Arbitration Double Standards

A case out of the Third Circuit demonstrates the frustration that many of us have with the current state of consumer arbitration law. The consumer had purchased a Dell computer that he alleged had design flaws leading to repeated failure of his motherboard. After Dell refused to fix the computer a third time, he brought a class action against Dell for the alleged design defects.

Dell invoked an arbitration clause which read that any dispute "SHALL BE RESOLVED EXCLUSIVELY AND FINALLY BY BINDING ARBITRATION ADMINISTERED BY THE NATIONAL ARBITRATION FORUM (NAF)." This clause was found in "clickware," that is an agreement to which the consumer agreed by checking a box on Dell's web site when he purchased the computer. The capital letters were in the original agreement, presumably to make this language stand out due to its importance. As many readers of this blog will quickly pick up, there is a problem with this language -- because of abuses the National Arbitration Forum agreed to a consent judgment where it would no longer administer consumer arbitrations.

And Now Featuring Melissa Jacoby

On behalf of all the Credit Slips bloggers, it is my pleasure to announce the permanent return of Professor Melissa Jacoby as one of our "Occasionals." For the past several weeks, she had doing some guest posts, but we are very happy that she has agreed to stick around. Melissa is a professor at the University of North Carolina School of Law and a leading expert on bankruptcy law with a number of prominent studies on medical debt as well as housing issues. As one of the founding members of Credit Slips, Melissa is one of the reasons we're here at all. Welcome back.

Race and Chapter 13

As Adam noted in his kind post, the New York Times today featured our study, "Race, Attorney Influence, and Bankruptcy Chapter Choice." My co-authors are Credit Slips blogger Jean Braucher, a law professor at the University of Arizona, and Dov Cohen, a professor at the University of Illinois who holds a cross appointment in psychology and law. And, we all express many thanks to the NYT reporter, Tara Siegel Bernard, who spent a lot of time slogging through the statistics and legal intricacies in our study.

In a nutshell, the study reports real-world data from the Consumer Bankruptcy Project showing that, among bankrupcy filers, blacks file chapter 13 at higher rates than all other races. The effect is large -- for example, blacks even had a higher chapter 13 rate (54.6%) than homeowners (47.1%). The second part of the study showed that, in a random sample, bankruptcy attorneys were more likely to recommend chapter 13 for a hypothetical couple named "Reggie & Latisha" who went to the African Methodist Episcopal Church as compared to "Todd & Allison" who went to the United Methodist Church. Also, attorneys were more likely to see "Reggie & Latisha" as having good values and being more competent when they expressed a preference for chapter 13.

Kindle and ePub Versions of Bankruptcy Code (Updated)

One of my crack research assistants, Scott Cromar, put together electronic versions of the U.S. Bankruptcy Code and Federal Rules of Bankruptcy Procedure (FRBP) that can be read using Amazon Kindle or an ePub reader. Because these books were assembled using public-domain materials from the U.S. government, we are making them available free of charge. Keep reading after the page break for links and more information.

SOPA, PIPA, and Us

Given what a small part of the web we are, it seemed a little melodramatic for Credit Slips to go dark over the proposed Stop Online Piracy Act (SOPA) and Protect IP Act (PIPA). It did seem appropriate at least to add my own voice to the opposition.

If you are not familiar with these heavy-handed attempts to police intellectual property piracy, plenty of information is available from Wikipedia here (and, yes, that link still works today, January 18). Some of the provisions in these acts could have implications for small sites such as this.

Although the government should stop the theft of intellectual property, these proposed laws go way too far, sacrificing too much freedom in the name of property rights. In particular, it disappoints me that some senators who have been champions of consumer protection have put themselves on the wrong side of this issue. Specifically, Senators Patrick Leahy, Sherrod Brown, Dick Durbin, Charles Schumer, Al Franken, and Sheldon Whitehouse are listed on THOMAS as sponsors or co-sponsors of PIPA (S. 968). It would be great to see these senators lead a retreat from these onerous pieces of legislation.

Those are my personal views as blog administrator. And, that is probably a point we don't emphasize enough on this blog -- everyone is speaking for himself or herself only.

American Banker: Chase Has Halted Credit Card Collection Suits

Yesterday, the American Banker reported that Chase has stopped filing lawsuits to collect consumer debtors. Moreover, they did it quietly and quickly. With concerns over sloppy procedures in debt collection, akin to the robo-signing problems in the mortgage industry, this news was quite interesting.

H/t to our reader who pointed me to the story.

Law of the Chicken

A headline from last Friday's BNA's Bankruptcy Law Reporter, which reports recent cases and other legal developments, caught my eye:

Poultry Farmers Can't Rely on Promissory Estoppel Theory;
Proofs of Claim Denied

That seems like a pretty harsh rule for poultry farmers. I wonder whether it is some sort of corollary to the "widows and orphans rule" -- poultry farmers always lose. Ever since Schechter Poultry was effectively overruled, poultry farmers can't seem to catch a break in the federal courts.

Bankruptcy Filings Down 11.7% in 2011

The year-end bankruptcy statistics from Epiq Systems have arrived. There were just over 1,379,000 U.S. bankruptcy filings in 2011, a decline of 11.7% from the previous year.

On a monthly basis, December kept with the theme of the past year. The daily bankruptcy filing rate in December 2011 was 4,584, a decline of 12.1% on a year-over-year basis. The past seven months have seen year-over-year declines in the 10-15% rate range. What makes December 2011 different is that December 2010 itself had a year-over-year decline. In words, the declines are building on previous declines.

The question for the moment is whether bankruptcy filings will level off at around their current level or continue to decline. I'm inclined to think we'll see a further decline in 2012, although that assessment is more instinct than analysis. I'll try to post a more formal analysis about projected bankruptcy filings for 2012. Bankruptcy filings may not be a great economic indicator, but their levels are important for the bankruptcy system.

Anna's Revenge, Episode I

We may be beginning to see the fallout from Stern v. Marshall, the Supreme Court case on bankruptcy jurisdiction courtesy of Anna Nicole Smith's bankruptcy. Last week, the U.S. Court of Appeals for the Seventh Circuit issued a broad decision that would call into question the power of the bankruptcy court to hear many state-law defenses to creditor's claims in bankruptcy. To the best of my knowledge, this is the first court of appeals decision applying Stern.

The Seventh Circuit, in a case called In re Ortiz, held the bankruptcy court could not hear claims that a health care company had violated Wisconsin state law by making bankruptcy court filings containing private medical information of bankruptcy debtors. The irony is that the bankruptcy court had found the debtors had failed to establish a claim under state law, thus making the Seventh Circuit's decision a victory for the debtors involved in that particular appeal. For other bankruptcy debtors, however, the Seventh Circuit's decision could hinder their ability to assert state-law defenses such as violations of state UDAP laws (unfair deceptive acts and practices laws).

The Decline in Bankruptcy Filings by Chapter

Bankruptcy filings have been on the decline, but has this decline been spread differently between chapter 7 and chapter 13? Using figures from the Bankruptcy Data Project at Harvard as supplied by Epiq Systems, the chart to the right breaks down the decline by chapter. (Clicking on the chart will bring up a larger version in a pop-up box.)

For the past year, both chapter 7 and chapter 13 bankruptcies have been declining. Some commentators have speculated that the slowdown in mortgage foreclosures has been the reason for the declining bankruptcy rate, but if that were true, one probably would see larger declines in chapter 13 rates given that it is the chapter associated with saving a home. In fact, chapter 13s have been declining at a lower rate than chapter 7s. Consumer credit markets play the most important role in determining the swings of the bankruptcy filing rate. If mortgage foreclosures do climb in the first part of 2012, I do not expect to see a huge increase in bankruptcy filings.

Whence Corporate Bankruptcy

A correspondent and I were discussing the changes wrought by the 1978 enactment of the current U.S. Bankruptcy Code. My correspondent noted that corporate bankruptcy became more salient after 1978 and linked this phenomenon to the 1978 law. My perception is the same: corporate bankruptcy became more salient after the 1978 enactment of the Bankruptcy Code, and my guess would be that many experts would have the same reaction. We all remember big cases like Johns-Manville, Drexel Burnham, most all of the airline cases (Pan-Am, Eastern, Braniff), and many others. These cases all tend to occur after 1978 suggesting that the 1978 law did lead to a boom in corporate bankruptcy filings. Then I wondered whether my perception was backed by empirical fact.

Welcome Back Melissa Jacoby

A few evenings ago, a wonderful e-mail arrived in my inbox from Melissa Jacoby, the Graham Kenan Professor of Law at the University of North Carolina. Melissa was one of the founding members of Credit Slips, and she was writing to accept our invitation to come back and guest blog. Melissa is a nationally recognized expert on bankruptcy, debtor-creditor, and commercial law. It is great to have her voice back with us even if it is just for a while.

Bankruptcy Filings Drop for 13th Consecutive Month

On a year-over-year basis, the U.S. bankruptcy filing rate dropped for the 13th consecutive month in November. According to statistics from Epiq Systems, Inc., the November daily bankruptcy filing rate was 4,923, a decline of 12.5% from one year ago. November marks the first time that the daily bankruptcy filing rate has dropped below 5,000 since January 2009.

New Balick Chair at Widener Law School

Many Credit Slips readers will remember Judge Helen S. Balick who presided over the U.S. Bankruptcy Court for the District of Delaware. The Widener School of Law has established a chair in her honor and invites persons to apply to serve as the first Helen S. Balick Chair in Business Bankruptcy Law. More details about the position are available here.

Warren and Empiriciscm

It is not often that intellectual debates about the nature of law and legal scholarship find their way into the popular media. Elizabeth Warren's campaign for U.S. Senate, however, has provided the occasion. This past weekend in the Boston Globe, Leon Neyfakh profiled Warren's academic career and her intellectual legacy. Neyfakh did a great job with a nuanced debate from the academy and explaining it for a popular audience. The article is well worth a read, especially for junior scholars who were not around for many of these earlier debates.

Bankruptcy Filings Continue to Dip Substantially

Epiq Systems has sent their latest bankruptcy filing statistics, and the numbers continue to show a dramatic drop in the bankruptcy filing rate. There were just over 110,000 bankruptcy filings in September which translates to 5,239 bankruptcies per day. Although that rate is about the same as it was in August, it is a 17.9% year-over-year drop from 2010.

Last year, there were 1.56 million bankruptcy filings. This year, we are on a pace to be just above or below 1.40 million bankruptcy filings. Specifically, there will be

• 1,417,000 filings if bankruptcy filings continue for the rest of the year at the same daily rate (5,644 per day) as they have averaged for the first nine months of 2011
• 1,392,000 filings if bankruptcy filings continue for the same daily rate (5,293 per day) as they have averaged for September 2011
• 1,416,000 filings if bankruptcy filings for the remaining three months of 2011 constitute the same proportion of total filings as the average for the last three months of 2009 and 2010 constituted for total filings those years (about 24.3%)

 

The Slips Go to Capitol Hill

Tomorrow, Katie Porter and I will be testifying at a subcommittee hearing for the Senate Committee on Banking, Housing and Urban Affairs. The title of the hearing is "Consumer Protection and Middle Class Wealth Building in an Age of Growing Household Debt." More information on the hearing is available here, which is also the same place the written witness statements and a link to streaming video eventually will appear. Part of the discussion will be the conditions that led Congress to create the Consumer Financial Protection Bureau and how those conditions remain with us.

Bankruptcy Filings Dropping More Rapidly Than Expected

According to the most recent data from Epiq Systems, there were 120,800 bankruptcy filings in August for a daily bankruptcy filing rate of 5,250. The August daily filing rate represents a year-over-year decline of 14.8% and a decline of 3.5% from July 2011.

These latest figures represent a somewhat deeper drop in bankruptcy filings than I had expected based on my earlier forecast of a 5-10% decline for all of 2011. With the past four months showing year-over-year declines of 10% or higher, it is beginning to look like the annual decline in the bankruptcy filing rate will be above 10%.

Was Indiana Bankrupt?

A friend of mine here in Champaign, Roger Prillaman, told me he was strolling the Indianapolis Canal Walk and saw a historical marker about how the state of Indiana became bankrupt in 1839. The canal walk is a remnant of the Whitewater Canal, an internal improvement of the mid-19th century. As one of the leading bankruptcy attorneys in the area, Roger knew this could not be right, but with all the recent talk about state bankruptcy, we both wondered whether this was a forgotten historical episode.

One More Time, With Feeling

A Credit Slips reader pointed me to an article in the Atlanta Journal-Constitution pondering why the bankruptcy rate is falling. The piece is filled with quotes about the relevance of the economy and the cost of filing bankruptcy. Most of it is wrong. For example, it is right that the cost of filing has increased since the 2005 changes to the bankruptcy law, but there is no  evidence the cost has risen in the last year. Thus, the rising cost of filing bankruptcy helps to explain why bankruptcy rates have declined relative to pre-2005 levels but not why they have declined since last year.

Regular readers will know a piece like this just pushes my buttons. Outstanding consumer credit has the strongest statistical link to the short-term ups and downs of the bankruptcy filing rate. The relationship is counter-intuitive and paradoxical. As consumer credit rises, banrkuptcy rates tend to fall in the short term. As people borrow to stave off the day of reckoning, they postpone bankruptcy. When consumer credit tightens, people are less able to borrow to satisify their current needs and, as they run out of options, are more likely to end up in a bankruptcy lawyer's office. When it comes to the economy, the bankruptcy filing rate tells us very little about the overall health of the economy. The strongest reason why bankruptcy filing rates have eased slightly is that consumer credit has become slightly more available, according to the Federal Reserve's latest release.

Omnibus Update on (Declining) Bankruptcy Filing Rates

The June bankruptcy filing figures came out while I was away, and the July figures came out a little late. Thus, I have missed the past two monthly posts on the bankruptcy filing rate. Consider this an omnibus update on the pace of bankruptcy filings. As always, the data come courtesy of Epiq Systems.

The big picture is that U.S. bankruptcy filing rates continue to fall, both on a monthly and year-over-year basis. The daily bankruptcy filing rate was 5,484 in June and 5,505 in July. These figures represented year-over-year declines of 10.0% and 14.2% respectively. As compared to one year ago, bankruptcies over the first seven months of 2011 have fallen by 9%. The trend now suggests total annual filings for 2011 will be between 1.40 and 1.45 million, a decline of 7-10% from 2010 when 1.56 million bankruptcies were filed.

Culture, Attitudes, and Debt

Rather than a post with a lot of (supposed) answers, today I have a post with a lot of questions. My goal is to start a discussion that I hope our insightful readership will take up in the comments.

Lately, I have been thinking a lot about cultural attitudes toward debt. I am not really sure what I mean by "cultural attitudes." The idea is that Bob Lawless, sitting here in Champaign, Illinois, has certain beliefs toward debt--when it is appropriate to use debt, when borrowing is irresponsible, and so forth. These beliefs about debt might differ from someone who had different life experiences because of different socioeconomic circumstances, because of experiences in another country, or because of other differences that broadly travel under the rubric of "culture." There is empirical evidence that, with "culture" defined in this broad way, differences in cultural attitudes toward debt exist.

Warren's Farewell Letter to CFPB Staff

Over at American Banker is the text of Elizabeth Warren's farewell e-mail to the staff of the Consumer Financial Protection Bureau. My favorite line: "An honest market will give companies that provide fair value to their customers a chance to flourish, free from competition with cheaters." The whole thing is worth a read.

Ain't That the Truth

"[L]et us stress being a professor specializing in bankruptcy is not a power position, even at Harvard Law School."

That high truth-value statement is from Yves Smith's post over at Naked Capitalism pondering whether Elizabeth Warren should run for president, a post that comes across as more of a thought experiment on what Obama's failure to appoint Warren to the CFPB post means for the political left. But, I like the idea of blogging for Credit Slips as a step toward the presidency.

Happy Fifth Birthday

On July 18, 2006, a few academics studying bankruptcy and debt decided to take a whirl on putting up a blog making today the fifth anniversary of Credit Slips' launch. According to Site Meter, we have had over 1.4 million visits during that time resulting in over 2.3 million page views. Those numbers do not even count those of you who read us in places like Google Reader.

We will continue to try to do what we do best, discussing credit and bankruptcy issues from a policy perspective. We cannot pretend we don't make mistakes, but what we try to bring you are independent perspectives. Credit Slips does not accept advertising or solicited guest posts (and you would be amazed how many people write wanting us to host their blog post on some industry topic).

Thank you for your readership and interest. It has sustained us for five years, and we to keep this discussion going for a long time.

Eric Rasmusen's Thoughts on Stern v. Marshall

Eric Rasmusen of Indiana University and I were having a back channel communication on the U.S. Supreme Court's holding Stern v. Marshall (see here for a summary). Eric made a very interesting observation about the intellectual move the Supreme Court made and how it relates to ideas of judicial deference to agency expertise. Eric was kind enough to give me permission to share his thoughts with the Credit Slips audience.

by Eric Rasmusen

I’m currently writing on the Intermountain tax case, where the issue is whether after the IRS loses  in  a unanimous en banc Tax Court decision about statutory interpretation, the IRS can then write a regulation asserting its favored interpretation and use that regulation plus Chevron deference to win on appeal to a District Court. The DC Circuit said the IRS can; other circuits vary in their decisions. Brand-X also is an opinion with a similarly expansive view of ; there, the Supreme Court implies that its own precedents can be overruled by executive interpretations that are not arbitrary and capricious.

The Good Faith of the Dodgers

By popular demand -- and only by popular demand -- here is a post on the chapter 11 in the Dodgers case. My beloved Redbirds seem to have found the mid-season swoon that we all knew was coming. I have been in baseball denial, but the Dodgers have dragged me back in.

Bruce Bennett, the Dodgers' bankruptcy lawyer, was quoted in a Bloomberg story as saying the Dodgers were "substantially solvent." Bloomberg then reported Bennett said the goal of the bankruptcy filing was to buy time to negotiate a television deal. If that is right, then doesn't the Dodgers' filing raise issues under the good-faith filing doctrine? There are numerous cases dismissing the chapter 11 petition of a solvent debtor which is using bankruptcy as a negotiating or litigation tactic.

In the event, Bennett's statements come across as the usual posturing at the time of a bankruptcy filing. I cannot believe that the bankruptcy court would dismiss the case for lack of good faith. Media reports suggest the Dodgers were in danger of not meeting their end-of-the-month payroll. A cash crisis for a debtor with valuable but illiquid assets is the paradigm scenario for chapter 11. There is also the unwritten rule that big chapter 11s never get dismissed for bad faith, but that is a story for another time.

I will say that a 10% interest rate on a loan for a company that says it is "substantially solvent" seems like a good deal for the lender. But, that observation again reflects on the company's characterization of its financial condition, not necessarily on the the terms of the loan.

Anna Nicole Smith May Be More Than Just the Only Loser on This One

Vickie Lynn Marshall, as she is known to bankruptcy mavens, or Anna Nicole Smith, as she is known to normal people, lost today in her second round before the Supreme Court. In his last post with us, John Pottow provided a good summary of the issues, and guest blogger Troy McKenzie also had offered some thoughts about what the case might mean for some other areas of bankruptcy law (here and here). Now that the opinion is out, I would describe it as scary for the daily workings of the bankruptcy system.

And Occasionally Jean Braucher

On behalf of everyone at Credit Slips, I am extremely pleased to announce that Jean Braucher will be joining us as an "Occasional." Jean will be well known to many Credit Slips readers and has been a past guest contributor. She is, of course, the Roger C. Henderson Professor of Law at the University of Arizona and has published widely in the areas of bankruptcy and commercial law. Jean's list of publications is too long to capture in a short summary other than to say she is one of the leading bankruptcy scholars in the country. She just completed a stint as the Robert Zinman Resident Scholar at the American Bankruptcy Institute and also serves on the board of directors for the National Association of Consumer Bankruptcy Attorneys.

And for those who are wondering: the "Occasionals" are a category of bloggers here that we established a while back. The main difference between the "Occasionals" and the "Regulars" is just the expected frequency of postings.

Bankruptcy Filings Dip Substantially in May

Bankruptcy filings in May dropped 12.5% on a year-over-year basis. There were almost 123,000 filings in May, which spread over the month's 21 business days, amounted to a daily filing rate of 5,845. That number also represents a 5.4% drop from April 2011. As always, these numbers come courtesy of Epiq Systems.

The drop in May represents the seventh straight month of year-over-year declines in the bankruptcy filing rate. It is the largest year-over-year decline since the trough of bankruptcy filings ended after passage of the 2005 bankruptcy reforms. There appears now to be almost no question that bankruptcy filings in 2011 will be down. Although the May drop is larger than expected, I still believe in my projection of a 5-10% decline for the year.

Lest anyone think the bankruptcy decline means times are great, keep in mind that the absolute number of bankruptcy filings will be between 1,450,000 and 1,500,000, representing over 2,000,000 people (because about 30% of bankruptcy cases are filed jointly by a husband and wife). There is still plenty of misery to go around.

For those who are looking for reasons for the decline in bankruptcy filings, it is because of the increased availability of consumer credit. This trend was apparent by the end of last year and, if anything, has increased in pace. Rather than belabor the point, I will refer readers to a previous post on the relationship between consumer credit and bankruptcy filing rates.

A New Study on Medically Related Bankruptcies

Thanks to our friends over at WSJ's Bankruptcy Beat, a new study caught my eye on the issue of medical bankruptcies. A new study appearing in the Journal of Clinical Oncology documents an increased risk of bankruptcy with certain types of cancers. The full abstract is available.

The study is principally directed at understanding what contributes to bankruptcy risk as between different types of cancers. But, if we can use cancer as an indicator of serious medical problems, the numbers can be used to draw some comparisons between medical problems and general bankruptcy risk. The conclusions provide some support for both sides of the debate about whether medical problems lead to an increased risk of bankruptcy.

Household Debt Panels at Law & Society

For those of you who will at the annual meeting for the Law & Society Association in San Francisco this week, there are panels exploring issues related to household debt on Thursday and Friday. Academics from North America, South America, and Europe and representing different disciplines will be presenting papers on issues relating to bankruptcy, credit reporting, credit regulation, and many other topics.

The schedule and line-up appears below the fold. The locations will be in the program for the annual meeting. Note that attendees must register through the Law & Society Association.

Bankruptcy Filings Down in April

The postings have been a little light here the last few days as we all have been taking care of the onslaught of work (mainly grading) that accompanies the end of the semester. If you are curious about the rhythms of the academic world, I have often thought that you could learn a lot just by following the posting frequency here.

One of the things that fell off my desk was my monthly update on bankruptcy filing statistics. We are almost all the way through May, but on the theory that better is late than never, here are the numbers for April. As always, thanks to Epiq Systems for the data.

It Is All Clear Now

Although I don't think today's Dilbert was about a particular industry, I do now understand a lot more about the problems with unauthorized and excessive fees in the consumer finance industry:

American Bankers Association Now Backs Warren

A few years back there was a person who used to write for Credit Slips named Elizabeth Warren. She left the blog, and we had heard she took a government job in Washington, DC. Now, word comes via our friends at the CL&P Blog that the American Bankers Association is backing her candidacy to head the Consumer Financial Protection Bureau.

This is great news, and I hope it breaks the political logjam against her nomination. President Obama could not pick a better person to head the CFPB.

UPDATE (5/3): As noted by commenter JJM, the president of the American Bankers Association is now backtracking on his statement. See here from Jeff Gelles at the Philadelphia Inquirer (which includes a wonderful analysis of a heretofore unknown phenomenon to me: the Kinsley gaffe).

The Stark Facts of Race and Bankruptcy

The Woodstock Institute in Chicago has a fantastic new report entitled, "Bridging the Gap II: Examining Trends and Patterns of Personal Bankruptcy in Cook County's Communities of Color." The results are ugly for anyone who believes in equal access to economic opportunities and justice.It should be required reading for anyone working with bankruptcy and credit. The basic findings from Cook County:

• Personal bankruptcies are concentrated in African-American communities
• African-Americans are much more likely to file chapter 13
• Women make up a larger share of individual bankruptcy filers, and a dramatically larger share in African-American communities, than men do

The only statistic that contradicts the story of a racially sorted bankruptcy system is that from 2008 to 2010 the bankruptcy filing rate increased everywhere but increased the most in white and Latino communities. The African-American fiing rate was already so much higher, however, that it is not surprising that it showed less of an increase than the increase for other racial groups.

FeedBurner & E-mail Subscriptions

By popular demand, I have made some changes to the news feed for Credit Slips. The first change is that the Credit Slips feed is now available through FeedBurner. I am told this change should not affect anyone who already has subscribed to the Credit Slips feed because FeedBurner will automatically be sending your Credit Slips posts to your old feed. It worked for me although I did get some duplicate posts immediately after I switched us to FeedBurner, but the duplicates might have been because I was the one fiddling with the settings.

The reason I switched to FeedBurner was to implement the second change, which many people had requested. You now can sign up to receive Credit Slips posts via e-mail. Just enter your e-mail address in the box to the right, and FeedBurner will start sending our posts to your inbox. You can configure how you receive those e-mails through FeedBurner.

If you are wondering "What's a news feed?," you can ignore this post. You will still be able to read Credit Slips the old-fashioned way by clicking on a link or a bookmark in your web browser.

For the Servicers: Is It Better to Rob Peter or Paul?

The U.S. mortgage servicing industry is in deep doo-doo. To foreclose on a mortgage, you must own the note and the mortgage. That's a lot of paperwork to keep track of, especially when you're trying to package as many mortgage loans into as many securitizations as you can before the market dries up. If we have learned nothing else in the past four years, it is a lot to ask Wall Street to make sure they get things right when there is money to be made. Because of lost, sloppy, and perhaps nonexistent paperwork, banks who purport to have the right to foreclose often cannot prove they own the note and mortgage.

Things are starting to hit the fan -- we can't say exactly what is hitting the fan because this is a family blog (except for here, here, and especially here). In defending itself, the mortgage industry is taking yet another reflexive, knee-jerk position that seems to me to be against their long-term interest.

Another Robo-Signing Problem

The other shoe drops: allegations of robo-signing in credit card collections (courtesy of the AP and CNBC). If it is happening in assembly-line mortgage foreclosures, there is no reason to think it is not happening in other assembly-line debt collections.

Bankruptcy Filings Continue Decline on Year-over-Year Basis

It's monthly bankruptcy filing data time. Long-time readers will suspect I am about to hit my usual theme: the raw numbers are usually deceiving. Although March saw a lot of bankruptcy filings, both the number of extra days in March and seasonality in the data make the March figures almost good news. In fact, on a year-over-year basis, the filing rate continues to decline. As always, thank you to the folks at Epiq Systems for providing the data reported and analyzed here.

The "Bachelor Party Payday Loan Ad" Makes the NYT

Andrew Martin over at Bucks blog at the New York Times also found and commented on the payday loan company trolling for customers who wanted to finance their bachelor party at a 300% APR. As our own Nathalie Martin commented a couple of weeks ago when noticed the same ad: this takes the cake. (BTW, that web page will try to stop you from hitting the "back" button on your browser to get back to this page -- another business practice only employed by the "finest" companies.)

One for the Article 9 Mavens

You're working late, trying to complete the documentation on a secured loan. You're sleepy as visions of security agreements and financing statements dance in your head. What is the perfect pick-me-up: UCC Coffee (now with milk)!

It's smooth, refreshing, and there is none of that bitter aftertaste you get from the common law.

OK, I'll grant that the real origin of this wonderfully named product is the Ueshima Coffee Co. from Kobe, Japan. Nonetheless, it should find its way into law school hypotheticals and exams dealing with the Uniform Commercial Code. After all, it is not only good, but it is also goods.

Hat tip to my student, Matt Lees, for bringing this can to class the other day.

My Personal Metaphor for the Middle Class

Today, I am visiting my parents' home and went for a walk that included a stroll down the commercial strip on the busy street near their house. Along this commercial strip in a solid middle-class neighborhood in Peoria, Illinois, is a small red brick building that thirty years ago I remember housing an insurance agency. What is there today? A payday lender.

My stroll turned into my own personal metaphor for the change in the middle class over the past generation. In place of an institution that cushioned against risk, the neighborhood now has an institution that creates it.The local bowling alley is shuttered as well -- everyone now just can  "bowl alone."

The payday lender that inspired this post does not even really stand out. In that one-quarter mile stretch of that commercial strip, there are are now five payday or auto title lenders.

Thank You to Sarah Woo

On behalf of the Credit Slips regulars, I wanted to thank Sarah Woo for joining us as a guest blogger. Her posts on Lehman, DIP financing, and the transmission of risk from financial sectors to the real sectors of the economy all had one underlying theme: those of us working in the credit and bankruptcy areas need to pay more attention to financial regulation. Well, yeah, we all should pay more attention to lots of things, but Woo's work makes very important and valuable points about how financial regulation can affect debt and bankruptcy outcomes in very specific and sometimes very surprising ways. She is a new face in the academy working on issue of debt, financial regulation, and bankruptcy, and I am sure we will hear a lot more from her in the years to come. Thank you, Sarah, for joining us, and please come back soon!

Bankruptcy Filings Climb in February, But Looks Can Be Deceiving

There were a total of 109,178 bankruptcy filings in the month of February for a rate of 5,750 new cases per day. The February figure represents a 12.6% increase from January March. Although bankruptcy filings seem to be up sharply in February, looks are deceiving. In reality, the 12.6% increase in February supports the idea that, on an annual basis, bankruptcy filings actually will decline in 2011. As always, the data for this analysis is courtesy of Epiq Systems.

Perceptions of Income Inequality

A friend alerted me to "Building a Better America -- One Wealth Quintile at a Time," an article by Michael Norton of the Harvard Business School and Dan Ariely of Duke University and that appears in the current issue of Perspectives on Psychological Science. Although a discussion of the paper kicked around in the blogosphere last fall, I missed it. Credit Slips readers might find the paper interesting but, if you're like me, might not otherwise see it. Here is the abstract:

Disagreements about the optimal level of wealth inequality underlie policy debates ranging from taxation to welfare. We attempt to insert the desires of “regular” Americans into these debates, by asking a nationally representative online panel to estimate the current distribution of wealth in the United States and to “build a better America” by constructing distributions with their ideal level of inequality. First, respondents dramatically underestimated the current level of wealth inequality. Second, respondents constructed ideal wealth distributions that were far more equitable than even their erroneously low estimates of the actual distribution. Most important from a policy perspective, we observed a surprising level of consensus: All demographic groups – even those not usually associated with wealth redistribution such as Republicans and the wealthy – desired a more equal distribution of wealth than the status quo.

A full version of the paper can be found on Professor Norton's web site.

Thank You's and Welcomes

For the past ten days, Professor Jonathan Lipson has been a guest blogger with a series of posts that left few of our readers indifferent. Love 'em or hate 'em, the posts on everything from empirical methodology to state bankruptcy seemed to strike a chord with our readers. One of the things about blogging, especially when you are a visitor for a week, is that you put your opinions (and punctuation) out there for everyone to take a shot at. On behalf of everyone at Credit Slips, I want to thank Jonathan for joining us for a week and putting himself into the fray.

Joining us as a guest for this coming week will be Professor Sarah Woo of New York University. At the UCLA "Big Bankruptcy" workshop, I had the pleasure of meeting Woo. She is doing some important work on how financial and bank regulation affects specific outcomes in the bankruptcy courts. The intersection of these two bodies of law are important yet underdeveloped theoretically and empirically. Welcome Sarah.

Lipson's Back, Is He Going to Be Trouble? (Hey-La, Lipson's Back)

When you see him coming, you had better cut out on the double. Hey-la, hey-la. Lipson's Back
You've been spreading lies that I was untrue. Hey-la . . . OK, I'll stop.

We're happy to announce that Jonathan Lipson, the Foley & Lardner Professor of Law at the University of Wisconsin, will be joining us again as a guest blogger. Our long-time readers will remember that Lipson has blogged here in the past, and we are glad that he agreed to reprise his role. The short-term plan is that he will live blog the "Big Bankruptcy" conference organized by Professor Lynn LoPucki and being held at UCLA later this week. Lipson tells me that he also has a few other posts in the works. Welcome back, Jonathan.

From the Sixth Circuit with Love (for Creditors)

Last Friday, the U.S. Court of Appeals for the Sixth Circuit released an opinion in a case called Carroll v. Baud. The decision, which generally ended badly for the consumer bankruptcy filers involved in the case, involved technical interpretive issues caused by the drafting mess that was the 2005 bankruptcy law. What caught my eye were not the holdings themselves, but the way the court got there.

After an extensive analysis finding that the plain language of the statute could support a result either for the debtor or the creditor, the court came up with its own statutory tie-breaker: in doubtful cases, rule for the creditor. The Sixth Circuit explained, "Where each competing interpretation of a Code provision amended by BAPCPA is consistent with the plain language of the statute, we must, as the Supreme Court did in Lanning and Ransom, apply the interpretation that has the best chance of fulfilling BAPCPA’s purpose of maximizing creditor recoveries." This statement is hardly a passing fancy of the court. It repeats the point in several places, including an extensive analysis of the idea in several pages in the middle of the opinion.

The court puts its thumb on the scale for haves instead of have-notes. Its reasoning is simply outrageous, not least of all because the Supreme Court cases it cited do not support its result.

Bankruptcy Filings Hit 2-Year Low in January

In January, households and businesses filed bankruptcies at the rate of 5,090 per day. The last time the daily bankruptcy filing rate was this low was January 2009. Monthly bankruptcy filings are sensitive to the number of business days in a month, making the daily filing rate a more meaningful figure than the absolute level of filings.

The January 2011 daily filing rate represented a 2.2% decline from December and a 5.9% decline on a year-over-year basis from January 2010. The January dip should not be overstated. The months of December and January historically are low filing months. Nevertheless, the January decline is keeping with the longer term trend of a declining bankruptcy filing rate and a long-term forecast that total bankruptcy filings will decline slightly in 2011.

And, before anyone runs around claiming that a declining bankruptcy rate is a sign of the economic recovery to come, be sure to read this post explaining why that is not necessarily so. As always, thanks for Epiq Systems for the data behind this post.