postings by David Lander

Perhaps Preferential Transfer Litigation is Not Worth the Cost- two tiny adjustments in that direction.

posted by david lander

Although the primary thrust of the Small Business Reorganization Act of 2019 which was signed by the President on August 23 is to provide relief to reorganizing small businesses, the act has two provisions that are intended to provide  some relief from the threat of questionable and small dollar bankruptcy preference claims. One of the preference aspects of this new law requires bankruptcy trustees and post confirmation trustees and debtors in possession and others who initiate preference actions to: consider, before commencing suit, an alleged preference recipient’s statutory defenses based on “reasonable diligence in the circumstances; and taking into account a party’s known or reasonably knowable affirmative defenses.” (punctuation added) The second preference aspect of the new law amends a bankruptcy venue provision that, if applied to preference suits, may reduce the number of small (under $25,000) preference cases filed.

Although the avoidance of preferences has been part of US Bankruptcy law for over two hundred years and has generated considerable litigation, there is virtually no empirical research into the actual operation and impact of American preference law. 

Continue reading "Perhaps Preferential Transfer Litigation is Not Worth the Cost- two tiny adjustments in that direction." »

Bankruptcy and Mindfulness

posted by david lander

The practice of mindfulness and other types of meditation are growing on the coasts and within the law school and lawyer communities. Perhaps these practices can provide meaningful benefits to bankruptcy clients, bankruptcy lawyers and bankruptcy professors and judges. The essence of "mindfulness for lawyers" efforts begins with the notion that the adversary system can take a toll on home life, friendships and our own notions of who we want to be. A meditation practice can help us concentrate and be the best lawyers we can be and also the best friends and family members we want to be; and perhaps even help us to be the kind of persons we want to be. It is a mix of focusing more fully on the present, mixing that with lovingkindness to ourselves and others, and observing what is going on in our minds, all without judgment.

Consumer bankruptcy debtors, creditors, practitioners and judges are constantly faced with problems for which the legal system is at best a partial solution. In most cases there are a few true winners and a host of partial winners, partial losers and complete losers. Mindfulness can help us keep a focus on the matter in front of us and also help us maintain our passion for life and practice.  On the business bankruptcy side, our duty of loyalty combined with the zealous representation ethic can allow the day-to-day fighting to change our character and perhaps even our values. In every community there are a host of ways of starting such a practice.  The book 10% Happier by Dan Harris is an easy entry point and in most communities there is a Mindfulness Based Stress Reduction course available.  More and more law schools and bar associations are providing such opportunities. Mindfulnessinlawsociety.com and themindfullawstudent.com are excellent resources.  I am enjoying teaching mindfulness to law students as well as faculty and staff at Saint Louis University Law School. 

 

 

The Community in Which Consumer Debtor Lawyers Reside 

posted by david lander

Just as tax and estate planning lawyers are part of a network of helpers that includes accountants and financial planners, consumer debtor attorneys should ideally be part of a network of able and responsible helpers. Sadly, since prospective consumer debtors lack financial resources, the availability and quality of their non lawyer helpers is suspect.  There is a network of credit counseling agencies but critics have long attacked the effectiveness and loyalty of their services. Many CDFI's and some neighborhood centers provide quality help, but they are very limited in number.  One of several reasons for these weaknesses is the "chicken and egg" dilemma, that the career line for these potential helpers is very limited and thus the training system for their preparation is likewise very limited.  

Continue reading "The Community in Which Consumer Debtor Lawyers Reside " »

Hope for Helping the Prospective Payday Loan Customer

posted by david lander

Short term (payday) loans and high interest consumer installment loans continue to deplete low income households of micro dollars and their communities of macro dollars. Although the CFPB seems intent on supporting the depletions, a good number of states have provided some relief.  Even in states without interest rate limitations there are a couple of ideas that can help.

Continue reading "Hope for Helping the Prospective Payday Loan Customer" »

Who Teaches Bankruptcy Law?

posted by david lander

A survey some years ago showed that bankruptcy was one of the law school courses most often taught by adjuncts rather than full time teachers. This has several impacts on the teaching of bankruptcy law. Full time teachers often have contact with one another and may meet at AALS or other professional meetings but  the adjuncts who teach bankruptcy may not have much interaction with other bankruptcy teachers. In addition,  although some of the adjuncts are judges, more of the lawyer- adjuncts are likely to be business bankruptcy lawyers and fewer to be consumer lawyers. Another survey years ago indicated that there were a number of chapter 11 courses being taught, but almost no advanced courses in consumer bankruptcy. At one time there was a sub-committee of the ABA Business Bankruptcy Committee focused on the teaching of bankruptcy in which full time and adjunct teachers met to talk about these topics. Recently the ABA created a new committee to study the role of adjuncts in legal education.

Continue reading "Who Teaches Bankruptcy Law?" »

Thanks for the chance to post.

posted by David Lander

Thanks to the folks who run Credit Slips for the opportunity to post.  I hope to be back in a few months with musings about the following: 

  1. Since the CFPB has very limited authority over auto finance, and since securitization of consumer auto loans is back with a vengeance and since low and moderate income folks desperately need used cars, we need to watch carefully this first post-crash subprime challenge. 
  2. Do preference recoveries redirect dollars in accordance with the goal of preference avoidance? With help from Ronald Mann I hope to do a small empirical study that others might replicate in their localities.Such information is crucial in figuring out the right size and shape for the preference recovery net. 
  3. Has the combination of the fall-off of law student numbers and the pressure toward more practice-oriented courses impacted the use of adjuncts in law schools?
  4. What are the factors behind the significant fall-off in insolvency work and is this a normal cycle or does it constitute institutional change for the business bankruptcy bar? I hope to combine my thinking with what I can learn from interviews with lawyers, lenders of every type, turnaround folks and academics who study this type of thing.   Till next time. 

Lessons For Consumer Protection From The World Of Inclusive Capitalism

posted by David Lander

Lately I have been teaching courses with names such as "Global and Economic Justice" and "History, Impacts and Regulation of Consumer Credit" instead of "Bankruptcy," "Secured Transactions" and "Chapter 11 Reorganizations." So I have been reading different books and listening to different speakers. A lecture I attended recently by Xav Briggs  here brought to my mind a couple of books that I use in one of my courses, “Borrow” and “Debtor Nation” both written by Louis Hyman. In many ways Hyman's books remind me of "Credit Card Nation" the outstanding and "ahead of its time" book by Robert Manning which I used extensively when I created my consumer credit course in 2002. 

Part of the wisdom I find in each of these books is the caveat that you cannot understand consumer protection without understanding the nature of American capitalism or the drive for an above-market return. This was never clearer or more of a "blow to the side of the head" than during the frenzy in the early 2000's, and perhaps nothing demonstrates it more crassly than the rating agencies covering their eyes as they rated subprime securitizations allegedly in order to "keep the business." 

Continue reading "Lessons For Consumer Protection From The World Of Inclusive Capitalism " »

Who is Helping Consumers With Defaulted Student Loans?

posted by David Lander

Clearly, the biggest surprise in consumer borrowing since the crash has been the explosive expansion of student loan debt. It has surpassed both auto lending and credit card lending. And, since it ties with Payday Lending and pre-crash sub-prime mortgage lending for the thinnest underwriting there are defaults aplenty. 

Consumer advocates are rightly urging the Department of Education to provide simpler and clearer paths forward for consumers with student loans in default but many people still need a helper.  As defaults in mortgage loans and on credit card loans have fallen, providers who live on the profits of counseling people who default on those loans have turned their attention and their advertising and marketing to consumers who are in trouble on their student

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Can We Count on Macro-Economists to Analyze the Impacts of Inequality?

posted by David Lander

Prior to the crash, only a very few macro-economists were studying consumer borrowing and fewer still were investigating inequality of income or of wealth as an important macro-economic factor. Work in macro-economics is done at academic institutions, the Fed, think tanks and government and private enterprises. Historically, very few PhD dissertations in macro-economics dealt with consumer finance or consumer spending or inequality issues. Prior to the crash there was a divide between the small minority (which included some high prestige folks such as Joseph Stiglitz) and the dominate majority. Both sides make extensive use of mathematical formulae but the majority looks more like physics and the minority may include a dose of sociology.  This is important stuff because government fiscal policy and even monetary policy and private business decisions are often based on the work of these folks. The majority tended to believe that humans act rationally while the minority helped develop the field of behavioral economics. 

Continue reading "Can We Count on Macro-Economists to Analyze the Impacts of Inequality?" »

Why Has Chapter 11 Failed as a Reorganizing Chapter?

posted by David Lander

The ABI has spent thousands of hours on its Chapter 11 Commission Report; the National Bankruptcy Conference is hard at work on its "Rethinking Chapter 11" project. Underlying these and other such efforts is an overwhelming frustration with the failure of Chapter 11, under current circumstances to empower true reorganization. Hard to believe but it was not always this way. During the first decade or two of the Bankruptcy Code it seemed to be working pretty well; in fact many courts were unwilling to consider quick sales of the entire business. Many large cases resulted in a confirmed reorganization plan although some led to further chapter 11 efforts or failure; the results in smaller or medium-sized cases were more uneven with a healthy percentage being dismissed or converted to Chapter 7.  There was almost no discussion of Section 363 at the Ten Year Retrospective on Chapter 11 in Williamsburg and there was little commentary on its use. Indeed, the 1997 report of the Bankruptcy Review Commission did not focus on this issue. 

Beginning sometime between the Code's tenth and twenty-fifth birthdays the tide shifted; not only did most courts back off from their legal position that Chapter 11 was for reorganization and that any sale of the entire business needed to be done within a Plan, but the vast majority of cases seemed to shift to quick 363 sales to a suitor that was identified before the filing with an auction possible if there were competing bidders. 

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Thanks to Demos

posted by David Lander

Several years ago Demos organized a small conference to bring together consumer advocacy groups with academic and think tank economists and sociologists and a few bankruptcy and consumer protection lawyers and law profs and Foundation funders.  Not only was it a very productive day but the personal and professional links  formed  or strengthened by that exercise have  reverberated and continue to reverberate to the benefit of consumers in the U.S.  The extraordinary damage being inflicted by the current economic disaster increases our responsibility to strengthen the network.  Since the time of the Demos program, the savings movement and the economic/psychology or behavioral/economics movements have grown and they need to be added to the mix.  It is only through the combined insights of folks in different fields that we can produce the kinds of results that consumers need.  Turf battles and other barriers dampen the enthusiasm for such efforts, but make them all the more essential. Maybe these efforts are ongong; if not, perhaps its time to take stock and freshen them.

Debt Management Plans and Chapter 13 Plans: Non Identical Twins Or Distant Cousins?

posted by David Lander

The drop in the percentage of U.S. consumer bankruptcy filings that are chapter 13 cases (commented upon in Credit Slips recently by Bob Lawless) is mirrored by the reduction in the percentage of overindebted consumers who are “qualifying” for Debt Management Plans. There have always been striking and largely unexamined parallels between chapter 13 plans and Debt Management Plans. For years the drop off rates for each were within a few percentage points of one another and such demographic data as was publicly available showed remarkable similarities between chapter 13 debtors and participants in Debt Management Plans.  Debt Management Plans ("DMP's) are plans by which consumer borrowers repay their unsecured credit card debt; they are voluntary and in such plans creditors grant concessions on rates, term and installments. The official version of the DMP’s are administered by accredited consumer credit counseling agencies. To qualify for the concessions the consumer must fit within pre set criteria established by creditors.

Historically creditors had determined that this method of repayment/collection was a good deal for them, but in recent years creditors had been reducing their concessions and their involvement in the consumer credit counseling industry in general. Although there has been severe and justified criticism of the overuse of the DMP, some consumers and consumer advocates have found that the concessions within a DMP are valuable to a certain subset of overindebted consumers for whom a DMP may be a better alternative than bankruptcy. DMP’s  are not valuable, and are often damaging to consumers for whom bankruptcy is clearly a better alternative. These are different products from those offered by the severely criticized Debt Settlement industry.

Recent information regarding DMP’s is a bit confusing. Although there have been reports that creditors have reduced or eliminated concessions and have made qualifying more difficult, other more recent reports indicate that creditors and agencies are co operating in launching a new DMP which they assert will be more valuable to more of the consumers who are defaulting on credit card debt but who cannot not make the payments required under traditional DMP’s. In 2008, banking industry representatives and some consumer advocates developed a plan that would have allowed significant reductions in principal on credit card debt and long stretches for  repayment for a “test group” of consumers. That Plan required  OCC approval which was not forthcoming. CreditCards.com is one place to follow some of these developments. The DMP world is populated by many consumers who are very similar to bankruptcy debtors and studying the bankruptcy world without studying the DMP world may lead to an incomplete analysis.

Does Anybody Know If Credit or Foreclosure Counseling Helps?

posted by David Lander

The infusion of millions of dollars to pay "counselors" to forestall foreclosures on behalf of consumers who are delinquent on their mortgage payments seems as American as apple pie and should perhaps help some homeowners. These dollars are split among neighborhood non profits, specialized housing counseling organizations and a considerable amount has flowed to providers that have historically spent most of their time counseling consumers with credit card delinquencies. A group of United Way supported family and children service agencies also receive some of these funds.

Anecdotal reports indicate that the housing counselors are a cut above the historic credit card counselors. The credit card counseling industry agencies were mostly begun by creditors and their funding has always been supported by payments from creditors. The housing counseling organizations began with funds from HUD and the Ford Foundation and the extensive new dollars have come from the Federal government through a central organization called Neighbor Works. The neighborhood organizations obtain their funding all over the lot. The cultures of the various organizations differ a good deal among themselves and between the various types of providers.

Continue reading "Does Anybody Know If Credit or Foreclosure Counseling Helps? " »

Creating Legislative Intent Years After Passage of Revised Article 9

posted by David Lander

The legislative drafting errors in BAPCPA have certainly launched a fascinating  set of statutory construction challenges for the courts.  For example: What level of ambiguity is necessary before the court resorts to legislative intent? If the statute itself is clear how ridiculous must the result be before the court may “ignore” the clear but clearly incorrect meaning? 

The Article 9 revision process of  a decade ago  was the polar opposite of the BAPCPA experience in terms of drafting.  The combined American Law Institute (“ALI”) - National Conference of Commissioners on Uniform State Laws (now known as the Uniform Law Commission[“ULC”]) labored for years to make sure of their drafting and vetted their proposed language extensively. Still, no one is perfect and things change so in 2007 the Permanent Editorial Board of the Uniform Commercial Code authorized a committee to consider the need for possible statutory modifications or comment amendments to the Official Text of Article 9 of the Uniform Commercial Code.    When the ULC and the ALI considered the report of that group the ALI and the ULC  jointly  authorized a drafting committee, the Joint Review Committee for Article 9 of the UCC and the Drafting Committee has met several times. 

Continue reading "Creating Legislative Intent Years After Passage of Revised Article 9" »

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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 (rlawless@illinois.edu) 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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