postings by Bob Lawless

Bankruptcy Filing Rate Is Lowest Since Bankruptcy Code's Enactment--The Question Is Why

posted by Bob Lawless

2021 (Nov) Projected FilingsThere will be around 400,000 total bankruptcy filings in 2021. That figure is historically low. The table to the right shows annual filing figures since 2010, which was the post-2005 peak. The 400,000 filings this year is a 75% reduction from 2010. 

The 400,000 filings in 2021 will be a rate of 1.21 bankruptcy filing per 1,000 persons (using the mid-year, July population estimate). That is the lowest annual rate since the enactment of the Bankruptcy Code. In 1980, the first full calendar year of filings under the new law, there were 1.22 filings per 1,000 persons. In absolute numbers, there were 122,000 more filings in 2021 than in 1980, but there also are over 100 million more people living in the U.S.

Filings Per 1000.1980 to 2021Every calendar year since 1980 has had a higher bankruptcy filing rate. Absent some surprisingly high number of filings in December, this year will put an end to that. Ed Flynn's numbers over at the American Bankruptcy Institute show that at least through December 12, the situation has not changed.

Why are bankruptcy filings so low in the midst of a pandemic that has caused so much economic upheaval? Anyone who claims to have an answer to that question is either lying or overconfident. I certainly don't have an answer, but I have some hypotheses suggested by the data, with emphasis on "hypotheses." Below the fold, I explain those hypotheses and conclude with some thoughts about how much lower the filing rate can get.

Continue reading "Bankruptcy Filing Rate Is Lowest Since Bankruptcy Code's Enactment--The Question Is Why " »

Hawkins & Penner--Marketing Race and Credit in America

posted by Bob Lawless

Past Credit Slips guest blogger, Jim Hawkins from the University of Houston, and his student, Tiffany Penner, alerted me to their recent publication in the Emory Law Journal entitled, "Advertising Injustices: Marketing Race and Credit in America." The paper takes an interesting approach to the issue of how consumer credit gets marketed in the United States. They visited fringe lending establishments as well as the web sites of these establishments and mainstream banks and looked at the persons used as models in their advertisements.

Although I have some questions about the magnitude of the effects--questions that come from how different government agencies Latino or Hispanic heritage sometimes as an ethnicity and sometimes as a racial identity--the core finding of the paper seems right. The models used in the advertisements send a signal about whether the financial service is "for people like you." How those people differ between mainstream banks and fringe lenders will not surprise anyone who has paid even a bit of attention to the structural racism that defines our economy. Hawkins and Penner close the paper with some thoughts on how the Equal Credit Opportunity Act and the Community Reinvestment Act might help fix the problems they identify.

UPDATE (9/26): My apologies to Ms. Penner for misidentifying her in the original title to this post.

Thoughts on Student Loans and the FRESH Start Act

posted by Bob Lawless

A new bill from Senators Durbin and Cornyn promises a way out of student loan debt through a change in the bankruptcy laws. The Fresh START Through Bankruptcy Act of 2021 makes one principal change. After 10 years from the date they first came due, federal student loans would be freely dischargeable. Before 10 years, student loans would be dischargeable only if the debtor could show undue hardship, which is the standard currently. Private student loans would remain nondischargeable at all times except upon a showing of undue hardship. This is not the bill I would write, but it's a step in the right direction.

How could the bill be improved? First, ten years is too long. It is the entire regular repayment period for a federal student loan. Do we really think that debtors should have to struggle for ten years before becoming eligible for a student-loan discharge. For example, from our "Life in the Sweatbox" paper, 60% of the people who reported they struggled for at least two years before bankruptcy said they went without medical attention and 47% said they went without a prescription they needed. 

Continue reading "Thoughts on Student Loans and the FRESH Start Act" »

15 Years of Credit Slips

posted by Bob Lawless

The Debt Hole.White BannerToday marks fifteen years of the Credit Slips blog. We started modestly on this date in 2006 while we were in the throes of doing all the tedious ground work for what would be the 2007 version of the Consumer Bankruptcy Project. After 15 years, I think I can reveal that I had originally proposed--and I am not making this up--a different name for the blog. Proof of the bona fides of that big reveal are to the right, which was the original mockup of the blog banner. Much, much wiser heads prevailed. The blog got a different name, and Credit Slips was launched. Many thanks to all of our bloggers over the years, both regulars and guests, but especially many thanks to our readers who have helped us create this little corner of the Internet that we will keep going as long as you'll have us.

Bankruptcy Filing Rates Not Rising, May Go Lower

posted by Bob Lawless

UntitledThe latest data from Epiq Systems shows that year-over-year bankruptcy filings dropped again in May after an increase in April. The April and May figures are particularly important because they give us two months of year-over-year comparisons with post-Covid data.

In April, there was an average of 1,860 filings per day which was an increase of 6.4% from the previous April. That uptick made me wonder whether we were beginning to see the long-predicted increase in bankruptcy filings because of the pandemic. That speculation proved premature because the May figure was 1,738 filings per day, which was not only a decrease from April but a year-over-year decline of 13.1%.

Whether the April increase or the May decrease ends up being the one-month blip is something we will learn over the next few months. It is that kind of insight you are looking for when you come to this blog--the future will reveal the future. It is much easier, however, to come up with a story that April was the anomaly than vice versa.

Bankruptcy filings are seasonal, spiking in the early spring. Ronald Mann and Katie Porter persuasively documented the reason for that is tax refunds going to pay the cost of the bankruptcy filing. Usually the effect runs from February to April with a peak in March. This year, the IRS tax filing statistics show that refunds ended up being higher overall than last year but started more slowly. There was also a third round of stimulus payments in March that capped out at lower-income levels and at levels that are more typical for bankruptcy filers. For these reasons, what we saw in April might have just been the usual annual seasonality in the filing rate, just pushed back a bit by later-filing tax filers and the stimulus money.

Continue reading "Bankruptcy Filing Rates Not Rising, May Go Lower" »

Welcome to Chris Odinet

posted by Bob Lawless

On behalf of the other Credit Slips bloggers and myself, I would like to welcome Professor Chris Odinet as a guest blogger. Chris is a professor at the University of Iowa College of Law and is part of a new generation of scholars in the consumer finance space that our readers should know about. He already has an impressive list of scholarly publications and part of important conversations in consumer finance, especially fintech. Welcome, Chris, to Credit Slips.

Bankruptcy Filings Are Still Super Low--Don't Believe the Headlines

posted by Bob Lawless

Headlines recently appeared in the usual places about a big March jump in bankruptcy filings. It is true that March 2021 total bankruptcy filings were 43,425 (according to the Epiq Systems data) and that was a 39.1% increase from February 2021. That looks like a big jump. Of course, March is a longer month, and in fact this March had four more business days than February--almost an entire extra work week. Calculating the filing rate per business day, the March 2021 filing rate was a 14.9% increase from February 2021.

That still feels notable, but let's be careful--very careful. Bankruptcy filings are at historically low levels. When any data series hits a trough and starts creeping back to an old base rate, the increases will feel really big although we are really only getting back to what we had experienced previously. The February filing rate was 1.13 filings per 1,000 persons, the lowest since January 2006 when bankruptcy filings fell to almost nothing after the surge to beat the effective date of the 2005 bankruptcy amendments. (To give you a sense of the surge, the October 2005 rate was 25.53 filings per 1,000 persons.)

Continue reading "Bankruptcy Filings Are Still Super Low--Don't Believe the Headlines" »

Fantastic SBRA Resource from Judge Bonapfel

posted by Bob Lawless

As Credit Slips readers know, the Small Business Reorganization Act added subchapter V to chapter 11 of the Bankruptcy Code earlier this year. My go-to resource on subchapter V has been a thorough summary written by Judge Paul Bonapfel of the U.S. Bankruptcy Court for the Northern District of Georgia. It is available for free on the court's web site, and with Judge Bonapfel's permission, I wanted to spread the word about the guide's availability. Judge Bonapfel has just done a November 2020 update of these materials with all of the recent cases. The update is a new chapter at the end of the materials that functions like a pocket part (for those of you who remember pocket parts!). Thank you Judge Bonapfel for this great service to the profession!

Most of What You Read about the Bankruptcy Filing Rate Is Wrong

posted by Bob Lawless

A popular narrative is that bankruptcy filing rates are increasing dramatically. That is not true. If you want to know what is happening with the bankruptcy filing rate during covid-19, the best source is Ed Flynn's analyses over at the American Bankruptcy Institute (current analysis here with a historical archive here). Here some facts, using my own data as well as Flynn's very useful numbers:

  1. Total bankruptcy filings have had some modest gains in recent weeks after falling off the cliff early in the crisis, but total filings remain down 33% on a year-over-year basis.
  2. The number of chapter 11s filings has been very artificially inflated by counting affiliate filings. If one only counts the "parent" and "solo" filings, the chapter 11 rate actually declined in July!
  3. The decline in chapter 13 filings has been much deeper than the decline in chapter 7 filings.

Before expanding on each of these points and like I wrote in an earlier post with the same theme, I am not Pollyannaish about the economy. Things are as bad as they seem. My plea is for accuracy. An understanding of whether and when people turn to the bankruptcy system to help them deal with their business or personal issues makes that system more effective.

Continue reading "Most of What You Read about the Bankruptcy Filing Rate Is Wrong" »

Of Sheep, Twyne's Case, and a Better Story

posted by Bob Lawless

Holden FieldProfessor Emily Kadens has just published a great paper that explodes the myths about Twyne's Case. We all know Twyne as the case where an insolvent farmer gave away his sheep, thereby leading to a Star Chamber decision that laid the foundation for modern fraudulent conveyance law. It turns out most all of the story we know isn't true. Even better, the actual story is much more interesting and instructive.

Kadens did an incredible amount of archival research, going through the depositions and other original records from the case. Obstacles included documents that had been partially eaten by rats, a point I need to remember the next time I want to complain about difficulties with my own research.

Pearce, who was the debtor, had resisted writs of execution from the undersheriff who had come to seize his property, which was a lot more than just a few sheep. And, it was not Pearce himself, but his laborers and community members who did the resisting. Confrontations occurred over three days.  After an unsuccessful foray to Pearce's farm on the first day, the undersheriff made somewhat of a surprise attack on the second day to seize cattle at a more distant place called Holden Field (the picture to the right, courtesy of Kadens). The undersheriff pastured the cattle overnight at Pole Meadow (pictured below the fold, again courtesy of Kadens). The next day, the undersheriff attempted to drive the cattle to market, but Pearce's allies interceded and took the cattle.

Continue reading "Of Sheep, Twyne's Case, and a Better Story" »

For Your Bankruptcy Class or Presentation

posted by Bob Lawless

Bankruptcy Opt-Out StatesOK, bankruptcy mavens. What is this a map of? Answer below the fold.

Continue reading "For Your Bankruptcy Class or Presentation" »

Should Chapter 11 Protect the Sacklers?

posted by Bob Lawless

My colleague, Ralph Brubaker, and Gerald Posner have a New York Times op-ed assailing how the Sacklers are using Purdue Pharma's chapter 11 to shield themselves from personal liability. The bankruptcy world knows this tactic under the labels of third-party or nondebtor releases.

When they first appeared on the scene, third-party releases seemed like another example of the pragmatic problem-solving that the bankruptcy system excels at doing. Parties contribute money to the pot that goes to pay creditors, often victims of some tort. That money increases the amount that victims receive without having to suffer the time, expense, and uncertainty of having to file lawsuits. The release incentivizes the released parties to contribute in the first place. No contribution, no release.

Like many good ideas in the bankruptcy system, third-party releases were supposed to be the rare case but have become commonplace in chapter 11 practice. As Brubaker and Posner point out, if third parties like the Sacklers need protection from tort liability associated with Purdue Pharma, they can always file bankruptcy themselves. They want the protection of the bankruptcy court without subjecting their own assets and affairs to the scrutiny of the bankruptcy court. At the least, that needs to change. 

How Many People Have Filed Bankruptcy?

posted by Bob Lawless

The past few days I had been wondering exactly how many persons in the U.S. have filed bankruptcy. By that, I don't mean how many filed last week, last month, or last year. Rather, how many persons walking around the U.S. have ever filed a bankruptcy case? My estimate is around 10% or 33 million persons. Here is the math.

Continue reading "How Many People Have Filed Bankruptcy?" »

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.

Continue reading "Arbitrating the Discharge" »

Contributors

Current Guests

Kindle and ePub Versions of Bankruptcy Code

  • Free Kindle and ePub versions of the Bankruptcy Code are available through Credit Slips. For details and links, visit the original blog post announcing the availability of these files.

Follow Us On Twitter

Honors

  •    

Categories

Bankr-L

  • 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.

OTHER STUFF

Powered by TypePad