Non-Bankruptcy Law in Bankruptcy Courts

posted by Pamela Foohey

This past year's American Bankruptcy Law Journal symposium at the National Conference of Bankruptcy Judges' Annual Meeting addressed the role of bankruptcy law in the larger U.S. legal system. The ABLJ recently published the related academic papers from that symposium. You can find them on the front page of the ABLJ site now. One of which I was honored to write.

My contribution, The Periphery of Bankruptcy Law: The Importance of Non-Bankruptcy Issues in Consumer Bankruptcy Cases, focuses on the range of state law exemption issues, UCC security interest issues, and federal and state consumer protection legal issues that appear in consumer bankruptcy filings to highlight how bankruptcy courts are one of the leading venues where people's non-bankruptcy legal problems may be litigated. In the piece, I write about how attorneys, trustees, and judges can provide people with a legal process to deal with their financial problems that they find meets their beliefs about what the bankruptcy process will offer them. Doing so will benefit individual debtors and the bankruptcy system, as a whole. As Slipster Bob Lawless has calculated, one in eleven Americans will file bankruptcy at some point during their lives. The chapter 11 cases of large companies and some non-profits make headline news. The public's perception of the bankruptcy system matters to the legal system's integrity.

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Shutting Down CFPB Is Not Like Shutting Down USAID

posted by Adam Levitin

Elon Musk seems to have CFPB on his hit list after having trashed USAID. Here's the thing: shutting down CFPB is actually very different in effect than shutting down USAID. USAID provides an important set of tools for American diplomacy and funds a lot of good works around the world. But it is not a regulatory agency. It doesn't administer statutes and promulgate regulations. CFPB does. Shutting down USAID harms development aid recipients and diminishes the US's foreign relations toolkit, but it doesn't cause problems with the operation of US law. Shutting down CFPB does.

Shutting down the CFPB does not void the Consumer Financial Protection Act or the enumerated consumer laws the CFPB administers like the Truth in Lending Act and the Electronic Fund Transfer Act. Those authorities can only be changed by an act of Congress, which will require 60 votes in the Senate. Nor would a work shutdown void the regulations the Bureau has promulgated under those laws. Those can only be repealed through notice and comment rulemaking. But it does mean that there would be no one with authority to update and adjust those regulations, which can all be enforced by state attorneys general, who are likely to pick up some of the slack from a non-functioning CFPB. (Remember that a violation of an enumerated consumer law is a violation of the Consumer Financial Protection Act, triggering CFPA remedies, not just the enumerated consumer law's remedies.) 

This might not matter to Musk in his move fast and break things mode, but a non-functional CFPB is going to cause real problems for regulated financial institutions.  Let's start small:  the Truth in Lending Act has exemptions for smaller transactions. The exemptions get inflation adjusted, but that requires a functional CFPB to promulgate the adjustments through rulemakings. Or suppose a firm wants to get a no-action letter. That's not going to be possible without the CFPB functioning. Or suppose there is another pandemic-like crisis that requires temporary suspension of certain rules. Not possible if the agency isn't up and running. Bottom line: there are real problems that will arise from having a zombie agency responsible for over a dozen major federal laws.  

Feb. 8. 2025 update:  Both USAID and CFPB have statutory duties to Congress. Like USAID, the Bureau is required to submit various annual or semi-annual reports to various Congressional committees (see e.g. or here or here or here or the last section here). These reports are a critical part of Congressional oversight over the Bureau. A Bureau that isn't operating can't exactly do that, which might be grounds for members of Congress to bring litigation against the administration. Whether a report that simply says "We didn't do anything because we didn't feel like it, nyah, nyah," makes muster is an open question—is there a good faith requirement implied? I could see courts saying, "It's up to Congress to discipline an insubordinate agency or a President who fails to take care that the laws are faithfully executed." But the reporting requirement might give members of Congress a hook for litigation over deactivating the agencies based on a concern that the agency will not report and that it will be impossible for Congress to undertake timely action. After all, there is a new Congress every two years, basically pressing a restart button, such that failure to transmit an annual report for 2025 would not even be on Congress's radar until 2026 and Congress might not have time to act before a new Congress is in place. Put another way, courts might need to take judicial notice of Congress's limited temporal bandwidth for governing a federal government that is vastly more complex than anything the Framers imagined.

 

Hal Scott's Call for a Presidential Ukase on the CFPB

posted by Adam Levitin

Hal Scott is at it again, calling for President Trump to shut down the Consumer Financial Protection Bureau by executive order. Scott's logic here is that (according to him) the CFPB has not had a legal basis for its funding in recent years, so the President would simply be "tak[ing] care that the laws be faithfully executed" by standing down the agency's activities for lack of proper funding, even if the agency would still continue to exists on paper. 

If Scott's first argument about the CFPB's funding was farcical, this one is a downright dangerous argument for upending the balance of the constitutional system by giving the President the unilateral power to arbitrarily decide what parts of government operations are legal.

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Musk and Treasury's Payment Systems (He Punched the Bursar...)

posted by Adam Levitin
Updated Feb. 6, 2025:  Elon Musk and his DOGE team are seeking (and apparently gaining) access to Treasury’s computer systems for managing payments.  Unfortunately, a lot of the media coverage has done a poor job of explaining the particular concerns, in part because there isn't very good understanding of exactly what Treasury does. Let met try to add some clarity here, recognizing that there's still a lot we don't know about what is motivating Musk.
 

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Pathways to SCOTUS Stardom

posted by Mitu Gulati

For more than a century, most lawyers who showed up at the Supreme Court for arguments were one shotters.  But starting in the mid 1980s, a new breed of lawyer emerged.  The SCOTUS superstar; someone who was a specialist in making arguments to SCOTUS, showed up repeatedly, and usually possessed the most elite of legal credentials possible.  No prizes for guessing the gender and race of most of these SCOTUS superstars.  (Aside -- SOOTUS superstars also existed in the early 1800s, but probably for different reasons).

A number of scholars have documented the rise of this new type of lawyer and legal specialty - included here are Kevin McGuire, Richard Lazarus, and H.W. Perry.  There has also been interesting work on the question of the impact of this new type of lawyer (they win more and are much better than others at getting cert granted - as work by Adam Feldman & Alexander Kappner has shown).

There has thus far, however, been little attention paid to the dynamics of the gender disparity among SCOTUS superstars.  Megan Lemon's excellent new paper, Pathways to the Podium, does just that using a combination of qualitative and quantitative data.  The findings from the interviews Megan did with a number of these superstars are fascinating.  One of the implications of Megan's study seems to be that men are able to more easily and quickly achieve and monetize their superstardom.  

When Can the US President Forgive a Sovereign Debt?

posted by Mitu Gulati

Let us assume that the US has made a loan to a foreign sovereign for some combination of political and benevolent reasons. For example, to support some friendly nation after they get hit by a severe hurricane or to help out a military ally with arms after they have been suffered an unprovoked attack by another nation.

Congress has the "power of the purse", so loans have to be approved by it. But does Congress also retain the power, at some later date, to decide on whether some portion of this debt can be forgiven? Or can the Executive Branch make the decision here? At first cut, under the "power of the purse" rubric, my thought was that surely Congressional approval would have to be obtained. But a fascinating new paper by David Del Terzo, appropriately titled "When Can the President Issue Foreign Debt Relief"  suggests that the answer is more complicated.

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Serta Simmons Uptier: Implications

posted by Adam Levitin
We now have the first major Court of Appeals decision on a liability management transaction. On the last day of 2024, Judge Andy Oldham of the 5th Circuit issued a very thoughtful and thorough opinion regarding the Serta Simmons uptier transaction and subsequent bankruptcy plan. (I have fond memories of Andy looking like a deer in the headlights on the 1st day of 1L Contracts when he was asked "What's an assumpsit?" by a certain former co-blogger...) Although the opinion is an important punctuation point, I don't think it will itself fundamentally change the use of liability management transactions; there's really little downside from pursuing them and potentially plenty of upside.
 

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Is Elon Musk Trying to Protect Alex Jones's X Accounts?

posted by Adam Levitin

There's a fascinating development in the Alex Jones Chapter 7 case.  Jones ended up in bankruptcy to try to avoid paying on the defamation judgment the Sandy Hook victims' families won against him. His case converted to a Chapter 7, and a trustee has been liquidating his assets. Among the assets the trustee is trying to sell are Jones's social media accounts in X (formerly Twitter). 

X has since filed an objection to the sale claiming that the X accounts are not the property of Jones, but are instead owned by X, which merely issued Jones a non-transferable license.  Now this "limited" objection is only about the "accounts" proper, not the content Jones posted on X. X claims that it is objecting because of it has an interest in preventing the transfer of accounts because of its concern about making sure that users are who they say they are.

X's professed concern about fake accounts is risible. X does not generally verify its users when it onboards them. Nor does X appear monitor in any way to determine if an account has in fact been transferred. Instead, X is a platform that is lousy with fake accounts and bots. So what's this really about?

As far as I can tell, the X objection to the sale is about Elon Musk wanting to ensure that Alex Jones can continue to use his Twitter handles and retain his followers and make it very difficult for anyone to delete or edit Jones's old posts.

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