Bankruptcy

Overcoming Overconfidence in Bankruptcy

By Katie Porter

Elizabeth Loftus (UC-Irvine Law) has co-authored a new paper on lawyers' abiliy to predict outcomes in litigation. She and her colleagues surveyed about 500 lawyers with pending litigation, asking them to specify a minimum goal for their case and providing a confidence estimate for the chances of meeting that goal. The key finding: "Overall, lawyers were overconfident in their predictions."  The researchers find that lawyers don't get better at estimating outcomes with more years of experience; recent grads and old hands are equally likely to overestimate their odds of success. The article lays out all the ways that this can be harmful to clients, and to our legal system in general.

I've been thinking about this optimism bias in the context of bankruptcy law (and in the context of legal education). To what extent do bankruptcy lawyers exhibit this phenomenon? We know, for example, that only one in three chapter 13 bankruptcy cases gets to plan completion, and that many chapter 11 cases, particularly those of small businesses, are really liquidations and not reorganizations. And we know that what gets promised in a plan is often not what gets paid Do lawyers reflect these realities to their incoming consumer and business clients who are in financial trouble, or to their creditor clients? Perhaps bankruptcy lawyers, used to dealing with clients who have tried to be positive-think their way out of negative cash flows or buried their heads in the sand while financial problems mounted, are better at straight-talking to clients about their prospects of financial recovery.

Full post as published by Credit Slips on June 16, 2010 (boomark / email).