New Resource on Uniform Commercial Code Reform for Digital Assets including Crytocurrency

Earlier this fall I linked to a variety of resources, including webinars, on amendments to the Uniform Commercial Code to account for various types of digital assets. The scope includes but is not limited to commercial transactions involving cryptocurrency.

To add to these resources, a version of the amendments that includes official comments is now available.  

Because there will not be a uniform effective date, and some states have gotten an early start by implementing prior drafts of the amendments (see prior post), these could swiftly become relevant to transactions and disputes, including those that land in bankruptcy court. 

DOJ and DOE New Guidelines for Supporting Student Loan Discharge in Bankruptcy = More Student Loan Discharges?

The Department of Justice, in coordination with the Department of Education, has announced a new process for its handling of bankruptcy cases in which debtors seek an undue hardship student loan discharge. This new guidance has been a long time coming. In 2016, the DOE issued a request for information regarding evaluating undue hardship claims. Slipster Dalié Jiménez and I (along with co-authors) submitted a response that urged the DOE to establish clear, easy-to-verify circumstances under which it would support (or not object to) debtors' requests for student loan discharges. Subsequently we published articles expanding on and updating our proposals, always focusing on how the DOE could craft guidelines that would provide specific, objective criteria for when the DOE would not object to a requested discharge, thereby removing the guess work from discharge requests, and hopefully encouraging the filing of more student loan discharge adversary proceedings.

The new guidelines will go a long way in helping people obtain student loan discharges. They incorporate key aspects of what consumer advocates and academics have highlighted as important to promote discharges for people who will benefit from student debt relief. I predict that, over time, more consumer debtors will request and receive undue hardship discharges.

In short, the new process requires the debtor to submit an attestation form with information that will allow the DOJ and DOE to assess the three prongs of the Brunner test. At first glance, this may seem like a rehashing of the Brunner standard, thus providing the DOJ and DOE with significant wiggle-room to decide whether to support discharge. But upon digging into the requirements to meet each prong, it becomes more clear that the DOJ and DOE, overall, has adopted clear, objective criteria for its decision-making. This should provide debtors and attorneys with confidence in how the DOJ and DOE will respond to student loan discharge requests. Details about how the DOJ and DOE will handle assessing each of the prongs, plus some ruminations on how this guidance may play out, after the break.

Credit Slips Now on Mastodon

Nine years ago, Credit Slips announced its new Twitter feed. Credit Slips is now also on Mastondon, at @creditslips.mastodon.lawprofs.org. We'll put links to our posts on Mastodon as they are published, as well as boost Credit Slips authors. For now, we'll also continue adding posts to our Twitter feed. Come find us on Mastodon! 

Binance's Custodial Arrangements: Whose Keys? Whose Coins?

For months, cryptocurrency FTX (and its majority owner, Sam Bankman-Fried) have been the lender of last resort in crypto markets and pretty much the only distressed acquirer around. Now we learn that FTX has itself failed and is getting scooped up in a distressed acquisition by Binance. Does this remind anyone of Bank of America's purchase of Merrill Lynch and Countrywide in 2008? We'll see if the transaction closes, but at the very least it poses the question of whether Binance stands on any stronger ground than FTX? Binance's revenue has been way down this year, but who really knows its financial condition? It's not a public company, so there's limited visibility into its financial condition.

Here's what I do know about Binance, however, and it gives me real pause: Binance.us's Terms of Use disclose absolutely nothing about its custodial arrangement for crypto holdings. From the documents on Binance.us's website, it is impossible to determine the legal relationship between Binance.us and its customers and hence the type of counterparty risk they have from dealing with the exchange. That's scary.

The Texas Two-Step as Fraudulent Transfer

Judge Judith Fitzgerald (ret.) and I have a post about the Texas Two-Step bankruptcy process up at the Harvard Bankruptcy Law Blog, which has been running a series on the phenomenon.  And the Slips' own John A.E. Pottow has a capstone post on the same topic.    

The tl;dr read version of my post with Judge Fitzgerald is that the real fraudulent transfer vulnerability of the Texas Two-Step is the incurrence of an obligation by the BadCo in the divisive merger, not the transfer of assets to the GoodCo. Focusing on the the incurrence of an obligation not only avoids the problem of the Texas divisive merger statute deeming the merger not to be a transfer of assets (as there is a separate provision in the statute about liabilities that doesn't parallel the asset provision), but it also avoids the problem that there is no longer a transferor entity in existence.  If we're right (and we are), then it means that the liabilities follow normal state law successor liability principles, which should put the liability on GoodCo, which is continuing OldCo's enterprise.