The Bankruptcy Discharge - Toward A Fresher Start

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1980
The Bankruptcy Discharge: Toward a Fresher Start

Doug R. Rendleman
Repository Citation
Rendleman, Doug R., "The Bankruptcy Discharge: Toward a Fresher Start" (1980). Faculty Publications. Paper 893.
http://scholarship.law.wm.edu/facpubs/893
Copyright c 1980 by the authors. This article is brought to you by the William & Mary Law School Scholarship Repository.
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THE BANKRUPTCY DISCHARGE: TOWARD A
FRESHER START
DoUG RENDLEMANt
Two cartoons are posted on a debtor-creditor teacher's door. In

the first, Andy Capp, our favorite deadbeat, runs by two pedestrians,
one of whom says, "There we go, another jogger. I can't understand
this mania for fitness.'' His companion replies, "If you owed as much
money to as many people as he does, you'd be jogging too." The sec-
ond shows two golfers, a dour one saying to his grinning companion,
"Bankruptcy doesn't seem to have hurt your putting eye a bit, Pete."
Recognizing that bankruptcy affects more bowlers than golfers, this Ar-
ticle deals with the policy that keeps the golfer's putting eye sharp-the
bankrupt's fresh start.
The bankruptcy discharge is both an end and a beginning. The
discharge is a judgment that closes the legal procedure; the protagonists
must thereafter use post-judgment procedure. Judgments have at least
two aspects. They are res judicata, thus precluding the opponents from
relitigating. Judgments also give rise to a right of enforcement allowing
successful litigants to enjoy the fruits of victory. A bankruptcy dis-
charge expunges debts, leaving creditors helpless to collect. The way a
bankrupt enforces a discharge determines a great deal about bank-
ruptcy as a beginning and an end.
The fresh start concept is an overarching policy that shapes almost
every part of bankruptcy. "One of the primary purposes of the bank-
ruptcy act," the Supreme Court said in Local Loan Co. v. Hunt, 1 is to
" 'relieve the honest debtor from the weight of oppressive indebtedness
and permit him to start afresh free from the obligations and responsi-
bilities consequent upon business misfortunes.' " 2 Bankruptcy's fresh
start should provide the bankrupt with "a new opportunity in life and a
clear field for future effort, unhampered by the pressure and discour-
t Professor of Law, College of William & Mary. J.D. 1968, University of Iowa; LL.M.
1970, University of Michigan. The author thanks Linda Coppinger and Pam Gertz for assisting
with the research and footnotes and Fred Schauer for inspiration.
1. 292 u.s. 234 (1934).
2. Id. at 244 (quoting Williams v. United States Fidelity & Guar. Co., 236 U.S. 549, 554-55
(1915)).
724 NORTH CAROLINA LAW REVIEW [Vol. 58
agement of preexisting debt."3 How in particular does the golfer's dis-

charge implement this fresh start policy? Three theories of the
discharge will command our attention: affirmative defense, injunction,
and discrimination. This Article will examine the extent to which each
of these three theories of discharge gives meaning to the fresh start pol-
icy and translates that meaning into real-life results.
The way we perceive the purposes and nature of bankruptcy af-
fects the way we perceive the discharge. Bankruptcy began as a mer-
cantile mechanism to liquidate insolvent enterprises in an orderly
fashion and to distribute the assets to creditors in a roughly equal way. 4
Occasionally the debtor would refuse to cooperate and creditors sought
some device to secure compliance.5 Bankiuptcy by this analysis is a
device to control the debtor. 6 Professor MacLachlan tells us that the
English introduced the discharge to induce bankrupts to disclose and
deliver all their assets to their creditors.7
During the 20th century, however, discharge to facilitate orderly,
fair liquidation to creditors lost ground to discharge to provide a fresh
start to bankrupts. Of course, bankruptcy courts today continue to liq-
uidate failed business, and bankruptcy statutes still hinge the discharge
on debtor cooperation.8 More than nine-tenths of all bankrupts today,
however, are consumers, and few consumer bankrupts own enough as-
sets to administer.9 Creditors refuse to fight over nothing. The adver-
sary relationships among creditors and between creditors and the
bankrupt have broken down. "Consumer bankrupts adopted a mer-
cantile institution, developed it into a haven for the lower middle class,
and extended to the whole population an opportunity to discharge
debts previously thought to be restricted to a minority. The bankruptcy
discharge developed a social welfare purpose: the fresh start." 10 The
3. Id.
4. Reed v. Mcintyre, 98 U.S. 507, 5ll-13 (1878); lA COLLIER ON BANKRUPTCY ~ 14.01
(14th ed. 1978); Levinthal, The Early History of Bankruptcy Law, 66 U. PA. L. REv. 223, 225
(1918); Olmstead, Bankruptcy, A Commercial Regulation, 15 HARV. L. REv. 829, 843 (1902); Rn
din, The Nature of Bankruptcy, 89 U. PA. L. REV. I, 3-4 (1940).
5. See Levinthal, supra note 4, at 225.
6. See Glenn, Essentials ofBankruptcy: Prevention of Fraud, and Control of.Debtor, 23 VA.
L. REv. 373, 388 (1937).
7. J. MACLACHLAN, HANDBOOK OF THE LAW OF BANKRUPTCY 100 (1956).
8. See Bankruptcy Reform Act of 1978, II U.S.C.A. 727(a) (West 1979).
9. REPORT OF THE COMMISSION ON THE BANKRUPTCY LAWS OF THE UNITED STATES, H.R.
Doc. No. 137, 93d Cong., 1st Sess. pt. I at 65 (1973) [hereinafter cited as COMM'N RJJP.]; D.
STANLEY & M. GIRTH, BANKRUPTCY PROBLEM, PROCESS, REFORM 20 (1971).
10. Rendleman, Bankruptcy Revision: Procedure and Process, 53 N.C.L. REV. 1197, 1203
(1975).
1980] FRESH START 725
iq.ea that bankruptcy itself connotes evil motives or defective morals no

longer surfaces frequently. What bankruptcy does mean, however, is
neither fully articulated nor theoretically explored.
A relative decline in harsh creditor tactics accompanied the devel-
opment of the consumer economy. Earlier society discharged debts to
recognize true in law what was true in fact-that certain debts are un-
collectable or collectable only at too high a moral and economic cost
for society to bear. The stem ethic of an earlier generation, 11 however,
is now anachronistic. The growth of the impersonal society and the
increasing role played by institutional creditors has led to accrual ac-
counting, an actuarial approach to collection, and a systematic reserve
or allowance to write off bad debts. 12 Institutional creditors now can
afford play in the joints; they ignore first meetings of bankrupts' credi-
tors and instead deduct uncollected debts from their income tax. 13 To-
day's consumer has also been washed by a wave of debtor-oriented
reform, judiciaP 4 and legislative, 15 federal 16 and state. 17 Flinty hearts,
it cannot be gainsayed, continue to beat. 18 More creditors, however,
recognize a bad bargain and cut their losses.
Nevertheless, something remains of the ethical notion that people
should pay their debts and that bankruptcy is vaguely antisocial. Fil-
ing bankruptcy still admits failure, and bankrupts suffer some stigma
and disapproval. 19 Society concedes that bankruptcy may be desirable
but only for a few people in extreme difficulty, and not too often at
that.2 More people suffer acute financial distress than file bankruptcy,
11. See, e.g., MacLachlan, Puritanical Therapyfor Wage Earners, 68 CoM. L.J. 87, 89 (1963).
12. See Stone, A Primer on Bankruptcy, 16 TuL. L. REv. 339, 361 (1942).
13. I.R.C. 166.
14. See, e.g., Fuentes v. Shevin, 407 U.S. 67 (1972); Sniadach v. Family Finance Corp., 395
u.s. 337 (1969).
15. See, e.g., Fair Debt Collection Practices Act, 15 U.S.C.A. 1692 (West 1979).
16. See, id.; Fuentes v. Shevin, 407 U.S. 67 (1972); Sniadach v. Family Finance Corp., 395
u.s. 337 (1969).
17. The Virginia Legislature, for example, deleted the last remnants of debt imprisonment
when it revised its Civil Remedies & Procedure Code in 1977. See VA. CoDE 8.01-462 (1977).
Similarly, the North Carolina General Assembly feeling the hot breath of the federal court on the
back of its collective neck, recently ameliorated debt imprisonment for Tarheels. See Survey of
Developments in North Carolina Law, 56 N.C.L. REV. 901-05 (1978).
18. See, e.g., Goodwin Agency, Inc. v. Chesser, 131 Ga. App. 686, 206 S.E.2d 568 (1974);
Greenfield, Coercive Collection Tactics-An Analysis of the Interests and the Remedies, 1912
WASH. U.L.Q. 1.
19. Perry v. Commerce Loan Co., 383 U.S. 392, 395 (1966); Caplovitz, The Benefits ofBank-
ruptcy, Wash. Post, Sept. 13, 1975, at AS.
20. Shuchman, An Allempl AI A "Philosophy of Bankruptcy," 21 U.C.L.A. L. REv. 403, 463
(1973).
perhaps because society values paying bills and attaches a stigma to
bankruptcy.21 We know little about why some distressed debtors file
bankruptcy and others disdain.2 2 Perhaps "escape from the ordinary
effect of a contractual obligation must of necessity be well guarded and
enshrined in ritual, since society wishes it to be considered as abnormal
conduct."23 Even today, the bankrupt's companion could think that
bankruptcy might affect his golf score adversely.
If bankrupts are not evil or bad people, perhaps they are merely
ill: ''the debtor is treated as a sick man of society, one whom society
ought to reform and restore to a useful position in its ranks." 24 We also
view bankruptcy and the discharge in economic terms25 as conferring
benefit. It redistributes wealth, for people use or consume goods and
services without paying. Business bankruptcy is said to punish mis-
management, inefficiency, and lack of productivity and to reallocate
resources to enterprises that will use them more efficiently.26 Bank-
ruptcy spreads the effect of economic change and encourages people to
take risks by removing some of failure's permanent sting. Effective dis-
charges advance the economy because "debtors with 'fresh starts' are
better enabled to participate in the credit economy."27 Discharge liber-
ates the bankrupt psychologically. "A debtor doomed to spend the rest
of his life working for his old creditors is discouraged from trying to
accumulate any property, and the motive which leads many a man to
productive effort may thus be destroyed." 28 Thus, bankruptcy gives a
fresh start "'free from the obligations and responsibilities consequent
upon business misfortunes', . . . unhampered by the pressure and dis-
couragement of preexisting debt."29 This medical analogy coupled
with the economic benefits of discharge, suggests the desirability of
therapy. Crippled, debt-laden consumers can be cured or rehabilitated
to consume again. This point of view, however, lacks concreteness.
Does rehabilitation mean to help repay or to free from grasping credi-
21. But if. id at 428-32 (questioning whether there is a moral obligation to repay institutional
creditors).
22. COMM'N REP., supra note 9, at 46.
23. Stone, supra note 12, at 354.
24. Stone, supra note 12, at 349.
25. See Shuchman, supra note 20, at 441-42.
26. Friedman, Chrysler: Are Jobs the Answer?, NEWSWEEK, September 10, 1979, at 66.
27. COMM'N REP., supra note 9, at 68. See also Caplovitz, supra note 19 (15 to 20 million
consumers would benefit from bankruptcy and stimulate economy).
28. J. MAcLACHLAN, supra note 7, 100.
29. Local Loan Co. v. Hunt, 292 U.S. at 244 (quoting Williams v. United States Fidelity &
Guar. Co., 236 U.S. 549, 555 (1915)).
.
tors? We will seek solid answers to the questions raised by these vague
and conflicting policies as we examine the evolution of the three theo-
ries of discharge.
I. DISCHARGE AS AFFIRMATIVE DEFENSE
Under the short-lived Bankruptcy Act of 1867, the bankrupt who

obtained a discharge might plead it "as a full and complete bar to all
suits brought on any . . . discharged debts." 30 This will be called the
affirmative defense theory of the discharge. The 1898 Act defined dis-
charge to mean "the release of a bankrupt from all his debts ...";31
but it failed to define the procedural effect of a discharge. The Act split
jurisdiction to adjudicate bankruptcy issues between federal bank-
ruptcy courts and state courts with general jurisdiction. After the bank-
ruptcy discharge, the creditor could sue the bankrupt in a
nonbankruptcy court on a debt involved in the previous bankruptcy.
The nonbankruptcy court where the creditor sued to enforce the claim
then applied bankruptcy law to determine the discharge's effect on that
claim. 32 This introduced potential conflict between federal bankruptcy
policy as enunciated by federal courts and state interests in enforcing
creditors' claims against defaulting debtors in state forums.
Procedure accommodated discharge to the federal structure-in two
ways. Stays of action in nonbankruptcy courts were provided to allow
the bankruptcy court to determine the st.atus of a particular debt and
whether the bankrupt would be discharged. 33 But if the creditor sued
the bankrupt in a nonbankruptcy court after the discharge, that court
determined the discharge's effect.34 The Supreme Court, of course,
could review nonbankruptcy court decisions to determine whether the
federal discharge had been frustrated. 35
State statutes also accommodated the federal bankruptcy dis-
charge to state judgments. Generally these statutes, which, although
drafted with the Bankruptcy Act of 1898 in mind, are still in force to-
day, cancel state judgments and judgment liens for debts that have
been discharged in bankruptcy.36 Some coordinate state with federal
30. See Act of March 2, 1867, ch. 176, 21, 14 Stat. 517, 533.
31. Bankruptcy Act 1(15), 11 U.S.C. 1(15) (1976) (repealed 1978).
32. See, e.g., In re Havens, 272 F. 975, 976 (2d Cir. 1921).
33. Bankruptcy Act 9-17, 11 U.S.C. 27-35 (1976) (repealed 1978).
34. See Local Loan Co. v. Hunt, 292 U.S. at 240.
35. E.g., Dimock v. Revere Copper Co., 117 U.S. 559 (1886).
36. See, e.g., CAL. CIV. PROC. CoDE 675b (West Cum. Supp. 1980); MICH. COMP. LAWS
600.2914 (1968); MINN. STAT. ANN. 548.18 (West 1946); N.Y. DEBT. & CRED. LAW 150
procedure and allow state defendants who have filed bankruptcy to

stay pending state actions. 37 To suspend an existing state judgment,
two states allow the bankrupt to bring the federal discharge to the state
court right away. 38 Most, however, force the bankrupt to wait a full
year before avoiding the state judgment;39 this apparently insures that
the one year period that creditors have to ask for revocation of the
bankrupt's discharge has expired.40
These state accommodation statutes generally compel the bank-
rupt to give notice to the judgment creditor and provide for hearings on
whether the judgment is discharged. 4 I If the bankrupt convinces the
judge that his discharge in bankruptcy does cover a state judgment, an
order cancelling, satisfying, or discharging the judgment is entered. 42
Two statutes specify that the entry indicate that the judgment was dis-
charged in bankruptcy.43 If the judgment is satisfied of record, execu-
tion cannot issue.44 The South Dakota and California statutes
terminate judgment liens,45 and they and the New York statute specify
that the order does not affect valid liens.46 These statutes performed
two functions under the affirmative defense theory of discharge: they
provided a forum to adjudicate discharge issues, and they cleared the
formal records, particularly the real estate records, of impediments to
the discharge. And some state courts supplemented the effect given to a
discharge by these statutes by enjoining creditors from enforcing dis-
(McKinney Cum. Supp. 1979); N.C. GEN. STAT. l-24S {Cum. Supp. 1979); OR. REV. STAT.
18.420 (1977); S.C. CODE 15-3S-630 {1976); S.D. COMPILED LAWS ANN. 15-16-20 {1967); VA.
CODE 8.01-455 {1977).
37. E.g., OR. REv. STAT. 18-420 (1977); see Iowa Mut. Ins. Co. v. Parr, 189 Kan. 475, 370
P.2d 400 (1962).
38. MICH. COMP. LAWS 600.2914 (1968); OR. REV. STAT. 18-420 (1977).
39. See, eg., CAL. CIV. PROC. CODE 675b (West Cum. Supp. 1980); MINN. STAT. ANN.
S48.18 {West 1946); N.Y. DEBT. & CRED. LAW 150 (McKinney Cum. Supp. 1979); S.C. CoDE
15-35-630 (1976); S.D. COMPILED LAWS ANN. 15-16-20 (1967).
40. See Bankruptcy Act IS, I I U.S.C. 33 (1976) (repealed 1978). There are similar provi-
sions under the Bankruptcy Reform Act, II U.S.C.A. 727(d) & (e), 1328(e) (West 1979).
41. CAL. C1v. PRoc. CoDE 675b (West Cum. Supp. 1980); MICH. COMP. LAWS 600.2914
(1968); MINN. STAT. ANN. 548.18 {West 1946); N.Y. DEBT. & CRED. LAW ISO (McKinney
Cum. Supp. 1979); OR. REv. STAT. 18.420 (1977); S.C. CODE 15-3S-640 (1976).
42. CAL. C1v. PROC. CoDE 67Sb {West Cum. Supp. 1980); MINN. STAT. ANN. 548.18
(West 1946) (unlisted debts not affected); N.Y. DEBT. & CRED. LAW ISO (McKinney Cum.
Supp. 1979); S.C. CoDE 15-35-6SO (1976) (also allows bankrupt to amerce clerk for $10 or, if
willful, $100 for failure to comply); S.D. COMPILED LAWS ANN. IS-16-20 (1967).
43. MICH. COMP. LAWS 600.2914 (1968); VA. CODE 8.01-455 (1977).
44. See, e.g., Crocker v. Bergh, liS Minn. 316, 136 N.W. 737 (1912).
45. CAL. CIV. PROC. CODE 67Sb (West Cum. Supp. 1980); S.D. COMPILED LAWS ANN.
15-16-24, -25 (1967).
46. Id., N.Y. DEBT. & CRED. LAW ISO (McKinney Cum. Supp. 1979).
charged judgments in any way.47

Professor Nadler summarized the abstract learning about dis-
charges:
[A] discharge in bankruptcy neither cancels nor destroys the obliga-
tion or debt itself but is, rather, remedial in nature and has the effect
merely of disabling the creditor from legally enforcing his claim. A
discharge is merely a release from and not a satisfaction of a prova-
ble debt. Courts have recognized that the effect of a discharge in
bankruptcy is to suspend a creditor's right of action to enforce the
collection of his claim but the debt itself remains and carries with it a
moral obligation to pay it as, if and when, the bankrupt may wish to
do so. In this respect, therefore, a discharge in bankruptcy is in the
nature of a legal privilege which the bankrupt may either use or
waive. He may refuse to pay or he may accept his moral obligation
to pay. Such, therefore, is the rationale for the established principle
that this legal privilege made available by his discharge in bank-
ruptcy must be affirmatively asserted by the bankrupt and may be
deemed to have been waived by his express or unequivocally implied
commission and omission.48
This theoretical statement has both procedural and practical implica-
tions.
Bankrupts waived discharges in two major ways. First, they failed
to plead the discharge as an affirmative defense to an action on the
debt. An affirmative defense is a responsive pleading in which the de-
fendant confesses that the plaintiff's allegations are true but adds mate-
rial to avoid the otherwise valid claim. To allow tb.e plaintiff to prepare
to respond, the defendant must raise affirmative defenses specifically,
and the defendant who fails to plead a defense waives that defense and
may not introduce evidence about it.49 Discharge in bankruptcy is an
affirmative defense listed in Federal Rule of Civil Procedure 8(c).50
Bankrupt defendants who failed to interpose discharge were often held
to have waived it, and a judgment for the plaintiff precluded the bank-
rupt from relitigating dischargability. 51
Reaffirmations constitute a second form of waiver. Courts refuse
to enforce simple promises. To enter an enforceable contract, each
47. See Morris v. Perkins, 148 Ga. 554, 97 S.E. 526 (1918) (creditor process enjoined without
state statute); Badger v. Jordan Marsh Co., 256 Mass. 153, 152 N.E. 92 (1926) (semble); Harrison
v. First State Bank of Garrison, 57 N.D. 143, 220 N.W. 644 (1928).
48. C. NADLER, CREDITOR AND DEBTOR RELATIONS 560 (1956).
49. F. JAMES & G. HAzARD, CIVIL PROCEDURE 4.9 (2d ed. 1977).
50. FED. R. Crv. P. 8(c). See also N.C.R. CIV. P. 8(c).
51. Dimock v. Revere Copper Co., 117 U.S. 559 (1886); Winthrop Sales Corp. v. Shelton, 389
S.W.2d 70 (Mo. App. 1965).
party to the contract m~st usually accompany his promise with consid-
eration. Professor Murray, however, said that bankruptcy did not dis-
charge the moral obligation; thus, "an express promise to perform an
obligation that has been discharged in bankruptcy is enforceable even
though there is no consideration or detrimental reliance to support
it."52 Thus, the creditor could sue the bankrupt and overwhelm the
affirmative defense of discharge by showing an express promise after
bankruptcy to pay the debt.
The affirmative defense theory of discharge expressed the fresh
start policy inadequately. The bankruptcy discharge's effect became, in
the words of Judge Cowans, "like the bankrupt sitting there waiting for
the other shoe to drop." 53 A creditor could participate in a debtor's
bankruptcy, partake of the bankruptcy dividend, lodge an action in a
nonbankruptcy court charging that the debt was not discharged, and
collect the balance. 54 Many bankrupts, lacking money to pay their
debts, also lacked money to retain an attorney to defend post-discharge
collection actions. In addition, many bankrupts, relying on the dis-
charge, failed to appear in nonbankruptcy actions after discharge; the
creditors then took judgment by default and garnished the bankrupts'
wages or levied on the bankrupts' property. State judges lacked exper-
tise in dealing with the specialized issue of dischargeability, and some
lacked sympathy for the federal policy of fresh start. Erroneous judg-
ments were entered against bankrupts, and fragmented litigation failed
to develop a coherent body of binding precedent sympathetic to the
fresh start policy. 55 In the face of these abuses, telling bankrupts that
discharges were affirmative defenses consoled them just a little less
than telling mugging victims to file tort actions for battery and conver-
sion.56
After the Supreme Court's 1934 decision in Local Loan Co. v.
52. J. MURRAY, MURRAY ON CONTRACTS 99 (2d rev. ed. 1974).
53. Bankruptcy: Hearings on S. Res. 88, H.R. 6665 and H.R. 12250 Before the Suhcomm. No.
4 of the House Comm. on the Judiciary, 9lst Cong., 1st Sess. 38 (1970) (statement of Daniel R.
Cowans) [hereinafter cited as Hearings].
54. Shuchman, 17re Fraud Exception in Consumer Bankruptcy, 23 STAN. L. REv. 735, 741
(197 1).
55. SeeS. REP. No. 91-II73, 9Ist Cong., 2d Sess. (1970); H.R. REP. No. 91-1502, 9Ist Cong.,
2d Sess., reprinted in [1970] U.S. CoDE CoNG. & AD. NEWS 4156; Hearings, supra note 53, at 32,
38, 66; Countryman, 17re New J)ischargeahility Law, 45 AM. BANKR. L.J. I (1971).
56. Excessive efforts to collect discharged debts were tortious. Compare Gore v. Gorman's
Inc., 143 F. Supp. 9 (W.O. Mo. 1956) with Standley v. Western Auto Supply Co., 319 S.W.2d 924
(Mo. App. 1959). The paucity of reported cases, however, illustrates the impotence of retrospec
tive legal solutions to solve social problems.
Hunt,S7 federal court injunctions were available to ameliorate the

abuses of state jurisdiction and the affirmative defense theory of dis-
charge. In Local Loan, a creditor sued a bankrupt for assigned wages,
relying on a holding of the Illinois Supreme Court that assignments of
wages earned in the future created liens enforceable after bankruptcy.
Instead of challenging the Illinois doctrine with inevitable appeals
through the state hierarchy and from there to the United States
Supreme Court, the bankrupt successfully asked the bankruptcy court
to declare the debt discharged and to enjoin the creditor from suing in
state court to collect that debt. On appeal, the Supreme Court affirmed
the bankruptcy court's injunction on the ground that the federal court
possessed jurisdiction to secure the fruits of a federal decision, but the
Court emphasized the extreme nature of the bankrupt's plight that cre-
ated ''unusual circumstances" and led to the federal injunction.
Local Loan injunctions provided a specious form of relief to har-
rassed bankrupts. The same penury that led people to bankruptcy in
the first place and prevented them from defending later collection ac-
tions meant that they lacked money for attorneys to sue for federal
injunctions.58 Moreover, some federal courts of appeals, apparently
preferring to keep dischargeability issues in state courts, rarely or never
found that the "unusual circumstances" prerequisite for a federal in-
junction existed.59 Local Loan nevertheless supplied a precedent for
the changes in discharge by the 1970 amendments to the Bankruptcy
Act.
The affirmative defense theory of discharge was subject to abuse
because it was based on an unrealistically naive view of the real world
and an excessively modest view of bankruptcy courts' role in the bank-
ruptcy process. Congress concluded that creditor overreaching and
harassment frustrated the bankruptcy discharge so long as the dis-
charge was an affirmative defense and the court in which suit was
brought determined its effect. This theory of the discharge, moreover,
delegated power to interpret a federal statute to lower state court judges
57. 292 U.S. 234 (1934). Compare state injunctions cited note 47 supra.
58. Countryman, supra note 55, at 2-10. But cf. Hearings, supra note 53, at 37, in which
Referee Cowans testified that lawyers who had been retained for bankruptcy were more likely to
stay with the bankrupt in bankruptcy court without an additional fee than they were to defend a
state collection action without an additional fee.
59. Hearings, supra note 53, at 74; Countryman, supra note 55, at 2-10; Smedley, Bankruptcy
Courts as Forumsfor Determining the Dischargeahility ofDebts, 39 MINN. L. REV. 651 (1955). Cf.
Personal Indus. Loan Corp. v. Forgay, 240 F.2d 18 (lOth Cir. 1956) (finance company, small loan
debtor create sufficient circumstances).
who presided over courts that were often of limited jurisdiction and
sometimes not of record.
At least two ways existed to moderate the evils of the affirmative
defense theory of the discharge: Congress could have eliminated the
abused grounds as a bar to the dischargeability of particular debts, 60 or
it could have given the bankruptcy courts plenary jurisdiction to deter-
mine the effect of discharge.
II. THE INJUNCTIVE DISCHARGE
The 1970 Amendments, avoiding any "startling changes in the

law," 61 built upon Local Loan and gave bankruptcy courts jurisdiction
to determine whether the debts of the types most subject to creditor
abuse were discharged. 62 Pursuant to the 1970 amendments, the origi-
nal bankruptcy notice to creditors told them to file their objections ~o
discharge in the bankruptcy proceeding or forever to hold their peace.
If they failed to file or if they filed and the bankruptcy court held the
debt discharged, the debt was extinguished. After discharge, three doc-
trines protected the discharged bankrupt from harassment in nonbank-
ruptcy courts. First, the usual rules of res judicata prevented the
creditor who had received an opportunity to litigate or had litigated,
from maintaining a successful action on a discharged claim. 63 Second,
the discharge order declared that it voided personal judgments on dis-
charged debts. 64 Third, the discharge order, which creditors received,
enjoined them from "instituting or continuing any action or employing
any process" to collect discharged debts. 65
Thus passed the affirmative defense theory of the discharge. Un-
fortunately, Congress's attention was focused on questions of dis-
chargeability jurisdiction and jury trials. It neglected to debate or even
to consider carefully the separate implications of the injunctive theory
of the discharge. Referee Cowans did testify that "possibly the exist-
ence of the contempt sanction would tend to stop~' creditor abuse. 66
60. H.R. REP. No. !Ill, 86th Cong., lst Sess. 2-3 (1959); S. REP. No. 1688, 86th Cong., 2d
Sess. 2-3 (1960).
61. Id. at 9.
62. Bankruptcy Act 17, II U.S.C. 35 (1976) (repealed 1978); Countryman, supra note 54,
at 26.
63. Countryman, supra note 55, at 26, 30.
64. Bankruptcy Act 14f(l), II U.S.C. 32f(l) (1976) (repealed I978).
65. Id. I4f(2), II U.S.C. 32f(2).
66. Hearings, supra note 53, at 53.
A. Limitations on Enforcement Through Contempt

Contempt for violation of an injunction takes three forms. Crimi-
nal contempt punishes the contemnor to vindicate society's interest in
respect for courts and obedience to court decrees, and resembles a
criminal prosecution in almost every respect. Compensatory contempt
forces the contemnor to pay the wronged party's loss caused by con-
temnor's violation of the injunction, and resembles a civil action for
money damages for breach of the legal standard embodied in the in-
junction. Courts impose coercive contempt fines or imprisonment to
alter contemnor's incentive to obey and to force the conduct to which
the other party is entitled. For example, if a bankrupt refuses to tell the
trustee the location of the estate's property, the judge may order him
imprisoned to jar his memory and to help the trustee collect the es-
tate.67
Contempt in bankruptcy developed slowly for two reasons. First
was ambivalence about the adjudicator's status. "Referees" presided
over bankruptcy proceedings; the federal district judges appointed
these junior judges.68 Second, bankruptcy lacked comprehensive pro-
cedural rules. Acting in the early 1970s under Congress's grant of
rulemaking power,69 the Supreme Court promulgated Rules of Bank-
ruptcy Procedure that modestly began to cure these defects. The rules
rejected the statutory name "referee" and renamed the adjudicator
"judge."70 The rules also brought the 1970 discharge amendments into
practice; the form for discharge that the clerk sent to creditors enjoined
them "from instituting or continuing any action or employing any
process to collect [discharged] debts." 71
Rule 920 allowed contempt to be imposed for violation of the dis-
charge injunction. The contempt rule, however, reflected ambivalence
about the status of the bankruptcy judge-referee as well as the scope of
rulemaking authority by remitting all contempts involving either im-
prisonment or more than a $250 sanction to the district judge. Even so
limited, the referee's new power to impose contempt generated contro-
versy.72 Professor Landers accused the Rules Advisory Committee of
67. See generally Maggio v. Zeitz, 333 U.S. 56 (1948).
68. Bankruptcy Act 34a, ll U.S.C. 62a (1976) (repealed 1978).
69. 28 U.S.C. 2075 (1970), as amended by Bankruptcy Reform Act, Pub. L. No. 95-598,
247, 92 Stat. 2672 (1978).
70. FED. R. BANKR. 901 (7).
71. OFFICIAL BANKR. FORMS, Form 24; FED. R. BANKR. 404(1) & (h).
72. Kennedy, The Proposed Bankruptcy Rules and Official Forms, 46 AM. BANKR. L.J. 53, 58,
70 (1972).
the "fudge" method and concluded that it bestowed the title of judge
but hesitated to confer judicial power.73 Justice Douglas, on the other
hand, dissented from the order promulgating the Rules, in large part
because he feared that the contempt power was dangerous. 74
Judges use contempt to deal with two discrete problems: miscon-
duct in court as well as violation of injunctions and other orders. Rule
920 appears to have been drafted with the problem of maintaining a
decorous courtroom in mind, and a $250 fine seems ample for that of-
fice. The idea of arming bankruptcy judges with contempt power in
order to enforce the discharge injunction received less attention. The
bankruptcy judges wielded the contempt rule as hesitantly as the Advi-
sory Committee and the Supreme Court that had promulgated it.
B. Limited Scope
1. Private Creditor Collection Attempts
The scope of the automatic stay and discharge injunction further
attenuated the development of contempt to protect fresh starts. The
statute told judges to enjoin creditors from "instituting or continuing
any action or employing any process to collect,"75 but judges construed
that language narrowly. While Congress aimed to end abusive suits to
collect discharged debts in nonbankruptcy courts and to channel litiga-
tion about whether a debt is discharged into bankruptcy court, the 1970
Amendments intentionally failed to tamper with the doctrine that al-
lowed courts to enforce reaffirmed debts. 76 Moreover, the legislative
history supports the view that Congress did not intend in the 1970
amendments to forbid the informal, nonjudicial tactics like threatening
collection letters that creditors used to secure reaffirmation. 77 The Wall
Street Journal provided an example of coercive reaffirmation: after
bankruptcy, a truck big enough to cart off all the family furniture ap-
peared in a bankrupt's drive; the driver carried papers that reaffirmed
most of the debts that the bankrupt owed to a finance company; the
woman signed despite bankruptcy.78
Such abuses led one commentator to remark that, if the discharge
73. Landers, The New Bankruptcy Rules: Relics of the Past as Fixtures of the Future, 51
MINN. L. REV. 827, 867 (1973).
74. 411 u.s. 991, 992-94 (1973).
75. Bankruptcy Act of 1898 14f(2), 11 U.S.C. 32 (1976) (repealed 1979).
76. S. REP. No. 1173, 9lst Cong., 2d Sess. 11 (1970); see Countryman, supra note 54, at 23-24.
77. See In re Thompson, 416 F. Supp. 991, 996 (S.D. Tex. 1976).
78. Wall St. J., Sept. 29, 1979, at 1, col. 6.
injunction interdicted only judicial collection, bankrupts were "des-

tined to endure considerable creditor harassment without relief from
the bankruptcy court."79 Nevertheless, judges, apparently out of defer-
ence to the legislative history of the 1970 amendments, continued to
construe narrowly the protections afforded by those amendments. For
example, Rutgers University responded to a former student whose stu-
dent loans were discharged in bankruptcy by denying her the right to
register and withholding her transcripts. A New Jersey district judge
held that "such thinly-veiled coercion . . . to compel repayment of
loans duly discharged" did not constitute proscribed legal action. 80
A district judge on the West Coast went further. An enrolled In-
dian and member of the Colville Confederated Tribes borrowed from
the Tribes, assigning future income accruing to his "Indian Money Ac-
count," which was principally income from tribal lands collected by the
government. After the loan was discharged in bankruptcy, the Tribes
nevertheless followed their usual practice and withheld the bankrupt's
share, applying it to the balance of the discharged loan. The judge
declined to enjoin the Tribes to refund the money taken and to cease
taking it in the future because they did not employ legal process.81
This decision is incorrect. The question is not whether the Tribes'
conduct constituted legal process but whether the debt was discharged.
Local Loan held that, despite contrary state authority, an assignment
of future wages did not create a security interest enforceable after
bankruptcy: "[t]he wages earned after [bankruptcy] became the prop-
erty of the bankrupt clear of the claims of all creditors." 82 After Local
Loan no one should have argued that a debt agreement created a se-
curity interest in property acquired after bankruptcy. 83 The payments
that accrued after bankruptcy were indistinguishable from wages
79. 14 Hous. L. REv. 486, 497 (1977).

80. Handsome v. Rutgers Univ., 445 F. Supp. 1362 (D.N.J. 1978). See notes 118-28 and
accompanying text i'!fra.
81. Aubertin v. Colville Confederated Tribes, 446 F. Supp. 430 (E.D. Wash. 1978).
82. 292 U.S. at 243.
83. The judge granted summary judgment without deciding that question. Aubertin v. Col-
ville Confederate Tribes, 446 F. Supp. 430, 436 (E.D. Wash. 1978.). The answer, however, is not
free from doubt. Compare Sims v. Jamison, 67 F.2d 409 (9th Cir. 1933) (postbankruptcy foreclo-
sure ofprebankruptcy crop liens enjoined) and Butler Cotton Oil Co. v. Collins, 200 Ala. 217,75
So. 975 (1917) (semble) with Bridge v. Kedon, 163 Cal. 493, 126 P. 149 (1912) (prebankruptcy
security interest in inheritance creates an equitable right enforceable against property inherited
.after discharge); Gannon v. Graham, 211 Iowa 516, 231 N.W. 675 (1930) (prebankruptcy assign-
ment of anticipated inheritance as security not voided by discharge); Union Nat'l Bank v. Lenton,
54 N.D. 262, 209 N.W. 350 (1926), cert. denied, 315 U.S. 506 (1927) (prebankruptcy crop lien
granting a present interest in unplanted crops attaches to crops planted after discharge). In the
writer's opinion, Local Loan's holding that a prebankruptcy assignment of wages cannot create a
earned after bankruptcy. Because the Tribes apparently failed to file

an exception or objection to dischargeability in bankruptcy, we can as-
sume the debt was discharged. In addition, the court viewed the adju-
dicative process too narrowly and confused the broader substantive
discharge with the remedy of the mass-produced discharge injunction
of the 1970 amendments. 84 Instead, the bankrupt should have been
entitled, under the bankruptcy court's equitable powers, to a declara-
tory judgment of discharge and a Local Loan injunction against collec-
tion to vindicate the fresh start policy of federal bankruptcy. 85
2. Collection Through NSF Check Prosecutions

Difficult problems arise when bankrupts ask federal courts to en-
force the bankruptcy discharge by enjoining state criminal prosecutions
under rubber check statutes. The state has a vital interest in enforcing
a valid criminal law that prohibits obtaining property through fraud.
But, as prosecutors and trial judges know, creditors resort to rubber
check statutes to collect civil debts evidenced by insufficient funds
(NSF) checks. 86 The federal bankruptcy court, however, also has a
valid interest in protecting a discharged bankrupt's fresh start from in-
direct collection tactics. Thus, the protagonists ask judges to stake out
their positions in this penumbral area with injunctions, and the judges
mould the language of equity to accommodate federal and state poli-
cies.87
The problem is illustrated by four recent cases, all decided under
the old Bankruptcy Act and concerning the relation between NSF
check prosecutions and the bankruptcy discharge. These come from
federal district courts in North Carolina,88 Alabama, 89 Texas,90 and Ar-
kansas.91 Policy conflicts and some tentative solutions emerge from a
summary and analysis of these opinions.
security interest in wages earned after bankruptcy compels a similar result for crops, inheritances,
and trust funds. See Brown v. Cunningham, 303 Ill. App. 307,25 N.E.2d 113 (1940) (inheritance).
84. Fiss, Foreword The Forms of Justice, 93 HARV. L. REV. I, 46-50 (1979).
85. See State Fin. Co. v. Morrow, 216 F.2d 676, 679 (lOth Cir. 1954); Bankruptcy Act
2(a)(l5), II U.S.C. ll(a)(l5) (1976) (repealed 1978).
86. Wright, IJuties of a Prosecutor, 33 CONN. B.J. 293 (1959).
87. q. Fiss, Dombrowski, 86 YALE L.J. 1103 (1977) (federal injunction against state litigation
arguably in violation of federal constitutional rights).
88. In re Penny, 414 F. Supp. 1113 (W.D.N.C. 1976).
89. In re Godfrey, 472 F. Supp. 364 (M.D. Ala. 1979).
90. In re Thompson, 416 F. Supp. 991 (S.D. Tex. 1976). See generally Note, 14 Hous. L.
REV. 486 (1977).
91. In rePorter, 462 F. Supp. 370 (E.D. Ark. 1978).
The time sequence of the lawsuits differs. Shortly after the Arkan-
sas bankrupt filed for bankruptcy, a check prosecution was commenced
against him. The bankrupt sought to enjoin the prosecution, citing
Rule 401, which stays actions on unsecured debts. The North Carolina
and Alabama sequences are similar: the debtor filed for bankruptcy, a
check prosecution began and the bankrupt moved to stay the pending
criminal prosecution. The Texan was prosecuted on his check after the
bankruptcy discharge, and he asked the court to hold that the payee
was in contempt for violation of the discharge injunction.
The Arkansas case differs from the Alabama and North Carolina
proceedings in several important respects. First, the Arkansas prosecu-
tion was pending when the bankrupt moved to enjoin it. The North
Carolina and Alabama bankrupts had been convicted, the North Caro-
linian after a trial and the Alabaman after a guilty plea. Both had been
sentenced to imprisonment, with probation granted or sentence sus-
pended on condition that they repay their payees, and both sought to
enjoin the execution of the sentence. Second, the Arkansas criminal
prosecution was begun within the time during which a creditor must
file a claim in the bankruptcy proceeding to prevent his debt from be-
ing discharged. The criminal prosecutions in Alabama and apparently
in North Carolina did not commence until after the time to bar dis-
charge had expired. The Alabama payee did not file in bankruptcy,
nor apparently did the North Carolinian. In contrast to the other three,
the Texas payees sat out bankruptcy without filing to protect their
rights, and the bankrupt was found not guilty of the criminal charges.
The results are surprising. The Alabama bankrupt who had
pleaded guilty and the convicted North Carolinian received injunc-
tions. The untried Arkansas bankrupt and the acquitted Texan re-
ceived no relief from the bankruptcy court. The procedural posture of
the Arkansas and Texas litigations, however, may explain the failure of
the courts in those cases to enjoin. Under Local Loan, a bankruptcy
court possesses jurisdiction to enjoin a state proceeding that interferes
with a bankruptcy discharge. 92 The Younger v. Harris93 analysis, the
application of which determines when a federal district court may en-
join a state criminal prosecution alleged to interfere with federal civil
and constitutional rights, is simply out of place in litigation that deals
92. Compare Local Loan Co. v. Hunt, 292 U.S. 234 (1934) with Kennedy, The Bankruptcy
Court Under the New Bankruptcy Law: Its Structure, Jurisdiction, Venue, and Procedure, 11 ST.
MARY'S L.J. 251, 282 (1979).
93. 401 U.S. 37 (1971); see Fiss, supra note 87, at 46-50.
with a bankruptcy discharge. 94 But jurisdiction to enjoin does not
mean that the court must enjoin. Bankruptcy should be available to
relieve financially pressed debtors, not to shelter criminals from the
consequences of their crimes.95 An injunction of a check prosecution
would be most inappropriate when the prosecution had been com-
menced before bankruptcy and was pending when the bankrupt sought
to abort it, and when the payee had filed or still had time to file in
bankruptcy to bar discharge of the debt. Thus, because the Arkansas
payee could still have pursued bankruptcy remedies against the bank-
rupt, the Arkansas court, despite its misplaced Younger analysis, may
have been correct in denying an injunction.96
The procedural posture may also explain the Texas decision. The
creditor's conduct was extreme. The creditor made no effort to bar dis-
charge for fraud, but after discharge his attorney wrote the bankrupt
threatening to prosecute unless paid. This letter violated the canons of
ethics and probably constituted the tort of abuse of process. A criminal
prosecution followed in which the bankrupt was acquitted, revealing
the charges to be groundless. The bankrupt asked the bankruptcy court
to hold the creditor in contempt for breaching the discharge injunction.
The court, however, held that the creditor had not violated the injunc-
tion because neither the collection letter nor the criminal action were
"process" in the sense of the harassing lawsuits that Congress had in-
tended to stop with the 1970 amendments.97
The Texas bankrupt probably should have moved to enjoin or stay
the prosecution earlier; instead he waited until after acquittal to com-
mence an action for contempt. The bankruptcy court had Local Loan
jurisdiction to enjoin state actions that frustrated the discharge. In an
injunction proceeding, the bankruptcy court could have squarely faced
the issue whether the prosecution had frustrated the discharge instead
of construing the discharge injunction. Moreover, the stakes would
94. But see In re Porter, 462 F. Supp. 370, 372 (E.D. Ark. 1978).
95. H.R. REP. No. 595, 95th Cong., 1st Sess. 343 (1977), reprinted in (1978) U.S. CODE CONO.
& AD. NEWS 5963, 6299; S. REP. No. 989, 95th Cong., 2d Sess. 51 (1978) reprinted in (1978] U.S.
CODE CONG. & AD. NEWS 5787,5837.
96. If the payee-creditor seeks bankruptcy remedies while the criminal prosecution is pend-
ing, the privilege against self-incrimination may compel the bankruptcy court to wait until the
criminal prosecution is completed. If the bankrupt is convicted, would the doctrine of res judicata
then prevent the fraud question from being relitigated in bankruptcy? The Supreme Court has
suggested that it would not. See Brown v. Felson, 99 S. Ct. 2205 (1979).
97. In re Thompson, 416 F. Supp. 991 (S.D. Tex. 1976). Other courts have interpreted "pro-
cess" more broadly in different contexts. See, e.g., Griffin v. County School Bd., 363 F.2d 206, 210
(4th Cir. 1966).
have differed: in an injunction action, the creditor only faces being told
to go forth and sin no more; but in a contempt action, the creditor may
be punished. The lack of warning from the form discharge injunction
and the higher stakes in contempt might have militated against impos-
ing punishment. The discharge, however, was broader than the dis-
charge injunction.98 Under the old Bankruptcy Act, the discharge
injunction should have barred only hard-core creditor misconduct, and
bankrupts should have sought to enjoin questionable conduct promptly
under Local Loan, where it could have been litigated in a timely fash-
ion out of the shadow of contempt.
The North Carolina and Alabama federal district judges granted
relief to bankrupts convicted of rubber check crimes. What influenced
two of the nation's best federal district judges to interfere with the state
criminal process to protect a convicted defendant's federal bankruptcy
discharge? They viewed the prosecutions as indirect collection tech-
niques, perversions of the criminal process to exact civil debts. Both
creditors sat out the bankruptcy without moving to bar discharge. The
North Carolina criminal prosecution and the defense against the fed-
eral injunction were maintained by the creditor's attorney. Both state
judges granted the bankrupt NSF check defendant probation contin-
gent on repayment, and each sentence included an order of restitution.
Thus, the federal judges concluded that both creditors abused the crim-
inal process to restore the bankrupts' obligations by a circuitous route.
The relief, however, differed. Judge James McMillan in North
Carolina permanently enjoined criminal proceedings against the bank-
rupt founded on the discharged debt. 99 Although the Alabama bank-
ruptcy judge had refused to enjoin the criminal prosecution, federal
District Judge Frank Johnson approved an injunction that proscribed
the bankrupt from paying and the creditors from receiving money to
satisfy the discharged debts. 100 Apparently the Alabama state court
98. Bankruptcy Act 17{a), 11 U.S.C. 35(a) (1976) (repealed 1978) (discharge); Bankruptcy
Act 14(f)(2), 11 U.S.C. 32(f)(2) (1976) (repealed 1978) (injunction).
99. In re Penny, 414 F. Supp. 1113, 1115 (W.D.N.C. 1976).
100. The procedural posture was unorthodox. Instead of defendant's appealing from granting
of the injunction or from the denial of a motion to modify or dissolve the injunction based on
changed circumstances, the district attorney appealed a finding that the bankrupt's guilty plea was
not new evidence to support a modified injunction. Thus, the standing and finality doctrines
entered, and Judge Johnson held that the district attorney lacked standing to challenge the injunc-
tion. In re Godfrey, 472 F. Supp. 364, 369 (M.D. Ala. 1979). Viewing the district attorney's mo-
tion to reopen as resembling a motion to modify in light of changed circumstances, id. at 369 n.7,
Johnson then "held" that even the creditors, who stood idly by while the time to bar discharge ran,
could not assert that the bankrupt's guilty pleas were new evidence. There is no reason, however,
to think that Judge Johnson would have decided differently had the creditors appealed from an
judge could still .fine the bankrupt or sentence him to jail, but the dis-
charge suspended that part of the Alabama criminal statute that re-
quired the convicted defendant to make full restitution to the payees. 101
Judge McMillan halted the criminal prosecution and any sentence
because the creditors could have misused the criminal process to collect
a civil debt "if a sentencing judge, or probation or parole officer, took
repayment of the debt into account when dealing with" the bankrupt.
He qualified the injunction, however, with the statement that, "if the
debt is ultimately found to be not dischargeable, no federal purpose
would be served by continuing to enjoin the state prosecution." 102 In
deciding which form of relief was best, the judges in these cases thus
needed to know the unknowable. Did injunctions merely against resti-
tution force an honest bankrupt into prison? On the other hand, would
excising the restitution feature of the criminal sentence cause the
charges to be dropped and allow the guilty to go free?
Enjoining a state prosecution for frustration of a bankrupt's dis-
charge is most appropriate when: 1) the creditor allows the time to
prevent discharge to run; 2) the criminal prosecution is reactive to or
preceded by threats to prosecute absent payment; and 3) the bankrupt's
criminal sentence includes restitution-that is, it tells the bankrupt
"pay your bills or go to jail." Aberrational features such as a private
prosecuting attorney may make an injunction even more appropriate.
Some public policy questions importune for answers. Would
preventing all rubber check prosecutions when the creditor failed to
move to bar discharge interfere unduly with state criminal justice?
Should all criminal prosecutions brought before the time to bar dis-
charge runs be allowed to continue? What preclusive effect might a
conviction or acquittal have in bankruptcy? 103 Should the bankruptcy
court examine the evidence to learn whether the state criminal prosecu-
tion is well grounded? In addition to policy questions about the rela-
tion between sovereigns, factual evidence about low-level, unrecorded
police conduct, prosecutorial discretion, and judicial practice may
guide a decision. Do the particular prosecutor, police department, and
judge use the criminal statutes to collect NSF checks? For example,
injunction because the critical factor seems to have been that the time to move to prevent dis-
charge had run.
101. ALA. CODE 13-4-123 (1979 Cum. Supp.).
102. In re Penny, 414 F. Supp. 1113, 1115 (W.D.N.C. 1976).
103. q: Brown v. Felson, 99 S. Ct. 2205 (1979) (bankruptcy fraud must be determined by
bankruptcy court; doctrine of res judicata not applied).
after the payee of a NSF check lodges a complaint, one Virginia police
department telephones the drawer to "warn" him or her before serving
the arrest warrant. If the drawer pays the check, the police refrain from
serving the warrant. Is intent to defraud presumed or established con-
structively under the criminal statute or must the government prove
specific intent to defraud? 104 Answers to these questions may supply
additional evidence of indirect collection through the criminal process.
In summary, the 1970 amendments altered the framework and dy-
namics of the debate. The worst abuses of the affirmative defense the-
ory of the discharge ended. The amendments, however, concentrated
on judicial solutions rather than the real world of the debtor-creditor
environment and thus failed to resolve all the drawbacks of the previ-
ous practice. Congress ignored coercive reaffirmation. The discharge
injunction was too narrow to protect the discharge fully. Courts failed
to develop the meaning of contempt, and they concentrated on the nar-
rower discharge injunction while neglecting the broader discharge.
Pressure on the discharge moved from civil collection efforts to crimi-'
nal bad check prosecutions. All these problems, however, were steps
toward the creation of a systematic doctrine of discharge and fresh
start.
Ill. THE DISCRIMINATION OR Perez THEORY OF DISCHARGE
The Supreme Court's 1971 decision in Perez v. Campbe//105 articu-

lated a theory of fresh start that complimented and expanded the 1970
amendments. Before Perez, state licensing statutes, ostensibly intended
to protect the public's health, safety, and welfare, allowed the govern-
ment to revoke a bankrupt's occupational license and to refrain from
reissuing it until the bankrupt paid the discharged debts. 106 Many
other state statutes dealing with motorists' financial responsibility al-
lowed the government to suspend a driver's license when a judgment
related to driving was discharged in bankruptcy. 107 To the charge that
these statutes coerced bankrupts into paying discharged debts and
104. In the Alabama case the bankruptcy judge had concluded that the guilty plea to the
worthless check charge was not new evidence to reopen and prove in bankruptcy becatise, al-
though the bankruptcy act required specific intent, the criminal statute implied fraud. In re God-
frey, 472 F. Supp. 364, 367 (M.D. Ala. 1979).
105. 402 u.s. 637 (1971).
106. See Zwick v. Freeman, 373 F.2d 110 (2d Cir.), cert. denied, 389 U.S. 835 (1967); Tracy v.
Contractors' State License Bd., 63 Cal. 2d 598, 407 P.2d 865, 47 Cal. Rptr. 561 (1965).
107. For a discussion of the purpose and history of these statutes, see Kesler v. Department of
Pub. Safety, 369 U.S. 153, 157-71 (1962).
thwarted the Bankruptcy Act's fresh start policy, the Supreme Court
had previously responded that they were intended to prevent irrespon-
sible drivers from injuring others and escaping with impunity. 108
Perez, another fresh start attack on the financial responsibility
statutes, ended this short-sighted disregard for the fresh start policy. In
Perez, the court rejected the earlier decisions as examining these stat-
utes' stated purposes but overlooking their effect. Mter subjecting the
financial responsibility statute to functional scrutiny, the Court held
that protecting judgment creditors from irresponsible drivers by sus-
pending licenses until judgments discharged in bankruptcy were paid
conflicted with the fresh start policy of bankruptcy and that the statute
was, therefore, invalid under the supremacy clause. 109 On the other
hand, it was held that so long as bankruptcy was a neutral factor, a
state could require a judgment debtor to prove financial responsibility
before issuing a license. uo
Following the logic of Perez, the courts invalidated a California
statute that permitted the state to revoke a bankrupt contractor's license
so long as discharged judgments remained unpaid, 111 a Shreveport po-
lice department rule that allowed the authorities to dismiss a policeman
who filed bankruptcy, 112 and a fire department rule from the same city
that automatically discharged firefighters who filed bankruptcy. 113 Per-
haps reading Perez too narrowly, one court said, however, that a police
department might consider a job applicant's previous bankruptcy in de-
ciding whether to hire that applicant. 114
More difficult Perez issues grew out of bankruptcy and educa-
tional loans. This was part of the larger debate about the high default
rate for educational loans. Educational loans are unsecured, and it has
been argued that they should be discharged like any other unsecured
loan. However, several forceful contrary arguments exist. 115 Institu-
tions loan money for education to young people who lack a credit his-
108. Reitz v. Mealey, 314 U.S. 33, 37 (1941). See also Kesler v. Department of Pub. Safety,
369 u.s. 153, 158-74 (1962).
109. 402 U.S. at 649-52. See also Miller v. Anckaitis, 436 F.2d 115 (3d Cir. 1970).
110. See, e.g., Ross v. Gunaris, 395 F. Supp. 623 (D. Mass. 1975).
Ill. Grimes v. Hoschler, 12 Cal. 3d 305, 525 P.2d 65, 115 Cal. Rptr. 625 (1974), cert. denied,
420 u.s. 973 (1975).
112. Rutledge v. City of Shreveport, 387 F. Supp. 1277 (W.D. La. 1975).
113. In re Loftin, 327 So.2d 543 (La. App. 1976), appeal denied, 331 So. 2d 851 (1976).
114. Marshall v. District of Columbia Gov't, 559 F.2d 726, 729 (D.C. Cir. 1977) (dictum)
(district court lacked jurisdiction).
115. See Ahart, JJischarging Student Loans in Bankruptcy, 52 AM. BANK L.J. 201, 204 n.IO
(1978).
tory. The loan finances an education that enhances the debtor's

earning capacity, but earning capacity is not the sort of "property" in
which a debtor can grant a security interest. 116 The borrower graduates
with large debts but few assets except the ability to earn. In this con-
text, it is not surprising that thousands of former students and gradu-
ates did file bankruptcy to discharge student loans. Although not more
than one percent of student borrowers ever sought bankruptcy, admin-
istrators feared that the spectacle of students lining up to discharge
these debts politically endangered the entire loan program, and courts
strained existing doctrine to find educational loans nondischarge-
able. 117 The dischargeability debate ended when Congress amended
116. Cf. Local Loan Co. v. Hunt, 292 U.S. 234 (1934) (security interest in future wages invalid
in bankruptcy); Graham v. Graham, 194 Colo. 429, 574 P.2d 75 (1978) (college degree not prop-
erty to be divided when marriage dissolved); Moss v. Moss, 80 Mich. App. 693, 264 N.W.2d 97
(1978) (semble). That an education is unsecurable nonproperty, however, is inescapably arbitrary,
as a reading of Felix Cohen's article, .Dialogue on Private Property, 9 RUTGERS L. REV. 357 (1954),
teaches us. Property can exist without an object, id. at 361, without value, id. at 363, and even
without a right to sell or transfer, id. at 369. See also Flores v. Brown, 39 Cal. 2d 622, 248 P.2d
922 (1952); Wikstrom v. Yolo Fliers Club, 206 Cal. 461, 274 P. 959 (1929) (personal injury cause
of action).
Section 541 of the Bankruptcy Code of 1978 roughly defines ''property" as property, and the
legislative history says that it "bring[s) anything of value" into the estate. H.R. REP. 595, 95th
Cong., 1st Sess. 176, reprinted in [1978] U.S. CoDE CoNG. & AD. NEws 5963, 6136. Property
might also be said to include any interest the government will recognize or protect or that people
may call on the government to exclude from the use or possession of others. Moreover, judges
developing property interests based on what they think is sensible, is in accord with common
understanding, and will encourage productive activity. Section 541 eliminated 70a's unneces-
sary transferable-leviable limitations and will allow courts to define the estate's property based on
social, moral, and economic policy as well as administrative reality. 'Thus, the question whether
an education that creates the present right to practice a profession is the estate's property could be
answered affirmatively. The court could either keep the estate open to collect the enhanced in-
come that an education generally provides or follow the approach of the Iowa Supreme Court and
value a person's education on the spot; see Horstmann v. Horstmann, 263 N.W.2d 885 (Iowa
1978) (working spouse's contribution to student spouse's legal education as implied loan). Of
course, a professional degree can be property for one purpose-dissolution of marriage-but not
another-bankruptcy-depending on the purpose of the inquiry and the policies advanced and
retarded.
Creditors take security interests in impalpable, intangible property such as a business's rela-
tions with its customers expressed as goodwill, a trademark, or a trade name, as well as the right to
exclude others from exercising exclusive rights defined in the copyright and patent statutes. W.
DAVENPORT & D. MURRAY, SECURED TRANSACTIONS 2.ll{c) at 77 (1978). Thus, no analytical
barrier prevents creditors from taking a security interest in an education embodied in a profes-
sional degree. Realizing on the collateral without violating the thirteenth amendment, which pro-
hibits involuntary servitude, may be somewhat difficult, but that is the creditor's problem.
A college degree will remain unsecurable nonproperty in bankruptcy, however, because of
the overarching fresh start policy: post-petition compensation will continue to be outside of the
estate because to include it would interfere too much with the bankrupt's fresh start.
117. Abbott v. Regents ofUniv. of Cal., 516 F.2d 830 (9th Cir. 1975) (failure to disclose prior
loans discharged in bankruptcy constituted false representation preventing discharge despite ad-
vice of counsel); State v. Wilkes, 41 N.Y.2d 655, 363 N.E.2d 555, 394 N.Y.S.2d 849 (1977) (student
loan "unprovable" because of contingencies of repayment).
the Higher Education Act to interdict students from discharging most

educational debts in bankruptcies begun after September 30, 1977. us
Prior to this legislative resolution of the problem, however, col-
leges cast about for ways to collect discharged educational debts. Perez
issues were raised when colleges withheld bankrupts' transcripts and
other information or prevented bankrupts from enrolling until the
bankrupt paid or, in some instances, agreed to pay the discharged
debts. These policies arguably interfered with fresh start in several
ways: they deterred debtors with dischargeable educational loans from
filing for bankruptcy; they coerced bankrupts to omit to schedule edu-
cational loans or, after bankruptcy, if they did schedule, to repay or
agree to repay discharged educational debts if they desired to re-enroll,
transfer, apply elsewhere, or seek employment that required certifica-
tion; and they disabled bankrupts who did discharge educational loans
from earning a livelihood in the fields of endeavor that they choose. 119
Did these coercive tactics interfere with fresh start enough to vio-
late Perez? Courts answered that question differently and perhaps in-
consistently. The courts agreed that the colleges' conduct was not the
sort of "process" or "action" that violated the discharge injunction. 120
Nevertheless, Judge Stem enjoined Rutgers University from denying
transcripts and withholding registration to a bankrupt former student,
not because the conduct was statutorily proscribed "legal process," but
because these devices were used to coerce the bankrupt to repay dis-
charged debts and thus interfered with the federal fresh start policy. 121
The Eighth Circuit, however, concluded that Perez proscribed only
governmental coercion; a private college therefore could, pending re-
payment, withhold transcripts from students who had discharged edu-
cational loans, and private creditors could use "nonlegal, informal"
coercive tactics to achieve repayment or reaffirmation. 122
Judge Stem differed from the circuit court. He argued that even a
I 18. Higher Education Act of 1965, Pub. L. No. 89-329, 439(a), 79 Stat. 1219, as amended by
Pub. L. No. 94-482, 127(a), 90 Stat. 2081 (1976) (formerly codified at 20 U.S.C. 1087-3 (1976)
(repealed 1978)) (educational loan less than five years old nondischargeable unless bankrupt
showed an undue hardship absent discharge).
119. See Grimes v. Hoschler, 12 Cal. 3d 305, 525 P.2d 65, 115 Cal. Rptr. 625 (1974), cerl.
denied, 420 U.S. 973 (1975).
120. See text accompanying notes 75-80 supra; Girardier v. Webster College, 563 F.2d 1267,
1272-73 (8th Cir. 1977); Handsome v. Rutgers Univ., 445 F. Supp. 1362, 1367-68 (D.N.J. 1978).
See also In re Thompson, 416 F. Supp. 991, 99596 (S.D. Tex. 1976).
121. Handsome v. Rutgers Univ., 445 F. Supp. 1362, 1366-67 (D.N.J. 1978). The judge also
held that using bankruptcy to discriminate constituted an invidious classification under the equal
protection clause, id. at 1367, but this adds nothing to the Perez analysis.
122. Girardier v. Webster College, 563 F.2d 1267 (8th Cir. 1977). The court also rejected a
private college should forward transcripts because "a student has some
sort of a property interest in his transcripts which reflect time, money
and hard work." 123 Judge Bright, concurring in the Eighth Circuit
opinion, articulated the opposite position. He asserted that both pri-
vate and public colleges could withhold transcripts because the absence
of a transcript is not analogous to the lack of a driver's license. The
student retains the "ever continuing benefits" of the "fund of knowl-
edge"; the college merely "declined to confer any additional benefits
. . . by furnishing transcripts . . . for the unpaid educational
courses." 124
The Eighth Circuit's conclusion that Perez only reaches discrimi-
nation against bankrupts by public entities reads Perez too narrowly. 125
Perez involved a state law that helped private creditors, but the Court
struck out at conduct that makes " 'it more probable that the debt will
be paid despite the 4ischarge.' " 126 The distinction between private and
public creditors is irrelevant in determining whether a creditor's con-
duct impinges upon a bankrupt's fresh start. The Constitution explic:-
itly grants Congress the power to pass bankruptcy statutes that perforce
regulate private debtor-cr~ditor relations. The supremacy clause oper-
ates because the creditor's coercion leads the bankrupt to reaffirm a
discharged debt, which is then enforceable in the state courts, o:r to pay
that discharged debt. 127 The private-public distinction, therefore, un-
justifiably tacks fourteenth amendment analysis on the bankruptcy
power. 128
Two questions are relevant to an analysis of post-discharge credi-
tor conduct: Whose conduct may frustrate a bankrupt's fresh start?
What conduct frustrates a bankrupt's frest start so much that judges
should proscribe it? Justifying coercive conduct by arguing that its goal
is reaffirmation ignores the persuasive argument that Perez voids reaf-
firmation itself. 129 A transcript is the practical equivalent of a driver's
Buckley Amendment argument. I d. at 1276-77. See also McLellan v. Mississippi Power & Light
Co., 545 F.2d 919 (5th Cir. 1977) (dictum).
123. Handsome v. Rutgers Univ., 445 F. Supp. 1362, 1366 n.6 (D.N.J. 1978).
124. Girardier v. Webster College, 563 F.2d 1267, 1277-78 (8th Cir. 1977) (Bright, J., concur-
ring). See also Note, 12 GA. L. REv. 143 (1977).
125. See generally Comment, 91 HAR.v. L. REv. 1336, 1339-46 (1978).
126. 402 U.S. at 650 (quoting Kesler v. Department of Pub. Safety, 369 U.S. 153, 173 (1962)).
127. Under the bankruptcy power, Congress may qualify the fresh start policy by excepting
debts and debtors from the discharge. See, e.g., 11 U.S.C.A. 523, 726 (West Supp. 1979). See
also Marvin Tragash Co. v. United States Dep't of Ag., 524 F.2d 1255 (5th Cir. 1975).
128. See Comment, supra note 125, at 1341-42.
129. See Boshkoff, The Bankrupt's Moral Obligation to Pay His Discharged Debts: A Conflict
license because students and drivers need the documents to use the
skills that the documents certify. Both the licensing authority and the
college monopolize their respective certificates. 13 Courts should there-
fore forbid both public and private creditors form withholding a tran-
script and the opportunity to register as ransom for discharged debts.
They should not condone this form of coercive reaffirmation because it
vitiates the fresh start policy in a particularly harsh fashion.
Discharged student loans also cause problems to a young lawyer
who applies to a state bar. 131 Boards of bar examiners have denied
applications on the ground that the applicants lack good moral charac-
ter and are unfit to practice law. Lawyers have frequent opportunities
to defraud clients and others and to frustrate or obstruct the adminis-
tration of justice. Properly considered, poor moral character includes
both conduct evidencing moral turpitude and conduct that causes rea-
sonable people to doubt whether the person is fair, honest, and respect-
ful of the law and the rights of others. 132 Applicants have argued,
however, that they satisfied the criteria for a bankruptcy discharge and
that to deny them a license burdens this discharge. The courts must
therefore attempt to protect the public from potentially unscrupulous
lawyers without frustrating an honest debtor's right to an unencum-
bered fresh start.
Bankruptcy should be a neutral element in determining whether to
admit an applicant to the bar. Refusing to license because an applicant
who received a discharge in bankruptcy and refused to resurrect dis-
charged debts would violate Perez. 133 The conduct that led to bank-
ruptcy may, however, be relevant to the applicant's moral character, for
past mismanagement, sharp practices, or sleaziness may evidence fu-
Between Contract Theory and Bankruptcy Policy, 47 IND. L.J. 36, 60-69 (1971); Countryman, The
Use of State Law in Bankruptcy CtLfe, Part II, 47 N.Y.U. L. Rev. 631, 670-71 (1972).
130. See Comment, supra note 125, at 1343-44.
131. See Florida Bd. of Bar Examiners re Groot, 365 So. 2d 164 (Fla. 1978); Florida Bd. of
Bar Examiners re G.W.L., 364 So. 2d 454 (Fla. 1978); Application of Gahan, -Minn. -, 279
N.W.2d 826 (1979).
132. See Florida Bd. of Bar Examiners re G.W.L., 364 So.2d 454 (Fla. 1978).
133. Florida Bd. of Bar Examiners re G.W.L., 364 So. 2d 454, 455, 457 (Fla. 1978); Applica-
tion of Gahan, - Minn. - , -, 279 N.W.2d 826, 828 (1979). But if. Marshall v. District of
Columbia Gov't, 559 F.2d 726, 729 (D.C. Cir. 1977) ("The bankruptcy statute ... does not wipe
out the fact of a prior bankruptcy. Nor does it prohibit employers from using the fact of bank-
ruptcy in considering whether the past record of a job applicant merits his consideration for em-
ployment.") (dictum). The court in Gahan properly rejected this approach because it "chill(s]" the
exercise of the right to file bankruptcy. Application of Gahan,- Minn.-,-, 279 N.W.2d 826,
829 (1979).
ture vulnerability or weakness. 134 The state courts have rejected the
idea that bankruptcy courts filter out those who do not deserve dis-
charge and that all discharged bankrupts are honest but unfortunate or
improvident debtors. 135 In their view, asking applicants about bank-
ruptcy allows bar examiners to examine the prebankruptcy events that
are relevant to a judgment on an applicant's moral character.
Courts, however, differed slightly on the proper approach. Of the
state courts ruling on this issue, the Minnesota court was the strictest. 136
It began by assuming that people have a duty to pay their debts. 137
Neglectful or irresponsible default, said the court, revealed that the ap-
plicant lacked good moral character, but default might be excused by
compelling or unusual hardship that was beyond the applicant's con-
trol, such as "an unusual misfortune, a catastrophe, an overriding
financial obligation, or unavoidable unemployment." 138
The Minnesota court, however, held that failure to repay educa-
tional loans when able justified denying admission. "Such flagrant
financial irresponsibility reflects adversely on an applicant's ability to
manage financial affairs and reflects adversely on his commitment to
the rights of others, thereby reflecting adversely on his fitness for the
practice oflaw." 139 The Florida court's approach differed: an applicant
had a right to "set in motion the mechanism to avoid repayment of his
debts at the very time he developed the capacity to begin repayment
[because that] is precisely the reason that the bankruptcy laws exist." 140
Let us examine the particular cases to attempt to discover which
approach better served the underlying policies. Some, perhaps most, of
lawyers' financial irresponsibility did not result in bankruptcy or oc-
curred after the applicant had joined the bar, and this would escape the
examiners' scrutiny, perhaps to emerge later. 141 The Florida bar ad-
mitted out-of-state lawyers without considering voluntary bankruptcy a
134. Florida Bd. of Bar Examiners re G.W.L., 364 So. 2d 454, 457 (Fla. 1978); Application of
Gahan, 279 N.W.2d 826, 829 (Minn. 1979).
135. See Florida Bd. of Bar Examiners re G.W.L., 364 So. 2d 454,460-61 (Fla. 1978) (Hatch-
ett, J., concurring in part and dissenting in part).
136. See Application of Gahan, -Minn.-,-, 279 N.W.2d 826, 831 (1979).
137. q: Dennis v. Blount, 497 F.2d 1305 (9th Cir. 1974) (failure of employees to pay debts can
be taken into account with other facts to allow discharge).
138. Application of Gahan,- Minn. -, -, 279 N.W.2d 826, 831 (1979).
139. /d.
140. Florida Bd. of Bar Examiners re Groot, 365 So.2d 164, 167 (Fla. 1978). This departed
from the same court's earlier statements that the bankruptcy discharge leaves a moral responsibil-
ity to creditors and that filing bankruptcy to defeat creditors is " morally reprehensible." Florida
Bd. of Bar Examiners re G.W.L., 364 So.2d 454, 459 (Fla. 1978).
141. In re Conner, 265 Ind. 610, 358 N.E.2d 120 (1977).
"black mark." 142 Many judges and bar examiners viewed discharging
educational loans as a generational issue. 143 Thus, law graduates who
filed bankruptcy and discharged educational loans before being sworn
in were particularly vulnerable. In retrospect, many would have been
better advised to wait. As we will see, other considerations affected the
timing of the bankruptcy petitions.
The bar applicants involved in these cases timed their bankrupt-
cies adroitly. One preceded the effective date of the amendment that
prevented bankrupts from discharging most educational loans by only
three days, 144 another by ten weeks. 145 One applicant filed bankruptcy
long before the debts were due but only three days before gradua-
tion; 146 another filed one week before taking a position. 147 People
should be allowed to exercise their right to a discharge whenever it will
be most beneficial. That the law was about to change, the debt was
owed but not due, or the debtor was about to begin earning money
cannot affect professional licensing without burdening the fresh start.
A desire to choose to wipe the slate as clean as possible, "to unburden
himself of accumulated debts in order to retain, to the detriment of his
creditors, the full financial benefits of his new employment, [is] pre-
cisely the reason that the bankruptcy laws exist." 148
The type of debts discharged with the educational loans and the
assets the bankrupt retained were also considered by the courts. One
applicant discharged, in effect, only educational loans. 149 The nature
of the debt discharged should have been irrelevant. Congress allowed
bankrupts to discharge educational loans. States should not have bur-
dened that possibility by saying, as the Minnesota court did, that dis-
charging educational loans "indicates to us a lack of moral
commitment to the rights of other student~ and particularly the rights
of creditors." 150 Nor should the licensing authorities have considered
the way an applicant structured his assets in bankruptcy to enhance
142. Florida Bd. of Bar Examiners re G.L.W., 364 So. 2d 454, 461 (Fla. 1978) (Boyd, J., dis
senting).
143. Id. at 460.
144. Application of Gahan,- Minn.-,-, 279 N.W.2d 826, 827 (1979).
145. Florida Bd. of Bar Examiners re Groot, 365 So. 2d 164, 165 (Fla. 1978).
146. Florida Bd. of Bar Examiners re G.L.W., 364 So. 2d 454, 456 (Fla. 1978).
148. I d. at 167. But contrast the same court's earlier decision in Florida Bd. of Bar Examiners
re G.L.W., 364 So. 2d 454, 459 (Fla. 1978).
149. Application of Gahan,- Minn.-,....:..., 279 N.W.2d 826, 828 (1979). See also Florida
Bd. of Bar Examiners re G.L.W., 364 So. 2d 454 (Fla. 1978).
ISO. Application of Gaha,n, - Minn. -, -, 279 N.W.2d 826, 831 (1979).
exemptions and save property from his creditors. 151 The state that bur-
dens conduct within the bounds of a federal statutory right violates the
supremacy clause.
The professional licensing authorities should have ignored the cir-
cumstances, timing, and details of bankruptcy. The authorities, how-
ever, could focus on the conduct that led to the trouble and consider
other factors that revealed lack of probity or ability to manage. 152 The
two decisions that rejected bankrupts' bar applications for lack of good
moral character found that the applicants had failed to satisfy their ob-
ligations with no exceptional circumstances except large educational
debts and no employment. 153 The Florida court found that the appli-
cant it ordered admitted "had suffered unusual misfortune"-a domes-
tic rift had left him custodian of two small children and partially
supporting his former spouse-and, the court concluded that he "had a
valid present need to devote his entire employment income to his cur-
rent, not past, financial responsibilities." 154
The licensing decisions moved beyond conduct that coerced bank-
rupts to reaffirm discharged debts. No creditors were involved, even
indirectly. In denying admission, the Minnesota court disclaimed in-
terest in whether the applicant "has any present willingness or ability to
reaffirm the debts." 155 Similarly, the unsuccessful Florida applicant
had already reaffirmed the debts. 156 Coercion to reaffirm will interfere
with the fresh start. So does discouraging other debtors from filing
bankruptcy, causing those who do file bankruptcy to omit dischargea-
ble debts, and attenuating bankrupts' occupational choice. 157 Any ac-
151. I d. at-, 279 N.W.2d at 828. The bankrupt saved his chariot, a 1959 Jaguar. He bor-
rowed against it until his "equity" equaled the automobile exemption and then placed the loan
proceeds in an exempt bank account. After filing, he withdrew the money and unencumbered the
vehicle.
152. "Federal law does not preclude us from evaluating the responsibility of a bar applicant in
satisfying his or her financial obligations." Application of Gahan,- Minn.-,-, 279 N.W.2d
826, 831 ( 1979).
153. See id. at 828, 831; Florida Bd. of Bar Examiners re G.L.W., 364 So. 2d 454, 459 (Fla.
1978).
155. Application of Gahan,- Minn.-,-, 279 N.W.2d 826, 832 (1979).
156. Florida Bd. of Bar Examiners re G.L.W., 364 So. 2d 454, 457 (Fla. 1978). The court
allowed the applicant to reapply, id. at 455, 460, which may allow the observer to conclude that
the applicant would be admitted if, in addition to promising to pay his discharge debts, he actually
paid them.
157. See Grimes v. Hoschler, 12 Cal. 3d 305, 312, 525 P.2d 65, 69, 115 Cal. Rptr. 625, 629
(1974). But see Note, 7 FLA. ST.U.L. REv. 587 (1979) (only coercion to repay or reassume dis-
charged debts violates supremacy clause).
tivity that dilutes the practical availability or value of a discharge may

impinge on the fresh start policy.
The same policy that impelled Congress to limit the dis-
chargeability of educational loans colored the way courts responded to
bankrupts who did discharge those loans. The loan enhanced the abil-
ity to earn but was -perforce unsecured. Believing that people should
not enjoy enhanced earnings without paying the enabling loan, Con-
gress allowed educational creditors five years to collect most educa-
tional debts. By withholding bar memberships unless the bankrupt
showed exceptional circumstances for discharging educational loans,
the courts thus maintained a consistent pattern of treating educational
loans as debts of honor that bestowed a peculiar benefit and should
have been repaid if possible. Given these assumptions, the courts de-
cided the bar application cases properly. Some of the courts' state-
ments, however, resurrected the discarded affirmative defense theory of
discharge and revealed insensitivity to the ramifications of bank-
ruptcy's fresh start.
IV. THE 1978 BANKRUPTCY CODE
The preceding parts of this Article traced the evolution of bank-

ruptcy's fresh start up to the enactment of the Bankruptcy Reform Act
of 1978. As noted earlier, the first theory-affirmative defense-was
curtailed by the 1970 amendments, leaving the injunction and Perez
theories to effectuate fresh start. Although the latter theories remain as
the principal underpinnings of fresh start under the new Code, they
have been altered in important ways. Congress broadened equitable
protection through the discharge injunction, embodied the Perez theory
in the statute, and consolidated and augmented the bankruptcy court's
junsdiction to adjudicate disputes related to discharge.
A. Broader Stay and .Discharge Injunction

Congress replaced the automatic stay rule with a broader statute,
coordinated the discharge injunction with the automatic stay, and ex-
panded the conduct forbidden by the automatic and the discharge in-
junction. When the debtor files bankruptcy, each creditor receives a
stay that forbids the creditor from suing, repossessing, and perfecting or
enforcing liens, and from "any act to collect, assess, or recover a
[prebankruptcy] claim." 158 Unless removed by the bankruptcy
I58. II U.S.C.A. 362(a)(6) (West I979).
court, 159 this stay lasts until it is replaced by the discharge injunction. 160
The discharge releases the bankrupt from discharged debts, voids all
judgments on discharged debts, and enjoins conduct inconsistent with
the discharge. 161 The injunction under the 1970 amendments only for-
bade creditors from "instituting or continuing any action or employing
any process." 162 The 1978 Code broadens the interdiction to ban also
"any act, to collect, recover or offset any such debt as a persona1liabil-
ity of the debtor." 163
The broader injunction will end many abusive practices. 164 The
legislative history tells us that it bans "dunning by telephone or letter,
or indirectly through friends, relatives, or employees, harassment,
threats of repossession and the like." 165 This injunction, which prohib-
its any efforts to collect a discharged debt, should end pressure to repay
or coercion to reaffirm discharged debts. The employer contact, the
midnight call and the man with -the truck should fade into history. The
1978 Code should also hamper more indirect efforts to collect like
union or employer threats to terminate employment unless a bankrupt
pays a discharged debt to the credit union.
A Texas district court disdained to interpret the discharge injunc-
tion under the 1970 amendments as prohibiting a letter threatening to
prosecute the bankrupt criminally unless he paid a discharged debt; the
creditor's threat, the judge held, was not legal "process." 166 This coer-
cive tactic to achieve reaffirmation or repayment is an "act to collect"
that is forbidden by the 1978 Code's discharge injunction. 167 The
Eighth Circuit allowed private colleges to withhold transcripts until
discharged educational loans were paid, holding that this practice con-
159. Id. 362(d), (e), (f).
160. I d. 362(c). Creditors may ask the judge to modify, terminate; annul, or condition the
stay under id. 362(d). A hearing is held to determine the status of the stay. Id. 362(e).
161. I d. 524(a). Creditors may realize on valid security or sue codebtors, id. 524(a)(l), (e);
and after discharge, creditors may collect nondischargeable claims, id. 523.
162. Bankruptcy Act 14{f)(2), 11 U.S.C. 32 (1976) (repealed 1978). See discussion in part
II of this Article.
163. II U.S.C.A. 524(a)(2) (West 1979). The suggested interim bankruptcy forms contain a
discharge injunction that omits the changes made by id. 524(a)(2).
164. D. STANLEY & M. GIRTH, supra note 9, at 60-62.
165. H.R. REP. No. 595, 95th Cong., 1st Sess. 366 (1977), reprinted in [1978] U.S. CoDE CoNG.
& Ao. NEWS 5963, 6321; seeS. REP. No. 989, 95th Cong., 2d Sess. 80 (1978), reprinted in [1978]
U.S. CODE CONG. & Ao. NEWS 5787, 5866.
166. In reThompson, 416 F. Supp. 991 (S.D. Tex. 1976); see text accompanying notes 75 & 77
supra.
167. 11 U.S.C.A. 524(a)(2) (West 1979).
stituted neither state action nor legal process. 168 Because the 1978
Code's injunction forbids creditors from "any act to collect," courts
should rule that this new discharge injunction prevents colleges from
holding transcripts hostage, 169 and they should view retention of
records by doctors, dentists, lawyers, and others similarly.
The proscriptions in the 1978 Code's discharge order interact with
the way the Code militates against reaffirmation. The Code ostensibly
retains the rule that bankrupts may be bound by promises to reaffirm
discharged debts without receiving any consideration, but it hedges the
rule with procedural protections. The Code provides for a hearing on
reaffirmation, judicial approval of the bankrupt's agreement to reaffirm
prior to discharge, and a thirty-day period in which the bankrupt may
rescind such an agreement. Moreover, if a reaffirmed consumer debt is
not secured by real property, the judge, before discharge, must find that
reaffirmation is in the bankrupt's best interest and does not impose un-
due hardship, or, in the alternative, that the reaffirmation was in good
faith and either in settlement of a dischargeability complaint or entered
into in connection with an agreement to redeem collateral. 170
The 1978 Code, however, should not close the debate on whether
to abolish reaffirmations completely. The reaffirmation procedure
summarized above attempts to strike a compromise between those who
favor reaffirmations and those who oppose them. 171 The complex pro-
cedure for permitting a reaffirmation and the injunction against coer-
cion to reaffirm will probably prevent most reaffirmations. The theory
underlying reaffirmation, however, is that the discharge is merely a le-
gal defense to a suit on the debt, that the bankrupt's moral obligation to
the creditor remains, and that this is sufficient consideration to make a
fresh promise to repay enforceable. This theory thus retains the out-
moded view of discharge as an affirmative defense and confronts us
with an inadequate perspective of fresh start; it is at war with Perez, the
new discharge, and the broadened injunction. Congress should there-
fore reconsider the compromise and preempt state contract doctrine by
168. Girardier v. Webster College, 563 F.2d 1267 (8th Cir. 1977); see text accompanying notes
118-27 supra.
169. 3 COLLIER ON BANKRUPTCY~ 525.03 (15th ed. 1979); Note, 15 W1LLAMEITE L.J. 563,571
(1979).
170. 11 U.S.C.A. 524(c) (West 1979). /d. 722 allows the bankrupt to redeem tangible per-
sonalty from a lien under certain conditions.
171. See 124 CONG. REc. Hll,096 (daily ed. Sept. 28, 1978); 124 CONO. REC. 817,413 (daily
ed. Oct. 6, 1978).
abolishing reaffirmations. 172 Bankrupts would then be able to pay

creditors voluntarily or to give former creditors money. The discharged
debt, however, would not float about as a moral obligation, and the
bankrupt's second promise would not be enforceable in court.
Even though a bankrupt's discharge voids judgments and enjoins
collection, procedural rules providing that discharge is an affirmative
defense should be retained. Bankrupts will continue to interpose bank-
ruptcy as a defense in nonbankruptcy courts. For example, when a
bankrupt allegedly owes debts that are exempted from discharge under
the new Code, such as unscheduled debts, family support, fines, penal-
ties, forfeitures, or educational loans, 173 whether they have, in fact,
been discharged may be determined by a nonbankruptcy court. More-
over, a creditor may bring suit in a nonbankruptcy court against a
debtor who has filed for bankruptcy, and the debtor may not remove
or, if he does remove, the bankruptcy court may remand. 174 To adjudi-
cate the discharge issue, a debtor must interpose the discharge as an
affirmative defense under the nonbankruptcy court's procedure. The
affirmative defense of bankruptcy, therefore, must be retained in proce-
dural rules for this contingency.
The discharge voids nonbankruptcy judgments and enjoins writs
of execution or enforcement of judgment liens. Are the state statutes,
discussed earlier, 175 that allow someone to mark the void judgment
"void" or "satisfied" now superfluous? Title examiners can be nitpick-
ing and superstitious people, sellers are often in more of a hurry to
close than buyers' examiners would prefer, and memories fade while
the land records remain the same. 176 If the bankrupt seeks to sell real
property, these state statutes may provide something tactile to satisfy
the buyer's examiner, expedite the closing, and save everyone money.
Two questions remain, however. Does marking the judgment "dis-
charged in bankruptcy," 177 burden the discharge under Perez, and is
one year too long to wait before marking the judgment? 178 The Rules
Advisory Committee should consider an expedited procedure, based on
172. See COMM'N REP., supra note 9, pt. II, 4-507(a) at 142; D.. STANLEY & M. GIRTH, supra
note 9, at 59-62.
173. 11 U.S.C.A. 523(a)(3), (a)(5), (a)(7), (a)(8), 523(c) (West 1979).
174. 28 U.S.C.A. 147l(b), 1478(a), (b) (West 1979).
175. See notes 36-40 and accompanying text supra.
176. See, e.g., Ingram v. Associates Financial Serv. of America, Inc., 475 F. Supp. 1089 (E.D.
Va. 1979) (attempt to enforce sixteen year-old discharged judgment enjoined).
177. E.g., MICH. COMP. LAWS 600.2914 (West 1968); VA. CODE 8.01-455 (1977).
178. See notes 39 & 40 and accompanying text supra.
the state statutes, to allow the bankruptcy court to enter a declaratory

judgment that the bankrupt could record with other title documents. A
uniform rule that integrates federal bankruptcy with local real estate
practice would benefit the whole nation. Until then, the state statutes
serve a useful purpose.
B. Cod!ftcation of Perez Theory

The 1978 Code embodied Perez theory in section 525, which for-
bids governmental units from basing adverse licensing or employment
decisions "solely" on bankruptcy, insolvency, or failure to pay a dis-
charged debt. 179 This provision strengthens the policy against reaffir-
mation; allowing adverse collateral action because the discharged
debtor refused to pay or reaffirm a debt would frustrate the fresh start
by coercing payment and hampering career choices. 180 "Solely" is the
key word, for according to the legislative history the statute allows a
governmental unit to impose nondiscriminatory net capital rules and to
consider "other factors, such as future financial responsibility or abil-
ity."181 This allows state bar examiners to consider if the events lead-
ing to an applicant's bankruptcy bear on whether the applicant lacks
good moral character. 182 It leaves unanswered, however, the question
whether there is something unique about the legal profession or dis-
charging educational loans that allows a state bar to require an appli-
cant who has discharged educational loans to show "exceptional
circumstances" before issuing a license to practice law.
The Commission recommended that the Code also prohibit pri- ,
vate discrimination, 183 but Congress rejected that view. 184 Credit-ori-
ented groups worried that courts might interpret private discrimination
to prevent them from considering bankruptcy when evaluating people
179. 11 U.S.C.A. 525 (West 1979). Excepted are three federal statutes that discriminate
against bankrupts to protect farmers. 7 U.S.C. 181-299,204, 499a-499s (1976 & Supp. II 1978).
Farmers are particuarly vulnerable to sharp and irresponsible industry practices. q. Packers and
Stockyards Act, 7 U.S.C. 206 (1970) (converts farmer-creditors into statutory trustees).
180. See Handsome v. Rutgers Univ., 445 F. Supp. 1362, 1367 (D.N.J. 1978).
181. H.R. REP. No. 595, 95th Cong., 1st Sess. 367 (1977), reprinted in [1978] U.S. CoDE CoNo.
& AD. News 5963, 6322-23; S. REP. No. 989, 95th Cong., 2d Sess. 81 (1978), reprinted in [1978]
U.S. CoDE CoNG. & AD. NEws 5787, 5867.
182. See text accompanying notes 131-139 stlpra.
183. COMM'N REP., supra note 9, pt. II, 4-508 at 143.
184. H.R. REP. No. 595, 95th Cong., 1st Sess. 366-67 (1977), reprinted in [1978] U.S. CoDE
CoNG. & AD. NEws 5963, 6321-23; S. REP. No. 989, 95th Cong., 2d Sess. 81 (1978), reprinted in
(1978] U.S. CoDE CONG. & AD. NEWS 5787, 5867.
for credit. 185 The legislative history says that the provision is "not ex-
haustive,'' may forbid "other forms of discrimination," and may reach
"quasi-governmental" or "other organizations," and the courts are ex-
horted to "continue to mark the contours of the anti-discrimination
provision in pursuit of sound bankruptcy policy." 186 The provision,
however, is oriented toward government employment and licensing,
and only a brave judge will hold that a private employer who fires an
employee for filing bankruptcy has violated the statute.
The statute reads Perez narrowly in only prohibiting discrimina-
tion against bankrupts by governmental units, 187 and Congress should
delete that limitation. 188 Congress apparently intended to enhance
bankrupts' fresh starts by protecting their jobs. Even though public
sector employment is growing, if Congress seeks to protect livelihoods,
it should treat public and private employers alike. If the city cannot
fire a bankrupt policeman, 189 a private security company should be pre-
vented from terminating a bankrupt security guard. 190 The Commis-
sion's proposal forbade "discrimination," which defines the forbidden
conduct too broadly. Nevertheless, Congress could substitute "entity"
for "governmental unit" in the existing Perez section, 191 which is more
precise and detailed than the Commission's proposal, without produc-
ing an overbroad result. Creditors would then be allowed to consider
past financial responsibility, ability, and probity, as revealed by
prebankruptcy conduct, when deciding whether to extend credit, but
private retaliation because bankruptcy is considered to be immoral or
irresponsible would be forbidden. If the public/private distinction is
not useful to advance the fresh start policy, then what is? More partic-
ularly, how much beyond the injunction against indirect collection ac-
tivities should the Perez anti-discrimination theory reach? I have
revealed some of my answers. Private employers, in my opinion,
185. Bankruptcy Act Revision: Hearings Before the Subcomm. on Civil and Constitutional Rights
of the Comm. on the Judiciary on H.R. 31 & H.R. 32, 94th Cong., 2d Sess. 1369 (1976).
186. H.R. REP. No. 595, 95th Cong., 1st Sess. 366-67 (1977), reprinted in [1978) U.S. CoDE
CoNG. & Ao. NEWS 5963, 6321-23; S. REP. No. 989, 95th Cong., 2d Sess. 81 (1978), reprinted in
[1978) U.S. CODE CONG. & Ao. NEWS 5787, 5867.
187. See Comment, supra note 125; text accompanying notes 125-128 supra.
188. COMM'N REP., supra note 9, pt. II, 4-508 at 143.
189. See Rutledge v. City of Shreveport, 387 F. Supp. 1277 (W.D. La. 1975). But if-Marshall
v. District of Columbia Gov't, 559 F.2d 726 (D.C. Cir. 1977) (no jurisdiction).
190. q. Consumer Credit Protection Act, 15 U.S.C. 1674(a) (1970) (employer prohibited
from discharging employee whose wages are garnished "for any one indebtedness"); VA. CODE
34.29(f) (1976).
191. 11 U.S.C.A. 525 (West 1979). "Entity" is defined at id. 101(14), and refined in id.
101(30).
should be forbidden from firing bankrupt employees. 192 Suppose a li-

censing authority or an employer rejected an application solely because
of bankruptcy, stating that whether the applicant had reaffirmed or re-
paid was irrelevant. Although that does not coerce payment from the
particular applicant, it should be forbidden because it interferes with
fresh starts generally. Similarly situated debtors will not file bank-
ruptcy, and the occupational choices of those who do file will be cir-
cumscribed. 193 Suppose similarly that an agency or employer rejects all
applicants who discharged a certain type of debt-for example, educa-
tionalloans. This would discourage people who do file from discharg-
ing this class of debt, and it would leave bankrupts burdened with
dischargeable debts. Thus, in addition to indirect collection activities,
the law should, I believe, forbid adverse treatment that will deter others
from filing bankruptcy, cause bankrupts to omit certain dischargeable
debts from schedules, or interfere with bankrupt's occupational
choices. 194
C Expanded Jurisdiction
The bankruptcy court's expanded jurisdiction under the 1978
Code will allow the court to better protect a bankrupt's fresh start. In
many of the lawsuits under the 1898 Act in which the bankrupt raised
Perez issues, the courts either seemed to deny that federal jurisdiction
existed 195 or struggled to find jurisdiction. 196 Perez itself failed to cite a
jurisdictional statute. 197 The struggle was probably unnecessary, for
under Local Loan the bankruptcy court possessed indisputable juris-
diction to enjoin creditors from collecting discharged debts and to se-
192. The reasoning in Rutledge v. City of Shreveport, 387 F. Supp. 1277 (W.D. La. 1975) and
In re Loftin, 327 So. 2d 543 (La. App. 1976), appeal denied, 331 So. 2d 851 (1976), should apply to
private as well as public employment. The courts in those cases argued that a recent bankrupt will
be less tempted to perform some dishonest or irresponsible act than a heavily burdened debtor.
This reasoning should also be relevant in the decisions facing a question unresolved by the 1978
code: whether a private employer may discharge an employee who files a rehabilitation bank-
ruptcy. Compare In re Jackson, 424 F.2d 1220 (7th Cir.), cerl. denied, 400 U.S. 911 (1970) with In
re Sparks, 306 F. Supp. 676 (N.D. Ala. 1969).
193. See Grimes v. Hoschler, 12 Cal. 3d 305, 312, 525 P.2d 65, 69, 115 Cal. Rptr. 625, 629
(1974).
194. Id.
195. Marshall v. District of Columbia Gov't, 559 F.2d 726 (D.C. Cir. 1977); McLellan v. Mis-
sissippi Power & Light Co., 545 F.2d 919 (5th Cir. 1977). See also Porter v. Gaston, 362 F. Supp.
370 (E.D. Ark. 1978).
196. See Girardier v. Webster College, 563 F.2d 1267, 1270 (8th Cir. 1977) (28 U.S.C. 1331);
Handsome v. Rutgers Univ., 445 F. Supp. 1362, 1364-65 (D.N.J. 1978) (28 U.S.C. 1331, 1343).
197. Marshall v. District of Columbia Gov't, 559 F.2d 726, 731 n.2 (D.C. Cir. 1977) (Kauf-
man, J., concurring in part and dissenting in part).
cure for the bankrupt" the advantages of the discharge. 198 That
confusion and uncertainty existed, however, bears witness to the mud-
dled state of bankruptcy jurisdiction under the 1898 Act.
The jurisdictional questions that previously seemed so difficult
should be easy under the 1978 Code. Statement of the Perez rule in the
Code will help the courts that questioned whether they had jurisdiction
to proceed under a nonstatutory federal policy. 199 The bankruptcy
court now possesses jurisdiction to issue any order or process necessary
or appropriate to carry out the provisions of the Code.200 The court
also has the power of an equity court to declare and enjoin,2 1 as well
as the power to issue all necessary writs.2 2 Moreover, the court's
power to enjoin exceeds the automatic stay; for example, criminal ac-
tions against the debtor are not stayed,23 but we have seen that the
court may enjoin an NSF check prosecution that is an indirect collec-
tion technique.204 That power continues under the 1978 Code.25
The bankrupt may need a sympathetic tribunal to prevent a hostile
factfinder from frustrating federal rights. 206 Because the way the facts
are found often dictates the way federal claims ar~ decided, limiting the
litigant to ultimate review by the United States Supreme Court denies
the debtor a sympathetic factfinder.2 7 Does the bankruptcy court's
power extend far enough, for example, to allow a bankrupt bar appli-
cant to enjoin state bar examiners from ruling that the fact of bank-
ruptcy shows the applicant lacks good moral character? I assume it
does. The court possesses "the powers of a court of equity" to declare
and enjoin, as well as "original" jurisdiction over matters "related" to
bankruptcy. 208 Although the bankruptcy court "may not enjoin an-
198. 292 U.S. at 238-39; see Helms v. Holmes, 129 F.2d 263 (4th Cir. 1942); BANKR. R. 765.
199. See Marshall v. District of Columbia Gov't, 559 F.2d 726, 728-30 (1977); McLellan v.
Mississippi Power & Light Co., 545 F.2d 919, 929 (1977).
200. 28 U.S.C.A. 1471 (West 1979); 11 U.S.C.A. 105(a) (West 1979); Kennedy, supra note
92, at 279.
201. 28 U.S.C.A. 1481 (West 1979).
202. Id. 1651.
203. 11 U.S.C.A. 362(b)(l) (West 1979).
204. See text accompanying notes 84, 100 supra; Kennedy, Automatic Stays Under the New
Bankruptcy Law, 12 U. MICH. J. L. REF. 3, 24-25 (1978).
205. H.R. REP. No. 595, 95th Cong., 1st Sess. 342 (1977), reprinted in [1978) U.S. CoDE CoNG.
& AD. NEWS 5963, 6298; 2 COLLIER ON BANKRUPTCY,~ 362.04(1) (15th ed. 1979); Kennedy, supra
note 204, at 47.
206. See, e.g., Florida Bd. of Bar Examiners re Groot, 365 So. 2d 164 (Fla. 1978) (bar examin-
ers' "factfinding" reversed).
207. See England v. Louisiana Bd. of Med. Examiners, 375 U.S. 411 (1964).
208. 28 U.S.C.A. 1471(b), 1481 (West 1979).
other court,"209 bar examiners are not judges, and the bankruptcy court
may enjoin litigants.2 10 Similarly, the criminal defendant may sue the
prosecuting attorney to enjoin a prosecution-for example, for an NSF
check-that impinges on the discharge. 2 u
The bankruptcy court's power to enforce the discharge injunction,
however, is less plenary. Assume that after receiving the discharge in-
junction a creditor with an unperfected security interest tows the bank-
rupt's car away and, when called in to explain, refuses to tell where the
vehicle is. The judge may want to 1) use criminal contempt to give the
creditor three days of punishment, which is stayed while 2) the creditor
is coercively imprisoned until he reveals the location of the vehicle, and
3) grant a compensatory contempt money judgment to benefit the
bankrupt that is measured by his legal damage from being without the
car. The 1978 Code, unfortunately, continues212 to withhold full con-
tempt power from the bankruptcy court. Almost all violations of the
discharge injunction will occur out of the courtroom, but the Code for-
bids a judge of the new bankruptcy court from punishing a criminal
contempt not committed in the judge's presence. 213 Nor may the judge
punish contempts by imprisonment.214 In the example above, the judge
cannot impose criminal contempt at all. Moreover, the candid observer
must question whether coercive imprisonment would be proscribed as
punishment.2 15 The judge may enter a compensatory contempt award
but the present Rule limits the referee's power to "fine" to $250. 216
Perhaps Congress remembered the previous reluctance to grant
contempt power to referees and thought that bankruptcy judges might
certify more serious contempts to district judges as under the 1898
Act. 217 Because of the bankruptcy court's ambiguous status and the
compromises that occurred without considering this question, the an-
swers are not altogether clear. The better view is that the district judge
209. Id. 1481.
210. Kennedy, supra note 92, at 282.
211. Evans v. Godfrey, 472 F. Supp. 364 (M.D. Ala. 1979). See also Younger v. Harris, 401
u.s. 37 (1971).
212. See notes 67-74 and accompanying text supra.
213. 28 U.S.C.A. 1481 (West 1979).
214. Id.
215. Professor Kennedy says that this section "does not appear to limit the power of the bank
ruptcy court to impose imprisonment or a fine of any amount for civil contempt." Kennedy, supra
note 204, at 65, n.267. See generally Kennedy, supra note 92, at 282.
216. FED. R. BANKR. 920(a)(3).
217. Bankruptcy Act 2a(16), 41a, 11 U.S.C. 11, 69 (1976) (repealed 1978); FED. R.
BANKR. 920(a)(4).
may use criminal contempt to punish indirect bankruptcy contempts

even by imprisonment,2 18 and that the bankruptcy judge possesses ple-
nary power to impose coercive and compensatory contempt reme-
dies.219 Even under this view, however, the confusion is unsatisfactory.
This split in the exercise of the contempt power is unsatisfactory
for two reasons. First, the same judge should exercise the full arsenal
of contempt power to coordinate and articulate an effective remedy.
Second, because even experts sometimes disagree on what is civil and
what is criminal contempt,220 the bifurcated process will multiply ex-
pense, delay, and reversals.
Congress should start over in defining the bankruptcy court's con-
tempt powet.221 The Supreme Court has said of the contempt power,
"[F]or while it is sparingly to be used, yet the power of courts to punish
for contempts is a necessary and integral part of the independence of
the judiciary, and is absolutely essential to the performance of the du-
ties imposed on them by law. Without it they are mere boards of arbi-
tration whose judgments and decrees would be only advisory." 222 The
limitations on and divided authority for the contempt power in bank-
ruptcy are anachronistic vestiges of a subordinate status that is incom-
patible with the bankruptcy court's prestige, dignity, and expanded
jurisdiction under the 1978 Code.223 Congress should, therefore; delete
the restrictions on the bankruptcy court's contempt power and grant it
full power to impose contempt.224 In the meantime, the Rules Advi-
sory Committee should promulgate a Rule that 1) distinguishes the in-
court cut-up from the violator of the discharge injunction or automatic
stay, 2) describes the procedure for civil and criminal contempt, and 3)
defines the judges' power to impose coercive, compensatory, and crimi-
nal contempt.
Finally, discharged debtors should be careful to avoid litigating all
discharge issues in contempt. Debtors would often be wiser to seek
declaratory judgments or further injunctions from the bankruptcy court
than to file show cause motions for contempt. Only creditors will re-
218. See 18 U.S.C. 401 (1976); Kennedy, supra note 92, at 258-59 n.24, 280-81 n.114.
219. Kennedy, supra note 204, at 65; Kennedy, supra note 92, at 280 n.114.
220. Compare Dobbs, Contempt of Court: A Survey, 56 CoRNELL L. REv. 183,235-39,267-82
(1971) with .Developments in the Law: Injunctions, 88 HARV. L. REv. 994, 1087 (1965).
221. But. cf. Kennedy, supra note 204, at 65 (present limitation "more symbolic than real").
See also Kennedy, supra note 92, at 282.
222. Gompers v. Bucks Stove & Range Co., 221 U.S. 418, 450 (19ll).
223. Kennedy, supra note 204, at 65.
224. CoMM'N REP. supra note 9, pt. II, 2-201(d), 2-209 at 30.
ceive the discharge injunction, which is a general form that lacks the
appearance of full judicial dignity; it does not obligate noncreditors to
obey. An assignee of a creditor would be bound by the discharge under
res judicata,225 but normally, unless on notice, an assignee should not
be subject to criminal contempt.226 Discharged debtors may fare better
tactically in close cases by enjoining a creditor to "go forth and coerce
no more" than by seeking to punish.
Under the broad interpretation of Perez asserted above, even con-
duct not clearly intended to collect and people not specifically enjoined
from collecting may illegally frustrate the debtor's fresh start, but the
discharge injunction fails to forbid this conduct. A judge may be less
willing to rule in a debtor's favor when he is asked to sanction a con-
temnor who lacked clear notice that the challenged conduct was forbid-
den. If a declaration will admonish sufficiently, the debtor should
avoid the potential pitfalls of contempt and ask the judge to declare
whether questionable conduct violates the discharge or the Perez provi-
sion instead of whether it violates the discharge injunction. In short,
despite the legislative history's statement that the discharge injunction
will "give complete effect to the discharge,"227 the discharge will proba-
bly remain broader than the discharge injunction.
V. FRONTIERS OF FRESH START
No one knows what discharge issues will emerge under the 1978
Code. I predict that it will take some time to coordinate the bank-
ruptcy discharge with the state criminal process. For example, Virginia
has a statute that allows the payee of an NSF check to "warn" the
drawer of the possibility of prosecution in order to establish prima facie
evidence of intent to defraud in the criminal prosecution.228 In addi-
tion, Virginia prosecutors and trial judges may interpret this evidentary
statute substantively to mean that, unless the payee warns the drawer
that a criminal prosecution is imminent, there can be no prosecution
for fraud. Coercion to collect discharged debts, however, is barred
225. F. JAMES & G. HAZARD, supra note 49, 11.27; RESTATEMENT (SECOND) OF JUDGMENTS
89(l)(b), Comment b (Tent. Draft No. 3, 1976); A. VESTAL, RES JUDICATA ISSUE PRECLUSION
323-29 (1969).
226. FED. R. CIV. P. 65(d); Rendleman, Beyond Contempt: Obligors to Injunctions, 53 TEX. L.
REv.. 873, 919 (1975).
227. H.R. REP. No. 595, 95th Cong., lst Sess. 365-66 (1977) reprinted in [1978] U.S. CoDE
CONG. & AD. NEws 5963, 6320-22; S. REP. No. 989, 95th Cong., 2d Sess. 80 (1978), reprinted in
(1978] U.S. CODE CONG. & AD. NEWS 5787, 5865-67.
228. VA. CODE 18.2-183 (1975).
under the 1978 Code's discharge injunction.229 Thus, after the drawer's
bankruptcy, the Virginia payee now faces a dilemma: a warning may
violate the discharge injunction, but without the warning there will be
no prima facie evidence of intent or possibly even no prosecution. Sim-
ilarly, restitution as an alternative to incarceration may be a good the-
ory,230 but ordering a bankrupt to pay debts or go to jail perverts the
criminal process.231
Educational loan problems will continue to be litigated. Loans
discharged in proceedings filed before September 30, 1977, will con-
tinue to present licensing issues under the Code. Whether the "excep-
tional circumstances" prerequisite for licensing will survive the Code
remains to be seen.232 Loans discharged under the Higher Education
Act in bankruptcies filed between September 30, 1977 and November 6,
1978 will present fewer licensing difficulties, however, because during
that time period borrowers could discharge educational loans less than
five years old only by showing "undue hardship.'' 233 Nevertheless,
bankruptcy judges will develop standards to show "undue hard-
ship,"234 and whether this standard will be congruent with the "excep-
tional circumstances" standard applied by licensing authorities is an
open question.
The Higher Education Act amendments were inadvertently re-
pealed on November 6, 1978, the date the Reform Act was passed,235
leaving student loans arguably dischargeable without qualification
from that date until the effective date of the new Code, October 1, 1979.
Congress caught its error, however, and, on August 14, 1979, restored
the Higher Education Act provisions on nondischargeability to the old
Bankruptcy Act for the remaining month and a half before the new
Code became effective.236 Loans for higher education discharged in
proceedings filed in this moratorium from November 6, 1978 to August
229. 11 U.S.C.A. 524(a)(2) (West 1979).
230. See MoDEL PENAL CODE 224.5(b) (Proposed Official Draft 1962).
231. Cf. Hutchinson v. Jones, 477 F. Supp. 51 (N.D. Ga. 1979) (order to pay restitution imme-
diately rather than allowing installments discriminates against indigents).
232. See text accompanying note 118 supra.
233. Education Amendments of 1976, Pub. L. No. 94-482, 127(a), 90 Stat. 2081 (repealed
1978) (formerly codified at 10 U.S.C. 1087-3).
234. See, e.g., In re Johnson, 5 B.C.D. 532 (E.D. Pa. 1979) (comprehensive opinion); In re
Kohn, 5 B.C.D. 419, 423 (S.D.N.Y. 1979).
235. Bankruptcy Reform Act of 1978, Pub. L. No. 95-598, 92 Stat. 2672 (1978); In re Amadori
5 B.C.D. 187 (W.D.N.Y. 1979); In re Payton, 4 B.C.D. 1126 (E.D. Pa. 1979).
236. Act of August 14, 1979, Pub. L. No. 96-56, 93 Stat. 387 (1979) amended 17(a) of the
Bankruptcy Act to restore the nondischargeability provision for student loans. See notes 237-238
infra. The legislative history shows that the gap in nondischargeability was inadvertent. See S.
14, 1979, however, will cause the same licensing and dischargeability
problems as loans discharged before September 30, 1977. The Code,
effective in bankruptcies filed on and after October 1, 1979, reinstates
the Higher Education Act's standard237 of allowing the creditor five
years to collect absent undue hardship. 238 Thus, discharge and licens-
ing issues with regard to educational loans may decrease, but they will
not disappear.
Educational loans may create several additional discharge issues.
Suppose a loan applicant has discharged educational loans. May the
lender consider the discharged loan in determining the applicant's limit
on federally guaranteed loans?239 May the loan application compel
students to list discharged loans?240 Can lenders with poor collection
rates resulting from loan discharges be disqualified from federal insur-
ance on future loans?241 May discharged loans even be considered in
REP. No. 230, 96th Cong., 1st Sess. 2 (1979), reprinted in [1979) U.S. CODE CoNO. & Ao. NEWS
1882, 1883.
Questions about whether and when the standard discharge applied to educational loans came
before several bankruptcy judges. "[qandor requires the observation that there is little uniform-
ity of reasoning in these cases." In re Piccione, 5 B.C.D. 1076, 1078 (D. Conn. 1979). Several
judges concluded that Congress erred when repealing the Higher Education Amendments and
refused to apply the standard discharge to educational loans. See In re Amadori, 619 F.2d 216 (2d
Cir. 1980); In re Henry, 5 B.C.D. 1014 (S.D.N.Y. 1979); In re Erickson, 5 B.C.D. 734 (E.D. Wis.
1979); In re Kohn, 5 B.C.D. 419 (S.D.N.Y. 1979); In re Edson, 4 B.C.D. 1191 (D. Nev. 1979).
Those who favored the statute over Congress's presumed intent differed on when standard
discharges governed educational loans. Moreover, "it is not a simple matter to determine from the
language of opinions just what date relating to discharge has been chosen." In re Piccione, 5
B.C.D. 1076, 1078 n.II (D. Conn. 1979). Applying the law effective when the bankruptcy is filed
are In re Cothren, 5 B.C.D. 597 (S.D.N.Y. 1979); In re Carpenter, 5 B.C.D. 577 (D. Colo. 1979); In
re Weinstein, 5 B.C.D. 503 (E.D. Pa. 1979), all of which were filed prior to repeal of the former
statute. Applying the law effective when the court decides discharge are In re Johnson, 5 B.C.D.
532 (E.D. Pa. 1979); In re Christopher, 5 B.C.D. 214 (W.D.N.Y. 1979). Applying the law existing
when the discharge order is entered are In re Piccione, 5 B.C.D. 1076 (D. Conn. 1979) (careful
opinion ruling against discharge); In re Amadori, 5 B.C.D. 187 (W.D.N.Y. 1979).
237. The standard actually changed on August 14, 1979. On that date Congress passed PL 95-
56, which essentially reenacted the Higher Education Amendments and added it as 17(a)(9) of
the Bankruptcy Act for the ten weeks until the 1978 Code's 523(a)(8) became effective. See
Pub. L. No. 95-56, I, 93 Stat. 387 (1979).
238. II U.S.C.A. 523(a)(8) (West 1979) (as amended by Pub. L. No. 95-56, 3, 93 Stat. 387
(1979). The Code as amended and the Higher Education Act are phrased somewhat differently:
the Code, which includes all educational loans made, insured, or guaranteed by governmental
units or nonprofit institutions of higher education, except those owed to private institutions oper-
ated for profit, is broader than the Higher Education Act, which covered only loans insured or
guaranteed under that Act.
239. Higher Education Act of 1965, 20 U.S.C. 1087dd (1970) (imposing limits on aggregate
loans to individual students made by institutions of higher education from loan funds established
under the Act).
240. q. Abbott v. Regents of Univ. of Cal., 516 F.2d 830 (9th Cir. 1975) (under 1898 Act,
omission of discharged educational loan from loan application excepted new loan from discharge
in subsequent bankruptcy).
241. Higher Education Act of 1965, 20 U.S.C. lOBO(d) (1970).
calculating a lender's default rate? 242 If a bankruptcy judge finds that

repayment will create undue hardship and discharges an educational
loan,243 will occupational licensing authorities be precluded from con-
sidering the applicant's discharge as evidence that the applicant lacks
good moral character? Does the bankruptcy judge's finding raise a pre-
sumption or change the burden of proof on that issue?
Several other general discharge issues come to mind. Suppose that
after discharge the bankrupt pays a discharged debt. May a post-dis-
charge creditor show that "gift" to be a fraudulent conveyance? 244
Suppose that after a tenant bankrupt discharges a debt for rent, a land-
lord seeks to evict. Is that coercion to collect245 or to obtain reaffirma-
tion246 of a discharged debt? Does it make any difference if it is public
housing? 247 Assume the bankrupt discharged family support, which,
because his former spouse draws aid to dependent children, she had
assigned to the state.248 May the bankrupt be convicted of criminal
nonsupport?
Beyond the 1978 Code, protection of the debtor's discharge may
move in several speculative directions. First is the clean slate. With
limitations for scandalous or defamatory matters, bankruptcy records
are public documents249 that may be disseminated freely.2 50 The pub-
licity may affect a bankrupt's employment prospects as well as his op-
portunities to secure credit.251 Almost half the states have statutes that
provide for the sealing or expunging of selected criminal records,2 52
242. A casenote on Girardier v. Webster College assumes "yes." 12 GA. L. REv. 143, 151-52
(1977). So apparently did the Minnesota court in In re Gahan,- Minn.-,-, 279 N.W.2d 826,
831 (1979).
243. 11 U.S.C.A. 523(a)(8) (West 1979).
244. See generally I G. GLENN, FRAUDULENT CONVEYANCES & PREFERENCES 214d, 289a,
29Ib, at 497-98 (rev. ed. I940).
245. See II U.S.C.A. 524(a)(2) (West 1979); notes I61-163 and accompanying text supra.
246. See 11 U.S.C.A. 524(c) &(d) (West 1979); notes 164-172 and accompanying text supra.
247. See 11 U.S.C.A. 525 (West 1979); notes l79-I88 and accompanying text supra.
248. II U.S.C.A. 523(a)(5)(A) (West 1979) allows discharge of assigned alimony, mainte-
nance and support in connection with a separation agreement, property settlement agreement or
divorce decree. The Bankruptcy Reform Act, Pub. L. No. 95-598, 328, 92 Stat. 2679 (1978)
repealed Social Security Act 456(b) (formerly codified at 42 U.S.C. 656(b) (1976)), which had
exempted assigned child support obligations from discharge.
249. 11 U.S.C.A. 107 (West 1979); FED. R. BANKR. 508, 510, 918.
250. 15 U.S.C.A. 1681(a)(I) (West 1979) (credit bureau may keep bankruptcy on file for 10
years).
251. q. Scott v. Illinois, 440 U.S. 367, 380-81 (1979) (Brennan, J., dissenting) (collateral con-
sequences of a criminal conviction).
252. See, e.g., VA. CoDE 16.1-299 (Cum. Supp. 1979) (juvenile court records); Ober, Ex-
pungement of Criminal Arrest Records: The State ofthe Law in Pennsylvania; 83 DICK. L. REv. 425
and courts have ordered records expunged in the absence ofstatutes. 253
Moreover, a California court recently held that disseminating noncon-
viction data that stigmatized job applicants tortiously invaded their pri-
vacy.254 Under the clean-slate theory of discharge, bankruptcy records
would be closed or destroyed. Employers, creditors, and others would
be forbidden from asking about past bankruptcy, 255 and if they should
learn about a past bankruptcy, they could not consider it.256 If asked,
the bankrupt could legitimately reply that he had never been bank-
rupt.2s7
To focus attention on related questions, let us ask whether a clean
slate would have helped the bankrupt in United States v. Kras? 258 Kras
filed bankruptcy with no property available to creditors and no reason-
able likelihood of obtaining any. Many bankruptcy lawyers would
have advised him to sit on his exemptions and make appropriate ges-
tures at his creditors until the running of the statutes of limitations.
Kras, however, sought surcease from creditor harassment. A former
employer had fired him because of his failure to repay money of the
employer that someone had stolen from Kras's home. The employer's
unfavorable references, which falsely accused him of theft, prevented
Kras from finding another job. Kras sought bankruptcy to discharge
the debt because he thought this would stop the bad references and
enable him to find a job.259 History fails to record how he expected the
discharge order to extirpate rancor and vindictiveness. Although a
creditor nasty and dimwitted enough to hurl false charges that prevent
a debtor from earning money to repay the debt might well be expected
(1979); Comment, Sealing and Expungemenl of Criminal Records: Avoiding lite Inevitable Social
Stigma, 58 NEB. L. REV. 1087, lll0-12 (1979).
253. Sullivan v. Murphy, 478 F.2d 938, 968 (D.C. Cir. 1973), cerl. denied, 414 U.S. 880 (1973);
Kowall v. United States, 53 F.R.D. 2ll, 213 (W.D. Mich. 1971); Commonwealth v. Malone, 244
Pa. Super. Ct. 62, 69, 366 A.2d 584, 588 (1976).
254. Central Valley Chapter of Seventh Step Foundation, Inc. v. Younger, 95 Cal. App. 3d
212, 157 Cal. Rptr. ll7 (Ct. App. 1979).
255. q. VA. CoDE 19.2-392.4 (Cum. Supp. 1979) (prohibits employers and others from re-
quiring applicant disclosure of expunged charge or arrest); Equal Credit Opportunity Regulations,
12 C.F.R. 202.5(d)(l) (1979) (creditor shall not ask applicant's marital status); id. 202.S(d)(2)
(creditor shall not ask if income derived from family support payments); id. 202.S(d)(3) (creditor
shall not ask applicant's sex), id. 202.5(d)(4) (creditor may not require information about appli-
cant's race, religion or national origin).
256. See 12 C.F.R. 202.6(b) (1979) (creditor may not consider various information about
applicant's age and income sources).
257.. q. Mo. ANN. STAT. 610-llO (Vernon 1979) (no one who denies closed or expunged
records is guilty of peljury); VA. CODE 19.2-392.4 (Cum. Supp. 1979) (applicant need not dis
close expunged charges or arrests resulting in no conviction); Ober, supra note 252, at 435.
258. 409 u.s. 434 (1973).
259. ld. at 438.
to continue this conduct even after the debtor's discharge in bank-

ruptcy, Kras naively assumed that a bankruptcy discharge would nul-
lify human cussedness and shortsightedness. Because the creditor
seems to have been after Kras for something other than money,260 how-
ever, application of the clean-slate theory in this case would have pro-
vided no relief.
The clean-slate theory is inadequate for other reasons. Under the
1978 Code, creditors will receive notice, the automatic stay and the dis-
charge injunction, as they must for the process to operate.261 After thus
broadcasting the discharge, efforts to suppress it completely by sealing
or expunging a court document seem futile. 262 Sealing, moreover, has
an eerie aspect of unreality because it attempts to erase a historical fact
and condones dishonest answers. 263 Finally, bankruptcies should not
be concealed to the public in all cases. Although bankruptcy is
designed primarily for the honest but unfortunate, its coverage is not
limited to that group. The Code contemplates that some undesirable
characters will be discharged,264 and creditor apathy in failing to op-
pose discharges and moving to bar dischargeability allows more rascals
to obtain discharges. Thus, unlike a wrongful arrest or a finding of
innocence, a past bankruptcy or the conduct that led to it may be rele-
vant to many future decisions.
A more moderate and restrained approach than the clean-slate
theory may emerge. The slate will probably never be erased com-
pletely and immediately. Information about bankruptcy will be used at
least when relevant to a decision.265 For example, a Minnesota statute
forbids public employers and licensing agencies to consider prior crimi-
nal convictions unless they "directly relate" to the position or occupa-
tion.266 Bankruptcy is less relevant to a life insurance application than
to one for unsecured credit. Similarly, the more time that has passed
since the bankruptcy the less relevant the information would be to any
260. Kras's intentions were also vague. The litigation tested whether the filing fee was consti-
tutional. Id. at 435. The Court held it was. Perhaps Kras's attorneys realized that the relief from
harassment Kras expected was not realistic and filed to test the statute because Kras was a litigant
with standing who would be harmed less by losing than most indigents.
261. 11 U.S.C.A. 342, 362(a)(2) (West 1979).
262. q: Comment, supra note 252, at 1112-13 (unsealing criminal records).
263. Id.
264. See ll U.S.C.A. 523, 727 (West 1979).
265. See Schware v. Board of Bar Examiners, 353 U.S. 232, 239 (1957) (qualification must be
rationally connected with fitness to practice law).
266. MINN. STAT. ANN. 364.03 (West Cum. Supp. 1980).
decision. 267 Statutes allow convicted criminals to petition to expunge

their records after an unblemished period has passed.268 The Fair
Credit Reporting Act is a beginning; it requires credit bureaus to purge
old bankruptcies from credit files. 269 Unfortunately, the bureau may
retain the data for ten years, while some criminal convictions may be
expunged after mere one- or three-year waiting periods. 270
In addition to leaving a little on the slate and erasing it only after a
time, Congress might consider affording debtors two types of discharge,
which the bankruptcy judge would classify. The honest but unfortu-
nate debtor could receive a sealed discharge or one to be disseminated
as "faultless." The improvident or blameworthy debtor, on the other
hand, would encounter full publicity and any attending stigma for a
longer period of time. 271 The statute or regulation could tell licensing
authorities and creditors whether and how long to consider these deci-
sions as well as how to weigh them.272
Finally, aside from the discharge and a short sermon, 273 will soci-
ety do anything for the bankrupt personally? Since the 1930s-about
the time the Supreme Court articulated the fresh start policy in Local
Loan-the United States has been moving toward a social service state.
Assuming that the poor are not responsible for their own troubles and
recognizing that many of the hazards and vicissitudes of life are caused
by forces beyond any one individual's control, the nation today pro-
tects the aged, the infirm, the unemployed, and many others. As soci-
ety ameliorated the hardships caused by illness and unemployment, it
might have concluded that people who could not pay their debts were
ne'er-do-wells and thus tightened bankruptcy. Instead, it assumed that
poor debtors were not responsible for their troubles and progressively
liberalized bankruptcy.
The Bankruptcy Commission suggested that government officials
267. Recent bankrupts, however, are often good credit risks because they have fewer creditors
and are forbidden from another discharge for six years. 11 U.S.C.A. 727(a)(8) (West 1979);
Shuchman, supra note 20, at 425-26.
268. E.g., CAL. PENAL CODE 1203.4a (Cum. Supp. 1980) (one year waiting period); OHIO
REv. CoDE ANN. 2953.32 (Anderson Supp. 1979) (three year waiting period).
269. See 15 U.S.C.A. 1681c(a)(1) (West Supp. 1980).
270. Id.; CAL. PENAL CODE 1203.4a (Cum. Supp. 1980) (one year); OHIO REV. CODE ANN.
2953.32 (Anderson Supp. 1979) (three years).
271. Compare 11 U.S.C.A. 1328 (West 1979) (Chapter 13 usual discharge) with id.
1328(b)(1) (hardship discharge).
272. q: Equal Credit Opportunity Regulations, 12 C.F.R. 202.5(d) (1979) (information a
creditor may not request); id. 202.6(b) (rules for using information).
273. See II U.S.C.A. 524(d) (West 1979) (hearing after court has decided whether to dis
charge).
counsel troubled debtors.274 Critics charged, however, that prefiling

counseling was the nose in the tent for compulsory composition-exten-
sions under a rehabilitation chapter, and they bewailed the decline of
the adversary system.275 The Commission Report was ahead of its
time. Changes in public opinion and legal thought not yet articulated
in legislation and opinions compel me to conclude that bankruptcy is
evolving toward a social welfare approach. One of the major contem-
porary problems is to enhance human liberty in the social service state.
Providing counseling after the discharge to those bankrupts who volun-
teer for it would combine help with choice and preserve the adversary
system. 276 The changes since 1969 have improved bankrupts' lives so
much, however, that to suggest professional golf or bowling lessons in
addition would be viewed by skeptics as excessive, paternalistic, and
bad form.
Observers of bankruptcy .too often suffer from excessive attention
to labyrinthian complexity and serbonian detail, while they often ig-
nore more impalpable but perhaps more real change. The social ser-
vice state that has emerged in the United States seeks to avoid
punishing the innocent and to reduce life's unfairness. Parallel legal
thinking has shifted from a legalistic, mechanical, rule-oriented juris-
prudence to a more realistic view that looks to the law's effect on soci-
ety. The improvements in the bankrupt's fresh start outlined in this
Article have translated those trends into practical policy, and the mod-
est suggestions and speculations in the preceding paragraphs attempt to
limn the future as a product of the past.
274. CoMM'N REP., supra note 9, pt. II, 4-203 at 73; D. STANLEY & M. GIRTH, supra note 9
at 5, 204-05.
275. Proposed Bankruptcy Reform Act: Hearings on H.R. 31 and H.R. 32 Bifore the Subcomm.
on Civil and Constitutional Rights ofthe House Comm. on the Judiciary, 94th Cong., lst Sess. 866
(1975) (Prof. Shuchman); Proposed Bankruptcy Reform Act: Hearings on S. 235 and S. 236 Before
the Subcomm. on Improvements in Judicial Machinery ofthe Senate Comm. on the Judiciary, 94th
Cong., lst Sess. 863 (1975); Rendleman, supra note 10, at 1197, 1225-35.
276. Proposed Bankruptcy Reform Act: Hearings on H.R. 31 and H.R. 32 Before the Subcomm.
on Civil and Constitutional Rights ofthe House Comm. on the Judiciary, 94th Cong., lst Sess. 1320
(1975). See also Lee, The Counseling of Debtors in Bankruptcy Proceedings, 45 AM. BANKR. L.J.
387 (1971).

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The Bankruptcy Discharge: Toward a Fresher Start

Two cartoons are posted on a debtor-creditor teacher's door. In

agement of preexisting debt."3 How in particular does the golfer's dis-

iq.ea that bankruptcy itself connotes evil motives or defective morals no

1980] FRESH START 727

I. DISCHARGE AS AFFIRMATIVE DEFENSE

Under the short-lived Bankruptcy Act of 1867, the bankrupt who

procedure and allow state defendants who have filed bankruptcy to

charged judgments in any way.47

Hunt,S7 federal court injunctions were available to ameliorate the

II. THE INJUNCTIVE DISCHARGE

The 1970 Amendments, avoiding any "startling changes in the

A. Limitations on Enforcement Through Contempt

injunction interdicted only judicial collection, bankrupts were "des-

79. 14 Hous. L. REv. 486, 497 (1977).

earned after bankruptcy. Because the Tribes apparently failed to file

2. Collection Through NSF Check Prosecutions

Ill. THE DISCRIMINATION OR Perez THEORY OF DISCHARGE

The Supreme Court's 1971 decision in Perez v. Campbe//105 articu-

tory. The loan finances an education that enhances the debtor's

the Higher Education Act to interdict students from discharging most

tivity that dilutes the practical availability or value of a discharge may

IV. THE 1978 BANKRUPTCY CODE

The preceding parts of this Article traced the evolution of bank-

A. Broader Stay and .Discharge Injunction

abolishing reaffirmations. 172 Bankrupts would then be able to pay

the state statutes, to allow the bankruptcy court to enter a declaratory

B. Cod!ftcation of Perez Theory

should be forbidden from firing bankrupt employees. 192 Suppose a li-

may use criminal contempt to punish indirect bankruptcy contempts

V. FRONTIERS OF FRESH START

calculating a lender's default rate? 242 If a bankruptcy judge finds that

to continue this conduct even after the debtor's discharge in bank-

decision. 267 Statutes allow convicted criminals to petition to expunge

counsel troubled debtors.274 Critics charged, however, that prefiling

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