ADR Meets Bankruptcy – Final Thoughts

I wanted to add a general thought about dispute resolution in bankruptcy to conclude my reflections on our “ADR Meets Bankruptcy” conference.  This is something that came out in a conversation I had with Elayne Greenberg after the conference.  One of the most striking things about bankruptcy for the uninitiated is the extent to which all other values seem subjugated to the value of efficiency.  Primacy is given to speed and rough justice, with little regard for many of the procedural niceties normally associated with due process.  And it certainly appears that little regard is given to other non-monetary values, including emotional and social needs.

At least superficially, that makes sense, since the bankruptcy court’s primary obligation is to maximize assets for the benefit of creditors.  The idea is to marshal the assets, distribute them in some reasonably fair way, and return the debtor to social productivity, as quickly as possible.  But those of us who think about dispute resolution in a systematic way know that there are always non-monetary values in play.  That has to be true in bankruptcy, where one party (the debtor) has just experienced probably the greatest failure of that person’s life, and the other parties (the creditors) have just been made to look foolish for placing trust in a failed business partner.

We also know that people ascribe real (monetary) value to their emotional and social needs.  That’s why people are willing to spend small fortunes on litigation solely to get revenge or prove they are right.  Mountains of evidence demonstrate that people are willing to make trades in which they give up monetary value in order to satisfy emotional and social needs.  So a bankruptcy process can’t maximize value if it fails to take any account of the emotional and social values in play.  Pareto superior moves must be available and unexploited if that is the case.

Now, there may be reasons why it makes sense not to take non-monetary values into account.  Most bankruptcy judges probably assume that the transaction costs of dealing with them are too high.  Maybe that’s the case—I don’t have enough experience in the grind of the process to know.  But it seems to me there is something more to be considered here, and I think in general lawyers tend to miss sources of value because they don’t want to deal with emotions and social dynamics.  We’re hoping to do some follow-up on this conference, and this is one topic I’d like to explore further.

3 thoughts on “ADR Meets Bankruptcy – Final Thoughts”

  1. Marquette coordinates an extensive foreclosure mediation program, so Andrea can speak to this better than I can. My sense is that foreclosure mediation tends to be highly constricted, because HAMP provides relatively firm legal guidelines for what the borrower can get. I do not get the sense that lenders go beyond HAMP, because of the difficulty in getting authority from the owners of the various tranches into which mortgages are sliced and diced.

  2. This makes me wonder what happens in foreclosure mediation, which I suspect may be a cousin of bankruptcy mediation in terms of what the borrower experiences. With such a variety of foreclosure mediation programs now operational, there should be a wealth of experience, although not necessarily data about those experiences.

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