Q&A: Vermont’s bankruptcy judge balances efficiency with problem solving
Judge Francis G Conrad has been Vermont’s only bankruptcy judge since 1985 when he was appointed to succeed 44-year veteran Judge Charles J Marro. Before his appointment, Judge Conrad was one of the small group of lawyers who regularly represented bankruptcy filers. He also is a certified public accountant, an unusual qualification for a judge that helps account for the respect he is accorded by bankruptcy lawyers practicing in Vermont.
This stint, scheduled to end in June, has included some high-profile cases, including some high-profile cases, including the bankruptcies of Drexel Burnham Lambert, United Press International, and the New York Post. It also has given Judge Conrad an extended opportunity to compare practice in Vermont with that in the Big Apple.
Richard Andrews interviewed Judge Conrad for Vermont Business Magazine in the judge’s chambers in United States Bankruptcy Court, District of Vermont, in Rutland early in June. Thomas J Hart, Clerk of Court, also sat in on the interview. Judge Conrad declined to be photographed for the story, saying he prefers to keep a low profile.
VBM: What geographic area is the jurisdiction of your court?
CONRAD: The state of Vermont. There’s a minimum of one bankruptcy judge in every federal district. But my jurisdiction is nationwide, and it can also be extra-territorial. We have cross-border cases where we exercise jurisdiction on assets in Canada. We even have a proceeding involving Mexican citizens at the moment.
VBM: Do you get into conflicts with foreign courts over jurisdiction?
CONRAD: Yes. In one case here we’ve had to work with a Canadian bankruptcy trustee in Canada. And, or course, when I sit in New York, we have that all the time. As an example, yesterday we were dealing with the United States Embassy in Mexico.
Cross-border bankruptcies are very common. They’re more notorious in New York City–for instance, the Maxwell Publication case. Two others come to mind: Drexel Burnham Lambert; and the Heilman Brewing case, which was really Bond Holdings, which involved Australia.
We have a case filed here now that involves a business in Connecticut, Vermont and New York. So it’s not unusual. But basically our jurisdiction is in the United States, Alaska, Canada and Guam.
VBM: Do you handle cases under both state and federal law?
CONRAD: No, we’re a federal court. We have to decide cases applying state law. But bankruptcy is federal under the Constitution.
VBM: Well, among many people, myself included, there arises some confusion, because there are apparently state laws which regulate bankruptcy, and federal laws which do, too.
CONRAD: There are no state laws that regulate bankruptcy. Bankruptcy preempts state law. We adjudicate claims that arise under state law, because state law governs a lot of business, but we adjudicate them in the federal system.
VBM: But in personal bankruptcies there are certain exemptions which differ from state to state.
CONRAD: Yes. Vermont has an exemption statute, and a filer can choose either the federal exemptions or the state exemptions. If a filer chooses the state exemptions, you simply apply them in a federal case.
VBM: What does a bankruptcy judge do? What’s your role?
CONRAD: The purpose of bankruptcy is to prevent a race to a courthouse where a debtor will be dismembered by creditors. And my basic job is to resolve conflicts that come before me–conflicts between creditors and debtors, and sometimes between creditors and creditors. I’m a problem solver.
VBM: What do you like or dislike about it?
CONRAD: Well, what I like about the job is that I can get things done. What was frustrating to me as a lawyer was adjournments, adjournments, adjournments–you never got anything done.
VBM: I take it you conduct your court differently than some judges?
CONRAD: I would say that is true. I would say we’re a very efficient court.
VBM: Is there any downside to that?
CONRAD: Not that I know of. It’s a very old expression–justice delayed is justice denied.
What I dislike about my job is really very personal to me. You see a lot of personal tragedies come before this court, particularly broken marriages. I wrote an article several years ago entitled, “The Three Divorce Courts of the United States.” It referred to domestic relations court, the Bankruptcy Court and the Internal Revenue Service.
Divorce is one of the main causes of people filing bankruptcy, because there’s no safety net. Professor Elizabeth Warren, formerly of the University of Pennsylvania and now at Harvard, is doing a study of why people file bankruptcy. One interesting preliminary result is that 68 percent of the United States population is married, but the majority of the people who file bankruptcy are single so separated.
VBM: There’s a similar stark difference in the proverty rate among married and single people.
CONRAD: Yes. That’s very true.
VBM: So, from your point of view, being single is a form of under-capitalization in human terms.
CONRAD: Yes, in a sense. They may agree to property settlements and other things in the family court, but as soon as it’s over, the economic realities of two separate households really come crashing down. Now they have two rents, two telephones, two utilities.
On top of that, while they’re going through the divorce, if they weren’t paying attention to finances before, they’re not paying attention to finances now. And they tend to run up debt. While people are getting divorced they get fired from work; they don’t perform well. And then one or both of them come walking across the street to bankruptcy court. And the sad part, which really bothers me personally, is how the children are hurt. The parents are still fighting with each other over finances rather than a joint effort. That’s the toughest part of my job. Those cases are really difficult, and not much fun, because there’s a lot of human tragedy.
VBM: How did you become interested in bankruptcy law?
CONRAD: Purely by accident. I was basically a tax and commercial business lawyer, and one day one of my partners said, ‘We have this hearing before Judge Marro, take this file and go over and do it.’
VBM: And you found it interesting?
CONRAD: Well, I got my tail whipped. (Chuckles.) I didn’t have much time to prepare, and I was literally run out of court. It’s a highly specialized area of law, and if you don’t know what you’re doing, the bankruptcy practitioner will just run you right out of court.
I remember that case as if it were yesterday. But for the mercy of Judge Marro–who still is recalled here; he covers my recusals he gave me another week to learn. And I went back, and I learned what I needed to learn for that case. And it’s been a learning process since.
As a judge, I hold lawyers to the same standards I apply to myself. You’d better be prepared. I think if you talk to any of the lawyers, they’ll say I am prepared, and I expect them to be prepared.
One of the fascinating things about this job is that the bankruptcy code’s not very long–and yet every day in this job is a new twist. It’s never a dull job.
VBM: Well, that’s good. It sounds like your advice to s person entering bankruptcy would be to pick his lawyer with care, if your standards are so high.
CONRAD: Well, it isn’t just my standards. The law is very complex. But, yes, they should be careful.
VBM: Now, your background includes both accounting and law.
VBM: Is that advantageous, and is it typical for bankruptcy judges?
CONRAD: No, it’s atypical. Until I was appointed, there was, I think, only one other CPA bankruptcy judge. Now I think there are three or four. And there’s definitely an advantage, because you’re dealing with numbers.
I also have a degree in financial management, and I’m taking a certificate program at George Mason University in economics and the law. Bankruptcy is half law, one-quarter economics, and one-quarter psychological or sociological. We’re dealing with people’s financial lives.
VBM: What do you consider the essential concept of bankruptcy?
CONRAD: Forgive us our trespasses, as we forgive those who trespass against us. That’s the essential concept–to for give the debts of debtors, and give them a fresh start. Not a head start, but a fresh start. And I think it works, though not always.
Of course, it’s derived from the Book of Deuteronomy, which says you are to forgive the debts of your debtors every seven years. Which is also the reason why you can only file bankruptcy every six years. That limitation has been around for at least four or five hundred years.
VBM: Why is making provision for bankruptcies a good thing? What does it accomplish?
CONRAD: Well, every society since the Babylonians has had a bankruptcy statute. The Babylonians statute, written by Hammurabi, provided for what I would call homestead exemption–if your land was stricken by plagues and insects and so on, you were allowed to keep so much of the food to feed yourself, and then you would pay eat to your landlord. Now, that’s a very unliteral translation.
The Koran has it; the Book of Deuteronomy has it; the Greeks had it; the Romans had it. The English started it with Queen Elizabeth in the 1500s. Several judge are working on a project in Russia right now to develop their bankruptcy law. Because you cannot have private enterprise without bankruptcy.
In fact, I’m working on a similar project with the Agency for International Development. I may be going to one of the Central European countries this summer to teach their judges how to set up a bankruptcy system.
Alexis de Tocqueville, who was the French author of Democracy in America, wrote that Americans are unique in their ability to forgive people their financial failures. Other countries are not like that. In Europe, most bankruptcies are liquidation. They liquidate you, and cut you off. The United States allows people to reorganize. This is why we have Chapter 11s for business, Chapter 13s for consumers.
Canada has recently instituted a bankruptcy code that’s similar to ours, with the ability to rehabilitate. And England is doing one. It’s either started, or will be starting, the same type of system.
So, we who are different–the United States–are now leading the march. In the world of business, people ate recognizing that reorganization and rehabilitation and forgiveness is the key.
VBM: I understand; though, that reorganization succeeds in a very small percentage of cases.
CONRAD: You have to define success. What’s your definition?
VBM: Well, that the business gets back on its feet.
CONRAD: That’s one definition, and if you use it, 95 out of every 100 Chapter 11s fail. But I don’t think that’s the definition of success. Nor was it Congress’ intent, because it provides for even Chapter 11s to liquidate.
My experience his been that if you have an orderly liquidation of a debtor’ s assets, you achieve more value for the assets. But you also allow the employees an opportunity to choose whether they want to stay with the sinking ship, or whether they want to go find a new job.
There was a case in Bellows Falls several years ago, a paper company, and it dragged on about two years. They were paying their current bills, so there was no draining of the reservoir, so to speak. Now, that is a classic example where the employees had a choice. They could stay with the company, or they could leave. And they could leave on a gradual basis, which is exactly what happened.
It’s similar to a person terminally ill with cancer. You have an opportunity to deal with death, as opposed to it being so sudden. And liquidation plans, I think, are a success. Even companies that ultimately ate out of Chapter 11 into Chapter 7 give employees time to make changes.
In Vermont, we have an excellent track record. We probably do better than anybody else in the nation, because you have a Vermont ethic that things are going to succeed. Our success rate in Vermont is over 50 percent.
VBM: As opposed to 5 percent?
CONRAD: As opposed to 5 percent for the rest of the nation.
VBM: That’s a very substantial difference.
CONRAD: Vermont is unique statistically. We have more asset cases than any other district in the United States. One or 2 percent of all cases are asset cases in the United States. And we’re between 15 and 20 percent, although that has been declining in recent years. In an asset case, after the trustee liquidates all the assets, there’s a payment to creditors. They actually get money that was owed to them.
HART: Also, the Administrative Office of the US Courts issues a ranking by state of the likelihood in a thousand households of the residents to file bankruptcy. Vermont is way down at 51st. In the South, they’re much more likely to file. I can’t explain it, and my cohorts cannot explain it.
CONRAD: Another interesting thing about Vermont is that even after people file bankruptcy, they have the right to reaffirm a debt with their creditor–that is, promise to pay it back.
Now, I’ve sat in the Southern District of New York for five years as a visiting judge, and have carried a total number of cases equivalent to Vermont. And in my entire time down there, I’ve only seen three re-affirmation agreements. In Vermont, we have four or five or six every day I hold court. We have a re-affirmation in about 25 percent of our cases.
In one day in Vermont I will have more re-affirmation than I had in five years in the Southern District of New York. And the three people that I had in New York came from some other place. In fact, one of them came from Vermont. He was in the Coast Guard, stationed in New York.
CONRAD: There’s an attitude in Vermont that you’re going to make these cases work. And you see that attitude not only in debtors’ attorneys, but also in bank attorneys.
It irks me that banks and insurance companies are being bad-mouthed all the time. Yeah, they have their problems, but I can tell you that the banks in Vermont make an effort to try to see debtors succeed. They’re not willing to knife them in the back. And I am concerned about the present takeover of a lot of the Vermont banks by out-of-state bank holding companies. I’m going to be curious to see what’s going to happen.
The Vermont banks that have given debtors the most difficult time are in trouble themselves; they’ve got to squeeze every penny. But overall, the banks in Vermont and the creditors’ attorneys really make an effort to see if a debtor can succeed.
VBM: What other differences do you find between Vermont and New York?
CONRAD: Well, the cases are bigger down there. You know, the zeros. In my five years I think I handled 10 cases with over a billion dollars in assets. You don’t ever see that in Vermont. Never. The issues are the same: there’s just fewer zeros.
The lawyers in Vermont are just as competent as the $500 lawyers in New York. The quality of the Vermont bankruptcy bar is as good as I’ve seen anyplace. I’ve sat all over the United States, and I’ve seen some pretty lousy bankruptcy practitioners. The overall quality of the Vermont bankruptcy bar is superb.
VBM: Glad to hear it.
CONRAD: And, I think they’re cheap. That may sound strange, but I think they are. They could charge more, but they don’t.
CONRAD: I’ll be glad to read that if you put that in the magazine.
VBM: (Chuckle) When should a business or individual consider bankruptcy?
CONRAD: That’s an impossible question to answer.
CONRAD: I teach a course on that, for 45 hours. I also lecture at Dartmouth for a class for a friend of mine. I come in every year, and I talk about three hours about using bankruptcy as a tool in financial management. It’s only three hours, but you could spend an entire semester.
VBM: I guess we’d better not get into it, Where is it you’re going this summer–you said Eastern Europe?
CONRAD: I haven’t been assigned a country yet. Some judges have already gone to Czechoslovakia, Hungary and Poland. The problem is funding, because Congress is downsizing.
It’s very difficult to work there, because their judges have no authority. They don’t even know what the law is. For instance, I was working (in the US) with a judge from Lithuania two years ago. She took my bankruptcy code and my rules, and that was going to become the bankruptcy law of Lithuania. That’s it. Because she has no law, and she’s the only bankruptcy judge.
VBM: Did I hear correctly that you work a 60-hour week, 6 am to 6 pm, five days a week? Why is that necessary?
CONRAD: Sometimes. Depends. I’m sometimes in here on Saturdays and Sundays, too. I’m the only judge, and I’m hired to do one thing–it’s to get the job done.
VBM: Is that normal for bankruptcy judges?
CONRAD: It depends on where they are. There are judges who are putting in longer weeks than that. There are judges who are not getting any days off.
When I was working in the Southern District of New York, there was a time when the courthouse was never empty seven days a week, and into the evenings. There was always at least one judge.
VBM: Around the clock?
CONRAD: Well, no. From seven in the morning until midnight. And on Saturdays and Sundays judges would go home in the evening.
Here in Vermont, we went in one year from 359 cases to 703 cases, and then to 960 and to 994. During that period I was also in New York, which was also experiencing an increased caseload. You’re hired to do the job, and that’s all there is to it.
VBM: But it does sound like the system is undersized.
CONRAD: That’s probably a fair statement for some places. There was a time when I went eight or nine months without a day off other than at Christmas and Thanksgiving.
VBM: You still live in Ludlow, is that right?
CONRAD: That’s correct.
VBM: With so much time out of town, do you still feel part of the place?
CONRAD: No. But I’m still active in the fire department. Since January I’ve probably missed only one or two calls. I just happened to be there. I also teach for the state of Vermont as a fire instructor.
The problem is, I often leave the house at 5:30 am And you don’t see too many people then. And a lot of times I don’t leave here until 6 pm.
The thing is that we have a job to do. And we’re the only ones to do it, although we do have Judge Marro. I have to put in a plug for him. Judge Marro’s been a judge since 1941, and he covers my recusals. He’s about 85 now. I also assign cases to him every now and then when he gets bored, and he covers my vacations. I’m assuming he’s going to be around another 10 years. I can only wish that he will be, because he has taught me so much as a judge and as a person. He’s a superb judge.
Yesterday afternoon I left here at 4, and the court is not really used to that. I just disappeared. But it’s trout season. Plus one of my sons–it was honors night in Ludlow. But generally I just put in the time necessary to get the job done.
VBM: You mentioned fishing, What else do you do on off hours?
CONRAD: Well, fire fighting is my avocation. I teach for St Michael’s, and for Castleton. And, let’s see–I like to hike a real lot, and spend a lot of time with my kids.
VBM: What are some memorable cases?
CONRAD: (Chuckles.) There’s too many of them.
People will think that I will remember the big cases. And yes, they get onto the front page of the New York Times and the back pages of the Wall Street Journal. But some of the ones I really remember are the smaller cases, where people come up and thank you. Even when they lose sometimes they come up and do that, because they feel they got a fair hearing.
And I also remember camaraderie and the professionalism of the Vermont bar. I recall in the late ’80s we had a very competent lawyer who came in one morning on an issue, and he lost. And then he came in that afternoon for a trial that last until 2 in the morning because an asset was wasting, and he lost on the other side. He had the same issue, but he was on opposite sides, and he lost both of them.
After we finished, the lawyers, their clients and I all went out to the Back Home Cafe and popped a few beers. I ruled; it was over with; and that was the end of it.
VBM: Is it different in New York?
CONRAD: Sometimes. I think there’s a lot of professionalism there. But I’m in and out of New York. I don’t see the lawyers that much.
VBM: You mentioned increasing caseloads. What is the current trend?
CONRAD: I expect this year that we will have either a new record year, or we will be number-two.
VBM: Do you have any idea why?
CONRAD: Well, I’ve been asked that question may times. No one is able to explain whether bankruptcy is a leading indicator of the economy or a trailing indicator.
I’ve been a volunteer fireman for over 25 years. And in the fire service you meet everybody from all walks of life. Judges tend to get very isolated. One of the things I love about the fire service is that I’m not a judge there. I get kidded a lot about being a judge; it’s good clean fun, but I’m really Frank Conrad, I’m a firefighter that goes into burning buildings, and I hear stuff. I can see who’s hurting. And there’s problems out there.
And Ludlow’s economy is good. Yet Ludlow–the people are struggling. I mean, they are really struggling at a basic level to survive economically.
I also see the type of cases we have changing, the ebb and flow of what’s in here. There was a case today from which I recused myself because the filer used to live in Ludlow. I was his dad’s accountant; I was in the fire department with him. His business went under, and I know that it isn’t from lack of hard work. I know this young man personally. I knew him when he was in high school. I know how hard he worked. I know where his business was. Times are tough out there.
Two years ago, when the caseload started rising, the type of person coming in changed. These were your middle-income, stable individuals.
Everybody thinks that people file bankruptcy as soon as they have problems. That’s not true. They hang on, and on, and on. According to Professor Warren’s study, it takes the average person about eight months before they give up.
Well, it takes even longer in Vermont. And what they is, they eat up the equity in their houses. They give away, literally; their exemptions. If they took the easy road and just cut it off, they’d be OK. But they don’t do that here.
We saw that change with the middle class. And we’re seeing a really big increase in Chapter 13s, which is a consumer reorganization. So we have more consumers coming in, and more middle class people. Also, we’re seeing more native Vermonters; you can tell them by their Social Security numbers. And some people are so poor in this state that even bankruptcy can’t help them.
So you really can’t tell whether we are the leading or trailing indicator. I tend to think we’re both. We’re a trailing indicator in that the economy will improve, and we’ll still be picking up a lot of cases. As a leading indicator we have the optimistic people who have over-expanded, and they go out real quick (when the economy slows).
VBM: Do you think there are structural changes in the economy?
CONRAD: Again, you’re getting into something that I can write a whole paper on. Truly, people need mote education, and the people without education are suffering. But even middle managers and other educated people are having difficulty.
VBM: Thank you
Bankruptcy Case Filing Statistics` Calendar Year` ` Type of bankruptcy` Case and Chapter Five months ended` 1992 1993 1994 5/31/95` ` Business` ` Chapter 7 165 121 76 46` ` Chapter 11 30 23 29 9` ` Chapter 12 10 6 7 2` ` Chapter 13 12 8 13 14` ` Total Business 217 158 125 71` Filings` ` Consumer (non-business)` ` Chapter 7 753 651 644 293` ` Chapter 11 3 3 4 1` ` Chapter 12 N/A N/A N/A N/A` ` Chapter 13 21 23 37 34` ` Total Consumer 777 677 685 328` filings` ` Grand Total 994 835 810 399` ` Source: The US Bankruptcy Court-District of Vermont`
Selected one year bankruptcy filing trends by state` ` State 1993 1994 Percent change` ` Washington, DC 1,284 1,390 +8.3%*` ` Delaware 1,492 1,235 17.2%**` ` Vermont 835 810 1.5%` ` New York 49,743 47,208 5.1%` ` Massachusetts 15,252 14,192 6.9%` ` Maine 1,883 1,752 7.0%` ` Connecticut 9,071 8,413 7.3%` ` Rhode Island 3,294 2,997 9.0%` ` New Hampshire 3,622 3,054 15.7%***` ` United States 875,202 832,829 4.9%` ` * Highest increase in one year bankruptcy filings.` ` ** Highest decrease in one year bankruptcy filings.` ` *** Second highest decrease in one year bankruptcy filings.`
Copyright Lake Iroquois Publishing, Inc. d/b/a Vermont Business Magazine Jul 01, 1995
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