Waiting for RUFO

posted by Mark Weidemaier

It looks like much of December will be spent sitting around the RUFO sickbed, waiting for the clause to expire of natural causes on December 31. The clause, recall, prevents Argentina from "voluntarily" giving holdout creditors a better deal than the one given to restructuring participants. When the RUFO clause expires, we will see whether country officials viewed it as a serious barrier to negotiation or, rather, as a convenient excuse to justify their refusal to negotiate.

In the interim, however, there are some potentially interesting developments on the horizon:

Continue reading "Waiting for RUFO" »

For the Soul of the Party: the Budget Showdown and Financial Reform

posted by Adam Levitin

Will we have an appropriations bill before a government shutdown? The fight over the 2015 Appropriations Bill is now focused on one of the non-appropriations measures stuck onto the bill by the House GOP. That provision would repeal section 716 of the Dodd-Frank Act, which prohibits bailouts of swap entities and pushes certain types of particularly risky swaps out of insured depositories. Section 716 might be thought of as the "Banks Aren't Casinos" provision of Dodd-Frank.

On the surface, the fight about section 716 looks like a partisan squabble. But the real issue is the internal Democratic Party struggle going on because if the Democratic leadership doesn't force party discipline in opposing the appropriations bill with this provision, the appropriations bill will likely pass. The outcome of the internal Democratic debate is frankly more important than whether section 716 gets rolled back. (I write that because I don't think the no-bailouts prohibition in section 716 is credible or that any prohibition on bailouts can be credible. When things get hairy, we'll bail, law be damned.) No, what matters here is how Democrats line up. The fight over section 716 is a struggle for the soul of the Democratic Party.

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What the ...?

posted by Stephen Lubben

Just received this month's ABI Journal. I surely can't be the only one who finds the ad for the BMC Group – inside the front cover – obnoxious, even offensive (I'm not going to dignify it by reproducing it). I get that sex sells ... but in a bankruptcy journal, advertising a claims agent?

Why the World Hates Lawyers

posted by Adam Levitin

Why does the world hate lawyers?  Because of stuff like this.  You can't make this up:  the on-line menu prices for a Chinese restaurant weren't up-to-date, and a customer was overcharged $4. I get being pissed about that.  But what would most people do?  Just lump it, stop patronizing the restaurant, ask the restaurant for a refund, or complain to the credit card issuer. But in this case, the customer has a JD (and to make it more delicious, happens be a Harvard Business School professor). The professor decides to go all legal on the restaurant, demanding $12, as treble damages under Massachusetts' unfair and deceptive acts and practices (UDAP) statute, MGL 93a (even citing the statute!).  

I get why people would be hating on the professor for that alone. But here's what really peeves me. He gets MGL 93a wrong!!!  (I happen to teach this statute.) The professor is demanding something that he almost assuredly cannot get under law.

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Bar Examiners Abandoning Commercial Law

posted by Jason Kilborn

StudyrejectedExams are on my mind this time of year, and I'm disappointed that bar examiners are increasingly regarding commercial law as unimportant. Earlier this year, the National Conference of Bar Examiners announced that Negotiable Instruments/ Commercial Paper (UCC Articles 3 and 4) will no longer be tested in the essays they draft for about 30 states. And just before Thanksgiving (ironically?), the Louisiana Sup. Ct. Committee on Bar Admissions abruptly announced that Secured Transactions (UCC Article 9) would no longer be tested on the Louisiana exam at all--this after years of very heavy testing of that material twice a year since Louisiana adopted the UCC in 1990. And California has long excluded all but a smattering of the UCC from their bar exam--no Negotiable Instruments, and no Secured Transactions (except for fixtures). What is the deal?! Is this a trend in other jurisdictions, too? As a longtime commercial law professor, I'm feeling very unappreciated by bar exam authorities.

Photo courtesy of Shutterstock.

What Qualifies an Investment Banker to be a Regulator?

posted by Adam Levitin

As the Antonio Weiss nomination contest heats up, I'd like to pose a question that seems to be taken for granted by Weiss's supporters, namely that he's obviously qualified for the job.  As far as I can tell, Weiss's chief qualifications are that (1) he's an investment banker and (2) he's a major Obama donor, who (3) professes Progressive sympathies. (It's awesome that he bankrolls the Paris Review, but surely that's not what qualifies him.)  

Weiss isn't Obama's only donor, and his Progressive bona fides seem to consist of co-authoring a Center for American Progress piece in favor of progressive (small p) taxation.  So really the case for Weiss's qualification comes down the the fact that he's an investment banker. His investment banking experience appears to be in mergers and acquisitions, and at an investment bank that does not have a depository.  Why on earth does that qualify him to be the Undersecretary for Domestic Finance?  

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Another Tribute to Jean Braucher: On the Lighter Side

posted by Nathalie Martin

Bob’s post made me cry. Jean was an incredible scholar and colleague. She also had a fun, light side that I will forever cherish, and that I share here. 

I met Jean about 18 years ago through my mentor Bill Woodward (formerly of Temple University Law, now at Santa Clara Law), Jean and Bill were very close academic friends and he thought Jean and I would also hit it off.  He was right. From the very beginning, she helped me with everything from casebook selection to choosing (and negotiating) my job here. Not too long after I moved to New Mexico Law, Jean moved to the Arizona Law faculty. Bill used to ask me “do you ever see Jean out there?” as if we’d now run into each other regularly, since we lived just 7 hours apart by car. The west is a big place, for all your easterners out there, but actually, Bill was on to something. Whatever the reason, Jean herself became a mentor and close friend.

We organized a few conferences together, most recently at Washington and Lee in 2011 with Jim Hawkins (Houston law Center). Wherever we were, we always stayed up late, drinking and gossiping and just having fun. One year at Richard Alderman’s Conference in Houston, my husband said “that’s it, no more hanging out with Jean Braucher” (Mary Spector you were also implicated)

Continue reading "Another Tribute to Jean Braucher: On the Lighter Side" »

Tributes to Jean

posted by Bob Lawless

BraucherOur friend and co-blogger, Jean Braucher, passed away a week ago today. Our first post here on Credit Slips had only a few paragraphs about her contributions to our professional community. There was a lot more to say about Jean.

Since that time, a number of comments have made their way into my inbox or were posted on to that original post. The comments have come from practicing attorneys, academics, judges, and journalists and from all over the United States as well as Europe, Australia, and South America. If you sent me a longer comment, I hope I have done justice to it below in excerpting it, and my apologies if I mistakenly omitted some. Here is what people wrote about Jean.

Continue reading "Tributes to Jean" »

Jean Braucher, In Memoriam

posted by Bob Lawless

It is with great sadness that I pass along the news that Jean Braucher passed away yesterday. Jean was my co-author, my co-blogger, and my friend. This news came suddenly this morning for all but her closest family and friends who were aware of her illness. 

The official record will show that Jean was a giant among bankruptcy and contracts scholars. Her work on local legal culture in bankruptcy courts is one of the standard references on the topic. As Dov Cohen and I were trying to understand the disparities we were seeing in our data among local bankruptcy courts, we turned to Jean. She joined our research team, and her understanding of the very fine detail of how the bankruptcy courts worked in action made the project's experimental materials a success. Jean also was widely known for her work on contracts law, being one of the authors of the seminal Contracts: Law in Action textbook.

That is the official record. I last saw Jean just in October at the symposium in honor of Bill Whitford where Jean presented her latest work. Bill exhorted us to study how the law actually worked and how it actually worked for the least-privileged in society. Jean lived that research ethos and spread it to others. She helped to nurture a small gathering at the Law & Society Association that has grown into a section of close to 100 household finance experts from around the globe. She was continuing to play a leadership role for that group while encouraging the next generation of scholars to become leaders in their own right.

Looking back at what I have written seems a paltry overview of the big footprint that Jean leaves in the  academic world. Her work touched so many others. Tomorrow I will give thanks that Jean was part of my professional life.

In the coming days, I hope to gather thoughts and remembrances of Jean into a longer blog post. If you knew or worked with Jean and have something to pass along, please email me.

Update (12/2/2014): A new post collects comments that were emailed to me. I have closed the comments on this post and encourage new comments to be left on the new post.

Some Bibles Are More Exemptable Than Others

posted by Jason Kilborn

Holy BibleI wonder how many Bankruptcy professors have posed a hypothetical about the exemption of a rare Bible worth lots of money? Well, a federal District Court in Illinois had to answer the question for real.

The Illinois personal property exemption statute includes the debtor's Bible. A debtor in Southern Illinois asserted this exemption in a rare, first-edition Mormon Bible that she had acquired (for free) from her local library. Apparently, the library director had not been paying attention, as the 1830 Bible was appraised at at least $10,000.

Amusingly, the debtor's lawyer described this item of property on Schedule B as "old Mormon bible," further observing that "debtor has been told that there is a 100% exemption for bibles but valuable bibles may or may not be covered under such exemption" (!). The trustee accepted this open invitation and objected that the statute was never intended to apply to a Bible of such value, and the bankruptcy court agreed. The District Court reversed.  Responding to the standard law professor questions, the court noted that the word "necessary" in the statute modified only the first word, "wearing apparel," not the other words ("one does not need a bible, school books, or family pictures to survive"), and unlike other property in the statute, bibles are not subject to an explicit value restriction. QED.

Sometimes life does imitate fiction.

Holy Bible image courtesy of Shutterstock

Rent Control in New York and Bankruptcy

posted by Stephen Lubben

Following up on my prior post, the New York Court of Appeals has ruled that a rent stabilized appartment is a public benefit, rather than an asset.

Detroit's Bankruptcy: The Conversation

posted by Melissa Jacoby

Readers who have not otherwise received notice in the twittersphere may be interested in this commentary at The Conversation.

Are Some Banks Using Credit Reports to Help Collect Discharged Debts?

posted by Dalié Jiménez

Last week, Adam pointed us to a NYT's story on "zombie debt" after bankruptcy. I did a bit more research into the story because I had a hard time understanding the problem from the article.

There are a few lawsuits that have been filed about this (I found ones against GE Capital/Synchrony, Bank of America/FIA Card Svcs, Citigroup, and Chase). The GE complaint alleges that the banks have a systematic practice of "selling and attempting to collect discharged debts and ... failing to update and correct credit information to credit reporting agencies to show that such debts are no longer due and owing because they have been discharged in bankruptcy." You can download the complaint in the GE case here.

More specifically, the allegations are that after a discharge, some creditors do not update their tradelines to a status of "in bankruptcy" and instead leave them as "charged-off." The credit report of a person in this situation would then say they have filed bankruptcy and obtained a discharge but you could not tell whether any individual debt has been discharged in that bankruptcy. The (non-binding) credit bureau reporting guidelines (METRO 2) specify that creditors should report accounts as "included in bankruptcy" once they receive a notice of discharge.

The complaint characterizes GE's argument as being that the FCRA does not require it to make this change, perhaps especially in particular after a debt has been sold and they no longer have an interest in it. (GE has not filed an answer yet, but it seems like this is one argument they might make from reading their other filings). That seems to me to be a wrong interpretation of the FCRA and the FTC's Furnisher Rule. It should also be a violation of the discharge injunction. As Judge Drain put it in an opinion denying a motion to compel arbitration:

One could argue that the reporting of a discharged debt as still outstanding when the credit report also shows that the debtor has been in bankruptcy is even a worse result, indicating to those who are considering providing credit in the future that the debtor has fallen into the category of the dishonest debtor who did not receive a discharge.

I am told that NPR's On Point will be doing a segment on this on Thursday at 10AM EST with one of the attorneys filing these cases. You can listen to the podcast here.

Note: post has been edited to correct the timing of the NPR program and to add the link to the podcast.

ICMA CACs, New York Edition - Vietnam! - and More Un-Boilerplate

posted by Anna Gelpern

Mexico's public offering with New York-style ICMA CACs is a huge deal. But it turns out that Vietnam's exempt offering on November 6, also under New York law, was there first. Since it is not a public offering, the disclosure document is not public, and the one press article describing it is behind a paywall. Here are a few bits that struck me as interesting about the three adoptions so far.

The Clause Formerly Known as Pari Passu:

Like Kazakhstan and Mexico, Vietnam fixes the pari passu clause to exclude the ratable payment interpretation. Funnily enough, the three seem to do it in slightly different ways:

Kazakhstan:

The Notes will at all times rank pari passu without preference among themselves and at least pari passu in right of payment, with all other unsecured External Indebtedness of the Issuer from time to time outstanding, provided, however, that the Issuer shall have no obligation to effect equal or rateable payment(s) at any time with respect to the Notes or any other External Indebtedness and, in particular, shall have no obligation to pay other External Indebtedness at the same time or as a condition of paying sums due on the Notes and vice versa.

Vietnam:

The Notes shall at all times rank without any preference among themselves and equally with all other present and future unsecured and unsubordinated External Indebtedness (subject to Condition 11 below [Negative Pledge]) provided, however, consistent with similar provisions in the Government’s other External Indebtedness, that this provision shall not be construed so as to oblige the Government to effect equal or rateable payment(s) at any time with respect to any such other External Indebtedness and, in particular, it shall not be construed so as to oblige the Government to pay other External Indebtedness at the same time or as a condition of paying sums due on the Notes and vice versa.

Mexico:

The debt securities rank and will rank without any preference among themselves and equally with all other unsubordinated public external indebtedness of Mexico. It is understood that this provision shall not be construed so as to require Mexico to make payments under the debt securities ratably with payments being made under any other public external indebtedness.

Majority Voting:

In substance, all three are the same as the ICMA model. They allow series-by-series, two-tier aggregated, and stock-wide aggregated votes at the option of the issuer--though they are drafted differently. Kazakhstan and Vietnam mostly use the ICMA language. Mexico is in line with its existing New York documentation, more pared down -- but really a matter of style. The voting thresholds are the same: 75% of outstanding for individual series and stock-wide votes, 66 2/3% of each series + 50% of stock for two-tier aggregated votes. In a stock-wide vote, the output must be uniformly applicable (same instrument or same menu for all).

Collective Representation and Majority Enforcement:

Kazakhstan and Vietnam have fiscal agency agreements; Mexico has a trust indenture. All three require a creditor vote of 25% to accelerate. Kazakhstan provides for a noteholder committee if bad things happen; Vietnam and Mexico do not. ICMA has recommended contract clauses on committees since 2004; some issuers in London have taken up the call, but virtually none in New York have. Note that you do not need a contract clause ex ante to form a committee ex post; in contrast, you cannot have majority voting, ranking, or trustees unless your contract provides for them in advance.

Probably No Strip-Offs After Supremes Rule

posted by Bob Lawless

The headline for this post will be mysterious and perhaps slightly salacious in a general newsfeed, but bankruptcy experts will know it means the time is nigh in the 11th Circuit for lien strip-offs. The Supreme Court agreed to hear Bank of America v. Caulkett and Bank of America v. Toledo-Cardona, where the 11th Circuit allowed lien strip-offs of wholly underwater junior  mortgages in a chapter 7. The Supreme Court case of Dewsnup v. Timm would seem to hold otherwise, but the 11th Circuit ruled Dewsnup applied only to partially underwater mortgages. Hence, the 11th Circuit believe it was bound by its own pre-Dewsnup precedent allowing strip-offs for wholly underwater junior mortgages.

I like the 11th Circuit rule as a matter of policy, but I have to believe that as a matter of precedent, the Supreme Court is almost certain to reverse. I have to get back to work on some other things, but perhaps other Credit Slips bloggers might have more to say. Until then, SCOTUSBlog also has a summary.

Zombie Debt and the Metaphysics of Discharge

posted by Adam Levitin

The NYT has a piece about credit reporting of so-called "zombie debt"--debt that has been discharged in bankruptcy.  Apparently the US Trustee Program is investigating various creditors in connection with this debt.

The reporting obscured a bit of very subtle bankruptcy metaphysics. The discharge of debt in bankruptcy does not void the debt. The debt is still owing. But it cannot be collected except if the debtor volunteers to repay it. The discharge is an injunction against the enforcement of the debt against the debtor as a personal liability. The discharge voids judgments on the debt, but not the debt (and it does not prevent the enforcement of liens).  In other words, the debt still exists post-discharge.  It just isn't enforceable.

That means that there is nothing per se inaccurate about the debt being reported to a credit reporting agency as owing, provided that the debt is also reported as discharged in bankruptcy. (Different story altogether under Fair Credit Reporting Act and Fair Debt Collection Practices Act if the discharge is not reported.)   

As far as I can glean from the reporting, the problem seems to be less the continued reporting of the debt than creditors saying that they will only cease reporting it as owing if the debt is paid.  Is that a violation of the discharge injunction?  I'm not sure.  It is fine for a private party to require payment as a condition of future dealings:  "pay up if you want to do another deal with me." But that's not quite this situation. The purpose of continuing to report a discharged debt is not to invite a condition of future dealings.  Instead, its purpose (other than if continued reporting were the default) would seem to be to extract payment, which would be an "act to collect, recover, or offset any such debt as a personal liability of the debtor."  It'll be interesting to see more about how this plays out. 

Sign of the Times: Tightening Mortgage Rules in Europe

posted by Jason Kilborn

EuroMortgageLoanTwo stories in today's world news caught my attention because they were both related to rising consumer debt and tightening mortgage rules. 

First, Sweden is proposing a particularly aggressive approach to reducing the weight of mortgage debt on consumers' balance sheets. The new accelerated amortization rules really struck me from a comparative US perspective: Swedes borrowing more than 70% of the value of their homes would have to pay the loan down by 2% a year (that's 2% of the principal) until the LTV falls to 70%, then 1% of the principal of the loan each year until LTV reaches 50%, the desired level. Wow. In the 15 years that I've been wrestling with a variety of home mortgages, I don't think I've ever paid 2% of the principal (given the back-loaded amortization schedule of most standard US home mortgage loans). To make matters worse (better?), the Swedish central bank is also considering grabbing onto the third rail of US tax reform--reducing tax deductions for mortgage interest. These are pretty aggressive moves to cool off the mortgage market and bring down consumer leverage, and they stand in stark contrast to efforts in the US and the other country in today's news ...

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