Perry v. Commerce Loan Company 8212

• Citation: 86 S.Ct. 852,15 L.Ed.2d 827,383 U.S. 392
• Decision Date: 01 October 1965
• Docket Number: No. 694,694
• Parties: Warren W. PERRY, Petitioner, v. COMMERCE LOAN COMPANY. &#8212
• Court: United States Supreme Court

383 U.S. 392

86 S.Ct. 852

15 L.Ed.2d 827

Warren W. PERRY, Petitioner,

v COMMERCE LOAN COMPANY.

No. 694.—October Term, 1965.

Argued Jan. 26, 1966.

Decided March 7, 1966.

Rehearing Denied May 2, 1966.

See 384 U.S. 934, 86 S.Ct. 1441.

Robert J. Harris, Cincinnati, Ohio, for petitioner.

R. Howard Smith, Newport, Ky., for respondent.

Mr. Justice CLARK delivered the opinion of the Court.

Perry, a furnace operator employed by Moore Lead Company, filed a petition in the District Court under Chapter XIII of the Bankruptcy Act, 52 Stat. 930 (1938), as amended, 11 U.S.C. §§ 1001 1086,¹ requesting confirmation of his plan for an extension of time within which to pay his debts out of his future wages. In his plan he proposed to pay his debts of $1,412 in 28 equal monthly installments of $60 from his wages of $265 a month. On the hearing for confirmation of the plan, however, it appeared that Perry had previously filed a petition in straight bankruptcy and obtained a discharge therein in 1959, within six years of the filing of this proceeding. On motion of the respondent, Commerce Loan Company, the referee dismissed the plan on the ground that the previous bankruptcy was a bar thereto under the provisions of § 14(c) (5) of the Act.² On review the District Court upheld the dismissal. The Court of Appeals affirmed. 340 F.2d 588. We granted certiorari, 382 U.S. 889, 86 S.Ct. 187, 15 L.Ed.2d 148, in view of a conflict on the point among the courts of appeals.³ We conclude that confirmations of wage-earner plans by way of extensions are not affected by § 14(c)(5), and, therefore, reverse the judgment below.

I.

Although statutory relief for the financially distressed wage earner had been available to some extent as early as the Bankruptcy Act of 1867, 14 Stat. 517, Congress found in its study prior to the 1938 revision of the bankruptcy laws that there were no effective provisions for the complete repayment of the wage earner's debts suited to his problems. H.R.Rep.No.1409, 75th Cong., 1st Sess., 53 (1937). For example, compositions under § 12 of the 1898 Act, 30 Stat. 549, were available to the wage earner, but the relief afforded was unsatisfactory. Section 12 proceedings, which were primarily adaptable for use by business entities, were disproportionately expensive in view of the small sums ordinarily involved in wage-earner cases; they lacked flexibility;- and they did not provide for jurisdiction of the court subsequent to confirmation. Other provisions of the Act had similar disadvantages. Faced with inadequate relief under the federal bankruptcy laws and often with little protection from creditors under state law, the only course usually open to the wage-earning debtor was straight bankruptcy. In such proceedings, everyone lost the creditors by receiving a mere fraction of their claims, the debtor by bearing thereafter the stigma of having been adjudged a bankrupt. In designing a remedy for the dilemma facing a debtor seeking to repay, rather than avoid, his obligations, the Congress settled upon the wage-earner extension-of-time procedures of Chapter XIII. The chapter gave—and was intended to give—to the wage earner a reasonable opportunity to arrange installment payments to be made out of his future earnings. Congress clearly intended to encourage wage earners to pay their debts in full, rather than to go into straight bankruptcy or composition, by offering two inducements: (1) avoidance of an adjudication of bankruptcy with its attendant stigma; and, at the same time, (2) temporary freedom during the extension from garnishments, attachments and other harassment by creditors. H.R.Rep.No.1409, 75th Cong., 1st Sess., at 52—55.

History demonstrates that extension plans under Chapter XIII are fulfilling the purposes intended. The records of the Administrative Office of the United States Courts show that over the past 20 years more than 20% of all proceedings filed under the Bankruptcy Act by wage earners have been for plans under Chapter XIII, the overwhelming majority of these being for extension plans. ⁴ Since many wage earners who go into bank- ruptcy do not proceed under Chapter XIII because they are unemployed (and consequently have no earnings to use for extension arrangements), have an inextricably large indebtedness, or are simply unaware of the existence of an alternative to straight bankruptcy, the 20% figure is even more significant. Moreover, large sums of money are annually returned to creditors under extension plans, the current rate being well over $26,000,000. As wage earners ordinarily have little or no assets available for distribution in straight bankruptcy, these sums represent settlements which the debtors would otherwise be unable to effect and the creditors unable to obtain. See Note, The Wage Earner Plan A Superior Alternative to Straight Bankruptcy, 9 Utah L.Rev. 730 (1965); Allgood, Operation of the Wage Earners' Plan in the Northern District of Alabama, 14 Rutgers L.Rev. 578 (1960).

In light of the proven advantages of extension plans, the Congress has re-expressed its legislative purpose in amendments to Chapter XIII adopted since the original enactment. A report to the House of Representatives expresses it in these words:

'(C)hapter XIII provides a highly desirable method for dealing with the financial difficulties of individuals. It creates an equitable and feasible way for the honest and conscientious debtor to pay off his debts rather than having them discharged in bankruptcy. The power of the court to change the amount and maturity of installment payments without affecting the aggregate amount of such pay- ments makes chapter XIII particularly applicable to the present-day financial problems generated by heavy installment buying.' H.R.Rep.No.193, 86th Cong., 1st Sess., 2 (1959).

And similarly, the Senate report states:

'We think there can be no doubt * * * that a procedure by which a debtor who is financially involved and unable to meet his debts as they mature, over a period of time, works out of his involvement and pays his debts in full is good for his creditors and good for him.' S.Rep.No.179, 86th Cong., 1st Sess., 2 (1959), U.S.Code Cong. & Admin. News 1959, p. 1446.

It is with this underlying policy in mind that we turn to a consideration of the problem posed here, i.e., whether confirmation of an extension plan is barred by a discharge in bankruptcy obtained within the previous six years.

II.

Chapter XIII requires the confirmation of a wage-earner extension plan if '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 the bankrupt * * *.' § 656(a) (3). And Chapter III commands that a discharge of a bankrupt shall be granted unless the court is satisfied that the bankrupt has 'within six years prior to the date of the filing of the petition in bankruptcy * * * been granted a discharge, or had a composition or an arrangement by way of composition or a wage earner's plan by way of composition confirmed under this Act * * *.' § 14(c)(5). The 'discharge' of a debtor under a wage-earner plan shall issue after compliance with the provisions of the confirmed plan, § 660, c. XIII, 11 U.S.C. § 1060. If at the expiration of three years from the date of confirmation of the plan the debtor has not completed his payments in accordance with his plan the court may, after notice and hearing, discharge the debts and liabilities dischargeable under the plan, provided the court is satisfied that the debtor's failure to make all of his payments 'was due to circumstances for which he could not be justly held accountable.' § 661, c. XIII, 11 U.S.C. § 1061. And finally, § 602, of Chapter XIII⁵ declares that the provisions of Chapters I through VII of the Bankruptcy Act, insofar as they are not inconsistent or in conflict with the provisions of Chapter XIII, apply in proceedings thereunder.

We should note at the outset that in his present application for relief Perry did not file a straight, voluntary bankruptcy action in the District Court, nor 'a composition or an arrangement by way of composition or a wage earner's plan by way of composition.' He proposed to pay all his debts, secured and unsecured, and sought only an extension of time—28 months—in which to pay them in equal installments from his future wages. Ordinarily, a wage earner seeking to obtain the benefits of extension proceedings under Chapter XIII need only file a plan that meets the approval of the majority of his creditors, § 652, 11 U.S.C. § 1052, and is confirmed by the court; whereupon the plan becomes binding, § 657, 11 U.S.C. § 1057, and the appointed trustee commences collecting and disbursing to the creditors the periodic payments provided under the plan. Extension plans, therefore, differ materially from straight bankruptcy, arrangements under Chapters XI and XII, and wage-earner plans by way of composition, all of which contemplate only a partial payment of the wage earner's debts. Indeed, under an extension plan, the wage earner who makes the required payments will have paid his debts in full and will not need a discharge, even though the Act provides for a formal one. § 660.

In view of these considerations and the purposes of Chapter XIII as outlined above, we do not believe that the Congress intended to apply the six-year bar of § 14(c)(5) to the confirmation of wage-earner extension plans. The six-year bar was enacted 35 years prior to the adoption of Chapter XIII, 32 Stat. 797 (1903), at a time when no relief corresponding to extension plans existed under the Bankruptcy Act. The unmistakable purpose of the six-year provision was to prevent the creation of a class of habitual bankrupts—debtors who might repeatedly escape their obligations as frequently as they chose by going through repeated bankruptcy. See H.R.Rep.No.1698, 57th Cong., 1st Sess., 2 (1902); In re Thompson, D.C., 51 F.Supp. 12, 13 (1943). But an extension plan has...