Petitioner sought confirmation of his plan for an extension of
time to pay his debts out of future wages, pursuant to Chapter XIII
of the Bankruptcy Act. On motion of respondent, a creditor, the
referee dismissed the plan on the ground that petitioner's
discharge in a straight bankruptcy proceeding within six years of
this proceeding barred confirmation under § 14(c)(5) of the Act.
That section provides for discharge unless the bankrupt has,
"within six years prior to bankruptcy, been granted a discharge,
or had a composition or an arrangement by way of composition or a
wage earner's plan by way of composition confirmed under this Act.
. . ."
Section 656(a)(3) requires confirmation of a wage earner's
extension plan if
"the debtor has not been guilty of any of the acts or failed to
perform any of the duties which would be a bar to the discharge of
the bankrupt. . . ."
The District Court upheld the referee's dismissal, and the Court
of Appeals affirmed.
Held:
1. Confirmation of a wage earner extension plan is not barred
under § 14(c)(5) of the Bankruptcy Act by a discharge in bankruptcy
within the previous six years. Pp.
383 U. S.
394-402.
(a) Congress has clearly intended by Chapter XIII to encourage
the use of wage earner extension plans by which debtors arrange to
pay their debts in full, rather than go into straight bankruptcy or
composition. Pp.
383 U. S.
394-397.
(b) The purpose of the six-year bar, which was enacted long
before the adoption of Chapter XIII, was to prevent the creation of
habitual bankrupts (
i.e., debtors who escape their
obligations by repeated bankruptcy), and is completely opposed to
the purpose of the wage earner extension plan, whereby the debtor
meets the claims of his creditors. Pp.
383 U. S.
399-400.
(c) The ambiguous language used in § 656(a)(3) concerning
"guilty" acts and unfulfilled duties impels recourse to the
legislative purposes of the Act. Pp.
383 U. S.
400-401.
(d) The absence of legislative history bearing on the adoption
in Chapter XIII of § 656(a)(3) indicates that its inclusion was
Page 383 U. S. 393
a legislative oversight, at least insofar as it bears on wage
earners' extension plans. P.
383 U. S.
401.
2. This Court's construction that the six-year bar is
inapplicable to wage earner extension plans does not preclude
application of § 14(c)(5) to confirmations of general arrangements
under Chapter XI, real property arrangements under Chapter XII, and
to wage earner compositions under Chapter XIII. Pp.
383 U. S.
402-403.
3. If a wage earner is unable to comply with his extension plan
and seeks discharge under § 661, thus transposing the extension
plan into a composition, the six-year bar would apply. P.
383 U. S.
404.
340 F.2d 588 reversed and remanded.
MR. JUSTICE CLARK delivered the opinion of the Court.
Perry, a furnace operator employed by Moore Lead Company, filed
a petition in the District Court under Chapter XIII of the
Bankruptcy Act, 52 Stat. 930 (1938), as amended, 11 U.S.C. §§
1001-1086, [
Footnote 1]
requesting confirmation of his plan for an extension of time within
which to pay his debts out of his future wages. In his plan, he
proposed to pay his debts of $1,412 in 28 equal monthly
installments of $60 from his wages of $265 a month. On the hearing
for confirmation of the plan, however, it appeared that Perry had
previously filed a petition in straight bankruptcy and obtained a
discharge therein in 1959, within six years of the filing of this
proceeding. On motion of the respondent, Commerce Loan Company, the
referee dismissed the plan on the ground that the previous
bankruptcy was a bar thereto under
Page 383 U. S. 394
the provisions of § 14(c)(5) of the Act. [
Footnote 2] On review, the District Court upheld
the dismissal. The Court of Appeals affirmed. 340 F.2d 588. We
granted certiorari, 382 U.S. 889, in view of a conflict on the
point among the courts of appeals. [
Footnote 3] We conclude that confirmations of wage earner
plans by way of extensions are not affected by § 14(c)(5), and
therefore reverse the judgment below.
I
Although statutory relief for the financially distressed wage
earner had been available to some extent as early as the Bankruptcy
Act of 1867, 14 Stat. 517, Congress found in its study prior to the
1938 revision of the bankruptcy laws that there were no effective
provisions for the complete repayment of the wage earner's debts
suited to his problems. H.R.Rep.No.1409, 75th Cong., 1st Sess., 53
(1937). For example, compositions under § 12 of the 1898 Act, 30
Stat. 549, were available to the wage earner, but the relief
afforded was unsatisfactory. Section 12 proceedings, which were
primarily adaptable for use by business entities, were
disproportionately expensive in view of the small sums ordinarily
involved in wage earner cases; they lacked flexibility;
Page 383 U. S. 395
and they did not provide for jurisdiction of the court
subsequent to confirmation. Other provisions of the Act had similar
disadvantages. Faced with inadequate relief under the federal
bankruptcy laws, and often with little protection from creditors
under state law, the only course usually open to the wage-earning
debtor was straight bankruptcy. In such proceedings, everyone lost
-- the creditors by receiving a mere fraction of their claims, the
debtor by bearing thereafter the stigma of having been adjudged a
bankrupt. In designing a remedy for the dilemma facing a debtor
seeking to repay, rather than avoid, his obligations, the Congress
settled upon the wage earner extension of time procedures of
Chapter XIII. The chapter gave -- and was intended to give -- to
the wage earner a reasonable opportunity to arrange installment
payments to be made out of his future earnings. Congress clearly
intended to encourage wage earners to pay their debts in full,
rather than to go into straight bankruptcy or composition, by
offering two inducements: (1) avoidance of an adjudication of
bankruptcy, with its attendant stigma, and, at the same time, (2)
temporary freedom during the extension from garnishments,
attachments and other harassment by creditors. H.R.Rep.No.1409,
75th Cong., 1st Sess., at 52-55.
History demonstrates that extension plans under Chapter XIII are
fulfilling the purposes intended. The records of the Administrative
Office of the United States Courts show that, over the past 20
years, more than 20% of all proceedings filed under the Bankruptcy
Act by wage earners have been for plans under Chapter XIII, the
overwhelming majority of these being for extension plans. [
Footnote 4] Since many wage earners who
go into bankruptcy
Page 383 U. S. 396
do not proceed under Chapter XIII, because they are unemployed
(and consequently have no earnings to use for extension
arrangements), have an inextricably large indebtedness, or are
simply unaware of the existence of an alternative to straight
bankruptcy, the 20% figure is even more significant. Moreover,
large sums of money are annually returned to creditors under
extension plans, the current rate being well over $26,000,000. As
wage earners ordinarily have little or no assets available for
distribution in straight bankruptcy, these sums represent
settlements which the debtors would otherwise be unable to effect
and the creditors unable to obtain.
See Note, The Wage
Earner Plan -- A Superior Alternative to Straight Bankruptcy, 9
Utah L.Rev. 730 (1965); Allgood, Operation of the Wage Earners'
Plan in the Northern District of Alabama, 14 Rutgers L.Rev. 578
(1960).
In light of the proven advantages of extension plans, the
Congress has reexpressed its legislative purpose in amendments to
Chapter XIII adopted since the original enactment. A report to the
House of Representatives expresses it in these words:
"[C]hapter XIII provides a highly desirable method for dealing
with the financial difficulties of individuals. It creates an
equitable and feasible way for the honest and conscientious debtor
to pay off his debts, rather than having them discharged in
bankruptcy. The power of the court to change the amount and
maturity of installment payments without affecting the aggregate
amount of such payments
Page 383 U. S. 397
makes chapter XIII particularly applicable to the present-day
financial problems generated by heavy installment buying."
H.R.Rep.No.193, 86th Cong., 1st Sess., 2 (1959). And similarly,
the Senate report states:
"We think there can be no doubt . . . that a procedure by which
a debtor who is financially involved and unable to meet his debts
as they mature, over a period of time, works out of his involvement
and pays his debts in full is good for his creditors and good for
him."
S.Rep.No.179, 86th Cong., 1st Sess., 2 (1959). It is with this
underlying policy in mind that we turn to a consideration of the
problem posed here,
i.e., whether confirmation of an
extension plan is barred by a discharge in bankruptcy obtained
within the previous six years.
II
Chapter XIII requires the confirmation of a wage earner
extension plan if
"the debtor has not been guilty of any of the acts or failed to
perform any of the duties which would be a bar to the discharge of
the bankrupt. . . ."
§ 656(a)(3). And Chapter III commands that a discharge of a
bankrupt shall be granted unless the court is satisfied that the
bankrupt has,
"within six years prior to the date of the filing of the
petition in bankruptcy . . . been granted a discharge, or had a
composition or an arrangement by way of composition or a wage
earner's plan by way of composition confirmed under this Act. . .
."
§ 14(c)(5). The "discharge" of a debtor under a wage earner plan
shall issue after compliance with the provisions of the confirmed
plan, § 660, c. XIII, 11 U.S.C. § 1060. If, at the expiration of
three years from the date of confirmation of the plan,
Page 383 U. S. 398
the debtor has not completed his payments in accordance with his
plan, the court may, after notice and hearing, discharge the debts
and liabilities dischargeable under the plan,
provided the
court is satisfied that the debtor's failure to make all of his
payments "was due to circumstances for which he could not be justly
held accountable." § 661, c. XIII, 11 U.S.C. § 1061. And finally, §
602, of Chapter XIII [
Footnote
5] declares that the provisions of Chapters I through VII of
the Bankruptcy Act, insofar as they are not inconsistent or in
conflict with the provisions of Chapter XIII, apply in proceedings
thereunder.
We should note at the outset that, in his present application
for relief, Perry did not file a straight, voluntary bankruptcy
action in the District Court, nor "a composition or an arrangement
by way of composition or a wage earner's plan by way of
composition." He proposed to pay all his debts, secured and
unsecured, and sought only an extension of time -- 28 months -- in
which to pay them in equal installments from his future wages.
Ordinarily, a wage earner seeking to obtain the benefits of
extension proceedings under Chapter XIII need only file a plan that
meets the approval of the majority of his creditors, § 652, 11
U.S.C. § 1052, and is confirmed by the court; whereupon the plan
becomes binding, § 657, 11 U.S.C. § 1057, and the appointed trustee
commences collecting and disbursing to the creditors the periodic
payments provided under the plan. Extension plans therefore differ
materially from straight bankruptcy, arrangements under Chapters XI
and XII, and wage earner plans by way of composition, all of which
contemplate only a partial payment of the wage earner's debts.
Indeed, under an extension plan, the wage earner who makes the
required payments will
Page 383 U. S. 399
have paid his debts in full, and will not need a discharge, even
though the Act provides for a formal one. § 660.
In view of these considerations and the purposes of Chapter XIII
as outlined above, we do not believe that the Congress intended to
apply the six-year bar of § 14(c)(5) to the confirmation of wage
earner extension plans. The six-year bar was enacted 35 years prior
to the adoption of Chapter XIII, 32 Stat. 797 (1903), at a time
when no relief corresponding to extension plans existed under the
Bankruptcy Act. The unmistakable purpose of the six-year provision
was to prevent the creation of a class of habitual bankrupts --
debtors who might repeatedly escape their obligations as frequently
as they chose by going through repeated bankruptcy.
See
H.R.Rep.No.1698, 57th Cong., 1st Sess., 2 (1902);
In re
Thompson, 51 F. Supp.
12, 13 (1943). But an extension plan has no escape hatch for
debtors; it is "a method by which, without resorting to bankruptcy
proceedings in the usual sense, a wage earner may meet the claims
of creditors." S.Rep.No.179, 86th Cong., 1st Sess., 2 (1959). To
apply the six-year bar at the time of ruling on the confirmation of
an extension plan would be both illogical and in head-on collision
with the congressional purpose as announced in the adoption and
design of extension plans under Chapter XIII. [
Footnote 6] Even if a literal reading of these
provisions suggested the application of § 14(c)(5) to extension
plans, we would have little hesitation in construing the Act to
give effect to the clear
Page 383 U. S. 400
policy underlying Chapter XIII. As was said in
United States
v. American Trucking Assns., 310 U. S. 534,
310 U. S. 543
(1940):
"There is, of course, no more persuasive evidence of the purpose
of a statute than the words by which the legislature undertook to
give expression to its wishes. Often, these words are sufficient in
and of themselves to determine the purpose of the legislation. In
such cases, we have followed their plain meaning. When that meaning
has led to absurd or futile results, however, this Court has looked
beyond the words to the purpose of the act. Frequently, however,
even when the plain meaning did not produce absurd results, but
merely an unreasonable one 'plainly at variance with the policy of
the legislation as a whole,' this Court has followed that purpose,
rather than the literal words."
But such a literal reading is not apparent in this case. Section
656(a)(3) does not, on its face, state that a court may confirm an
extension plan only if the debtor is eligible for a discharge in
bankruptcy. Rather, the language of the section speaks,
ambiguously, of "guilty" acts and unfulfilled duties. There is, of
course, no unfulfilled duty involved in § 14(c)(5). Moreover, a
prior bankruptcy is hardly a "guilty" act within the usual meaning
of that word, and its use as a reference to § 14(c)(5) is strained
indeed. In fact, the legislative history of § 14(c) lends some
support to a view that a prior discharge is not a "guilty" act. In
1903, when the forerunners of subdivisions (3) through (6) were
originally added to § 14(c), the House report stated:
"This amendment also provides four additional grounds for
refusing a discharge in bankruptcy: (1) Obtaining property on
credit on materially false statements; (2) making a fraudulent
transfer of
Page 383 U. S. 401
property; (3) having been granted or denied a discharge in
bankruptcy within six years, and (4) having refused to obey the
lawful orders of the court or having refused to answer material
questions approved by the court.
No person who has been guilty
of any of these fraudulent acts should be discharged, and a person
who has refused to obey the order of the court ought not to be
discharged, and it is quite clear that no person should have the
benefit of the act as a voluntary bankrupt oftener than once in six
years."
H.R.Rep.No. 1698, 57th Cong., 1st Sess., 2 (1902). (Italics
added.)
This language might be construed to set apart acts which are
criminal or reprehensible in nature and to consider a prior
bankruptcy to be something other than a "guilty" act. But we need
not, and do not, go so far as to place this interpretation on the
words "guilty acts." It suffices that we find in them sufficient
ambiguity to impel recourse to the legislative purposes, outlined
above, underlying § 14(c)(5). And while the identical language of §
656(a)(3) has been a part of the Bankruptcy Act since 1898, as a
restriction to confirmation of compositions under what is now §
366(3), 52 Stat. 911, as amended, 11 U.S.C. § 766(3) and § 472(3),
52 Stat. 923, as amended, 11 U.S.C. § 872(3), there is no
indication that its enactment in Chapter XIII was intended to bar
confirmation of wage earner extensions. Indeed, it would seem that
the absence of any legislative history bearing on the adoption of
this provision in Chapter XIII indicates that its inclusion was a
legislative oversight, [
Footnote
7] at least insofar as it bears on wage earners' extension
plans.
Page 383 U. S. 402
This oversight is, of course, cured by the provisions of § 602,
which further buttress our conclusion. That section directs that
the provisions of Chapters I through VII, which include § 14(c)(5),
are incorporated into Chapter XIII only "insofar as they are not
inconsistent or in conflict with the provisions of this chapter."
The rationale of § 14(c)(5) -- the prevention of recurrent
avoidance of debts -- is so inconsistent with the aims of extension
plans as to fall squarely within the exception of § 602.
It is claimed, however, that § 686(5) of Chapter XIII, 11 U.S.C.
§ 1086(5), indicates a contrary result. We think not. This
provision, in setting the effective date of the chapter, provides
that confirmations thereunder "shall not be refused because of a
discharge granted or a composition confirmed prior to the effective
date of this amendatory Act." It must be remembered that extension
plan relief of Chapter XIII was novel to the law of bankruptcy.
However, both compositions and straight bankruptcies were old on
the books. The Congress, we believe, was only making certain,
insofar as extensions were concerned, that the old procedures would
not affect the new. This would be consistent with the purpose of
the Congress not to make § 14(c)(5) applicable to confirmations in
extension plan cases. Rather than making an illogical exemption
from the six-year bar, given in cases where a discharge had been
received before -- but not after -- the new Act, § 686(5) merely
gave expansive effect to the congressional purpose by making it
clear that the remedy afforded be available retroactively, as well
as prospectively.
We emphasize that our construction of the Act does not preclude
application of § 14(c)(5) to confirmations
Page 383 U. S. 403
of general arrangements under Chapter XI or to real property
arrangements under Chapter XIII. It is true that restrictions
identical in phrasing to § 656(a)(3) appear both in Chapter XI, §
366(3), and in Chapter XII, § 472(3). The relief afforded in those
chapters, however, represents a wholly different statutory scheme
from wage earners' extensions, and the restrictive provisions are
not therefore, in
pari materia. Sections 366(3) and 472(3)
neither impart to nor receive from § 656(a)(3) a meaningful effect.
Nor does our construction imply an immunity from the six-year bar
to those seeking confirmation of wage earner compositions. A
composition under Chapter XIII, unlike an extension, is closely
akin to straight bankruptcy and to proceedings under Chapters XI
and XII, for, under such a plan, the debtor is discharged from his
debts, and claims of the creditors are only partially paid.
In
re Jensen, 200 F.2d 58 (1952),
cert. denied, 345 U.S.
926 (1953);
but see In re Goldberg, 53 F.2d 454 (1931). It
is both logical and consistent with the underlying purposes of §
14(c)(5) that confirmation of wage earner compositions be barred by
prior bankruptcy, since repeated use of such plans would in effect,
provide an opportunity for abuse of the Act.
It has been argued that extension plans do not completely avoid
the possibility of adjusting the wage earner's debts. It is true
that § 660 provides for discharge after compliance with the
provisions of a Chapter XIII plan. While this section applies to
wage earner compositions as well as to extensions, a "discharge"
thereunder has a wholly different impact where an extension is
involved. In the latter case, a discharge is little more than a
mere formality. It is also claimed that § 661 presents a somewhat
more troublesome objection. That section, as we have noted, may
allow a wage earner to obtain a release from all dischargeable
debts if, after notice and hearing, the court is satisfied that the
failure
Page 383 U. S. 404
of the debtor to comply with the plan was due to circumstances
for which he could not be held justly accountable. However, we see
no serious problems in this section. First, experience has shown
that almost all plans approved under the Act envision repayment
within three years. The problem, therefore, is not likely to arise.
Second, there are adequate provisions for notice and hearing prior
to a discharge under § 661. Objecting creditors may raise §
14(c)(5) as a bar to relief if and when the debtor seeks such
relief. A request for relief under § 661 would, in effect,
constitute an attempt to transpose an extension plan into a
composition, and a grant of relief thereunder would, at that time,
be tantamount to a confirmation of a composition. The six-year bar
would therefore be operative in such a situation. In view of this,
as well as the power of the court to make certain that the
provisions of the chapter are not abused, we see no reason to allow
this section alone to destroy the beneficial purposes of enactment.
[
Footnote 8]
For the foregoing reasons, we conclude that petitioner's plan
should have been confirmed.
Reversed and remanded.
[
Footnote 1]
All United States Code citations herein refer to the 1964
edition.
[
Footnote 2]
52 Stat. 850 (1938), as amended, 11 U.S.C. § 32(c)(5):
"(c) The court shall grant the discharge [in bankruptcy] unless
satisfied that the bankrupt has . . . (5) in a proceeding under
this title commenced within six years prior to the date of the
filing of the petition in bankruptcy . . . been granted a
discharge, or had a composition or an arrangement by way of
composition or a wage earner's plan by way of composition confirmed
under this title. . . ."
11 U.S.C. § 32(c)(5).
[
Footnote 3]
Compare In re Schlageter, 319 F.2d 821 (C.A.3d
Cir.1963),
and Perry v. Commerce Loan Co., 340 F.2d 588,
with Edins v. Helzberg's Diamond Shops, Inc., 315 F.2d 223
(C.A.10th Cir.1963),
and In re Mahaley, 187 F.
Supp. 229 (D.C.S.D.Cal.1960).
See also In re Mayorga,
355 F.2d 89 (C.A.9th Cir.1966).
[
Footnote 4]
Chapter XIII also provides for wage earner plans by way of
composition. Compositions under that chapter, however, are almost
insignificant in the operation of wage earner plans, because most
creditors will not give the necessary approval. The latest
published statistics show that 95% of the funds paid to creditors
under Chapter XIII proceedings derive from extensions, rather than
compositions. Administrative Office of the United States Courts,
Tables of Bankruptcy Statistics, Table F 11 (1964) (by
computation).
[
Footnote 5]
11 U.S.C. § 1002:
"The provisions of chapters 1-7 of this title shall, insofar as
they are not inconsistent or in conflict with the provisions of
this chapter, apply in proceedings under this chapter. . . ."
[
Footnote 6]
Such a collision undoubtedly affects the functioning of the Act.
The Administrative Office of the United States Courts reports that
a "pronounced drop in Chapter XIII filings" has been noted in the
districts in the Sixth Circuit as a result of the holding in
Perry. Administrative Office of the United States Courts,
Memorandum for the Committee on Bankruptcy Administration of the
Judicial Conference of the United States, Report on the Use of
Chapter XIII, p. 2 (June 22, 1965).
[
Footnote 7]
This is not the only example of drafting oversights in the Act.
Although § 14(c)(5) was amended in 1938 to include a reference to
wage earner compositions, the provision in that section relating to
confirmation of a composition was not deleted even though § 12 of
the 1898 Act, 30 Stat. 549, under which such a composition might
have been confirmed, was repealed in the same enactment.
[
Footnote 8]
We note that the National Bankruptcy Conference has proposed
amendments to the Act which are intended to clarify the
interrelationship of §§ 14(c)(5), 656(a)(3), and 661. The proposed
clarification is in accord with our construction of the Act.
See H.R. 20, 89th Cong., 1st Sess. (1965). The Judicial
Conference, upon request of the Congress, has submitted its views
approving the bill. Letter from the Director of the Administrative
Office of the United States Courts to the Chairman of the Committee
on the Judiciary, House of Representatives (September 29, 1965).
See also Report of the Proceedings of the Judicial
Conference of the United States, at 68 (September 22-23, 1965).
MR. JUSTICE HARLAN, dissenting.
The result reached by the Court may well be desirable, but, in
my opinion, it is one that cannot be attained under
Page 383 U. S. 405
the present statute within the proper limits of the judicial
function.
Chapter XIII of the Bankruptcy Act establishes procedures for
the relief of wage earners who are unable to meet their debts as
they mature. Two types of procedures are made available: extension
plans, under which the wage earner's debts are intended to be paid
off in full over a period of time, and composition plans, under
which only a percentage of debts are recoverable. Referring to both
type of plans, § 656 of the Bankruptcy Act, 11 U.S.C. § 1056 (1964
ed.), provides that "a plan" shall not be confirmed if the debtor
has "been guilty of any of the acts or failed to perform any of the
duties which would be a bar to the discharge of the bankrupt. . .
." To ascertain what would be a bar to the discharge of a bankrupt,
one must turn to § 14(c), 11 U.S.C. § 32(c)(1964 ed.), which
provides, among other things, that no discharge may be granted if
the bankrupt has been granted a previous discharge within six
years. § 14(c)(5). It is undisputed that petitioner here was so
discharged, and there is no question but that he would have been
refused another discharge in bankruptcy at the time he applied for
this extension plan. The statutory scheme this plainly seems to bar
him from obtaining Chapter XIII relief as well.
The process by which the Court has undertaken to release the
debtor from the impact of these straightforward statutory
provisions seems to me wholly unavailing. The Court's major
argument is built upon its reading of the word "guilty" in §
656(a)(3). As already noted, that section denies confirmation to an
extension plan if the debtor has been "guilty" of any act that
would bar a discharge in bankruptcy. The argument is that, since
receiving a prior discharge is neither unlawful nor morally
reprehensible, one cannot be "guilty" of it, and hence that the
six-year "discharge" provision cannot be a bar to a Chapter XIII
extension plan.
Page 383 U. S. 406
This argument presupposes that the word "guilty" was
intentionally used in § 656 in a discriminating sense, that is, to
distinguish among those acts catalogued in § 14(c) which, under §
656, would bar confirmation of an extension plan. The fact of the
matter is, however, that, when Congress, in 1938, enacted Chapter
XIII, 52 Stat. 930-938, it took as its model the form and language
of the prior bankruptcy act, more specifically § 12, subd. d, 30
Stat. 550, dealing with compositions. [
Footnote 2/1] The "guilty" phrase was appropriate in
that 1898 statute because, at that time, the only bars to a
discharge in the predecessor of § 14(c) were offenses punishable by
imprisonment or fraudulent concealment. Section 14, subd. b, 30
Stat. 550. In 1903, Congress amended § 14, subd. b, to include the
six-year bar, 32 Stat. 797, and, over the years, other grounds for
refusing confirmation have been added to that section. But the word
"guilty" was never changed, and has obviously remained in several
chapters of the Act merely as a shorthand way of referring back to
those items that preclude the granting of a discharge. Thus,
Chapter XI of the Bankruptcy Act, which deals with arrangements,
has almost an exact duplicate of § 656(a)(3) containing the same
"guilty" phraseology. § 366(3), 11 U.S.C. § 766(3)(1964 ed.).
Chapter XII, which deals with real property arrangements, contains
a similar provision. § 472(3), 11 U.S.C. § 872(3)(1964 ed.). And,
of course, Chapter XIII, dealing with both compositions and
extensions for wage earners, uses this language. These parallel
provisions all derive from the same section framed in 1898.
This history and this parallelism indubitably demonstrate two
things: first, that the Congress did not devise
Page 383 U. S. 407
the "guilty" terminology in 1938 as a means of making a subtle
distinction between the morally reprehensible bars to bankruptcy
contained in § 14(c) and the other bars there enumerated; and
second, that the word "guilty" means the same thing when applied to
general arrangements in § 366, to real property arrangements in §
472, and to compositions and extensions in § 656. If the word
"guilty" excludes the six-year bar for extension plans, it is
impossible to see what sort of statutory interpretative sleight of
hand would save it for general arrangements, real property
arrangements, and wage earner composition plans. Moreover, it seems
already accepted that, as applied to Chapter XI arrangements, the
"guilty" provision does refer back to the six-year bar.
See In
re Jensen, 200 F.2d 58; 9 Collier, Bankruptcy � 9.19, at
310-311 (14th ed 1964); Kennedy, Hospitality for Repeaters Under
the Bankruptcy Act, 68 Com.L.J. 117, 119-120 (1963). The same would
appear to be true of the meaning of "guilty" in Chapter XII.
See 9 Collier,
supra, � 9.07, at 1146. And the
Court in its present opinion appears to concede that, when applied
to compositions, § 656 is somehow transformed to include the
six-year bar.
In short, construing "guilty" to refer only to "reprehensible"
aspects of § 14(c) has no basis in legislative history, and
requires a strained attempt to distinguish other applications of
the identical section and of parallel sections which concededly are
applied more generally. Because of its ramifications, this
construction may do serious harm to the administration of Chapter
XIII compositions, Chapter XII real property arrangements, and
Chapter XI arrangements.
The Court also advances another argument in support of its
conclusion that confirmation of this extension plan was not barred
by virtue of §§ 656 and 14(c). This argument rests essentially on §
602 of the Bankruptcy
Page 383 U. S. 408
Act, 11 U.S.C. § 1002 (1964 ed.). Section 602 provides that the
provisions of Chapters I through VII shall apply to Chapter XIII
"insofar as they are not inconsistent or in conflict with the
provisions of this chapter. . . ." It seems to be said that the
six-year bar is inconsistent with the provisions of Chapter XIII
because the extension plan is designed to give wage earners relief,
and the six-year bar would preclude some such people from receiving
that relief without good reason.
This argument likewise does not withstand analysis. To be sure,
the six-year bar makes it impossible for certain wage earners to
get relief by way of extension plans, but so do all the other
restrictions on this form of relief. Nobody would suggest that it
is "inconsistent" with Chapter XIII to withhold extension plan
relief from those who engage in fraud on the ground that such a
restriction cuts down the number of people who can take advantage
of Chapter XIII. Section 656 clearly does establish restrictions on
the class of people to whom relief is available; the question
before us is whether the six-year bar is such a limitation;
citation of § 602 is conclusory only, and makes no positive
contribution to a meaningful analysis.
My conclusion that the statute should be read literally to
preclude the confirmation of an extension plan if the applicant has
been granted a discharge within the previous six years is
reinforced by § 686(5) of Chapter XIII, 11 U.S.C. § 1086(5)(1964
ed.). Section 686(5) in its entirety declares that
"Confirmation of a plan under this chapter shall not be refused
because of a discharge granted or a composition confirmed prior to
the effective date of this amendatory Act."
The inclusion of this provision indicates quite clearly that
Congress did believe that a prior discharge would be a bar to a
Chapter XIII plan, and that it decided to remove that restriction
only for discharges granted before September 22, 1938, the
Page 383 U. S. 409
effective date of the statute in question.
See 10
Collier,
supra, � 33.05, at 477. Such a provision is
perfectly understandable. Before the enactment of the extension
plan amendment, wage earners who sought a bankruptcy remedy could
obtain only a discharge through straight bankruptcy or composition.
There would be no reason to preclude wage earners who availed
themselves of such relief prior to September, 1938, from obtaining
a more favorable extension plan subsequently. On the other hand,
after enactment of Chapter XIII, wage earners would have the
opportunity to apply for an extension plan. It is not difficult to
understand why Congress should have refused to permit wage earners
who chose a discharge in bankruptcy, rather than an extension plan,
a second opportunity, within six years, to receive statutory
relief. I am frank to say that I am unable to perceive the basis
for the Court's contrary explanation of this provision.
The short of the matter is that the Court's arguments do not
support the conclusion it reaches. The conclusion is, of course,
supportable as a legislative judgment, even though arguments can be
made for both sides. Thus, it might be argued for the six-year bar
in a Chapter XIII context somewhat as follows: the wage earner
extension plan is a new and very advantageous procedure for the
debtor, but it is a burden on the courts. It is also a constraint
on creditors who will be delayed in collecting, will be precluded
from garnishing, and may not receive full repayment if the debtor
obtains a discharge under § 661 of the Act, 11 U.S.C. § 1061 (1964
ed.). It is therefore reasonable to limit the availability of this
kind of relief to those wage earners who have not had the advantage
of a discharge in bankruptcy in the previous six years.
Furthermore, it is certainly arguable that the six-year bar
encourages wage earners to make use of the Chapter XIII procedure.
With the prior discharge bar eliminated, a
Page 383 U. S. 410
debtor might eschew an extension plan and decide instead to go
through straight bankruptcy first, waiting a few months until the
going once again "gets tough" to take advantage of the extension
plan.
I venture considerations such as these not as overcoming the
countervailing ones relied on by the Court, and heretofore espoused
by others, [
Footnote 2/2] but
simply to point up the fact that this is not one of those cases
where seemingly straightforward statutory language must yield its
literal meaning to a contrary congressional intent. What we have
here are but two contrasting legislative policies wherein the
Court's duty is to take the statute as it is presently plainly
written.
I would affirm the judgment of the Court of Appeals.
[
Footnote 2/1]
"The judge shall confirm a composition if satisfied that (1) it
is for the best interests of the creditors; (2) the bankrupt has
not been guilty of any of the acts or failed to perform any of the
duties which would be a bar to his discharge. . . ."
§ 12, subd. d, 30 Stat. 550.
[
Footnote 2/2]
See the proposed amendments of the Bankruptcy Act by
the National Bankruptcy Conference,
note 8 ante, p.
383 U. S. 404;
Kennedy, Hospitality for Repeaters Under the Bankruptcy Act, 68
Com.L.J. 117 (1963).