McGarity points to problems with 2005 bankruptcy changes

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When Judge Margaret Dee McGarity was appointed to the U.S. Bankruptcy Court for the Eastern District of Wisconsin 20 years ago, she brought a distinctive style to the bench, both literally and figuratively. After a decade in private practice handling marital property, family law and bankruptcy cases, McGarity made a seamless jump to the bench in 1987.

Since then, she has reveled in the vibrant human drama of the job and she has kept several sections of the courthouse colorfully decorated with her handmade quilts.
McGarity took time during the holidays to sit down with Wisconsin Law Journal reporter Jack Zemlicka on Dec. 27 and discuss her dissatisfaction with the 2005 bankruptcy law revisions, her sympathy for Chapter 13 filers and why she might have been an architect.

Wisconsin Law Journal: You made the jump from private practice to the Eastern District bankruptcy court. How was the transition from practicing martial and bankruptcy law to the bench?

Judge Margaret Dee McGarity: It wasn’t a difficult one at all. I actually find judging is less stressful than private practice. I didn’t like the business end of being an attorney, like keeping hours and collecting fees. I did like the legal end of it, so being a judge has a lot of the same characteristics with a little bit different spin.

WLJ: When did you decide that you wanted to become a bankruptcy judge?

McGarity: I knew I wanted to be a judge really pretty early on, but I decided I especially liked the atmosphere in the bankruptcy courts. I liked the combination of the intellectual challenge, but also being close to the earth. I just decided I would hold out for a bankruptcy judgeship when it would be available because I thought it a much more interesting arena to be involved in.

WLJ: What was the major attraction to the bankruptcy field for you?

McGarity: The human component has always been very interesting to me. I was a psych major in college so I’ve always been interested in how people adjust to adversity, how they cope with it and how they come out of it. You see a lot of that in bankruptcy cases, but that’s not a whole lot different from the divorce field or the probate field, which I practiced in as an attorney.

WLJ: What is the most significant change to the bankruptcy laws since you were appointed in 1987?

McGarity: That’s easy, the (Bankruptcy Abuse Prevention and Consumer Protection) Act of 2005, which in my view does a monumental disservice to the citizens of this country. I guess there was a perception by some that the bankruptcy system was being abused by people who were in extreme difficulty. The people who were familiar with the bankruptcy system kept telling Congress, “No, no, please don’t do this.”

They did it anyway and the effect has been capricious. It’s been highly unpredictable in many instances and totally ridiculous and hurtful to people who don’t deserve it. Yet the rascals they were supposed to thwart still get through just fine.

WLJ: It’s been more than two years since the new bankruptcy laws took effect. How have attorneys who come into your court adjusted to the changes?

McGarity: The attorneys are working to try to sift out the problems because the law is so badly written and ambiguous that many times you simply can’t tell what to do. If anyone thought this would standardize the law, it has done the exact opposite. It has made everyone have to reinvent the wheel in so many different ways. You have practices across the country that bear no resemblance to each other. They are interpreting the same law, absolutely honestly and rigorously, but in exactly opposite ways.

WLJ: How have they affected the way the bankruptcy court functions?

McGarity: Back when I practiced bankruptcy, virtually nothing was done by my staff. That’s not possible now. You have to be very computer savvy. It costs money to invest in research and technology. That is passed along to consumers and many cannot get the relief they need. So they try and do it on their own and frequently make quite a hash of it. We have a pro se help desk, which is wonderful and we are going to electronic filing in January, but it’s been a burden. We’ve made the best of technology, but it’s not cheap.

That has the result of more and more pro se filers which just takes so much more of the court’s time and the clerk’s time.

WLJ: With the real estate market continuing to slump, are you seeing foreclosure cases on a regular basis?

McGarity: Our overall caseload is down from pre-2005, but our Chapter 13 caseload is not down nearly as much. People who get into mortgage problems tend to turn to Chapter 13, because that will allow them to keep their house. I would think if Congress changes the law which would allow modification of home mortgages in the bankruptcy context, that could increase our Chapter 13 caseload. They are also heavily labor intensive for all parties involved because a lot can happen in three to five years.

As people have ups and downs, sometimes we see them again and again. I often refer to my Chapter 13 calendar as nursing. We want to see people keep their houses, but we have to be within the constraints of the creditor’s interests because they loaned the money so it’s a balancing act.

WLJ: From a judge’s perspective, what is the most frustrating aspect of bankruptcy law?

McGarity: I think there was one year where the filing fees went up three or four times including a $25 fee that was part of the Deficit Reduction Act. That meant that the poor people of this country were funding the war in Iraq. I find that absolutely obscene. There are good reasons to make things complicated like in probate. I tell people everyone has to jump through hoops in order to catch the bad guys who would defraud the rightful beneficiaries from their due. In bankruptcy, this has added hoops and mazes and alligator laden moats for no good reason.

WLJ: What is the most unusual case you have presided over during your career?

McGarity: Probably the most interesting was a man who embezzled about $6 million from his employer. His wife stuck her head in the sand and chose to ignore the fact that her husband was filling warehouses with antiques, even though she allegedly knew what he made. The mail came to the house, addressed to fake corporations. She didn’t pay any attention to it. Yeah right. That one was on a motion to dismiss for a bad faith filing, which I found as to both parties. Also a fascinating forensic accountant followed the money and that was very intriguing.

WLJ: If you had not chosen to pursue a legal career, what might you have done?

McGarity: I’d probably have been an architect. It’s really odd, but I dream in architecture and have very surreal dreams and they always seem to be in some odd structure. I’m a quilter, so obviously I like geometry. If I didn’t have an education, I’d probably be a seamstress.

WL
J: You have twin sons whom you adopted from Korea as babies. Now that they are grown, are you planning to visit the country?

McGarity: Yes, we are going in May. The boys had never been interested in going to Korea, and finally they said well, maybe we should. I mean they’re 25 for Pete’s sake. I want to go and visit the adoption agency and we’ll also visit the city where they were born.

WLJ: You mentioned being an avid quilter. How did you get involved in that hobby?

McGarity: I had a friend who was having a baby and I had to come up with a gift so I made a quilt. I’ve always sewn and made a lot of my own clothes, and still do. I’m pretty good at alterations, too. I love to take things apart and retro-fitting clothing. I love to see how things are made and analyze them.

WLJ: I’d heard that you have combined your profession and your passion in that you have several quilts hanging in the courthouse?

McGarity: There’s one that hangs in the fifth floor library. I also used to hang different quilts for different holidays, but it’s not like they are all over the courthouse. There are some in my office and chambers and in a couple of conference rooms. My clerk particularly liked my Fourth of July one and that one stayed up because of the patriotic theme.