Thanks to all who commented on my earlier post on the interaction of §§ 544(a)(3) and 551 and homeownership in bankruptcy; as hoped, CreditSlip readers helped me frame the questions that I continue to have about Traverse and the larger policy questions it raises. Some readers emphasized the importance of variations in state mortgage law to the trustee’s strong-arm powers; others questioned whether these distinctions should affect the trustee’s power to sell the residence (or the avoided lien) following avoidance.
Clearly, the trustee had the power to avoid the unrecorded mortgage in Traverse; let’s assume for purposes of argument that he also had the power to sell full title to the debtor’s home after avoidance. For me the more interesting question is whether the trustee should have exercised these powers, and also whether the exercise might be viewed as an abuse of discretion.
Another way to think about this question is from an even broader angle: What position should a trustee play in a individual borrower’s chapter 7 case? Is a trustee’s role to maximize distributions to unsecured creditors, full stop? Or might the trustee’s fiduciary obligations to the estate sometimes sit in tension with an interest in maximizing creditors’ interests?
Conventional wisdom views bankruptcy as a place that protects homeowners and homeownership. One of the primary reasons Chapter 13 allows debtors to retain all property of the estate, whether exempt or not, is to allow debtors to hang on to their personal residences even though applicable exemption law would not otherwise allow this. OK Chapter 13 doesn’t permit modification of residential mortgages, but it does allow debtors to decelerate and cure mortgages in default, providing some consumer debtors some protection from foreclosure. Chapter 7 is traditionally viewed as less protective of the homestead – that is, it protects residences only to the extent of applicable homestead exemption law, but it has been widely accepted that debtors might protect their homes in chapter 7 by combining a discharge from unsecured debts with reaffirmation of a residential mortgage.
The recent financial crisis has strained both the state court foreclosure process and the federal bankruptcy system, raising questions about the continuing accuracy of the notion that bankruptcy provides a safe place for homeowners. Whether bankruptcy does or even should protect homeownership is a very big question, one undoubtedly best answered in combination with careful analysis of data, and I won’t presume to tackle that question in a blog. But I do want to use this format as a safe place for thinking about these issues.
History can sometimes provide a fresh perspective on current events. My years of observations at UNCITRAL led me to wonder about how working methods in this international organization compare to those of similar (some would say sister) organizations -- UNIDROIT and the Hague Conference on Private International Law. This research revealed references to work at the turn of the 20th century (1879, 1904, 1925) on an international convention on the treatment of cross-border bankruptcy cases. I was intrigued, but primary documents eluded me.
On a recent trip to London I was lucky to enough to score big in two different libraries: at the British National Archives in Kew Gardens I found 7 file folders from the British Board of Trade, circa 1924, describing preparations for participation at the Hague Conference's Fifth Session for deliberations on a draft insolvency convention; at the British Library I finally scored the long-sought records of the proceedings of these 1925 meetings at The Hague. Nerd heaven!
Am I the only one who didn't know that the National Conference of Commission on Uniform Law recently revised the Uniform Fraudulent Transfer Act in late 2013?
While revisions to the UFTA take a relatively light touch to the uniform act, the Commissioners were keen once more to change the name of these avoidance actions. While the 1988 statute renamed and substantially revised the (much earlier) Uniform Fraudulent Conveyance Act to come up with the Uniform Fraudulent Transfer Act, this time the Commissioners renamed the Uniform Fraudulent Transfer Act as the Uniform Voidable Transfer Act. I guess we were hurting folks' feelings by implying that their transactions were fraudulent, even though lawyers know that constructive fraudulent transfers are only "fraudulent" in their economic effect.
Long live the UVTA!
Autonomous administrative agencies are anathema to certain sorts of lawmakers, e.g., those who think that we are always better off with less regulation. Recent legislation – H.R. 3193 – passed the House last week looking to make the Bureau of Consumer Financial Protection more accountable. Yesterday I posted a quick blog on this bill on Credit Slips, but want to explore the issue a little more deeply today from the perspective of positive political theory (“PPT”).
Just a quickie: I'm attending a conference at Brooklyn Law School this Friday on Choice of Law in Cross Border Bankruptcy Cases, organized by my long-time co-author, and friend of the blog, Ted Janger. The conference is co-sponsored by the International Insolvency Institute and the Brooklyn Law School Center for the Study of Business Law and Regulation. Ted has put together an all-star cast (present company excluded), including Credit Slips' own John Pottow and a who's who in cross-border insolvency thinking, practice and law reform. It should be a great event.
Hey, Everyone! Great to be back on CreditSlips.
Adam blogged earlier on the politics of consumer financial protection regulation (here); I'm writing to add a quick "hear, hear!" Just a few days ago, the House passed H.R. 3193, which in its own words would "amend the Consumer Financial Protection Act of 2010 to strengthening the review authority of the Financial Stability Oversight Council of regulations issued by the Bureau of Consumer Financial Protection" but really it looks to gut the CFPB -- I mean -- make it more accountable to Congress. This bill is an example of legislation with no hope of legislating, enacted not to resolve some policy impasse but rather to irritate and possibly count as newsworthy somewhere (here, here, and here).
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