The Bankruptcy Court
In Colonial times, if a man defaulted on a loan he was placed in debtor's prison until he paid his creditors what he owed. In New Hampshire, the attitudes of the people did not dictate leniency for debtors. New Hampshire was an agricultural state full of rugged individualists who subscribed to a work ethic of self-sufficiency. They believed that if a man worked hard and spent wisely, he would never need to borrow or be in debt. Conversely, if a man was in debt, he was lazy and a spendthrift and deserved what he got.
A Bankruptcy Bill was passed by Congress in 1798. It required all states to recognize bankruptcy, a situation in which a debtor, be it an individual or an organization, is unable or unwilling to pay debts as they come due. The creditor or debtor seeks aid from the government or court in order to settle the debts. However, the Act did not dictate how each state should handle bankruptcy. Many states chose not to enact laws to administrate in bankruptcy cases, and the Act was repealed in 1803.
There were many conflicts throughout the nineteenth century regarding the development of bankruptcy laws. Agricultural states felt that bankruptcy was an illegitimate way to discharge debts. As William Gordon, a New Hampshire opponent to bankruptcy legislation, pointed out, "farmers and country traders will suffer by such an act. Farmers and planters do business on credit, make payments when their crops come in, and frequently are late in payment; and thus the country trader with whom they deal may fail to pay the city merchant promptly, and if the latter proceeds in bankruptcy against the country trader he in turn must press his farmer or planter debtor, with some compulsory process." Industrial states, on the other hand, needed bankruptcy in order to maintain the rapid rate of development in industry. The industrialized states had a growing class of merchants and traders who experienced booms and busts in fortune. Wealth was rapidly changing hands, and these entrepreneurs felt that bankruptcy was a far more effective means of settling debt then the archaic practice of debtor's prison.
Many states, most notably the industrial ones such as New York and Massachusetts, attempted to enact bankruptcy laws. These laws invariably failed due to poor drafting or conflicts with the laws of other states. Interstate commerce made a uniform bankruptcy system essential for any system of bankruptcy to succeed. In New Hampshire, a system of bankruptcy was very slow to develop. By the mid-1800's New Hampshire had started to industrialize. As a result, advocates of bankruptcy legislation began to appear, but they were too few in number. The majority of the state still felt that it was not a legitimate way to discharge debts. This hesitancy is visible in the maintenance of debtor's prison as punishment for debt as late as 1840. New Hampshire was one of the last states to repeal the debtor's prison laws. In fact, it has been said that "at no time before 1900 could it be said that New Hampshire followed an innovative course in debtor-creditor relations. As both colony and state it moved with glacial slowness to relieve debtors."
Congress was often hesitant to take a stand on bankruptcy. When legislation was enacted, it was generally in response to a financial crisis. The Depression of 1820-1821 created a call for legislation, but it took the panic of 1837 followed by another depression to yield the comprehensive Bankruptcy Act of 1841. This Act was strongly advocated by New Hampshire's Daniel Webster, who said that "the Constitution requires us to establish uniform laws on the subject of bankruptcy, if we establish any." Webster introduced the concept of voluntary bankruptcy. Until then all bankruptcy had been compulsory, the creditor sought action requiring the debtor to go bankrupt and settle his debts. In voluntary bankruptcy, the debtor seeks relief from his creditors. Voluntary bankruptcy gives the debtor more rights and lessens the power held by the creditor. Webster also felt that any limitation on bankruptcy legislation would create a law that did not adequately serve the needs of a varied nation. The Bankruptcy Act of 1841 was repealed in 1842, largely due to pressure from creditor states that criticized voluntary bankruptcy.
Congress continued with its reactionary legislation for several more years. The Civil War and the Panic of 1857 resulted in the Bankruptcy Act of 1867. This was the first bankruptcy legislation that recognized the nation as an economic unit. This Act received criticism because it was difficult to administer and it created an unfair balance between the rights of debtors and of creditors. It was repealed shortly after being enacted. The Panic of 1893 resulted in the Bankruptcy Code of 1898. This Act included both voluntary and compulsory bankruptcy, it established strict guidelines for its administration, it placed bankruptcy under the jurisdiction of the Federal District Court, and it legislated for the appointment of referees with specialized knowledge to adjudicate all bankruptcy proceedings. The referees were part-time employees of the court and performed the same function as a judge, the only difference being that referees were more involved in cases. This Act proved to be enduring. It received some revision in the 1930's after the Great Depression, but was virtually unchanged for nearly a century.
The people of New Hampshire retained their hesitancy toward bankruptcy. The number of bankruptcy cases were so few that they were handled by the residing district judge. In the 1940's New Hampshire courts handled an average of four cases per year. No bankruptcy referee was appointed until 1945, when Joseph J. Betley was given the position.
Referee Betley operated the Bankruptcy Court for the District of New Hampshire out of his own law office on Elm Street in Manchester. He prided himself on having the smallest and most cost efficient bankruptcy court in the nation. With the help of his able assistant/secretary Ruth Alter, Betley disposed of thousands of bankruptcy cases without leaving his small office. If a courtroom was needed, Referee Betley used the Probate Court down the street.
Referee Betley ran a very efficient courtroom; delays were not tolerated, and cases were handled with vigor. The caseload he handled was small until the advent of consumer credit in the 1950's resulted in an increase in personal bankruptcies. In the 1960's New Hampshire's shoe and textile industries were forced into bankruptcy court by overseas competitors who undercut labor costs and prices. The recession in the 1970's caused another leap in number of personal bankruptcies filed.
In 1978 Congress passed a new Bankruptcy Code. This Code was meant to reorganize the bankruptcy system and make it more efficient so that it could handle the astronomical increases in bankruptcy filings. The Bankruptcy Court became a full adjunct of the Federal District Court, and the Bankruptcy Referees became Bankruptcy Judges appointed to a fourteen-year renewable term, instead of the life term of other federal judges. Referee Betley was appointed the first judge of the Bankruptcy Court for the District of New Hampshire.
The Bankruptcy Code of 1978 called for a full-time Clerk of Court, so Judge Betley hired Timothy P. Smith. The additional staff was greatly needed to handle the 20-30% annual increase in caseload. Under this new Code the judge became less involved in the day to day operation of a case; the routine responsibilities for bankruptcy procedures were shifted to the judge's support staff and the judge was only called upon if the proposed settlement was contested by the parties involved.
In the summer of 1983 the Bankruptcy Court for the District of New Hampshire moved to the federal building on Chestnut Street in Manchester and became a full-time, self-sufficient facility. Unfortunately, Judge Joseph Betley only sat in his new chambers on Chestnut Street for one day, he died on August 22, 1983. Federal bankruptcy judges from Maine and Massachusetts served in the new facilities until a new judge was appointed. In December of 1983, James E. Yacos was appointed to fill Judge Betley's position.
Throughout his time on the bench Judge Yacos worked to extensively streamline the procedure for filing bankruptcy. As a result today's cases move through his court rapidly and efficiently. This achievement gains greater merit when the situation under which he was working is known. When Judge Yacos ascended to the bench in 1983 the court handled approximately 500 cases per year. Today that average is up to 4000 cases per year. This tremendous increase is attributed to the simultaneous collapse of the northern New England real estate market and the Massachusetts computer industry.
In 1987 George Vannah became Clerk of the Bankruptcy Court. Mr. Vannah and his support staff, with the assistance of Federal Bankruptcy Trustees, dispose of a majority of the bankruptcy cases. This team has essentially taken over the non-judicial responsibilities of the old bankruptcy referees. The number of cases that are contested and go in front of the judge remains relatively small. The cases that do go to court are most often commercial bankruptcies which contain long lists of creditors and debtors, all of whom demand satisfaction.
Today's bankruptcy court is very different from Judge Betley's court of just a few years ago. What used to be a part-time court operated out of Betley's law office has grown into an institution with over 25 employees handling thousands of cases each year. The Federal Bankruptcy Court for the District of New Hampshire continues to expand. The court has plans to move to larger facilities within its present building by 1992 and hopes to join the Federal District Court in a new facility in Concord before the turn of the century.
Joseph Betley
Joseph Betley was born in Manchester on October 19, 1910. He attended Central High School and completed his undergraduate and legal studies at Catholic University in Washington D.C. After a short time working for the federal government, Joe Betley returned to Manchester in 1936 and joined the Bar Association. After serving as a State Representative, Betley, in 1944, ran for United States Senator. He lost by little more than 4000 votes. After his foray into politics, Joe Betley decided to open his own law office and, in 1945, he was appointed Bankruptcy Referee for the District of New Hampshire by District Judge Aloysius J. Connor.On August 22, 1983, Judge Betley died. He was 72 years old and had served as head of the of the Bankruptcy Court for the District of New Hampshire for 37 years. In 1981 Attorney Kenneth Graf stated "There is only one Joe Betley. The mold in which he was cast is unique and for those of you who have not been before him or associated or negotiated with him, you have missed something that does not often occur in the normal practice of the law today."
James E. Yacos
James Yacos was born in Portage, Pennsylvania. He did his undergraduate work at the University of Pennsylvania and obtained his law degree from Harvard Law School. Yacos was the Bankruptcy Judge in Miami, Florida from 1965 to 1975. He left the bench to enter private practice. In 1980 he moved to Hanover, New Hampshire, established a law office, and started a quarterly legal newsletter on bankruptcy called "The Broken Bench Review". ("Bankruptcy derives from the Italian banca rotta, or "broken bench", a term that originated because early merchants and moneylenders operated from marketplace benches.") Yacos was a part-time judge until 1985, when the work load became great enough to require that he work full-time.A Case of Judge Yacos
One of the most noteworthy cases in the history of the New Hampshire Bankruptcy Court is the bankruptcy of the Public Service of New Hampshire utility company PSNH. PSNH filed for bankruptcy in January 1988, it was the first bankruptcy of a utility in the modern era, and one of the largest bankruptcies the nation has ever seen. The case required months of court time and took years to decide. Judge Yacos established many significant precedents in dealing with the massive PSNH case that other bankruptcy courts now use when they are presented with a case of this magnitude. His most notable decision regarded PSNH's attempts to get a rate increase that were denied by state energy commissions. The utility needed the rate increase in order to pay its creditors. Judge Yacos stated that bankruptcy law takes precedence over state regulatory law, so PSNH could have it's rate increase under the regulation of a federal agency. PSNH emerged from bankruptcy in May 1991, under the ownership of Northeast Utilities.