when Chapter XIII was enacted.
But it is significant, that when 14 (c) was amended because of the Chapter XIII Act, Congress eliminated the wage earner plan by way extension.
It seems to me to imply that they did not intend for the so-called guilt statute as we call 14 (c) to apply to a man that wanted the protection of Court to pay his bills in full.
Justice Abe Fortas: And is that relevant here, because as I understand your statement of the facts, the event in question here was the discharge in bankruptcy?
Mr. Robert J. Harris: Yes.
Justice Abe Fortas: And so, is the second part of that sentence that you just read relevant here?
Mr. Robert J. Harris: I think it's relevant, Your Honor, yes.
If you will permit me to refer to the other sections in the Chapter XIII Act, which I'm about to, you'll bear with me.
Section 656 (a) of Chapter XIII is the confirmation section where -- when a plan shall be confirmed.
Now, the section provides that the referee has to find several things before he can confirm a plan.
He must find first that the provisions of this Act have been complied with.
He must find the best interest of the creditors.
And he must find that the plan is fair, equitable, and reasonable, and feasible.
And also he must find that the debtor has not been guilty of any of the Acts or failed to perform any of the duties which would be a bar to the discharge of a bankrupt.
So, in view of this section, we have to determine did Congress intend then to refer Section 656 fact, to Section 14 (c) of the Bankruptcy Act.
That would be a good question, except for the provisions of Section 602 of Chapter XIII.
Justice Hugo L. Black: Where is it printed in your brief?
Mr. Robert J. Harris: You will find Section 602 printed in the appellee's brief at page 3.
Mr. Smith, I think, cites Section 602.
Section 602 provides that provisions of Chapters I to VII inclusive of this Title shall insofar as they are not inconsistent or in conflict with the provisions of this chapter, apply in proceedings under this chapter.
The provisions of Chapters I to VII inclusive so apply, if they're not inconsistent or in conflict with Chapter XIII.
Included in Chapters I to VII, is obviously Chapter III and Section 14 (c) which is the guilt statute, the discharge sentence statute.
Now it submitted that Congress certainly intended that a wage earner plan was a special proceeding.
It was special remedy to cure a special ill and by placing -- by passing Section 602 they indicated that if the Bankruptcy Act, especially the discharge section within six years, is in conflict with the intent of the basic purpose of Chapter XIII than is to give way to Chapter XIII.
And that is the theory upon which the Court's have reasoned in holding that the six-year bar does not apply to wage earner plan.
And we feel that it's born out by the fact that in amending Section 14 (c), after the wage earner plan was placed on statute books, they purposely left out any mention of the wage earner plan by way of extension.
They referred to wage earner plan by way of composition, yes.
That's when where he settles his debts and doesn't pay them in full.
But to encourage a man, a debtor -- a wage earner to pay his obligations in full, it was -- to me most assuredly, the congressional intent that nothing in Section 14, unless it's some fraud of course, but the other six grounds in Section 14 with no doubt, if he was guilty of any fraudulent acts, yes.
But the fifth ground, having received the discharge within the six years, would not preclude him from participating in the benefits of extension plan.
Now surely Congress had in mind that its better to lend assistance -- lend the assistance of the courts in staying suits, garnishments, preventing this man from losing his job.
Keep him as an active and productive member of society.
It's better to do that than just to flatly say, “Well, if you've been bankrupt before, you can't come into the court again even for a wage earner plan.”
I submit, Your Honor, that it was the intention of Congress in view of all these statutes and of the sociological and philosophical benefits that derived here, definitely the intent was that this wage -- the wage earner is entitled to the benefits regardless of having --
Justice Byron R. White: What the -- was this plan, that was filed, simply for an extension?
Mr. Robert J. Harris: That is right Your Honor.
Justice Byron R. White: Well now, if he paid up -- he paid up in accordance with the plan, is he required to get a discharge?
Mr. Robert J. Harris: Well, the discharge section is ambiguous.
It is true that --
Justice Byron R. White: Because if this isn't the kind of a discharge the Act is talking about, why this section -- this doesn't apply at all because it talks about -- committed an act which would bar the discharge of this particular bankrupt.
Mr. Robert J. Harris: That's true.
Your Honor --
Justice Byron R. White: He wasn't -- wouldn't get a discharge at all while this section is holding him up?
Mr. Robert J. Harris: He gets a discharge.
They call it a discharge but actually it's unnecessary.
Section 1060 --
Justice Byron R. White: Well, he gets discharge in a sense that he might have paid up all the debts within the plan, but somebody forgot to file within the times provided by 57 or something.
Mr. Robert J. Harris: Well, the wording --
The wording of Section 1060 is specifically this.
When the provisions of the plan have been complied with by the debtor and all payments made under the plan are completed, the court shall enter an order discharging the debtor from all his debts provided for under the plan.
Justice Byron R. White: Oh, “Provided for under the plan”?
Mr. Robert J. Harris: Yes.
Justice Byron R. White: How about -- how about other cases?
Mr. Robert J. Harris: Well, --
Justice Byron R. White: How about a fellow who didn't file?
Mr. Robert J. Harris: If he didn't file, he's still would be discharged.
If he didn't accept the plan or if he -- if he was notified, he got proper notice and assumed that it did, and he didn't come in under the plan, he'd end up the majority of creditors' debt and he wanted to sit back for three years and not participate in the plan, then he would be discharged.
Justice Byron R. White: Thank you.
Mr. Robert J. Harris: What little time I have left, Mr. Chief Justice, I would like to reserve for rebuttal.
Chief Justice Earl Warren: You may.
Mr. Robert J. Harris: Thank you.
Chief Justice Earl Warren: Mr. Smith.
Argument of R. Howard Smith
Mr. R. Howard Smith: Mr. Chief Justice, may it please the Court.
This case has now run the gamut of its very life existence.
It started in the -- before a referee in United States Court [Inaudible] Division in Kentucky.
Back in August the 1963, a decision was granted on this motion -- a motion by Commerce Loan Company to dismiss or sustained by the referee in an opinion written, as I recall, in December of the same year, 1963.
Sometime later, almost a year later, Judge Swinford of the United States Court, Eastern District of Kentucky affirmed the referee's finding of dismissing the petition and also wrote an opinion in connection with it.
All -- both opinions maybe found in the brief for the appellant -- appellee herein.
The -- Judge Swinford's decision was appealed to the Sixth Circuit in Cincinnati.
And on January 25th last year, a year ago, almost to the day, the Sixth Circuit affirmed Judge Swinford and Judge Lee.
The case is now before this Court on writ of certiorari.
On the last appearance before the Sixth Circuit, the Court was very patient in hearing my opponent through -- to his logical conclusion of 30 minutes and it now goes to present for the appellee, the conference use, we were advised by all those bodies that we would be hearing from them briefly.
That indicates to or did indicate to me at least that the Court are pretty well satisfied [Inaudible] the law in this matter and on what decision would be.
I have no way of course foretelling how this Court feels on the matter so, little by little I'll have to meet the issues as has been presented here by my distinguished opponent.
First of all gentlemen, this case is here on propositions of law.
The facts are pretty well admitted, facts are admitted.
I don't know that the 10-year dues should be taken sociologically, politically, or commercially on this proposition.
It's true and simple, simply a construction and an interpretation of the statute passed by Congress and as I see it, admits of no other construction or interpretation, but all the statutory provisions of Chapter XIII are as follows.
This is on page 3 of the brief for the appellee, if you care to follow along.
Section 602, the provisions of Chapters 1 to 7, dealing with Chapter XIII inclusive of this Title, shall insofar as they are not inconsistent or in conflict with, the provisions of this Chapter apply in proceedings under this Chapter, U.S.C. A. Section 1002, Section 636 as to my understanding my opponent did not contend -- did not read.
Following long under the Chapter XIII provision says this, “we are not inconsistent with the provisions of this chapter,” that is Chapter XIII that is “all the rights and privileges and duties of the debtor shall be the same.”
Are we to interpret from that, the question of discharge, discharge ability?
Why most certainly, as if a voluntary petition for adjudication of bankruptcy have been filed under the decree of adjudication had been entered at the time the petition on this Chapter was filed, 11 U.S.C. Section 1036.
Section 656 (a), the Court shall confirm the plan if satisfied that.
That the debtor has not been guilty of any acts or failed to perform any of the duties, because it would be a bar to discharge the bankruptcy.
By the provisions of Chapter III, Section 14 (c) of the Act, a discharge is denied if the bankrupt has committed any of the offenses or failed to perform any of the duties specified in the seven numbered clauses including Clause (5) which is as follows - Section 14 -- quoting Section 14 (c), the court shall grant the discharge unless satisfied that the bankrupt has,” subsection (5), “in a proceeding under this title commenced within six years prior to the date of the filing of the petition in bankruptcy -- been granted a discharge, or had a composition or a wage earner's plan by way of composition confirmed under this Act.
Now a composition under the Act of extension, are exactly one and the same for discharge purposes.
There's no distinction.
So if a person cannot see of the composition within a year, I mean, within six years where a previous bankruptcy -- when a person has filed a petition for bankruptcy and been discharged, then the same applies to an extension.
That's not only the statute, that's the law interpreted -- that's what the decisions bear out.
I would like to read a decision --
Justice Hugo L. Black: Is the composition planned in the record?
Mr. R. Howard Smith: Sir?
Justice Hugo L. Black: Is the composition plan in the record?
Mr. R. Howard Smith: This -- oh, the composition plan in this record?
Justice Hugo L. Black: Yes.
Mr. R. Howard Smith: No, sir.
There was no composition in this case.
This is --
Justice Hugo L. Black: But there was a plan which the --
Mr. R. Howard Smith: Oh, yes.
An extension plan was --
Justice Hugo L. Black: An extension plan was in it?
Mr. R. Howard Smith: Yes, sir.
That's in the record, Your Honor.
There have been two decisions squarely on the point of this case, that's Schlageter case from the Third Circuit and of course this case decided by the Sixth Circuit and there are numerous decisions from District Courts, numerous of it, all holding that you cannot.
Justice Byron R. White: Well, would you say that you're position -- from your position, it necessarily follows that if you filed a bank -- a petition under Chapter XIII just by way of extension and paid up in full according to the plan in 1960, and then in 1964, you filed another identical petition for an extension that that such petition --
Mr. R. Howard Smith: This law --
Justice Byron R. White: -- should be dismissed?
Mr. R. Howard Smith: This law bars it.
The statute bars -- it says you can't do it.
Justice Byron R. White: And you would disagree then with the Tenth Circuit?
Mr. R. Howard Smith: Yes, sir, positively.
In the In re Nicholson page 224 Federal -- Federal, 224 F. Supp., page 773, the petitioner or wage earner, within the meaning of 11 U.S.C., Section 106, subsection (a) filed a plan for extension under the provisions of Chapter XIII of the Bankruptcy Act as amended.
The plan provided for the payment in full or the petitioner's credits within three years, the statement for affairs and the petition disclosed that she had been granted discharge in bankruptcy on July 14, 1960.
At the first meeting, [Inaudible] the referee found that the proposed plan of petitioner was feasible and that it had been accepted by the two secured creditors affected by the plan and by those unsecured creditors who had filed claims.
Later, the petitioner made an application for confirmation of plan.
Subsequently, the referee entered an order denying confirmation and dismissing the proceeding that's – on the ground that petitioner had been granted a discharge in bankruptcy within six years.
The next proceeding, the filing of the identical petition.
The cause before this Court on a petition for review such order describe and presents the issue of whether such discharge is barred from confirmation of the plan for an extension under the said chapter, where the proposed plan has been accepted by the creditors and meets all the requirements of such proceeding.
The statutes under -- the statutes under consideration in relevant part were set forth in the margin and if -- I could read that [Inaudible].
The petitioner relies upon In re Homes, Edins versus Helzberg's Diamond Shops Incorporated.
I have grave doubts as to the applicability of the decision in the Homes to the facts presented by this record.
The issue there presumed was whether a wage earner, having availed himself for the plan for extension within six years next, proceeded to the filing of another plan, is barred by 11 U.S.C. subsection (c) (5).
So you can see that answers Justice White, that answers your question right there.
The Court points to the significant truth that the provisions of this Section are made expressly applicable to discharge in bankruptcy compositions and wage earner plans by way of composition.
And that the section is noticeably silent with respect to a plan for an extension of time to which to pay this in full, which of course of what my opponent says.
Chief Justice Earl Warren: Mr. Smith, can't you just tell us what the case holds without reading it in entirety please --
Mr. R. Howard Smith: Well, the case holds exactly the same thing that the Sixth Circuit held, the case before here.
Chief Justice Earl Warren: Yes.
Mr. R. Howard Smith: And the Sixth Circuit cites this very case.
Also I might say Your Honor, that in this same decision, I want to call this to your attention especially.
It is not necessary for any creditor to even lieu for a dismissal of petition which of course what I didn't do.
I moved specifically to dismiss this case, but in this Nicholson case, the Court held there, the District Court held there, that it is not necessary to even move, if the law is plain, that is the duty of the referee.
He must do it.
He must upon his own motion dismiss such proceeding.
He has no discretion in the matter.
Now, that's the law.
Justice Hugo L. Black: What do you think about the provision that says, “Not inconsistent with?”
You said that he's relying on.
Mr. R. Howard Smith: Well, that's the statute, Your Honor.
Justice Hugo L. Black: Not inconsistent with this claim?
Mr. R. Howard Smith: Well, I don't know just exactly what to -- what this section means, but I can put -- I can tell you without reading the decision, you might read the dissenting opinion by Judge Hickenlooper in the Sixth Circuit.
The same -- that's the same Circuit Court this case came from -- originated from.
Judge Hickenlooper goes into some detail, that's in connection with the case of Goldberg, In re Goldberg, the citations in 3 F.2d Series 454.
That is cited in my brief.
Justice Hugo L. Black: Was this a plan to pay this debt in full?
Mr. R. Howard Smith: What Judge?
Justice Hugo L. Black: All the debt?
Mr. R. Howard Smith: Your Honor, please sir, regardless what Mr. Harris says in connection with paying the full, he could pay -- the debtor could present plan in 60 days or six months.
The plan could follow through and any -- he could come right back according to what he says, he could come right back with another action within six months thereafter.
That's what has happened.
That to me --
Justice Hugo L. Black: What I'm asking is did he agree in this plan to pay all of the debts in full?
Mr. R. Howard Smith: Well no, he didn't make such agreement as that Your Honor.
That would be a composition.
This is an extension.
He's asked for an extension under the wage earner plan.
Justice Hugo L. Black: But did he agree to pay if extended, in full?
Mr. R. Howard Smith: No, sir.
There was no such agreement to that effect.
Justice Hugo L. Black: I understood him to say that he did?
Mr. R. Howard Smith: Well, regardless of what he did or what he -- he couldn't make such an agreement.
Justice Hugo L. Black: Well --
Mr. R. Howard Smith: -- because it might be, that I don't know what the plan was -- the Court didn't determined whether or not this was feasible or not feasible.
In many instances the time limit would run out.
Justice Hugo L. Black: What it says is 100% payment upon acceptance of the plan for secured creditors.
Mr. R. Howard Smith: Well, that's --
Justice Hugo L. Black: That should be dealt with severely for any terms, but only upon written acceptance of the plan.
Mr. R. Howard Smith: That would determine -- be determined by judge as to the number of people who accepted the plan and carried over the -- whether or not it would pay off over the period of time, within three years.
If that pay out within three years, if it was over then of course, he could not pay his creditors hardly with $1600.
Justice Hugo L. Black: Well it provides for payment in full to the secured creditors, what does it provide with the reference to the unsecured creditors?
Mr. R. Howard Smith: The same.
The same situation would exist.
Justice Hugo L. Black: Doesn't everybody get his money under this plan if he goes through --
Mr. R. Howard Smith: Not necessarily, not always Your Honor.
Justice Hugo L. Black: Who would not get it?
Mr. R. Howard Smith: As I say, it might be that the three-year period that the plan that he had submitted would take longer than three years to pay out.
Justice Hugo L. Black: Suppose, it took three years as it provided here, would everybody get his money?
All the creditors get their money paid in full, 100%?
Mr. R. Howard Smith: I don't know whether it would or not.
Justice Hugo L. Black: What?
Mr. R. Howard Smith: I just don't know Your Honor.
I couldn't answer, whether it would or not --
Justice William O. Douglas: You don't know whether the plan would be worked out successfully, but it contemplates full payment, doesn't it?
Mr. R. Howard Smith: It contemplates it, yes.
Justice William O. Douglas: Yes.
Mr. R. Howard Smith: That's the answer, Your Honor.
Justice Potter Stewart: There can be a discharge upon less than full payment, are they not?
Mr. R. Howard Smith: Absolutely.
Justice Potter Stewart: Under an extension agreement.
Mr. R. Howard Smith: Absolutely.
Justice Potter Stewart: Then if it turns out within a period or after a period three years, that there is inability to make full payment, there then can be a discharge?
Mr. R. Howard Smith: Exactly, correct sir.
Justice Potter Stewart: Even under an extension plan that's originally contemplated a full payment and the statute --
Mr. R. Howard Smith: Unless (Voice Overlap) with discharge within six years previously --
Justice Potter Stewart: Oh, yeah.
Well that's the -- yes, that's the question.
Mr. R. Howard Smith: Any further question?
Justice Hugo L. Black: Well, the point there I assume, there might possibly be a difference payment in full -- I'm not saying it would, payment in full and payment in part when he asked for his discharge, suppose it was carried out exactly as contemplated, would it pay all the debtors 100% in full, creditors a 100% in full?
Mr. R. Howard Smith: Well, this is a new proceeding Your Honor.
It's been on the books for about almost seven years -- almost 20 years, but it had last three or four years since -- the fact that it has not been used and frankly I don't know whether or not any of these -- have ever paid out in full.
I just don't know what it may lead.
Justice Hugo L. Black: And you're talking about what has been done, the statute -- this plan proposes, doesn't it?
Mr. R. Howard Smith: He propose --
Justice Hugo L. Black: It does not make any difference?
Mr. R. Howard Smith: I guess he proposed it on his own fashion.
As to what is feasible or not, that's another matter.
The Court in this particular instance, when I made the motion didn't determine whether it was feasible or not.
He says it's against the law, or against the statute.
Justice Hugo L. Black: Suppose he had determined -- suppose he had determined it was feasible and Pure Loan Company had not filed this objection, would they have been paid in full if the plan was carried out?
Mr. R. Howard Smith: Your Honor, it was the duty of the referee the very moment that he discover -- that he discover --
Justice Hugo L. Black: I understand that.
Mr. R. Howard Smith: -- what my motion rather was.
Justice Hugo L. Black: I understand that but suppose you had not been there and that you had not filed, does it propose that it would be paid out as full, a 100% on the dollar, that was his plan?
Mr. R. Howard Smith: According to his (Voice Overlap) --
Justice Hugo L. Black: It may not make any difference --
Mr. R. Howard Smith: The proposition might be there, but the fulfillment of it maybe something else.
Justice Tom C. Clark: But if does in fact paid the money, he doesn't get the discharge, does it?
Supposed he paid the monthly payment.
Mr. R. Howard Smith: That's right he would not.
Justice Tom C. Clark: [Inaudible]
Mr. R. Howard Smith: Also his petition would be dismissed for lack of -- of the plan.
Justice Tom C. Clark: Why?
Mr. R. Howard Smith: Sorry?
Justice Tom C. Clark: Well, the argument says that he followed plan that wouldn't discharge, if he didn't pay the money, that's why he get the [Inaudible]
Mr. R. Howard Smith: The decision I presume, the decision of the Circuit Court of Appeals is largely based upon the Schlageter case and the -- this very brief.
However, just for the first to course in mind, I would like to read the -- I'd like to read the decision in Sixth Circuit in this case very briefly.
Chief Justice Earl Warren: We have that.
We have the decision in the documents.
Mr. R. Howard Smith: The Schlageter case -- I'd like to read the Schlageter case --
Chief Justice Earl Warren: But would you just tell us what it holds so we won't have to listen the whole opinion please.
Mr. R. Howard Smith: The Schlageter case -- it says, the following of provisions of Chapter III incorporated by reference are made applicable to proceedings on Chapter XIII.
Section 14 (c), The court shall grant the discharge unless satisfied that the bankrupt has, in a proceeding under this Title, commenced within six years prior to the date of the filing of the petition in bankruptcy had been granted a discharge or had a composition or an arrangement by way of composition, by wage earner's plan by way of composition, confirmed under this Title, 11 U.S.C. 8 Section 32 subsection (c).
The appellant here argues that since his plan of arrangement proposed it's nothing more than an extension of time within which he'd pay his debts and not a discharged, relief under Chapter XIII is not barred in Section 14 (c) Supra.
The argument is based upon the erroneous interpretation of Section 656 (a) Supra, and fails to take into consideration Section 660 and Section 661 of that Act of 11 U.S.C.1060 and 1061.
The provisions of Section 656 Sub 6 --
Chief Justice Earl Warren: Mr. Smith, may I ask you again.
Can't you tell us what the case holds and not read the whole opinion, please.
Mr. R. Howard Smith: Well, the section -- that case holds that you definitely cannot file a Chapter XIII where there's been a previous discharge in bankruptcy within the six years previous to that time.
Chief Justice Earl Warren: Yes, well that's very simple.
Mr. R. Howard Smith: It's what it holds.
I might also add Your Honor that --
Justice William O. Douglas: That doesn't help us very much because they're just as many cases on the other side.
Mr. R. Howard Smith: Well, Your Honor I don't know whether -- I doubt that very much.
I'm not --
Justice William O. Douglas: Well, there are quite a few of them anyway.
Mr. R. Howard Smith: Quite a few of them.
There's the decision from Macon, Georgia in the case of Arthur Hamilton written by the referee down there, I don't know whether the Court would want to hear that, it's somewhat lengthy, but it goes into dissertation of the law and the facts and it holds also the same as the Schlageter case, in fact precisely as Schlageter case and then there are five cases on appeal in the Fifth Circuit from District Court of the Middle District of Georgia.
Two of the cases were dismissed by Referee Stewart, Mr. Smith, the other three were dismissed by Referee Algim Moby Jr.
The referees acted on their motion and dismissing these cases because of prior bankruptcy within six years and their action in so doing was approved by the District Court in all of those instances.
So, I have my doubts as to the number -- I believe that the number exceeds Your Honor in favor of the Schlageter case from those against them.
We do submit that the reasoning seems to be in favor of Schlageter case.
I'm sure that you're familiar with the wording of the Sixth Circuit case, it's very brief into the point.
One further thing that the Court -- we believe with the Sixth Circuit that this is purely and simply a question of legislation, it's a matter for the Congress and not for this Court.
There are many reasons for that.
The courts are not equipped and set up to handle this kind of administration.
They rather taken to do and since they have held elsewhere and they're making a mess of things.
Congress can set up appropriate bureaus, provide the appropriate salaries and the proper rules and regulations.
The matters under consideration right now by Congress and it had -- it was the last session.
There are several bills before the Congress on this very proposition Chapter XIII.
It may be that some legislation in this field is needed.
We are inclined to believe that there is.
We do think that the society is not wholly dependent upon this section for the reason that most state have receivership rules where you can go into state courts and ask for a relief on wage earner -- on wage earner's plans so they're not holding without relief.
Now, if Your Honor please -- if Your Honor please, there's an abuse on both sides because there are many bankrupt -- repeaters of bankruptcy who've been going into straight bankruptcy six months with the year or later coming right back having the same number of debts or probably more so, seeking further relief.
How long can that go on?
Our court dockets are burdened or were burdened, overburdened with this classification of cases until this decision.
Now it's down to where it probably should be under the Chapter XIII, the courts will have nothing to do to handle the cases, the legal cases that come before under Chapter XIII without having these extra legal laws.
We respectfully urge the Court to read the cases Schlageter, also the case in the Sixth Circuit here, this particular case, the Sixth Circuit.
The Nicholson case which I just read and dissenting opinion put in the Goldberg case.
We would like to have you consider those citations and render your decision.
So, I believe that's all I can say unless there's any further questions.
Chief Justice Earl Warren: Very well.
Rebuttal of Robert J. Harris
Mr. Robert J. Harris: Mr. Chief Justice, members of the Court.
In answer to Mr. Smith‘s statement that for making a mess of things in Cincinnati Court through the administration of Chapter XIII, I would like to say to this Court that Mr. William Schumacher who is present in this Court and he's our trustee, disburses a $100,000 a month to creditors to Chapter XIII proceedings that would otherwise be lost and that's a $100,000 a month put into the economy and I don't call that much of a mess.
Now, Justice Black in answer to your question as to whether this plan is incorporated included in the record, it is Your Honor.
At pages 4, 5, and 6, the complete plan setting forth 100% payment of both secured --
Justice Hugo L. Black: Does that provide for payment of interest?
Does that provide for payment of interest?
Mr. Robert J. Harris: It provides a payment of 6% interest on secured accounts, 6% interest.
Now, Justice Stewart raised the question of the discharge that provided wherein the wage earner is unable to comply with to -- through the plan within three years because of circumstances beyond his control.
That is true.
In the Schlageter case, I think based its opinion upon the fact that he could get a discharge.
But my answer to that would be that if that situation happened and the creditor had not received a 100%, then he could make a motion to dismiss at that time or he could oppose the application for discharge if the man had gotten the discharge in bankruptcy within six years.
So the -- what Schlageter is doing, they're anticipating if the creditor had not received the 100%, he could then come in to the Court and say, “Well, I'm going to oppose the discharge because I haven't gotten my 100% like he said.”
And he's got another discharge within six years and this would tantamount to a second discharge.
Chief Justice Earl Warren: Thank you.