Revisiting How Many People Have Filed Bankruptcy

Belisa Pang has an important new paper out about repeat filers, "The Bankruptcy Revolving Door."  Using new techniques and as well as a database of credit reports, she estimates the percentage of bankruptcy filers who are repeat filers is 36%. In 2023, she estimates the figure was 46%. The paper also explores the reasons for repeat filings. It should be required reading for anyone in the consumer bankruptcy space.

Pang's estimate is much higher than the official statistic from the bankruptcy court records which ask filers to disclose repeat filings in the last eight years. According to the FJC database, 19% of filers since 2014 have checked the box that they filed bankruptcy in the last eight years. For the research data from the Consumer Bankruptcy Project, we collects the date of the last filing. Despite the official language asking about bankruptcy in the last eight years, 16% of those who report a repeat filing are reporting a prior case from more than eight years ago. Thus, I wondered how many prior bankruptcies are actually going unreported. I spot-checked some of our own research data. Using Pang's methodology, I found it was pretty easy to locate cases that do not disclose a repeat filing on the bankruptcy forms, but the court's computer system (PACER) has flagged as a repeat filing. 

Pang's paper caused me to revisit my estimate of how many living Americans have filed bankruptcy. When I did the calculations, I came up with a conservative estimate of 1 in 10. The precise number was 11.1% but because of the heroic assumptions I was making, especially with the repeat filing rate, I called it 1 in 10 to be conservative. In my calculation, I used an assumption, based on the then-current FJC records, that 15.2% of filers are repeat filers. Pang's much higher figure means my estimate is a bit too high. If I plug 36% into the numbers I used then, I come up with 9% of the public having filed bankruptcy. If the repeat filing rate is 46%, the percentage drops to 8% percent. So, it is maybe in 1 in 11 or 1 in 12. That is still not a small number.

Conference Opportunities at Boston U. and Cornell

Credit Slips friends have made us aware of two upcoming academic conferences that might be of interest to our readers. First, the seventh annual Consumer Law Scholars Conference will be held at Boston University on March 6-7, 2025. Abstracts are due on September 6, 2024. More information, including on how to submit an abstract is available at their official call for papers web page. 

The second conference aims to bring together mass-tort and bankruptcy scholars at Cornell on September 20. Speakers and papers are already set as set forth in their official event poster. This is a symposium of the Cornell Law Review such that we should expect a law review issue about how these topics will continue to collide.

Preliminary Injunctions After Harrington v. Purdue Pharma

The Supreme Court's opinion in Harrington v. Purdue Pharma left open a lot of questions about the extent of its scope. We now have one of the first opinions exploring those questions. Judge Craig Goldblatt of the Delaware bankruptcy court faced a request for a preliminary injunction in the bankruptcy of right-wing social media platform Parler. Judge Goldblatt concluded that "authority to 'extend the stay' survives Purdue Pharma." I'm skeptical. 

Man Bites Dog, or Debt Collector Restructures Its Distressed Debt

I couldn't let this one pass without noting it. The largest debt collection company in Europe has found itself on the other end of the dunning letter. Swedish debt collection company Intrum has achieved majority (barely) support for a deal with bondholders to swap 10% of its $5.8 billion debt for equity and push out the maturity of remaining notes. Intrum found itself in this mess after "years of borrowing heavily in the low-interest era to buy portfolios"--that is, to buy bunches of distressed debt owed by strapped borrowers all over Europe, which Intrum would then squeeze for repayment at a higher rate than Intrum had paid. Or so Intrum hoped. Apparently this investment strategy went sour after "a slowdown in its business." Hmmm. What an interesting euphemism! Borrowers resisting collection pressure more resolutely now? I wonder if the growing wave of personal insolvency procedures across Europe has contributed to this "slowdown" for Intrum's debt collection efforts. Good news for borrowers is bad new for the debt collector!  

The Hydraulic Effect of Loper Bright Enterprises in Consumer Finance: More Regulation By Enforcement

This term's Supreme Court decisions have completely remade administrative law, both by eliminating Chevron deference and by effectively eliminating the Administrative Procedures Act's statute of limitations. In Loper Bright Enterprises v. Raimondo, the Court held that as a constitutional matter federal courts could not give deference to federal agencies' interpretations of ambiguous statutes. And then the Court opened the door to APA challenges to virtually every existing federal regulation, no matter how old, with Corner Post Inc. v. Board of Governors of the Federal Reserve System, a statutory ruling that the APA's six-year statute of limitations runs from the date a plaintiff is allegedly injured by the regulation, rather than from the date of the regulation's finalization. That means that a business that is incorporated tomorrow has at least six years to challenge any regulation that affects it, and maybe more depending on when it is affected. In other words even New Deal or Progressive era regulations could be challenged tomorrow and there would be no deference to the agency's long-standing interpretation of the statute authorizing the regulations. I pity my colleagues who teach admin law--their course lost at least a credit hour's worth of material. Maybe they'll decide to take up commercial law....

These decisions are, taken together, a major rolling back of the administrative state. But these decisions will affect different agencies differently, and the Court's rulings may have some unintended consequences. To wit, many federal agencies have both rulemaking and enforcement powers. In some instances, enforcement is dependent on rulemaking, as the agency lacks a general statutory prohibition to enforce, but can only enforce its particular rules. The EPA is (I think) an example of this type of agency. It doesn't have a general statutory prohibition of "don't pollute." OSHA and the FDA and NLRB and Dept. of Commerce. For agencies in this category, Loper Bright Enterprises and Corner Post clip not only the agencies' rulemaking power, but also their enforcement power, because they will have to defend the rules they are enforcing. 

In other instances, however, the enforcement powers are independent of rulemaking, as there is a broad statutory prohibition that the agency can enforce without rules. This is where federal financial regulators sit.  In these cases, Loper Bright Enterprises and Corner Post will have a hydraulic effect:  agencies are going to do what they're going to do, so if they can't do it through rulemaking, they'll do it through enforcement and supervision. In other words, what the Supreme Court did was to supercharge regulation by enforcement in the financial regulatory space.

Upcoming Public Events for Unjust Debts

More upcoming events open to the public - in person and virtual - for the new book Unjust Debts, including tonight in Washington DC. Join the conversation!

• Monday July 8, 7pm ET: Politics & Prose, with Vicki Shabo, Senior Fellow at New America
• Wednesday, July 17, 3pm ET VIRTUAL: Roosevelt Institute, with think tank director Hannah Kroch-Blegley
• Thursday, July 18, 5:30 PM: Fletcher Free Library, Burlington VT, with Vermont State Treasurer Mike Pieciak
• Sunday, July 21, 10:30 AM: Temple Beth Shalom, Brigantine NJ (contact me for registration information). 
• Friday August 16, 12pm PT/3pm ET VIRTUAL: Berkeley Judicial Institute/Berkeley Civil Justice Research Initiative, with Professor Abbye Atkinson

 

Purdue Pharma Decision: a Big Win for Mass Tort Victims

Mass tort victims won a big victory in the Supreme Court today with its 5-4 decision to reverse confirmation of the Purdue Pharma bankruptcy plan because it included impermissible nonconsensual releases of nondebtors. The case is a victory for tort victims not just in Purdue Pharma but across the board. The decision will not prevent the global resolution of mass torts in bankruptcy, but will simply eliminate the "bankruptcy discount."

 

Before Purdue Pharma non-debtors could piggyback on a bankruptcy case to get 100% resolution of their own liability to the debtor’s creditors based on contributing enough to get 75% of tort victims to consent. Now the price of 100% resolution will be the price necessary to get 100% of tort victims to consent and the price of 95% resolution will be the price necessary to get 95% of victims to consent, etc. In other words, non-debtors will get what they pay for, but there’s no longer a bankruptcy discount for mass tort settlements with nondebtors.  That’s a major win for tort victims.

 

Procedural Justice and Chapter 11 Venue

The good people at Bloomberg News asked if I wanted to elaborate on a post I did about procedural justice and chapter 11 forum shopping. The resulting opinion piece is here: "Bankruptcy Venue Shopping Breaks Perceptions of Judicial Fairness." It should not be behind a paywall.

The piece builds on the procedural justice literature about the noninstrumentalist concerns that drive perceived legitimacy of a legal system. It is easy to find a court decision legitimate when the court rules in your favor, or as a nonparty, you agree with it. For the legal system to work, parties have to respect decisions they don't agree with. Fortunately, social scientists have told us a lot about what drives perceptions of judicial legitimacy.

Spoiler alert: picking your own judge ain't it.

Unjust Debts on the Road

First, thanks to Bob Lawless for his post about my new book. It has been great to engage with people about Unjust Debts so far, and especially appreciated the book making a new Financial Times best books list (links to that and other coverage here). Wanted to note a few upcoming book events for Credit Slips readers:

• June 27 (TONIGHT): Greenlight Bookstore, Brooklyn NY, in conversation with Zephyr Teachout. Information and RSVP here. 
• July 1 (VIRTUAL): Commonwealth Club World Affairs, in conversation with Senator Elizabeth Warren. Information and registration here. 
• July 8: Politics & Prose, Washington DC, in conversation with Vicki Shabo. Information here. 

Alex Jones, Chapter 7, and the Means Test

I'm embarrassed to have fallen into an analytical trap that yet again reveals the absurdity of the means test. When I saw that Alex Jones was converting his personal Chapter 11 case to Chapter 7 liquidation, I wondered, "how in the world could Alex Jones pass the means test?!" Well, a quick look at section 707(b) reminded me that some pigs are more equal than others: the means test applies only to debtors "whose debts are primarily consumer debts." The $1.5 billion defamation debt obliterates the means test ... because of course Alex Jones's personal bankruptcy case is not an abuse of the system (!). Further evidence in support of the thesis of Melissa's new book, it seems.

Long-run (positive) effects of personal debt relief

Empirical papers on the long-run effects of a personal bankruptcy relief system (i.e., discharge) are rare, so this fascinating new paper caught my eye. The first personal insolvency discharge system in continental Europe appeared in Denmark in 1984, and this paper takes advantage of that long lifespan to mine some rather unique data. The results are unsurprising but very useful in the ongoing debate about the salutary effects of such procedures: "debt relief leads to a large increase in earned income, employment, assets, real estate, secured debt, home ownership, and wealth that persists for more than 25 years after a court ruling." So the benefits of debt relief are not only substantial but robust, as debtors learn their lesson (if there was one to learn) about managing their finances, and they capitalize (literally) on their fresh start. Perhaps most important, the cause of these effects seems to be largely the desired result of any personal discharge system--getting debtors out from under the debilitating thumb of hopelessly unserviceable creditor demands and reactivating them as engaged workers and taxpayers: "The net transition of workers into employment accounts for two thirds of the increase in earned income." Great contribution to the literature on personal insolvency and well worth a read.

Second Time as Farce: the Absurdity of the New Anti-CFPB Arguments

Karl Marx's famously quipped how historical figures appear twice, "the first time as tragedy, the second time as farce." So too with the legal arguments about the constitutionality of the CFPB's funding: we are firmly in farce territory at this point. 

Nevertheless, over at Ballard Spahr's Consumer Finance Monitor blog my friend Alan Kaplinsky doesn't seem to get the joke and has earnestly taken issue with my criticisms of Hal Scott's claim that the CFPB's funding is unauthorized both by statute and under the Constitution. I find the legal arguments involved here so thin that I wouldn't bother with a second blog post about them, other than that they've found a welcoming audience from some members of Congress (yes, I can hear the remarks from the peanut gallery...).  So let's go through this again.

Unjust Debts -- A New Book from Melissa Jacoby

Today is the publication date for Unjust Debts: How Our Bankruptcy System Makes America More Unequal from University of North Carolina law professor and Slipster, Melissa Jacoby. This book will be the talk of the bankruptcy community. Be the first in your firm or organization to have a copy. The book is available on Amazon or (better yet) Bookshop.org. 

Bankruptcy touches most every aspect of modern-day financial life. Professor Jacoby questions whether bankruptcy works as an effective second chance for everyday Americans while documenting the many ways the system allows powerful individuals and corporations to escape commitments. As such, she shows how the bankruptcy system contributes to inequality. For those who work in the bankruptcy system, her thesis may be controversial. For those who are not immersed in that system, the book will be eye opening.

SCOTUS National Bank Act Preemption Ruling

The Supreme Court issued an important ruling about the National Bank Act's preemption standard today that precludes broad, categorical preemption of state consumer financial laws, but instead requires a fact-specific analysis.This decision opens the way to more expansive state consumer financial regulation that affects banks.

NIL and Bankruptcy

Bankruptcy lawyers are familiar enough with issues presented but NOLs. And NILs (name, image, likeness rights) have existed for as long as the modern Bankruptcy Code. But those rights have usually come up in the context of debtors with established, valuable brands (e.g., Mike Tyson). Now college atheletes can enter into NIL deals, and for many of them the value isn't yet established and there might not even be licensing deals yet. That situation poses the question of to what extent unlicensed NIL rights are property of the bankruptcy estate, and not of the debtor?