postings by David Lander

Consumer Protection and Bankruptcy; How Do They Relate?

posted by david lander

Every other year Richard Alderman holds an extraordinary conference at the University of Houston Law School for faculty from around the world who teach in the consumer law area. It mixes a super learning experience with networking and with a lot of fun. Most of the folks in attendance do not teach in the bankruptcy area but at each of the last two conferences there has been a healthy minority of people who teach in both fields. So, what is the relationship between consumer protection faculty and bankruptcy faculty and what should it be?

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A Quick Look at Revised Article Nine; Seven and a Half Years in.

posted by david lander

Although the Revised Article Nine drafters were severely and justifiably criticized for increasing the complexity and length of the statute and for destroying the work of art that was Grant Gilmore’s Magnus Opus, their product has so far been very successful in meeting the drafters’ goal of increasing certainty for business lenders and borrowers. Their lightning fast and complete ratification by the fifty state legislatures was nothing short of miraculous. Their decision to abandon the general principles of the original version of Article Nine and replace them with a host of specific rules backed up by comments and, if necessary, commentaries or even phone calls from the drafters has made the rules clearer to borrowers, lenders and particularly to judges. This system of rules will, however, require that as new or unanticipated types of transactions or issues arise the Code must be amended rather than expecting these unanticipated  issues or transactions to be decided under the general principles of the Code. Let’s look briefly at two issues, the Code’s treatment of individual names and its effort to integrate agricultural statutory liens into Article Nine. 

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What Is The Effect of Having So Many Adjuncts Teaching Bankruptcy Law Courses?

posted by david lander

Two surveys show that a high percentage of bankruptcy courses is taught by adjuncts rather than full time faculty. A 1997 survey by an ABA Committee looking soly at bankruptcy courses and completed by bankruptcy teachers showed that over half the 100 schools that replied made major use of lawyers or judges in teaching their bankruptcy courses, 20% made occasional use and 30 % made little or no use. In a 2007 survey which covered a dozen or so law school subject areas and completed by law school associate deans one third of the 75 reporting schools indicated that adjuncts taught one or more of the bankruptcy courses in the curriculum. (See Lander, Are Adjuncts a Benefit or a Detriment? 33 U. Dayton L. Rev. 285 (2008). The key question is whether this high use of adjuncts helps or hinders the teaching of bankruptcy law and whether it helps or hinders bankruptcy scholarship.

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It Is Time to “Sunset” Preference Law As We Have Known It Or at Least To Test Its Underlying Basis Empirically .

posted by david lander

It is time to “sunset” preference law as we have known it or at least to test its underlying basis empirically .

Ten years ago or so Lynn Lopucki helped to focus our attention on the unfairness of the treatment of unsecured creditors vis a vis secured creditors.  In the past decade things have only become worse for unsecured business creditors as Revised Article 9 tightened the hold of secured business creditors, but that topic has seemed to have fallen  off of the radar screen.

This is a good jumping off point for examining the one area of technical bankruptcy law that most unsecured creditors love to hate “preference law.“ Preference law has outlived whatever usefulness it might have  had. The effort to separate the wheat from the chaff  is not worth the energy.  The litigation costs and aggravation costs far outweigh the benefits.  What are the benefits?  The recoveries are intended to be redistributed among all unsecured creditors. Although few studies have been done it does not appear that this redistribution is meaningful when the litigation costs, extorted settlements and bad feelings of defendants are measured against those net redistributions. Moreover, the courts have held that those recoveries may be pledged to a DIP Lender and in those cases the general unsecured creditors have money taken out of their pockets and receive no benefit from this “redistribution.” Some commentators feel that the threat of preference recovery limits the potential preference payments that a failing debtor may make, or that overreaching creditors may demand and collect, but there is simply no evidence that this is accurate and the only study indicates that this is not true.  Finally, some preference aficianados justify preference recoveries on the basis of equality of distribution and fairness and justice.  Just ask unsecured creditors that are caught in a bankruptcy and  you are likely to find that the opposite is true; the efforts at recovery are deemed unfair and unjust. The only lobby for current preference laws seems to be people who are outraged by apparent  unfairness of one creditor receiving more than others, or who believe that the existence of these laws promotes “better” conduct among debtors and creditors in the wake of financial distress, those who benefit from the litigation spawned by preference laws and perhaps bondholders who believe these avoidance actions increase their recoveries.

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Toward a World with Rational National Consumer Credit Public Policies

posted by david lander

The current economic downturn started in the consumer credit area. One of the glaring failures during the build up of the factors that led to the current mess was the lack of sufficient economic or sociological analysis from within the academic communities. There are simply too few funded prestigious institutions that study consumer credit issues. It is interesting that law school bankruptcy professors who operate outside of funded centers and may or may not have credentials in economics and sociology have provided a significant percentage of the analysis that does exist. The current economic recession is hurting many many people and will hurt many more before it comes to rest, but perhaps one benefit to which it could give rise would be more regular and effective analysis of the micro and macro economic and sociological issues that inhere in the supply and demand sides of the consumer credit world, including housing finance, car finance and credit card debt. Such an analysis might lead to a more well informed public and more well informed legislators and other public policy makers. We need this in the United States and the rest of the world. 

As a starting point let’s think about the spending and borrowing habits of both Americans and of the hundreds of millions of potential likely consumers and spenders in China and India and other emerging Asian economies. Ronald Mann has written insightfully about the preferences for debit or credit cards in Japan and Korea and perhaps now it is time to look at China and India, particularly since the numbers of people who will have either money in their pockets or credit available to them is so staggering.

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