Fabulous New Paper: Random Justice in Bankruptcy Trial Courts

posted by Jason Kilborn

JusticedieI just read a terrific new paper by Gary Neustadter of Santa Clara University Law School, called "Randomly Distributed Trial Court Justice: A Case Study and Siren from the Consumer Bankruptcy World." It presents a monumental empirical study of a debt buyer's litigation campaign to pursue essentially identical contract and fraud claims against hundreds of secondary mortgagors in state courts, federal District Courts, and federal Bankruptcy Courts. The paths and outcomes of these materially identical cases are so different in so many surprising (and often disturbing) ways, the paper offers a really stunning look behind the curtain of our often arbitrary trial-level justice system. And Neustadter's telling of the story is gripping--I read the paper and most of its footnotes from beginning to end in one sitting, unable to put it down. The revelations in this paper are a gold mine for civil proceduralists generally and bankruptcy practitioners in particular. It offers a cautionary tale and useful playbook for lawyers (and perhaps judges) in how to make many aspects of our system more effective. Get it while it's hot!

Justice die image courtesy of Shutterstock

Contract Law and Ukraine's $3 Billion Debt

posted by Mark Weidemaier

The Russian government has announced announced that it plans to initiate legal proceedings against Ukraine by the end of the month to recover the $3 billion in bond debt now in default. It's not yet clear whether the proceedings will be in English courts or in arbitration. Officials in Ukraine say they expect to win. At first glance, that seems like posturing; after all, Ukraine borrowed $3 billion and didn't pay it back. But as it turns out, Ukraine has some pretty decent arguments, which if successful might excuse (or allow it to defer) the obligation to pay. Some of those arguments involve international law, and I'm a bit skeptical that those will succeed. But as I explain in a short new paper, Ukraine's contract-law arguments might fare somewhat better. Here's the abstract to the paper:

Russia has announced that it will initiate proceedings by the end of January (likely in arbitration) to recover the $3 billion debt owed by Ukraine. The Russia-Ukraine dispute is unique in the annals of sovereign debt litigation. It is a politically and militarily fraught conflict wrapped in a garden-variety, English-law contract dispute. The dispute may settle, and if so its resolution will depend largely on political and economic considerations. Yet the resolution will occur in the shadow of basic contract law, which is surprisingly relevant. Indeed, there are a number of plausible arguments available to Ukraine, which, despite the unusual facts, may excuse (or allow it to defer) its obligations to Russia. It would be understandable for judges and arbitrators to hesitate before weighing in on such a politically-charged dispute, but Russia’s insistence on acting like a private creditor leaves little choice.

Initial Thoughts on Venezuela

posted by Stephen Lubben

Over at Dealb%k.

Fifth Circuit Runs Completely Off the Rails in Husky Int’l v. Ritz?

posted by Jason Kilborn

Derailed trainThe question presented to the Supreme Court in Husky Int’l v. Ritz is so bizarre, I just had to dig deeper. The question is whether the exception to discharge in section 523(a)(2)(A) for debts arising from “actual fraud” requires a showing that the debtor’s fraud involved a false representation. Note immediately that section 523(a)(2)(A) excepts from discharge debts arising from “false pretenses, a false representation, OR actual fraud” (emphasis added). This seems like such a simple statutory interpretation exercise (do you see the “OR” sitting there?!), I figured I must be missing something in thinking that the whole dispute is one step shy of contrived. After looking more closely, I still think the Fifth Circuit has run completely off the rails with this one … unless I’m totally missing something here. I’d be grateful if anyone can disabuse me of my ignorance; otherwise, it seems the Supreme Court must have granted certiorari simply to fix an obvious and egregious error that no one but the Supreme Court can fix.

Continue reading "Fifth Circuit Runs Completely Off the Rails in Husky Int’l v. Ritz?" »

Chicago Public Schools Bankruptcy?

posted by Jason Kilborn

SchoolbankruptThe local press has been abuzz the last two days with talk of Illinois Republicans' plans to take over Chicago Public Schools (CPS) and allow/force it to file for municipal bankruptcy. I immediately wondered whether this was just political rhetoric, part of Governor Rauner's quite clear plan to undermine public union power, especially in the school system, or if bankruptcy was the right tool for what ails CPS. As my image here suggests, it seems to me ... not so much; that is, CPS isn't quite "bankrupt" in the sense that Chapter 9 might help.  Not yet, and maybe not ever.

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2016 Bankruptcy Forecast -- Let's Say 780,000

posted by Bob Lawless

Forecasting U.S. bankruptcy filings for this year was a little more complicated. In a comment to my post about the total 2015 bankruptcy filings, Erich Fabricius made the astute observation that December 2016 saw the introduction of new bankruptcy forms and that could explain my befuddlement at the abnormally large 14.8% decline for December in terms of year-over-year daily filing rates. November, in contrast, saw almost no decline in the year-over-year rate, which is also unusual. The relatively stronger numbers in November suggests that attorneys were perhaps trying to beat the deadline before the new forms went into effect. The effect would not have to be huge -- shifting 5,000 filings from December into November would have been enough to create this effect.

What that means is my preferred mathematical model to predict bankruptcy filings for the next year has to start with the immediately previous two months being untypical months. If I run the model with the actual data, I get 800,000 filings. If I "correct" the numbers for November and December to what would have been expected had recent monthly trends continued, the model predicts 782,000 filings. The model controls for the amount of outstanding consumer credit and national personal income and has proven accurate in the past

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Counseling Help for Distressed Student Loan Borrowers?

posted by david lander

As always, it has been very enjoyable to be a guest here. Three thoughts until next time.

1. At least two major organizations are about to join or have recently stepped into the effort to provide help to distressed student loan borrowers. National Foundation for Credit Counseling is launching an effort that was piloted by several of their larger members. Also,Neighborworks is launching an effort. We need high quality counseling for these borrowers, but the counseling programs face many challenges including the following

            a. Training must include not only the very complicated technical issues, but also counseling and interpersonal techniques; trainers must know both areas;

            b. These will hopefully be more than just diagnosis and pointing to the right program; digging into each individual case to help the borrower find the best option is complicated and takes time and skills;

            c. This counseling requires more than a single session and previous NFCC programs have not accommodated follow up sessions;

            d. The programs require serious quality control; and    

            e.  Finally,each provider MUST have a relationship with a legal services program or law school clinic that has expertise in student loan borrower programs so that referrals are smooth;

        2. Use of adjuncts at many law schools is undergoing major changes. In a few months I hope to start on a factual review of what is happening and comment on what that means for legal education. The fall in number of students the last several years at most law schools and the continuing pressure by the Bar for more practice-oriented education are two factors. And then there is the question of the most effective way of integrating adjuncts with the full time faculty and the general curriculum. More on this topic down the road after more numbers are in. 

        3. AFCPE (Association for Financial Counseling & Planning Education) has just received accreditation for its financial counselor certification from the National Commission for Certifying Agencies.  This is an important development for the field and i hope to comment in the future more fully on its meaning and impact. CFPB and many funders have been watching to see if the certification would be approved.

Bankruptcy Filings Drop 10% in 2015

posted by Bob Lawless

2015 Calendar Year FilingsAccording to the latest figures from Epiq Systems, total U.S. bankruptcy filings dropped 10% in 2015. The yearly total was 819,240 compared to 910,090 the previous year. As bankruptcy experts know, these figures are low. In 2015, there were 2.55 bankruptcy petitions per 1,000 persons, the lowest figure since 1989, ignoring the statistical gyrations around the 2005 bankruptcy law. If the decline keeps up, we won't even have to ignore the 2005-06 statistical gyrations for the statement to be true.

Last January, when forecasting the number of 2015 filings, I wrote, "a good estimate for 2015 bankruptcy filings is 800,000." That turned out to be not too bad of a forecast, off by only 2,5%. As the model I used seems to have been a good prediction, I will try it again and post the results here on Credit Slips.

Before I go off to crunch numbers, one other thing caught my eye in the latest numbers. The daily filing rate for December was only 2,446, which was a year-over-year decline of 14.8%. The decline in U.S. bankruptcy filings had been slowing, and I was expecting the decline to eventually flatten out. December is an unusually slow month for bankruptcy filings, but it is an unusually slow month every year. I am always cautious about extrapolating too much from one month of data, but the size of the decline in December took me by surprise. 

AALS & The Slips

posted by Bob Lawless

Quite a few Credit Slips bloggers and former guests are panelists at the session the Debtor-Creditor Section of the Association of American Law Schools (AALS) meeting.The session is entitled, "Bankruptcy for the Ninety-Five Percent: Making the System Work for Small and Medium-Sized Businesses and Sole Proprietors" and will take place on Saturday from 1:30 - 3:15 PM. If you are at the AALS meeting, check it out. Panelists and discussants are Matthew Bruckner, Andrew Dawson, Pamela Foohey, Margaret Howard, Melissa Jacoby, Ed Morrison, Foteini Teloni, and Jay Westbrook. The moderator is Gene Wedoff, recently of the U.S. Bankruptcy Court for the Northern District of Illinois. 

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