7 posts from June 2024

Purdue Pharma Decision: a Big Win for Mass Tort Victims

posted by Adam Levitin
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.
 

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Procedural Justice and Chapter 11 Venue

posted by Bob Lawless

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

posted by Melissa Jacoby

Unjust_debts_finalFirst, 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

posted by Jason Kilborn

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

posted by Jason Kilborn

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

posted by Adam Levitin

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.

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Unjust Debts -- A New Book from Melissa Jacoby

posted by Bob Lawless

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.

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  • As a public service, the University of Illinois College of Law operates Bankr-L, an e-mail list on which bankruptcy professionals can exchange information. Bankr-L is administered by one of the Credit Slips bloggers, Professor Robert M. Lawless of the University of Illinois. Although Bankr-L is a free service, membership is limited only to persons with a professional connection to the bankruptcy field (e.g., lawyer, accountant, academic, judge). To request a subscription on Bankr-L, click here to visit the page for the list and then click on the link for "Subscribe." After completing the information there, please also send an e-mail to Professor Lawless ([email protected]) with a short description of your professional connection to bankruptcy. A link to a URL with a professional bio or other identifying information would be great.

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