postings by Bob Lawless

Chapter 11 Filings in May Are Not Up as Much as Everybody Will Say There Are

posted by Bob Lawless

Prediction: you will begin to see stories about an explosion of chapter 11 filings in May 2020. Well, that is not much of a prediction because I already have seen two. Chapter 11 filings did not explode in May.

A few weeks ago, I posted about the huge drop in overall bankruptcy filings and what looks like a modest rise in chapter 11 filings. I did not want to venture more because chapter 11 filings are hard to count. Every petition filed by every subsidiary in a corporate group gets counted as a case, and the number of subsidiaries in a corporate group is arbitrary. Thus, one economic unit can generate what looks like many bankruptcy filings.

Continue reading "Chapter 11 Filings in May Are Not Up as Much as Everybody Will Say There Are " »

Total Bankruptcy Filings Remain Low, Chapter 11s Not So Much

posted by Bob Lawless

(Updated and corrected, 5/22). An earlier post noted that bankruptcy filings were down substantially over 50% the first two weeks of April. As the American Bankruptcy Institute reported, bankruptcy filings declined by 46% over the entire month and on a year-over-year basis. I wondered whether the expected increase in bankruptcy filings had begun, and the answer appears to be "not yet."

Using PACER docket searches, I get the following filing numbers for the past six weeks. The decline in filings for the first two weeks of May was roughly the same as the last two weeks of April. There were the same number of business days in all these time periods so the numbers should be comparable:

Total Bankruptcy Filings
  2019 2020 change
April 1 - April 15 33,017 16,097 -51.2%
April 16 - April 30 38,289 22,347 -41.6%
May 1 - May 15 31,958 18,578 -41.8%

Continue reading "Total Bankruptcy Filings Remain Low, Chapter 11s Not So Much" »

Letter from 163 Bankruptcy Judges Backs Venue Reform

posted by Bob Lawless

Support seems to keep building even more for changes to where large corporate debtors can file chapter 11. The latest is a letter from "163 sitting, recalled, or retired United States Bankruptcy Judges." From the letter:

The venue selection options for bankruptcy cases under current law have led to forum shopping abuses that have disenfranchised local employees, creditors, and parties in interest from participation in bankruptcy cases, undermined public confidence in the integrity of the United States Courts and the bankruptcy process, inhibited the development of uniform, national bankruptcy jurisprudence, and led to inefficient allocation of judicial resources. 

The judges join forty-two state attorneys general who signed a February letter supporting similar changes. The House bill (H.R. 4421) now has fifteen co-sponsors, which I believe is more than any venue reform bill has had. With all of that support, my views don't matter much, but I agree too

Like I wrote before, there have been lots of efforts at venue reform, but this time feels different.

A Coming Consumer Bankruptcy Tsunami, Wave, or Ripple?

posted by Bob Lawless

With the Covid-19 pandemic, there has been a lot of talk about a coming surge of consumer bankruptcy filings. In the very short-term, however, bankruptcy filing numbers are down. According to data from Epiq Systems, daily bankruptcy filings declined 18.4% in March 2020 on a year-over-year basis. March 2020 filings were 62,847 as compared to 73,521 in March 2019 but were spread out over one more business day (and hence had an even lower daily filing rate).

The downward trend appears to have continued in April. I say "appear to" because the numbers are down so much that I wonder whether my computations are accurate. Immediate national bankruptcy filing numbers are hard to assemble. Using docket searches on Bloomberg Law that produced all of the bankruptcy cases filed on particular dates, I got the following national bankruptcy filing counts in 2020 as compared to 2019

  2019 2020 decline
last seven days of March 21,656 15,096 -30.3%
first seven days of April 14,886 7,432 -50.1%
second seven days of April 15,602 7,225 -53.7%

If anyone has better data or can confirm these numbers, please leave a comment. Even if these numbers are not spot on, I am confident enough to say there have been big drops in consumer bankruptcy filings the first two weeks in April.

Continue reading "A Coming Consumer Bankruptcy Tsunami, Wave, or Ripple?" »

Model Standstill/Tolling Agreement

posted by Bob Lawless

The Business Law Section of the American Bar Association has posted a model standstill/tolling agreement drafted by Jonathan Lipson and Norm Powell. Business relationships will undoubtedly strain as the crisis means more parties are not able to fulfill their side of a deal. Often, an aggrieved party will have to enforce their rights lest they lose these rights by not taking action. A "standstill/tolling agreement" removes that pressure and preserves the status quo. In Lipson and Powell's words, the goal is to allow parties "to produce an acceptable, temporary workout that obviates the need for litigation and, ideally, preserves a productive economic relationship."

They have made the model agreement publicly available, recognizing that not every business will be able to retain counsel. The agreement is available with annotations to explain its provisions as well as a clean version that parties can use by filling in the blanks. As Lipson and Powell also stress, the model agreement is not intended as a substitute for legal advice and parties should consider retaining legal counsel when possible.

The Small Business Reorganization Act of 2019 and COVID-19

posted by Bob Lawless

Professor Ted Janger of Brooklyn Law School sent me a proposal for a small change to the Bankruptcy Code that might significantly help small businesses affected by the COVID-19 pandemic. His idea merits consideration. In Ted’s words:

Obviously, it is too early to tell how all of this will play out, but the U.S. bankruptcy system will inevitably play an important role in whether small businesses hurt by COVID-19 ultimately survive. Chapter 11 was built to help sound businesses that experience a sudden shock, but it is often too cumbersome for even medium-sized businesses. In a law that took effect in February, Congress made it easier for small businesses to benefit from chapter 11. That law is only available, however, to businesses with less than $2.7 million in debt. It will, therefore, apply to only 42% of the businesses that file. In the wake of COVID-19, Congress should raise the debt ceiling to $10 million to help more small businesses and soften the inevitable fallout that will come from COVID-19 related business disruptions.

Continue reading "The Small Business Reorganization Act of 2019 and COVID-19" »

David Lander Is Back!

posted by Bob Lawless

Welcome to occasional guest blogger, David Lander, currently a professor of practice at Saint Louis University School of Law. In addition to his current and past academic postings, David has practiced consumer bankruptcy law with legal services organizations as well as business bankruptcy law at the Greensfelder Law Firm. Long-time readers will know that this mix of experience gives David a perspective that few others have. Welcome back, David!

Bankruptcy Filing Rate Remains Flat

posted by Bob Lawless

Annual Filings Oct 2019Every month I see stories about the bankruptcy rate moving up and down. The truth is that the U.S. bankruptcy filing rate has remained flat over about the past four years.

The table to the right shows the total number of bankruptcy filings, consumer and business, using data from Epiq. For 2019, the figure is an estimate. For each of the past two years, 85.3% of the yearly bankruptcy filings had occurred by October 31. Extrapolating from the 648,000 bankruptcy filings through October 31 of this year, the total number of bankruptcy filings by year end will be about 760,000. That is not much different than the 767,000 in 2017 or the 755,000 in 2018.

Continue reading "Bankruptcy Filing Rate Remains Flat" »

Call for Papers -- 2020 Boulder Conference on Consumer Financial Decision Making

posted by Bob Lawless

The inimitable John Lynch emailed to let me know that the call for papers is open for the 2020 Boulder Conference on Consumer Financial Decision Making, to be held from May 17-19, 2020. Much more information, including how to submit an abstract for consideration, appears on their web site.

If you are interested in the sort of content we have at Credit Slips, this conference is for you. Several of the Credit Slips bloggers, including myself, have presented at the conference. The papers and discussions are high quality. The setting at the St. Julien Hotel is fantastic. And, after a day of conference discussions or when the conference is over, you are in Boulder, Colorado, in the spring. If you have a paper that fits, I highly recommend submitting.

A Drafting Error in Small Business Reorganization Act?

posted by Bob Lawless

Is there a drafting error in the Small Business Reorganization Act? The other day I posted my estimate that 42% of chapter 11's would qualify, but my sharp-eyed colleague, Ralph Brubaker, noticed something wonky (in all senses of the word) in the new definition of a "small business debtor." (He also tells me that the next issue of the always-excellent Bankruptcy Law Letter will provide an in-depth look at the new law.)

Specifically, the problem is in the exclusionary clause. After defining a small-business debtor as a debtor with less than $2,725,625 in debts, at least 50% of which arose from business activities, the definition then excludes (among other things):

(ii) any debtor that is a corporation subject to the reporting requirements under section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)); or
(iii) any corporation that—

(I) is subject to the reporting requirements under section 13 or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m, 78o(d)); and
(II) is an affiliate of a debtor.

Clause (iii)(I) excludes the same thing as subparagraph (ii) with only slightly different words. Obviously, an extra condition in clause (iii)(II) does not make paragraph (iii) exclude anything that clause (ii) does not already exclude.

Read literally, the definition would allow a small subsidiary of a public-traded company to take advantage of the new small-business debtor rules. The ABI Commission to Study the Reform of Chapter 11 recommended they be excluded. My guess is that the drafters of the new law intended to exclude them, but the language used did not quite get the job done. Is there a reason for this language that I have missed? If not, it would seem to be a prime candidate for a technical correction fix.

How Many New Small Business Chapter 11s?

posted by Bob Lawless

The Small Business Reorganization Act of 2019 adds a new subchapter V to chapter 11 for small businesses. The new subchapter gives small businesses the option of choosing a more streamlined -- and hence cheaper and quicker -- procedure than they would find in a regular chapter 11. Perhaps most significantly, the absolute priority rule, which requires creditors to be paid in full before owners retain their interests, does not apply. For those interested in more detail, the Bradley law firm has a good blog post summarizing the key points of the new law, which takes effect in February 2020 (and if I have the math correct -- February 19 to be exact).

A point of discussion has been how many cases will qualify to be a small-business chapter 11. Using the Federal Judicial Center's Integrated Bankruptcy Petition Database, my calculation is that around 42% of cases filed since October 1, 2007, would have qualified. The rest of this post will explain how I came to that estimate as well as discuss year-to-year variations and chapter 11 filings by individuals.

Continue reading "How Many New Small Business Chapter 11s?" »

The Fifth Circuit Finds a Way to Make It Even Harder to Discharge Student Loans in Bankruptcy

posted by Bob Lawless

On Tuesday, the United States Court of Appeals for the Fifth Circuit released an opinion that, if anything, makes it even more difficult to discharge student loans in bankruptcy. Writing for a three-judge panel in a case called In re Thomas, Judge Edith Jones reaffirmed the court's commitment to the existing case law and added yet another judicial gloss to the words of the statute. The opinion was a missed opportunity to return to a reasonable standard that allows debtors to discharge student debt in appropriate cases while still protecting the public fisc.

The debtor was over 60 years old, part of the trend of older filers in bankruptcy court. She had taken out $7,000 in student loans for two semesters of community college. Within a year after leaving community college, the debtor developed diabetic neuropathy, which left her unable to work at any job that required standing for any period of time. The debtor had to leave a retail job, a restaurant job, and a job at UPS. She lost a previous job at a call center after it was acquired by another company who then fired her within three months for wearing headphone and listening to music during her lunch break, a determination that probably not so coincidentally meant the debt was ineligible for unemployment insurance.

Continue reading "The Fifth Circuit Finds a Way to Make It Even Harder to Discharge Student Loans in Bankruptcy" »

Pug Repossession

posted by Bob Lawless

If you missed it, Thursday's New York Times had a story about a debt collector who seized the family's dog over unpaid bills. The pet, a purebred pug, was sold for the equivalent of $800 on eBay which apparently meant it could be seized under German law which allows valuable pets to be seized in repayment of debts. Mutts are exempt.

In the United States, there are businesses who will give purchase-money loans for pets, which are often structured as financing leases. The consequence of nonpayment is the usual for nonpayment -- repossession of the collateral even if it is the family's beloved Fido or Fluffy. There is legislation in Nevada, California and New York that tries to ban the practice, although the statutes are far from a model of clarity about what they make illegal.

Continue reading "Pug Repossession" »

Arbitration in Bankruptcy -- Discharge, the Easy Case

posted by Bob Lawless

Now that the major work of the ABI Commission on Consumer Bankruptcy is done, I seem to have this thing called "time" again. One of the topics that I have been wanting to post about is arbitration in bankruptcy. If I follow through on my intentions, this will be the first of a few posts on arbitration in bankruptcy.

Arbitration has come to the bankruptcy courts. In the coming years, how the Federal Arbitration Act intersects with the Bankruptcy Code will become an increasingly prominent issue. What I want to talk about in this post is arbitration of a violation of the discharge injunction itself. In the typical factual set-up, a debtor alleges a violation of the discharge injunction, and the creditor moves to send the question to an arbitrator under a predispute arbitration clause, almost always embedded in a form contract. Given the ubiquity of these form contracts in consumer transactions, the only thing at stake is the effectiveness of the consumer bankruptcy system.

We can first exclude one approach to the topic that I occasionally see. It goes something like this. The Supreme Court keeps sending disputes to arbitration and thus has signaled repeatedly it favors arbitration. Therefore, the Court would hold that bankruptcy disputes can be arbitrated. This is not how law works. The Court's tendencies are not "law." One of the Supreme Court justices has famously declared he favors a certain malted beverage, but that hardly makes it the drink of the land (although I also would not be against making it so).

Continue reading "Arbitration in Bankruptcy -- Discharge, the Easy Case" »

ABI Consumer Commission Report Is Nearly Finished

posted by Bob Lawless

For the past two years, the American Bankruptcy Institute's Commission on Consumer Bankruptcy has been hard at work. As the Commission's reporter, I am very happy to say that the work is nearly finished. All of the drafting is completed, and we are in the final stages of the editing process.

The report will be released on April 11. If you want to learn about the report, come to the ABI's Annual Spring Meeting where there will be a number of sessions about the report.

The Commission's charge was to recommend "improvements to the consumer bankruptcy system that can be implemented within its existing structure." The recommendations represent the work of a broad group of bankruptcy professionals across all types of roles and types of practice. The report will have forty-nine sections across five chapters, with multiple recommendations in many of the sections. Although the substance of the recommendations will not be released until April 11, the topic list is public. You can expect recommendations on student loans, attorney compensation, the means test, rights in repossessed collateral, chapter 13 plans as well as many other topics.

Boulder Summer Conference on Consumer Financial Decision Making

posted by Bob Lawless

One of my favorite conferences is the Conference on Consumer Financial Decision Making held every summer in Boulder, Colorado, and I am not the only one who feels that way. Next year's conference will occur from May 19-21, 2019. Professor John Lynch from the University of Colorado wrote me two weeks ago to remind everyone that the submission deadline is December 7. My other commitments have been keeping me busy so blame me for posting here so close to the deadline -- did I mention that John wrote me two weeks ago?

The conference is very interdisciplinary. The call for submissions says, "a very high level of opportunity for conversation and interaction around the ideas presented." They are not kidding. If you are a Credit Slips reader, the sessions will be of interest to you. The conference presentations are great. The poster session is fascinating. Whether you are a presenter or not, you will learn a lot. When I have presented, the comments I have received are some of the best feedback I get on a project. The proceedings are at the posh St. Julien Hotel. And, when conference sessions are not occuring, you are in Boulder, Colorado, in May.

To submit, you need to send in an extended abstract of no more than one page in length. Rather than post further details here, I will just link you to the instructions on the web page where you can submit an abstract. More information about the 2019 conference is available on the main conference web page.

Congratulations to Former Slipster and (Congresswoman-Elect) Porter!

posted by Bob Lawless

The New York Times, the Associated Press, The Hill, and many other media outlets are reporting that former Credit Slips blogger Katie Porter has won her election for California's 45th Congressional District. Anyone who knows Katie's work knows that she will fight for middle-class households. As happy as I am for Katie and for the country, it is bittersweet to lose a great co-author and research collaborator.  

We also have been remiss in not congratulating another former blogger, Senator Elizabeth Warren, on her reelection. It is hard to believe that this modest little blog now has two former bloggers in Congress.

Tempnology and Janger Too!

posted by Bob Lawless

The Supreme Court granted cert today in the bankruptcy case of Mission Product Holdings v. Tempnology, LLC. It sounds like another one of those cases only bankruptcy nerds can love, but it has potentially broad implications. On its face, it is about trademark licenses, but the Supreme Court could fix some case law about all contracts in bankruptcy. Several Credit Slips bloggers (including me) signed a "law professors" amicus brief in support of certiorari. 

I asked the inimitable Professor Ted Janger of Brooklyn Law School (and former Credit Slips guest blogger) to write with his thoughts on the case. Ted had a lot to do with the professors' brief. Here is what he wrote:

The split in the lower courts arose when the First Circuit inexplicably resuscitated the questionable proposition, first articulated in Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985), that rejection of an intellectual property license rescinds that license and terminates the licensee’s rights. Congress reversed Lubrizol for copyright and patent by enacting section 365(n), and in 2012, the Seventh Circuit rejected the reasoning of Lubrizol for trademarks, in Sunbeam Prods., Inc. v. Chi. Am. Mfg., LLC, 686 F.3d 372 (7th Cir. 2012). While there remained some question as to the continued vitality of Lubrizol outside the patent and copyright context, the holding was, at best moribund. At least, that is, until the First Circuit’s decision in Tempnology.

Continue reading "Tempnology and Janger Too!" »

Passing of Ian Fletcher

posted by Bob Lawless

It is with great sadness that the news reached my desk of the passing of Professor Ian Fletcher of University College London. Ian was a leading international insolvency expert, well known to all of us at Credit Slips, and we extend our condolences to his family and friends. Professor Bob Wessels has a tribute.

It's Been Twelve Years

posted by Bob Lawless

12th BirthdayToday is the twelfth anniversary of the Credit Slips launch date. I always like to mark the date because it is hard to believe that it has been that long. When we started, Barack Obama was a senator, and Elizabeth Warren was blogging (for us and others). The solar system had nine planets. Worldcom was the largest bankruptcy in U.S. history, and we were trying to parse the meaning of the not-always-clear bankruptcy amendments in 2005. OK, we are still trying to do the latter.

Happy birthday to us. Thanks for reading.

And, yes, that is a picture of Zachary Taylor.

Student Loans and Other Doings for the ABI Consumer Bankruptcy Commission

posted by Bob Lawless

The American Bankruptcy Institute's Commission on Consumer Bankruptcy has been hard at work (Full disclosure: I am the Commission's reporter.) Yesterday, the Commission submitted written comments to the Department of Education's request for information (RFI) on the "undue hardship" standard for the discharge of student loans in bankruptcy. As the Commissions make clear in the cover letter, our comments respond to the RFI and thus focus on what can be accomplished at the regulatory level. Recommendations for statutory change will appear in our final report. Indeed, we had intended to release only the complete set of recommendations at the end of our work, but given the Department of Education's RFI, the Commission voted to release its recommendations that were responsive.

The Commission's recommendations fall into two broad categories. First, the Commission advocates for the adoption of bright-line rules that will identify persons for whom repayment of student loans will be an undue hardship, such as an existing governmental determination of disability or income below 150% of the federal poverty line. Second, the Commission made a number of recommendations around the judicially crafted Brunner test that courts use to determine undue hardship. You can read the full set of recommendations from the link above.

Continue reading "Student Loans and Other Doings for the ABI Consumer Bankruptcy Commission " »

Welcome (Back) to Patricia McCoy

posted by Bob Lawless

Credit Slips is pleased to welcome back Professor Patricia McCoy as a guest blogger. Professor McCoy is the Liberty Mutual Insurance Professor of Law at Boston College Law School. She is a nationally known scholar, writing in the area of consumer financial regulation area. Professor McCoy worked at the Consumer Financial Protection Bureau during its earliest days, and I understand some of her guest posts will offer her perspective on the current state of the CFPB. We look forward to her contributions.

Bankruptcy Venue Reform -- Yes, Again, But Maybe This Is the Time?

posted by Bob Lawless

As many Credit Slips readers will know, chapter 11 venue reform has been an issue for decades. As corporate filers have flocked to the Southern District of New York and the District of Delaware, the real reason some observers say is that these courts favor corporate managers, dominant secured lenders, bankruptcy attorneys, or a combination of all of them. Regardless of the merits of these claims, it certainly undermines respect for the rule of law when faraway federal courts decide issues affecting local interests. A great example comes from right here in Champaign, Illinois, where local company Hobbico has recently filed chapter 11. The company, a large distributor of radio-control models and other hobby products, has more than $100 million in debt. The company has over 300 employees in the Champaign area who own the company through an employee stock ownership plan. Yet, the company's fortunes are now in the hands of a Delaware bankruptcy court.

Continue reading "Bankruptcy Venue Reform -- Yes, Again, But Maybe This Is the Time?" »

Welcoming Mitu Gulati

posted by Bob Lawless

Regular readers of Credit Slips will know that Mark Weidemaier will often co-post with Professor Mitu Gulati of Duke University. These posts, often on sovereign debt issues, are among our most widely read and commented upon. We are very pleased to announced that Mitu is joining as a permanent blogger. When trying to figure out how to introduce Mitu to our readership, I looked at his faculty bio, which is too good not to share in its entirety:

Mitu Gulati is a professor at Duke University. His research interests are currently in the historic evolution of concepts of sovereign immunity and the role that law can play as a symbol. He has authored articles in the Journal of Legal Studies, the Review of Finance and Law and Social Inquiry. He has won no awards, other than a second place finish in the fancy dress competition in 3rd grade (photo not available).

Characteristically, Mitu's bio is unduly modest. He is a very accomplished and prolific scholar who is well known within the legal academy. It is our honor and pleasure to have him join this often merry band of bloggers. We hope you enjoy his contributions.

ProPublica: The Bankruptcy System Fails Black Americans

posted by Bob Lawless

It's been a busy day, but before I sign off for the evening, I would be remiss not to flag Paul Kiel's outstanding piece that came out this morning, How the Bankruptcy System is Failing Black AmericansProPublica and The Atlantic co-published the article. An extensive data analysis also accompanies the article. Anyone who follows Credit Slips will want to read these pieces.

Kiel finds chapter 13 filings are about three times higher in predominately black zip codes as compared to predominately white zip codes. Of course, these findings very much parallel our earlier work, which I blogged about here back in 2012. Like our work, the disparities Kiel finds remain even after statistically controlling for financial and other variables that should determine chapter choice. Because chapter 13 is generally a more expensive choice than a chapter 7, requiring a payment plan that many debtors don't complete (and hence don't receive a discharge), the racial differences are troubling.

Where Kiel's article really shines are the interviews with the attorneys and bankruptcy debtors in Memphis, Tennessee. The interviews put faces and stories to the statistics that we can't do in academic studies. Check out Kiel's work.

Update on ABI Consumer Bankruptcy Commission

posted by Bob Lawless

This afternoon, I am off to New Orleans and the annual meeting for the National Association of Bankruptcy Trustees (NABT).  Tomorrow (September 15) from 12:30 - 2:30 PM, we are holding a public meeting for the Committee on Chapter 7 of the American Bankruptcy Institute's Commission on Consumer Bankruptcy. If you are at the NABT meeting, come and listen to our full schedule of fourteen speakers. The room location should be in the program and will be in the public meeting space for the conference.

If you would like to speak to us, there will be another opportunity for persons attending the National Conference of Bankruptcy Judges (NCBJ) in Las Vegas. The Committee on Case Administration & the Estate will be holding a public meeting at NCBJ on the morning of October 10. More information about requesting a time to speak is available at the call for participation. There also will be public meetings for the full Commission at the ABI's Wedoff Consumer Bankruptcy Conference to be held in November in Chicago, Illinois, and the Winter Leadership Conference to be held in December in Palm Springs, California.

Of course, you don't have to come to a meeting to send us your suggestions and comments. Anyone can send an email to ConsumerCommission@abiworld.og. I route all of those emails directly to the persons working on the issues raised as well as make them available to everyone involved with the Commission. Now is a particularly good time to write us as the committees are working on preliminary drafts. The topics the Commission is addressing are also available on our web site.

Come Talk to the ABI Consumer Bankruptcy Commission at NABT

posted by Bob Lawless

As careful Credit Slips readers will remember, I was inflicted on the American Bankruptcy Institute's Commission on Consumer Bankruptcy as the Commission's reporter. Things are off to a roaring start. Taking the suggestions of many different stakeholders in the consumer bankruptcy system, the Commission has developed a list of topics and assigned them to different committees. In turn, the committees have broken down into working groups to study the issues.

The Commission and its committees already have had two successful public meetings, hearing from persons at the annual meeting for the National Association of Consumer Bankruptcy Attorneys (NACBA) in Orlando, Florida, and from persons at the annual seminar for the National Association of Chapter 13 Trustees (NACTT) in Seattle, Washington. The Commission web site has videos and, where available, written statements from both the NACBA meeting and the NACTT meeting.

The next public meeting is for the Commission's Committee on Chapter 7, which will occur on September 15 at the annual meeting for the National Association of Bankruptcy Trustees in New Orleans, Louisiana. Come talk to us. Subject to time availability, we hope to allow participants to make statements of about five minutes each. Written statements are very welcome and encouraged. Further details appear in the call for participation on the Commission web site. For full consideration, requests to participate must be received by September 6.

Commentary on the CFPB Arbitration Rule

posted by Bob Lawless

A few weeks ago, Adam did a great post about the CFPB's new arbitration rule, analyzing whether we would get a veto from the Financial Stability Oversight Council (FSOC). My own, much more modest effort, explaining the arbitration rule for our local NPR station (WILL) appeared this morning. With all the daily nonsense out of Washington, this story is falling through the cracks.

Gilbert Index Q&A

posted by Bob Lawless

The Gilbert Index blog was kind enough to feature Credit Slips in a Q&A. For those of you who are interested in how Credit Slips came about, check it out.

An Explanation for the Low Bankruptcy Rates: Debt

posted by Bob Lawless

Yesterday, I noted the U.S. bankruptcy filing rate of 2.38 per 1,000 persons is at historic lows. The next question is always why. In this post, I am going to try to walk through an explanation in four graphs. The upshot is that consumer debt is low but rising. As I like to say, it takes years of study to come to the conclusion that people file bankruptcy because they are in debt. This is not to say that other factors are not contributors -- unemployment, general economic conditions -- but the primary macroeconomic driver of bankruptcy filings is the amount of debt on household balance sheets.

Continue reading "An Explanation for the Low Bankruptcy Rates: Debt" »

Bankruptcy Filings Holding Steady for the First Half of 2017

posted by Bob Lawless

2017 Projected Filings from JuneUsing data from Epiq Systems, we appear to be on track for 774,000 bankruptcy filings for the 2017 calendar year. That would basically be the same rate of filings as in 2016 when total filings were just under 772,000. This calculation comes from a simple extrapolation. There were just under 400,000 bankruptcy filings for the first six months of this year. To get an estimate of what filings will be for the entire year, we cannot simply double the six-month figure because bankruptcy filings tend to be higher in the first part of a year. In the past two years, the first six calendar months have seen 51.6% of the total filings for the year. Thus, just under 400,000 filings for the first six months of a calendar year would imply about 774,000 filings for the entire year.

Continue reading "Bankruptcy Filings Holding Steady for the First Half of 2017" »

Eleven Years

posted by Bob Lawless

Section 1111The number eleven has a lot of significance in the bankruptcy world. The Bankruptcy Code is, of course, title 11 of the United States Code. There is chapter 11. And, within chapter 11, one can make the eleven-eleven election under section 1111 -- an election that is as difficult to explain in a bankruptcy classroom as it is to understand it.

The number eleven has new significance. Credit Slips launched on this date in 2006, making us eleven years old today. I hope that doesn't mean we have to repeat middle school.

How to Get Involved with the ABI Consumer Commission

posted by Bob Lawless

As Jason Kilborn noted last month, the American Bankruptcy Institute (ABI) has formed a Commission on Consumer Bankruptcy. More information about the Commission is available on its web site including the unfortunate news that it got saddled with me as the reporter. We very much invite input and suggestions about the Commission's work. Right now is an especially good time to get involved as the Commission sets its agenda.

The ABI has charged the Commission with "researching and recommending improvements to the consumer bankruptcy system that can be implemented within its existing structure. These changes might include amendments to the Bankruptcy Code, changes to the Federal Rules of Bankruptcy Procedure, administrative rules or actions, recommendations on proper interpretations of existing law and other best practices that judges, trustees and lawyers can implement."

Continue reading "How to Get Involved with the ABI Consumer Commission" »

Secured Transactions in the Funny Pages

posted by Bob Lawless

From the always wonderful Pearls Before Swine, some humor for the secured lending crowd.

Katie, Remember Us When

posted by Bob Lawless

It is with incredibly mixed feelings that I pass along to our readers that Professor Katie Porter is leaving our blog. Katie was one of the original bloggers on Credit Slips back in 2006. There were a number of us who were working together in an intensive data-collection phase of a research project, and a blog was a great way to have some intellectual interaction that was more than how to word a survey question. It worked and somehow the blog stayed around. Katie's posts are insightful, thought-provoking, and witty. We will miss her contributions.

If we have to lose one of our founding bloggers, it is at least for a very exciting reason. Katie is leaving Credit Slips is to focus her efforts on her recently announced candidacy for the U.S. House of Representatives in California's 45th Congressional District. Speaking for myself, I think Katie would be fantastic in Congress. She is whip-smart and a determined advocate for consumers. Former Credit Slips blogger Elizabeth Warren put it succinctly: "Katie is a fighter!" I wish Katie nothing but success in her campaign.

We also have made a change to the way we list our blog contributors. At one time, it made sense to distinguish between more frequent and less frequent contributors. Now, everyone is simply listed as a contributor. This change is long overdue, and I had been meaning to make it for a while. My day job seems to keep interfering with the many ideas I often have to improve the blog.

Bankruptcy Fees in the Trump Budget

posted by Bob Lawless

Thanks a tweet to the sharp-eyed Drew Dawson at the University of Miami, I saw this article in Politico that among the surprises in Trump's budget is an increase in bankruptcy filing fees (see item 5). Well, this seemed important to those of us in the bankruptcy world so I thought I would check it out. It proved surprisingly more difficult in this day and age than one would think to get a PDF copy of the Trump budget outline, but I finally found one. I am not sure the characterization of an increase in "bankruptcy filing fees" is entirely accurate.

Trump Budget Screen Grab

Above is a screenshot from p. 30 of the document (clicking on it should bring up a full-sized image in a popup window). Keep in mind this is an outline of the underlying budget document. What appears to be proposed in an increase in the quarterly U.S. Trustee fee for chapter 11 filers and not a general increase in all bankruptcy filing fees or even the chapter 11 filing fee. Of course, the paragraph does characterize it as an increase in bankruptcy filing fees so maybe there is such a broad increase in the budget itself.

Does anybody know for certain?

Arbitrating the Discharge

posted by Bob Lawless

The Second Circuit currently has a pending case (Anderson v. Credit One Bank, No. 16-2496) that raises the question of whether an alleged violation of the bankruptcy discharge injunction is subject to a predispute arbitration agreement. Professors Ralph Brubaker and Bruce Markell have joined me on an amicus brief explaining why the answer has to be "no." You can download the brief from SSRN. (UPDATE 3/3: The link was broken but should be fixed now.)

Bankruptcy specialists know the "discharge" means the forgiveness of prebankruptcy debts. The "discharge injunction" comes from section 524 of the Bankruptcy Code, which states that the entry of a discharge shall operate as an injunction against attempts to collect prebankruptcy debts. Indeed, one of the things the brief tries to make clear is that the "discharge" and "discharge injunction" are different concepts. Historically, filing bankruptcy gave rise to a discharge, but there was no enforcement of that discharge in the federal court that issued it. Rather, the debtor could plead the discharge as an affirmative defense in a state-court collection action.

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Bankruptcy Filings for 2017 -- Let's Say 767,000

posted by Bob Lawless

2016 Annual Filings ChartAccording to Epiq Systems, there were 771, 894 total U.S. bankruptcy filings in 2016, a decline of 5.8% from 2015. The overall annual decline in 2015 was 10.0% and was 11.8% in 2014.  As I noted yesterday, the rate of decrease is decreasing.

At the beginning of 2016, I projected 780,000 filings for the year. That forecast was only 1.0% off. Pride goeth before a fall. Here is my thinking for 2017.

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Bankruptcy Rate Rises in December . . . A Blip and Not a Blip

posted by Bob Lawless

2016 Month Over Month TrendsSomething happened in the U.S. bankruptcy courts that had not happened since October 2010. The daily filing rate increased on a year-over-year basis. There were 56,394 filings in December 2016 as compared to 53,844 in the previous December. Also, because the 2016 filings were spread over one less business day than in 2015, the rise represented a 9.7% increase in the daily filing rate. The lighter-red line in the graph to right the shows just how dramatic the spike was.

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ABI Podcast on Race and Chapter 13

posted by Bob Lawless

In October, a panel at the National Conference of Bankruptcy Judges explored the role of race and implicit bias in the bankruptcy system. Called "The Color of Money: The Implications of Race and Ethnicity in Addressing Debt," the panel included a presentation by yours truly about our research exploring the intersection of race and chapter 13. If you were not at NCBJ, the American Bankruptcy Institute was kind enough to ask me to do a podcast about our research and the updates to it since its original appearance in 2012. The podcast is a little over seventeen minutes long if you want to give it a listen.

ABA Journal Blawg 100!

posted by Bob Lawless

HonoreeBadgeCredit Slips is honored to have been selected as part of the ABA Journal's Blawg 100, their annual list of the top 100 blogs about law and lawyering. It is our second year in a row for inclusion on the list.

We appreciate all of our readers and are humbled by the time you spend with us. The comments to the posts continually demonstrate that one of the things that makes this blog work is our readership. Thanks for visiting.

The Big 1-0

posted by Bob Lawless

10th BirthdayToday is the tenth anniversary of the launch of Credit Slips. We started the blog in the middle of a big research project as an exercise in team building We also thought the blog might be a place where we could try to reach a wider audience about the scholarship coming out of the project. It is hard to believe we are still chugging along after 10 years.

A lot has happened in 10 years. When we started, blogging was relatively new and especially new for academics trying to reach outside the ivy-covered walls. There weren't no Twitter or Facebook, and Pokemon was passé. Looking back at that first post, four of the original seven bloggers are still with the blog. Things have moved on considerably for most all of the original bloggers. One of us got hired and tenured at one of this nation's leading law schools. A few of us have moved universities. One of us even became the senior United States senator from Massachusetts. Some of our newest bloggers are people we were mentoring as junior scholars or even students ten years ago. For myself over the past 10 years, I managed to move to a new faculty office down the hallway.

We have been talking about a few changes to the blog to keep current with the times, but the changes will not affect our topical focus. Our goal remains what it has been from the start, which is to reach outside the legal academy to have conversations with who care deeply about the policy issues surrounding credit, finance & bankruptcy. Thanks for being part of the conversation.

Porter's Modern Consumer Law

posted by Bob Lawless

Porter Consumer LawCredit Slips blogger Katie Porter has produced a new textbook in consumer law that anyone teaching the subject should consider adopting. Indeed, law professors not teaching consumer law should to take a look at it and consider whether they should add the class to their teaching portfolio. A 2013 poll on Brian Leiter's Law School Reports named consumer law as the number one "area of law which deserves more attention in the legal academy." Next academic year I will be picking up a new course, and the emergence of Porter's new text made the decision easy for me as to which course it will be.

In the preface, Porter makes explicit her three-pronged approach to the topic of consumer law:

  1. The book situates consumer law within the business-law curriculum. "Consumer law is big business," she notes. Understanding the legal issues requires understanding the "deal," the information flow, and the market in which the transaction occurs. Porter expressly recognizes, "the world of consumer practice offers opportunities for lawyers to represent consumers (as government lawyers, policy advocates, and plaintiffs’ attorneys) and to represent businesses (as in-house counsel, defense attorneys, and
    lobbyists)."
  2. The book provides a strong theoretical frame by situating consumer law at the intersection of tort and contract. The book does not present consumer law as a hodgepodge of cases and statutes loosely organized around the term "consumer." Rather it recognizes that a lot of what travels under the law of "consumer law" responds to the gaps that traditional contract and torts doctrines have when it comes to the issues that consumer transactions create.
  3. The book explores where the social-science literature has learning for consumer law. Porter looks to see what psychology, sociology, marketing, and economics can add to our understanding of the legal issues. By doing so, the book explores the difference between law on the ground and law in the books. 

The book uses a problem-based method of instruction that will be familiar to users of Porter's co-authored bankruptcy textbook or my co-authored secured transactions textbook. The problems range from straight-forward statute readers to teach doctrine to tough client counseling problems that focus on real-world lawyering skills.

More information, including a table of contents and a sample chapter, can be found at Aspen Publishers.

Annual U.S. Bankruptcy Filings on Track for 6.7% Decline

posted by Bob Lawless

Filings per 1000.July 2008 to June 2016It has been a while since I last checked in on bankruptcy filing rates. The arrival of the latest figures from Epiq Systems was a welcome reminder to do so.

We are at the halfway point for the year, and the U.S. has had 398,000 bankruptcy filings. It is tempting to simply double that figure to get an estimate of what filings will total for all of 2016, but that estimate would be too high. Bankruptcy filings are somewhat more concentrated in the first six months of the calendar, which have accounted for about 52% of yearly filings for the past two years. Extrapolating from recent experience would mean there will be 764,000 filings for the calendar year.

That would be a 6.7% decline in filings from 2015. Back in January, I forecasted a 5% decline or 780,000 filings for 2016. Given that we are well within the confidence interval of that estimate, I will take that. Although we still have half the year left to go, the model I use for the forecasting looks to be holding up.

In terms of trends, we have had 68 straight months of year-over-year declines in the daily filing rate. The annualized filing rate per 1,000 currently stands at 2.46. The graph shows a 12-month moving average for filings per 1,000 persons since 2008. The discerning eye will note the tail of the graph is flattening. The year-over-year decline is slowing. Where we saw double-digit declines in 2013-14, the declines are in the 5%-8% figures now.

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Law & Society, 2016 Panels on Household Finance

posted by Bob Lawless

If you happen to be at the 2016 Law & Society Association meetings in New Orleans, stop by the panels from the Collaborative Research Network (CRN) on Household Finance. This group got its start as an international collaborative studying overindebtedness thanks for the leadership of people like the late Jean Braucher, Johanna Niemi, Iain Ramsay, and Bill Whitford. We have scholars from all over the world and from diverse disciplines thinking about how law on the ground affects household financial outcomes. Below the fold is a listing of panels, topics, and presenters for this year. If you are an academic and want to be on the CRN email list, contact me or Credit Slips blogger Dalie Jimenez.

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Puerto Rico: Blame and the Debt of "the Other"

posted by Bob Lawless

Recently, I have been spending a lot of time thinking about the psychology of other people's indebtedness. I see parallels from this work and the way we think about Puerto Rican government debt. This thinking then tends to stand in the way of solutions.

An example is the psychological idea of the fundamental attribution error. This heuristic means we over-attribute other people's behavior to their personality rather than their circumstance. The guy speeding past me on the highway is a jerk instead of late for a meeting. Our neighbor who has filed bankruptcy is irresponsible rather than the victim of a job layoff. It is not that some people aren't jerks or irresponsible. Rather, we over-attribute behavior to personality rather than circumstance. If you don't see my point, there is probably something wrong with you. (Get it?)

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2016 Bankruptcy Forecast -- Let's Say 780,000

posted by Bob Lawless

Forecasting U.S. bankruptcy filings for this year was a little more complicated. In a comment to my post about the total 2015 bankruptcy filings, Erich Fabricius made the astute observation that December 2016 saw the introduction of new bankruptcy forms and that could explain my befuddlement at the abnormally large 14.8% decline for December in terms of year-over-year daily filing rates. November, in contrast, saw almost no decline in the year-over-year rate, which is also unusual. The relatively stronger numbers in November suggests that attorneys were perhaps trying to beat the deadline before the new forms went into effect. The effect would not have to be huge -- shifting 5,000 filings from December into November would have been enough to create this effect.

What that means is my preferred mathematical model to predict bankruptcy filings for the next year has to start with the immediately previous two months being untypical months. If I run the model with the actual data, I get 800,000 filings. If I "correct" the numbers for November and December to what would have been expected had recent monthly trends continued, the model predicts 782,000 filings. The model controls for the amount of outstanding consumer credit and national personal income and has proven accurate in the past

Continue reading "2016 Bankruptcy Forecast -- Let's Say 780,000" »

Bankruptcy Filings Drop 10% in 2015

posted by Bob Lawless

2015 Calendar Year FilingsAccording to the latest figures from Epiq Systems, total U.S. bankruptcy filings dropped 10% in 2015. The yearly total was 819,240 compared to 910,090 the previous year. As bankruptcy experts know, these figures are low. In 2015, there were 2.55 bankruptcy petitions per 1,000 persons, the lowest figure since 1989, ignoring the statistical gyrations around the 2005 bankruptcy law. If the decline keeps up, we won't even have to ignore the 2005-06 statistical gyrations for the statement to be true.

Last January, when forecasting the number of 2015 filings, I wrote, "a good estimate for 2015 bankruptcy filings is 800,000." That turned out to be not too bad of a forecast, off by only 2,5%. As the model I used seems to have been a good prediction, I will try it again and post the results here on Credit Slips.

Before I go off to crunch numbers, one other thing caught my eye in the latest numbers. The daily filing rate for December was only 2,446, which was a year-over-year decline of 14.8%. The decline in U.S. bankruptcy filings had been slowing, and I was expecting the decline to eventually flatten out. December is an unusually slow month for bankruptcy filings, but it is an unusually slow month every year. I am always cautious about extrapolating too much from one month of data, but the size of the decline in December took me by surprise. 

AALS & The Slips

posted by Bob Lawless

Quite a few Credit Slips bloggers and former guests are panelists at the session the Debtor-Creditor Section of the Association of American Law Schools (AALS) meeting.The session is entitled, "Bankruptcy for the Ninety-Five Percent: Making the System Work for Small and Medium-Sized Businesses and Sole Proprietors" and will take place on Saturday from 1:30 - 3:15 PM. If you are at the AALS meeting, check it out. Panelists and discussants are Matthew Bruckner, Andrew Dawson, Pamela Foohey, Margaret Howard, Melissa Jacoby, Ed Morrison, Foteini Teloni, and Jay Westbrook. The moderator is Gene Wedoff, recently of the U.S. Bankruptcy Court for the Northern District of Illinois. 

Foohey on Black Churches in Bankruptcy

posted by Bob Lawless

Credit Slips blogger Pamela Foohey has a new article on SSRN, "Lender Discrimination, Black Churches, and Bankruptcy." This paper builds on her previous work about churches in bankruptcy to dig into the demographics of which churches end up in bankruptcy court. From her abstract: "Churches with predominately black membership — Black Churches — appeared in chapter 11 more than three times as often as they appear among churches across the country. A conservative estimate of the percentage of Black Churches among religious congregation chapter 11 debtors is 60%. The likely percentage is upward of 75%. Black Churches account for 21% of congregations nationwide."

Foohey discusses the various reasons why black churches would be overrepresented in chapter 11. I suspect there will be a lot of debate about the paper's conclusions, but it is hard to argue with the notion that race matters in bankruptcy as it does across so many parts of life in the U.S. (h/t to Mechele Dickerson's work). Foohey's paper will get bankruptcy experts talking again about why and how it matters, even if there is disagreement on the specifics.

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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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