Creating A Bankruptcy Discharge Policy

Before we get to the nitty-gritty on this question (and we will), let’s reflect on why libraries charge fines and replacement costs in the first place:

• To encourage timely return of materials
• To offset staff time and resources consumed by retrieval efforts
• To replace items when retrieval efforts are ineffective

And always, lurking in the background, is the notion that fines and replacement costs are an alternative to the most under-utilized section of the NYS Education law, the criminal provision in Section 265:

Whoever wilfully detains any book…belonging to any public or incorporated library…shall be punished by a fine of not less than one nor more than twenty-five dollars, or by imprisonment in jail not exceeding six months…..

So far, I have not had a client use their “one phone call” to let me know they have been arrested on an “265,” but the possibility is never far from my mind.

Of course, no one picks a library career to pursue their dream of arresting people who love (and lose) books.  And, although less draconian, I bet no one picks a library career for the joy of assessing late fees.  That said, library materials costs money, and people can be irresponsible about returning items to the library.  So what’s an institution to do?

Some libraries are experimenting with no-fine models[1], since fines can have a disproportionate impact on those in poverty.  Others have great success with routine “amnesty” days and other creative ways to take the sting out of returning books late. And still others want to make sure that the traditional model is as streamlined and legally compliant as possible.  That is what the member’s question is about.

A “bankruptcy discharge policy” is a logical component of a library’s approach to fines, replacement costs, and efforts to collect them.  It addresses the potential “dischargeability” (wiping out) of library fines when a person seeks the protection and “fresh start” created by bankruptcy.  It can also help libraries (and their collection agencies) follow the law, which gives people seeking bankruptcy very specific protections.

Before we address the member’s specific questions about adopting such a policy, it is important to take a moment to reflect on (legal) language.  This is because there is a basis to argue that overdue fines and replacement costs, while valid conditions of having a library card, might not qualify as typical commercial “debts;” this could mean that in many cases, libraries owed fines and replacement moneys might not be precisely “creditors.” This is pointed out in the 1997 case Riebe v. Jeurgensmeyer[2], where the judge writes:

The origin of this federal case is a minor's failure to return a library book. In 1995, Elizabeth Riebe, a minor, borrowed a library book from the St. Charles Public Library ("the Library"). The due date came and went without Ms. Riebe returning it. The Library waited. After Ms. Riebe failed to return the book for six months, the Library retained Defendants [a collection firm] to write to her parents ("Plaintiffs") requesting payment of $ 29.95. 

Addressed to Plaintiffs, the letter, as Plaintiffs see it, implied that they, or their daughter, could be arrested and imprisoned for intentional theft of public library property. Attached to the letter was a copy of the provisions of the Illinois Criminal Code. Rather than paying the $ 29.95 or at least returning the book, and thereby putting the matter to rest, Plaintiffs filed a complaint in federal court, alleging that Defendants' letter violated the Fair Debt Collection Practices Act ("FDCPA"), 15 U.S.C. § 1692, et seq.(1996).

In ruling that the FDCPA doesn’t apply to attempts collect library fines (and thus that the library could not be liable for the zeal of their collection agency under the FDCPA) federal Judge Charles R. Norgle (who clearly esteems libraries) wrote:

Here, there was no initial "business dealing" creating an obligation to pay, only an obligation to return a library book. In theory, this may have created some type of contract, but not in the context of a "business dealing" as contemplated by the FDCPA, e.g, the purchase of consumer goods or services. … Rather, the borrowing of a library book is a public privilege that largely depends on trust and the integrity of the borrower. [emphasis added]

Now, the FDCPA is not the Bankruptcy Code, and it is possible that a person seeking relief from debt under the Code and might be able to reduce or completely discharge their fines and replacement charges from a library.  But for over twenty years, Riebe has been cited as good law, so it is possible that this view of library fines and replacement costs as something more fundamental that a business debt could carry over. 

I emphasize this because it means some types of library fines and costs might be dischargeable, but others, since they are not consumer “debt” in the traditional sense, might not.[3]

So, with all that, let’s get to the nitty-gritty:

Are replacement costs for library materials exempt from or subject to discharge of debt? Overdue fines?

Because of the factors cited above, there can be no one-size-fits all answer to this!  It will depend on a few factors.  Under certain circumstances (replacement costs, fines connected to vandalism or wanton theft) the court might rule that what’s owed to the library is not a “dischargeable” debt.  But that might not be the case for the average family declaring bankruptcy because they got swept at the knees due to illness or job loss, and who might have additional hardships to show to the court.  As with many things in bankruptcy, it will depend on the circumstances.

Fees levied in an attempt to recover materials (i.e. collection agency fees)?

I would argue that imposing additional administrative costs for retaining a collection agent risks transforming the library-patron relationship described so well by Judge Norgle in Riebe.  In doing this, the likelihood of the costs being dischargeable increases.  But again, it will depend on the underlying nature of the fine or cost.  Someone who checked out 10 DVD’s on their first week as a cardholder and never returned them might have a tough time proving that the costs aren’t the result of theft (and thus non-dischargeable).

Are we allowed to impose restrictions on borrowers whose debt has been discharged, if they have not returned materials owned by the library? For example, can we deny loans to a borrower until they return library materials, or pay for them, if the debt has been discharged; or can we limit the number of items loaned for a period of time?

Regardless of where your board may fall on its philosophical approach to fines and collections, any time a cardholder declares bankruptcy, all efforts to collect fines or replacement costs should cease.  Critically, this means if borrowing privileges are only suspended due to unpaid fines, borrowing privileges should immediately be reinstated.  On the flip side, suspension due to unreturned materials (for which no replacement cost is being charged) can continue. 

The most important thing, as the member suggests, is to respect the process when your library is notified of it. Any library, or agent of a library, who gets a notice that a cardholder is filing bankruptcy should cease all financially-related sanctions.  If there are extenuating circumstances (let’s say the amount owed is related to an act of vandalism, or failure to return 50 full-color art books) refer the matter to library’s attorney, or alert the bankruptcy trustee, who might contest discharge under the precise factors of the bankruptcy code.

With all that in mind, I suggest some alternative language for a policy, which would addresses both the human aspect of bankruptcy, and some of these subtleties:

Bankruptcy Discharge Policy

The Library understands that sometimes people must seek relief from debt in bankruptcy and are entitled to a “fresh start” after such relief is obtained.

Procedure

Cardholders seeking a discharge in bankruptcy of moneys owed to the library should notify the library of having filed for bankruptcy.

Once the library is properly notified that a bankruptcy has been filed, the library and/or its agent will immediately cease contacting the cardholder about the financial amount(s) owed. 

The library shall then evaluate its response to the notice.  In making such an evaluation, the nature of the conduct leading to any fines, costs, and suspended privileges will be considered.  In particular, but not exclusively, the discharge of any costs related to wanton destruction or significant failure to return borrowed items may be contested.

After notice of filing, but prior to discharge, if borrowing privileges are suspended solely on the basis of unpaid fines and replacement costs, borrowing privileges will be immediately reinstated; borrowing privileges suspended on the basis of unreturned items, for which no replacement cost is sought, will remain suspended.

To ensure all charges are listed on the bankruptcy schedule, the cardholder or their attorney may contact the library to request a statement of account at any time; such contact must be in writing so there is no risk of the library appearing to have violated the bar on collection activity.  An attorney or trustee requesting this information on behalf of the cardholder must include permission from the cardholder as required by CPLR 4509.

The library supports that people seeking relief in bankruptcy are entitled to a “fresh start” after the discharge of debt(s).  Upon presentation of a “Discharge of Debtor” listing the library, all moneys owing shall be removed from the cardholder’s record, up to the date of discharge, for the cardholder and any minor children in the family. 

Further, if replacement costs are discharged, the library will not regard the failure to return the corresponding item as a basis to bar reinstatement of borrowing privileges.

Late returns or losses after the date of discharge will be subject to routine policies, including fines and suspension of borrowing privileges.

This approach both maximizes the potential for a bankruptcy discharge to be the compassionate re-set of the cardholder’s account it is intended to be…while taking into consideration that not all charges might be worthy of discharge (which is up to the bankruptcy court to decide).

Thank you for this careful question.

[1] A topic discussed in an interesting TED talk by librarian Dawn Wacek.

[2] United States District Court for the Northern District of Illinois, Eastern Division, October 31, 1997.

[3] The member’s question states that the library is a “government entity,” an assertion that is potentially relevant under the Bankruptcy code.  Without making this response pages longer, I will simply state that I don’t believe a public library has quite the same status governmental entities do under the Bankruptcy Code; however, as shown in Riebe, libraries can occupy a unique position that should inform their approach to this issue.