New Empirical Paper on Home Mortgage Foreclosure and Bankruptcy

Cross-campus colleagues and I have posted a paper that studies intersections between mortgage foreclosure, chapters of bankruptcy, and other variables, using the Center for Community Capital's unique panel dataset of lower-income homeowners. An excerpt from the abstract:

We analyze 4,280 lower-income homeowners in the United States who were more than 90 days late paying their 30-year fixed-rate mortgages. Two dozen organizations serviced these mortgages and initiated foreclosure between 2003 and 2012. We identify wide variation between mortgage servicers in their likelihood of bringing the property to auction. We also show that when homeowners in foreclosure filed for bankruptcy, foreclosure auctions were 70% less likely. Chapters 7 and 13 both reduce the hazard of auction, but the effect is five times greater for Chapter 13, which contains enhanced tools to preserve homeownership. Bankruptcy’s effects are strongest in states that permit power-of-sale foreclosure or withdraw homeowners’ right-of-redemption at the time of auction.

Bear in mind that most homeowners in foreclosure in this sample did not file for bankruptcy. Among the 8% or so who did, the majority filed chapter 13. For even more context, please read the paper - brevity is among its virtues, and exhibits take credit for page length. A later version will ultimately appear in Housing Policy Debate.

Ribbon house image courtesy of Shutterstock.

Detroit's Managerial Milestones

A city in bankruptcy operates with considerably more freedom from judicial oversight than its private chapter 11 counterparts. People often say judges have just two principal points of involvement in a chapter 9: presiding over trials on eligibility and confirmation of the plan of adjustment. My earlier posts about Detroit have told a story that puts judges in a more active ongoing role, emblematic of the evolution of the federal judiciary over the second half of the Twentieth Century. Serious managerial judging (plus a team) empowers them to shape the speed and direction of municipal restructuring notwithstanding doctrinal and constitutional limits on their formal legal authority. Yesterday's evidentiary hearing in Detroit's bankruptcy is illustrative.

One Hundred Forty Characters (Of Detroit)

Short bursts on Detroit's Chapter 9 bankruptcy will be offered at @bankrprof. While I'm here, though, a report that the retiree committee has filed a motion to withdraw the reference from the bankruptcy court of its objections to Detroit's chapter 9 eligibility. 

Note paper image courtesy of Shutterstock

Detroit: More People, Moving Faster (and, in an instance, Slower)

My Detroit posts so far (here and here) focus on the role of the judge and court. The first considered managerial judging, and there's significant news on that front this week. Having read one hundred and nine timely objections to eligibility, Judge Rhodes interpreted many objections to raise only legal issues and expedited the hearing on those issues to September 18, from October 23 (see p.3 of order). On September 19, the court will hear from individuals who filed eligibility objections, three minutes each. October 23 remains the date for objections that require the resolution of material fact. But the court is deferring objections based on treatment of pension rights in a plan because they are not eligibility issues (see section VI of the order, p. 6). This is the technically "slower" instance, per this post's title. Parties troubled by this new order have until September 6 to file objections or comments (see section XI. p.7).

Doesn't Anyone Want to Talk About Jurisdiction This Week?

With the Second Circuit's ruling in the Argentina/NML case and the now-urgent need to get secured transactions and bankruptcy into the 1L curriculum, Credit Slips has yet to give attention to Wellness International Network, Limited,  issued on Aug 21 by the Seventh Circuit. Luckily, on this issue, I don't mind getting the ball rolling, and then stepping out of the way. 

It Takes A Village: Detroit, Chapter 9, and Litigotiation

First, the most recent news: the fee examiner job in Detroit's chapter 9 has just been awarded. And the Detroit Free Press has just awarded itself a not-so-subtly snarky news headline. 

Similar to the bankruptcy court's order appointing a mediator, the fee examiner order authorizes the examiner to call in reinforcements - other lawyers at his law firm, as well as an accountant and the accountant's firm. Judicial Team Chapter 9 Detroit grows. 

A cadre of federal judges once fought hard - repeatedly and successfully - to exclude bankruptcy judges from the Article III judiciary. In so doing, they conceptualized bankruptcy judges as the helpers, not the ones building teams. When a district judge was asked at a Congressional hearing in the 1970s whether bankruptcy judges would need law clerks, the district judge's NO could be heard from miles around. That issue has long been resolved - of course, they need law clerks. The Federal Rules of Bankruptcy Procedure prohibit special masters in bankruptcy cases. But bankruptcy courts commonly appoint fee examiners or fee committees in bigger cases, which seem little different from a special master. And the judges fighting against Article III status never imagined a bankruptcy judge appointing his own chief district judge as the omnibus mediator, with the potential for a raft of additional judicial and non-judicial mediators in tow. But now it has happened. And that delegation of responsibility from bankruptcy judge to district judge is already underway, per the first mediation order dated August 16.  

And yet, the building of this team should feel familiar to those Article III judges from the 1970s and 1980s. When they needed to bring order to complex cases involving unconstitutional conditions in prisons and schools, and bargaining over the remedial scheme, district judges brought in more people. Masters. Special masters. Hearing officers. Monitors. Various kinds of committees. Ombudsmen. Barring the appointment of lions, tigers, or bears, the City of Detroit case yet again illustrates commonalities between the non-adversarial aspects of bankruptcy cases and non-bankruptcy litigotiation.

Human spokes image courtesy of Shutterstock

Detroit's Chapter 9 and the Vanishing Umpires

When the Chief Judge of the Sixth Circuit selected Judge Rhodes to preside over the City of Detroit's chapter 9 case, she attached a letter from the Chief Judge of the Eastern District of Michigan. Among other things, it lauded Judge Rhodes' case management skills, and asserted the need for those skills in a case of this nature. To many, the phrase “case management” may evoke procedural judicial tasks of little normative content. But the sandwich of the two words should invite deeper questions about the role of courts, judges, judicial adjuncts, and trials, and the impact of the presence or absence of disputes playing out in public view.

Buying Hope

Those interested in The Stakes of Design back in April may appreciate Why We Keep Playing The Lottery. Thanks to The Morning News for alerting readers to the article, and thanks to author Rosecrans Baldwin for co-founding The Morning News, and . . . that's enough.

Numbers image courtesy of Shutterstock

Don't Fancy Games (For Your Kids' Financial Education)? How About The Theatre?

"Make it fun and they will come," Lauren Willis discussed in the instructive post that evaluated the pros and cons of "The Gamification of Financial Education." Meanwhile, in London, a live show has been designed for children as young as five to teach them about the financial system. Interesting story on the show in The Guardian here. Tickets to "Bank On It" (running through the 14th of July) and other information here.   

Money tree image courtesy of Shutterstock 

Ice Cube Bonds: New Paper on 363 Sales and Chapter 11

FAC UT ARDEAT, begins The Flamethrowers by Rachel Kushner. It means "made to burn," the narrator learns (from that "gasbag . . . Chesil Jones"). Whether your preferred hurry-up 363 sale metaphor involves flames, ice, or a wagon full of rotting salmon, Ted Janger and I have just posted a draft of an article reframing the problems with pre-plan going-concern sales, and reallocating the risk associated with such sales. The abstract:

Financially-distressed companies can melt like ice cubes. In Chrysler’s Chapter 11 bankruptcy, the finding that the debtor was losing $100,000,000 per day justified the hurry-up sale of the company to Fiat.  This assertion -- that the firm is a rapidly wasting asset -- is frequently offered, and accepted, in support of quick sales under section 363(b) of the Bankruptcy Code. This raises a policy question:  is this speed and streamlined process a “bug” or “feature?” Do these hurry-up going-concern sales create a speed premium and maximize value for the bankruptcy estate, or do they facilitate collusive deals between incumbent managers, senior creditors and potential purchasers? The answer is, “a little bit of both.” It is, therefore, crucial to distinguish between sales where the court and parties have good information about the value of the company and the costs of delay, from those in which melting ice cube leverage is used to exploit information asymmetries and to lock-in a favored deal. To accomplish this sorting and reduce transactional leverage, we seek to allocate the increased risks of foregone process to the beneficiaries of the sale. We propose that a reserve – the Ice Cube Bond – be set aside at the time of sale to preserve any potential disputes about valuation and priority for resolution after the sale has closed. This approach retains expedited section 363 sales as a useful way to quiet title in complex assets and preserve value, while preserving the opportunities for negotiation and adjudication contemplated by the Bankruptcy Code.

Perhaps Ice Cube Bonds is the long weekend reading material you were hoping would come your way? We'd value your feedback.

Match image courtesy of Shutterstock.

The Stakes Of Design

That 99% invisible is a vibrant architecture and design podcast might have been beside the point in Credit Slips land -- but for the fact that its current show (Episode 78) focuses on the design and technology of casino slot machines, and the particular profitability of penny slot machines. The short piece is built on the work of M.I.T. professor and anthropologist Natasha Dow Schüll. Lots on the consumer finance and cognitive behavioral side of things; don't expect any mention of bankrupt casinos.

Slot photo courtesy of Shutterstock.

Foreclosing On The Life Story In Your Head

In the fictional worlds of Charles Yu, George Saunders, or Etgar Keret, a person's accumulated life stories and thoughts when she files for bankruptcy might be withdrawn, like blood, then filtered for marketability. In such a world, a debtor might be required to spin her tale for the sole benefit of creditors, or forever silenced. Planning to give a five-minute anecdote about your childhood at The Moth? Don't even think about it.

Casey Anthony's bankruptcy was filed in January 2013 as a no-asset Chapter 7, with nearly  $800,000 in debt - not counting scores of claims with amounts identified as "unknown." Ms. Anthony's income and expense schedules list, literally and rather remarkably, zeroes all the way down. At the 341 meeting of creditors in March, Ms. Anthony asserted that friends and strangers take care of her needs. Presumably, this arrangement is not sustainable. Will she seek to support herself in the future by talking about her past? 

The bankruptcy trustee wants to auction off something that probably has never been expressly sold in a bankruptcy case (it certainly wasn't listed as an asset in the schedules): exclusive rights in perpetuity to the commercialization of Ms. Anthony's life story, including "her version of the facts, her thoughts and impressions of whatever nature, in so far as these pertain to her childhood, the disappearance and death of her daughter . . . her subsequent arrest . . . and withdrawal from society. . . ." (see the lengthy paragraph 3 in here). How much debt would be satisfied by such a sale? 

When a Billion Dollars has Eight Digits; Taking Authorization Seriously

Move over, two ships Peerless. Even in legal regimes that prioritize substance over form, errors in the execution of formalities can produce significant consequences and the risk of transactional failure. And even chapter 11 cases featuring quick asset sales can generate litigation over such formalities for years to come. A recent example illustrates both points.  

On March 1, 2013, the United States Bankruptcy Court for the Southern District of New York issued and certified a judgment for direct appeal to the United States Court of Appeals for the Second Circuit. The decision grants summary judgment in Official Committee of Unsecured Creditors of Motors Liquidation Company v. JPMorgan Chase Bank, N.A. et al, adversary proceeding 09-00504, in the GM bankruptcy. The decision already has received in-depth summaries, at least in some law firm bulletins. If the Second Circuit accepts a direct appeal, I aspire to watch the oral arguments, but hope it will be easier to find a seat in the courtroom than in NML v. Argentina.   

Stripping Down Bankruptcy Jargon

A Credit Slips commenter recently asked that blog posts explain (or at least spell out) acronyms and specialist terminology. This inspired me to report back on a corporate bankruptcy terminology set that University of North Carolina Law students collaboratively produced last year (technically, a wiki) in business bankruptcy, an advanced transition-to-the-profession seminar. In both comments and emails, Credit Slips readers helped me expand the list of terms (and also offered great ideas for practical writing projects). So thanks again for your contributions, and thanks also to the Spring 2012 seminar alumni - some of whom are practicing bankruptcy law or clerking for bankruptcy courts right now, or headed there soon - who tackled the collaborative vocabulary project, and the entire seminar and its experimental elements, with such great spirit and a 100% perfect attendance record! So, some observations. 

Right of Publicity as an Asset in Bankruptcy?

A quick post to announce that intellectual property scholar Jennifer Rothman has just published an article that engages with the bankruptcy treatment of the "right of publicity." Painting with the broadest brush, the piece questions the alienability of an identity-holder's right of publicity more generally, and concludes creditors should not be entitled to "own (or control)" a debtor's right of publicity (p.236). For the bankruptcy and commercial lawyers reading this post, or courts confronting questions of creditor entitlement to a debtor's right of publicity, the article contains references to recent court decisions of potential relevance (pp. 199-200) in addition to important arguments on these questions. According to Rothman, there still is no published caselaw explicitly holding that creditors are entitled to the value of a bankruptcy filer's right of publicity. (If Credit Slips readers know of examples that did not result in published decisions, I would welcome a comment below, or a note to [email protected]).

Brains for Hire

Posting again on fiction so soon? Not the original intention, but I recently read a story that skirts around the substantive core of Credit Slips, as well as the fabulous work of sociologist Viviana Zelizer, a past Credit Slips guest. Blame or gratitude can be sent c.o.d. to Charles Yu, a lawyer when he is not writing things like Standard Loneliness Package (also in Yu's recently published collection). The thirty-nine year old narrator receives 12/hour to absorb the pain and bad feelings from wealthy customers who pay 100, 200, 2,000/hour to be devoid of such pain and bad feelings. The price varies for watching a loved one die, a funeral, surgeries, root canal, breakups, firings, quittings, nose dives in the stock market (priced higher than some deaths). The company will not quote a price for death of a child.

In Defense of Bankruptcy Courts (or, Is Bankruptcy Really That Exceptional?)

Although not always acknowledged expressly, exceptionalism is pervasive in bankruptcy scholarship. Some work makes no attempt to contexualize bankruptcy within the federal courts, apparently assuming its unique qualities (for example, the disinterest in most bankruptcy venue scholarship about venue laws applicable to other multi-party federal litigation). But other projects are more deliberate in their exceptionalist pursuits.

Financial Failure Fiction (and Poetry)

If I am not mistaken, it has been a while since Credit Slips has featured discussions of "bankruptcy literature." So I thought I would report that I just finished The Financial Lives of the Poets by Jess Walter, whom Janet Maslin called a "deft humorist and catastrophist" back in 2009. The book is a powerful reminder that literary writers and others in the art and culture worlds have amazing tools to capture the spiral downward and the third-party effects. And behold a writer who dares to use not only the term bankruptcy, but to distinguish between its constituent chapters. Disclosure: this book would not be rated PG (at least in my naive world) and it is deliberately outlandish. Taking it literally could produce extreme lack of sympathy for the indebted financial reporter-poet protagonist. You might like this book if you are a fan of, say, The Information by Martin Amis, The Ask by Sam Lipsyte, or Straight Man by Richard Russo. Readers out there, feel free to share your take on Walter's book (and name any other recent works of fiction that you think do it as well or better). Apparently, the book is being turned into a movie with Jack Black, directed by Michael Winterbottom. 

Regardless of the outcome in the book, let's not give up on the idea of online financial reporting and advice in the form of poetry (making a living on it is a different story). Perhaps one of the Credit Slips gang will be inspired to give it a try on this site? Stay tuned.  

What's On at a Courthouse Near You

In addition to a post last week broadly raising visitors' physicial interaction with courts, an earlier post discussed variation in the website availability of daily calendars for U.S. bankruptcy courtrooms. Today's post follows up on this narrower thread for two reasons. First, some who responded privately were interested in hearing what else was discovered. Second, the end of Judith Resnik's recently published Addison C. Harris lecture stresses that public access to court proceedings is more than of merely conceptual importance. While she observes that, "obtaining  a robust audience for courts also requires structural attention," it turns out that "many judges report their courtrooms to be lonely spaces" and "[i]n contrast to the popularity of media shows about courts, real judges often find themselves without an audience."(p. 339) These were not references to bankruptcy court (the lecture recognizes in other places that the nature of bankruptcy work occupies more courtroom time notwithstanding the phenomena of managerial judging and vanishing trials), but tee up the issue raised earlier: why don't all public courts post calendars on their websites? 

Representation and Realities of (Bankruptcy) Court Work

The Yale Journal of Law and the Humanities held a symposium on "Courts: Representing and Contesting Ideologies of the Public Sphere" in 2011, and recently published papers from this event. Some of the contributions to this symposium, especially the piece by Judith Resnik and Dennis Curtis, and the commentary by William Simon, emphasize the potential disconnect between representations of law and justice that might adorn courthouses and the nature of the actual work that goes on inside. Although these scholars did not discuss the bankruptcy court in depth (Simon does mention that scholars have long seen bankruptcy as deviating from traditional models of adjudication), each side of the disconnect may be quite interesting for our purposes.

Bankruptcy Court Calls

In connection with some ongoing research, I have noticed that U.S. bankruptcy courts have different approaches to informing the public about matters being taken up in open court. Many provide PDFs of court calls on their websites up to several weeks in advance (recognizing that matters settle, are postponed, or can change for other reasons). But on other bankruptcy court websites, it is difficult to find out what's happening on any given day. Might the informed readership of this blog offer reasons that courts refrain from making that information available on their websites? If you'd rather not comment directly on this post, feel free to write me privately at [email protected]. 

Article 9 and Bankruptcy Judges

A prior post addressed a proposed amendment to Article 9's official comments stating that the date of an Article 9 filing relates back to the initial filing date even if the debtor did NOT authorize the filing at that time. This post returns to that topic for two reasons. First, although it is risky to generalize, I sense that bankruptcy judges may still be unaware of this proposed amendment. This is relevant because bankruptcy judges often are on the "front lines" of Article 9 interpretation. Second, I have heard, indirectly, that at least some people want this amendment to lend approval to some lenders' current practice to routinely file without authorization during the loan application process. In other words, the loan is likely to be given within a few days, so no harm no foul. Maybe I misheard or misunderstood?  

Speaking of Student Loans . . .

President Obama is at UNC-Chapel Hill today to talk about student loan interest rates. His speech should be streamed here at around 1:15 pm EST according to recent estimates.  

Recommended reading: Broome on Article 9 Financing Statements

A few weeks ago I wrote about the importance of giving priority to an Article 9 financing statement only from the date on which the debtor  actually authorizes the filing, and a proposed official comment contrary to this position. My colleague Lissa Broome has just posted on SSRN an article she has written about another dimension of the issue: when secured parties file financing statements with an indication of collateral that is far broader than what the debtor authorized in the security agreement. She discusses recent cases that do not deter this activity as well as potential implications, including the chilling effect on future lending transactions.

When the debtor's signature was eliminated as a requirement for a valid financing statement in Revised Article 9, the drafters justified the change by technology: medium neutrality and facilitating paperless filing. Functionally, though, the implications go far beyond technology when you combine this change with the opportunity to file all-asset financing statements AND the broadest possible reading of the first to file or perfect rule discussed a few weeks ago.

Promoting Integrity in the UCC Article 9 Recording System

On January 1, 2011, Larry files a UCC-1 financing statement against David indicating David's equipment as collateral. At this point, David doesn't even know Larry, has not given him a security interest, and has not authorized this filing. On February 1, 2012, David meets and borrows money from Larry and signs a security agreement listing equipment as collateral (which, under UCC 9-509, automatically authorizes the filing of a financing statement against equipment). What is the relevant date for determining Larry's priority? The language of Article 9 itself strongly implies that February 1, 2012 is the relevant date. UCC 9-509 makes clear that financing statements are not valid unless authorized by the debtor - a pretty minimal burden to cloud the debtor's title. But a little-discussed 2010 amendment to the official comments of Article 9 says otherwise: to the drafters, if the filing is later authorized, Larry gets the benefit of the 1/1/2011 filing date for purposes of the "first-to-file-or-perfect" rule and other priority rules or competitions. 

The most relevant portion of the new paragraph (an addition to comment 4 to 9-322) reads as follows:

Credit for Parenthood (in the Wall Street Journal)

Wall Street Journal Reporter Jessica Silver-Greenberg casts a spotlight on the market for fertility treatment loans - including loans that enable the purchase of other women's eggs  - in the article "In Vitro a Fertile Niche for Lenders."  (subscription required). Perhaps this will prompt some coverage of the adoption loan market, which also has very interesting not-for-profit lending options; the direct financial price of the credit may be low but some complicated strings are attached. My earlier efforts to broadly evaluate the impact of loans in these markets are here and here. 

Break up Bank of America?

Steve's title was subtle, so in case anyone missed it, here are the materials on Public Citizen's website. The petition calls on the Federal Reserve and the Financial Stability Oversight Commission to use their authority under Dodd-Frank to break up Bank of America. (But still check out Steve's analysis on Dealbook!).

Should the Government or the Market Set Mortgage Down Payments? A New Study

UNC's Center for Community Capital has posted a new analysis of 19.5 million mortgage loans originated between 2000 and 2008 finding that mandatory down payments of 10% would lock out nearly 40% of all creditworthy borrowers while a 20% down payment would exclude 60%. The study finds a significantly higher exclusion rate for African American and Latino borrowers. The authors (Roberto Quercia of UNC, Lei Ding of Wayne State University, & Carolina Reid from the Center for Responsible Lending) do find valuable default-reduction benefits of other forms of strong underwriting as the Dodd-Frank Act already requires (through the "QM" and "QRM" classifications), but signal caution about the significant access costs of government-mandated down payment levels that government regulators may be currently considering.

Your Favorite Business Bankruptcy/Restructuring Lingo: A Word of Thanks

Just a word of gratitude to readers for providing great responses to the prior call for corporate bankruptcy lingo. Thanks to your help, UNC Law's advanced business bankruptcy students are collaboratively examining such terms through a wiki and this will help them make an even smoother transition into the professional world. If any new lingo comes to mind, don't hesitate to pass it along! 

Foreclosure Timelines and Mortgage Delinquency: More Evidence from Bankruptcy

At the end of a lively session yesterday at Duke Law School featuring Professor Stephen Ware of University of Kansas Law School, there was a brief discussion of whether shorter foreclosure timelines and clearer rules would promote more workouts of delinquent mortgages. The aforementioned paper about bankrupt homeowners suggests that the opposite might actually be the case: among homeowners in bankruptcy, longer foreclosure timelines in their home states were associated with a lower probability of foreclosure initiation while shorter timelines were associated with a higher probability of foreclosure initiation.

What is the Relationship Between Credit Cards and Mortgage Delinquency?

Previously I mentioned this new paper on homeowners in bankruptcy in the American Bankruptcy Law Journal. The central goal of the paper was to investigate what makes homeowners more or less likely to have mortgage troubles as they head into bankruptcy. One of the notable findings is that, across all the models, credit access had a significant effect on keeping mortgages current and avoiding foreclosure initiation (specifics listed pp. 302-304). But why?

Understanding Anna Nicole Smith (or, at least, Stern v. Marshall): A Must-Read Analysis

Led by my colleague Elizabeth Gibson, four members of the National Bankruptcy Conference have produced a fantastic analysis of the Stern v. Marshall U.S. Supreme Court decision (that most recently has been mentioned on Credit Slips here and here). I strongly recommend it for judges, lawyers, academics and others interested in the bankruptcy system and/or federal court jurisdictional questions.    

In or Out of Mortgage Trouble? A Study of Bankrupt Homeowners

This is a newly published paper  in the American Bankruptcy Law Journal that I was lucky to work on with Daniel McCue and Eric Belsky at the Joint Center for Housing Studies at Harvard University. Using previously unexamined data in the 2007 Consumer Bankruptcy Project, we study what makes homeowners more or less likely to have mortgage troubles as they head into bankruptcy. Although much can be said about the econometric analysis, for now I wanted to mention quickly that the paper includes descriptive details about bankrupt homeowners (debtor-reported) such as numbers of missed mortgage payments, use of adjustable rate mortgages, mortgage broker use, mobile homes, and refinancing or home equity lines of credit. So please check it out!   

Your Favorite Business Bankruptcy/Restructuring Lingo?

One more quick poll: off the top of your head, what lingo/cryptic terms do business bankruptcy professionals use regularly that are important to understanding the operation of the system in the real world (e.g., DIPs, cramdown, roll-ups, carve-out, stalking horse)? We talk about lingo in the basic bankruptcy class, but I want students to engage more with the concepts in the advanced class. Please list the first ones that come to your mind in the comments; you are also welcome to use [email protected].

Thanks, in advance, for your helpful feedback! 

How Does the New Federal Venue Law Affect Corporate Bankruptcy?

On December 7, 2011, President Obama signed the Federal Courts Jurisdiction and Venue Clarification Act of 2011, H.R. 394, P.L. 112-63. The bill does not amend 28 U.S.C. 1408, the primary venue provision for bankruptcy cases in the U.S. Nonetheless, the changes should make us think again about the propriety of place of incorporation as a basis for chapter 11 venue (hat tip to Elizabeth Gibson, who figured this one out right away).

One in Five American Families Have Medical Bill Problems

According to this new report. As Mirya Holman and I have explained in the bankruptcy context, measuring medical bill problems and debt is notoriously contested, but the Center for Studying Health System Change does try to make clear its methods and also uses similar metrics over time. The report also contains statistics on the proportion of their sample that considered filing for bankruptcy and actually did file. Definitely worth reading.  

The Value(s) of Foreclosure Law Reform?

As Alan White reported recently, the Uniform Law Commission in the U.S. has named a committee to consider the need for and feasibility of proposing a uniform foreclosure act and to report back to the ULC by early 2012. A letter from the ULC president includes a list of questions that the committee is charged to consider. But what principles will guide their analysis of these questions?

Revamping the Advanced Bankruptcy Class

Thanks, Bob, for welcoming me back. I'd like to start with a quick poll. Credit Slips readers, off the top of your head, what short writings (say 5 pages or fewer) should law students be doing that would be directly relevant to business bankruptcy practice? They can be related to business cases of any size, and can be litigation, counseling, or transactionally oriented. If you'd prefer to write me directly than to comment below, I welcome your thoughts at [email protected]. Feel free to forward my inquiry to bankruptcy listserves for which this would be appropriate. Thanks for sharing your expertise!

A New Form of Medical Debt (and Jacoby's Final Post)

This is my final contribution to the Credit Slips blog.  I thank Bob, the other contributors, and the readers for the opportunity to participate the past few months.    

I will sign off with a quick mention of an emerging form of medical-related debt.  This debt will not arise from the receipt of medical care, but rather from the failure to buy health insurance in contravention of the new individual mandate in the Massachusetts health plan now getting underway.  Oversimplifying greatly, uninsured people (at least those who can be identified through tax returns) will be legally required to buy insurance, and the government eventually will impose steep financial penalties for non-compliance and collect those penalties through the tax system and other enforcement methods.  In other words, a person may owe many thousands of dollars in penalties to the government because she didn't buy an insurance policy that the government deemed affordable for her, even if she has paid every medical bill she has ever received (and if she files for bankruptcy, I assume the government will argue that the penalties are nondischargeable -- unlike most debts owed for actual medical care to providers).  As the prior sentence suggested, the requirement is triggered on the availability of affordable insurance products.  Other facets of the Massachusetts plan aim to ensure that cheaper insurance products are offered (e.g., through subsidies and the Connector). But cheaper and affordable are not synonymous.  And we learn from personal bankruptcy and the debates over means testing (in both concept and in detail) that affordability often is in the eye of the beholder.  The able people charged with developing the various affordability determinations have a complex and consequential task.

Anniversaries and Audits

On a week of anniversaries relevant to bankruptcy reform and policy, it is worth noting that exactly 9 years ago, the National Bankruptcy Review Commission filed its final report.  The second proposal in this telephone-book-sized report was for random audits (proposal number 1.1.2) that, in a more detailed iteration, becomes operational today via section 603 of the 2005 bankruptcy amendments as Bob has noted.  Unlike other personal bankruptcy proposals discussed in the Commission Report, this one had widespread (indeed, possibly unanimous) support among the members of the Bankruptcy Commission who otherwise had fundamental descriptive and prescriptive disagreements about the personal bankruptcy system.   As Bob's 33% Solution post illustrates, however, Congress insisted on putting some consequential details in the statute that, if put into practice literally, undercut some of the justifications for the otherwise-popular audit proposal.   Now others are charged, within these constraints, to try to implement the concept in a cost-efficient and effective manner (for how the U.S. Trustee program is approaching this, see the press release here and 71 Fed. Reg. 58005 (Oct. 2, 2006)).

New Inter-Agency Nontraditional Home Mortgage Guidance For Consumers

Per our running discussion of mortgage credit, the Federal Reserve and others have just released "Interest-Only Mortgage Payments and Payment-Option ARMs -- Are They For You? . . .   

Bankruptcy, Eviction and Patient Records

The 2005 bankruptcy amendments added a provision to the Bankruptcy Code to help protect the privacy of patient records in the bankruptcy case of a "health care business."  The provision sets forth a process by which a trustee can notify patients about their records (broadly defined) and then ultimately destroy them if they are not claimed.  But reality may not always operate according to such plans.   According to this news story, a giant pile of patient financial records of a bankrupt doctor were found in a parking lot after an eviction overseen by the sheriff and the building manager in the doctor's absence (thanks to Rebecca Redwine for the tip).   

"By Cancelling These Debts, We Want to Give Rise To An International Debate on Lender Responsibility"

The title of this post is a quote from the development minister of the nation of Norway.  Norway is unconditionally forgiving debt owed to it by five countries (thanks to Adam Feibelman for the tip).  Some sovereign debts can be characterized as illegitimate or, in some cases, even "odious" (in general because they are unbeneficial to, and perhaps affirmatively bad for, the people of the debtor nation) and there is no standard mechanism by which they can be released of those obligations.  Countries and institutions are not exactly lining up to unilaterally forgive other countries' debts, so Norway's decision to do so is highly significant.  But the stated and suggested reason for the debt forgiveness is also notable - that the lending was motivated by Norway's self/sovereign-interest and not legitimate developmental objectives in the five debtor nations.  Although lending to countries and individuals are two very different animals, those in the sovereign debt and consumer/private entity debt worlds are engaging in parallel responsible lending debates.   

Defaulting on inter-family loans

Major news media outlets have been reporting on a business that manages inter-family or inter-friend loans, focusing on a company called Circle Lending (thanks to Salil Mehra for the tip).  Medical debts are among the business'  list of popular reasons for personal loans between family members, so the service was of immediate interest to me.  But beyond this, I would focus readers' attention on the stated protect-the-personal-relationship justifications for an formalizing intermediary and how these justifications relate to broader discussions of our debt collection system that sometimes is thought to be inefficient.  If an inter-family secured loan is set up properly, and the borrower defaults, the lender may exercise formal remedies (and in an NPR story linked on the website, the founder makes clear that this is contemplated).  Of course, foreclosing on one's grandson could indeed have relationship implications, so the relationship-protecting idea presumably stems from the belief that a borrower is less likely to default on an inter-family loan given the use of extra formalities that expand collection and enforcement entitlements even if rarely used.  Presumably, the risk of default is also lessened to the extent that these loans are granted with lower interest rates than those available from those in the business of extending credit to individuals?

New Bankruptcy Legislation

S. 4044, the Religious Liberty and Charitable Donation Clarification Act of 2006, was introduced on Sept. 29 and passed by unanimous consent on Sept. 30.  For the story that led up to this, see here and here.

UPDATE: My link to the bill isn't holding, so here's the substantive content of the bill: "Section 1325(b)(3) of title 11, United States Code, is amended by inserting `, other than subparagraph (A)(ii) of paragraph (2),' after `paragraph (2)'.

Differential Methods of Medical Debt Collection

Should medical debt be subject to different collection rules than debt owed to other creditors such as credit card issuers?  My answer to this has generally been "no," in part due to the fungibility of obligation. But even if states refrain from imposing differentially restrictive rules, various collection approaches are naturally generated through other means.  Specialty publications on collections have featured a variety of articles on the evolution of medical debt collection (thanks to Jason Kilborn and Nick Sexton for tips on some of the recent ones).  The stories in periodicals such as Collections & Credit Risk have been paying particular attention to the outright purchasing (as opposed to contingency collection) of medical debt from hospitals or other providers.  The stories in the collection industry publications convey the impression that medical providers impose more constraints on the collection techniques of debt buyers than the originators of other debts do because of the nature of the obligation and the localized nature of the business and resulting public relations issues.   Thus, less litigation, prohibitions on resale of the debt, etc.  Of course, some patients immediately use a credit card for the self pay portion of the debt.  If they don't pay, and if such bad credit debt gets sold, it will be sold as general consumer debt, presumably without these particular originator restrictions.  Medical providers still have incentives to encourage patients to use credit cards at the outset; bad medical debt portfolios are selling for only a few pennies on the dollar.  It is possible that some convergence could occur if buyers purchase newer accounts receivable, and then team up with lenders to provide financing options for patients. 

Senators on Tithing in Bankruptcy

Bob recently posted about a court decision refusing a deduction for tithing in a chapter 13 case.   That case has prompted Senators Grassley, Hatch, and Sessions to write a letter to the Attorney General asking the DOJ to direct chapter 13 trustees not to object to tithing that meets the requirements of the Religious Liberty and Charitable Donation Protection Act of 2005.   

HMDA Data and Piggyback Lending

Federal Reserve researchers have a new paper in the Federal Reserve Bulletin evaluating the 2005 Home Mortgage Disclosure Act data (if the prior link doesn't work for you, try this).  For now, I would particularly direct readers'  attention to the analysis of piggyback lending on pp. A135-A138.

And Speaking of Medical Debt . . .

. . . check out this story (thanks to Lisa Stifler for the tip).   Although the story was written to draw your attention to the magnitude of the hospital debt and the collection efforts, I suggest that readers also focus on the signs in the story that hospitals often do not make collection practice decisions unilaterally.  Also buried in the story is the indirect financial impact on the patient's household.  

OJ, Rights of Publicity, and Debtor-Creditor Relationships

According to an Associated Press report (yes, as published on ESPN.com), Ron Goldman's father has asked to receive OJ' Simpson's rights of publicity because Simpson has never paid out on the multi-million dollar wrongful death claim.  Seems to me that if the right of publicity is considered a property right under the relevant state laws that a judgment creditor should be able to reach it.  After all, some sports figures create separate corporate entities that manage and own their rights of publicity.  Of course, as Diane Zimmerman and I wrote here a few years ago, the issues may be just a bit more complicated than I'm now suggesting  . . .