401 posts categorized "Bankruptcy Generally"

Bankrupt Churches

posted by Bob Lawless

My colleague, Professor Pamela Foohey, has just posted a paper on SSRN about religious organizations that have filed chapter 11. While the Roman Catholic dioceses bankruptcies have grabbed a lot of attention, Foohey identifies 509 other cases filed by faith-based organizations from 2006 - 2011. The amount of work in this study is impressive. Foohey individually reviewed each of the 60,000+ chapter 11 cases filed during that time frame to find the faith-based bankruptcies. The result is a census of faith-based organizations in chapter 11, including churches, schools, and community-assistance organizations.

Continue reading "Bankrupt Churches" »

Apologies for Bankruptcy

posted by Bob Lawless

My colleague, Jennifer Robbennolt, and I have posted a paper to SSRN exploring apologies in the bankruptcy context. Jennifer has done some of the leading studies on apologies in different legal contexts. Contrary to the instincts of many lawyers, apologies tend to produce better outcomes for defendants. For example, victims who hear an apology are less likely to feel they need to invoke legal process and are generally more amenable to settlements. Researchers have demonstrated these effects in a variety of legal settings such as personal injury, professional malpractice, and criminal law. We wondered whether we would see similar effects in bankruptcy.

Continue reading "Apologies for Bankruptcy" »

A Change in Name and More

posted by Bob Lawless

Some recent moves in the Senate Judiciary Committee should be of interest to bankruptcy specialists.  The committee has approved a new subcommittee to be called "Bankruptcy and the Courts" with Senator Chris Coons of Delaware as the subcommittee chair. The new subcommittee is essentially a name change from the old "Administrative Oversight and the Courts" subcommittee, which also had jurisdiction over bankruptcy matters.

Continue reading "A Change in Name and More" »

Stripping Down Bankruptcy Jargon

posted by Melissa Jacoby

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

Continue reading "Stripping Down Bankruptcy Jargon" »

Commercial Lawyering for the End of the World

posted by Bob Lawless

ApocalypseWith the apocalypse less than 24 hours away, it is probably too late for any last-minute precautions. This bit of flotsam, which has been drifting around since the early days of the Internet, shows that at least a few commercial lawyers had covered every eventuality for default:

Continue reading "Commercial Lawyering for the End of the World" »

Assassination and Bankruptcy

posted by Stephen Lubben

How's that for a catchy title?

I was inspired by an interesting post over at Lawfare, where the author notes that the term "assassination" has a specialized meaning in legal circles – namely, it involves an unlawful killing – whereas in the popular imagination the term basically refers to any sort of covert killing, particularly those with national security implications.

"Bankruptcy" is another such term. For lawyers, bankruptcy invokes a legal process to solve overindebteness. In the United States, its a court-supervised process under the Bankruptcy Code.

But in the press and other general contexts, bankruptcy is often used as a synonym for insolvency. Der Spiegel is one of the worst offenders, routinely referring to Greece, the United States, and other sovereigns "going bankrupt."  

"Not possible," I say to myself while reading.

But we can expect a lot more of this loose use of the term going forward, especially as we approach the "cliff." After all, we are told that Social Security, Medicare, and Medicaid are bankrupt, when really all that is meant is that they have become quite expensive, and some would no longer like to pay for these programs.

That's a choice between our national debt and our commitment to certain citizens, it really has nothing to do with bankruptcy.

So then why use the term? And why is the term used so loosely? I think we have to concede that the term is still morally powerful, despite all the rhetoric in 2005 about the decline of bankruptcy's stigma.

When we use the term "bankruptcy" we refer to something that is wrong, and needs to be corrected right away. The key question is whether the term is also being use to dodge or obscure other, more important policy questions.

Stern Warnings from the Ninth Circuit

posted by John Pottow

The Ninth Circuit handed down Executive Benefits Insurance v. Arkinson today. [I want to call it "Bellingham Insurance," or "EBIA," but I leave to the Blogosphere to decide.]  It jumped in as a circuit court opining that bankruptcy judges lack the constitutional authority to enter final judgments in fraudulent conveyance actions (yes, federal ones under section 548 of the Code) -- at least as pled against "strangers" to the estate -- and at least if those strangers' claims are not "inextricably intertwined" with the claims resolution process (or whatever test was gleaned from Stern).

But before the Article I Haters Club celebrates too heartily, I should point out that the entire disquisition, illuminating as it is, is obiter dictum.  This is because the court also held the appellant waived its constitutional argument, and because a "Stern" claim is not a subject-matter jurisdiction issue, it is fully waivable (technically, "consentable" through implied consent through conduct).  Thus, the appellant waived the very objection on which the court superfluously opined.

I don't mind dictum here and there, but it's odd that the Ninth Circuit didn't acknowledge its ruminations were such, especially when in the course of the opinion it dropped a FN to the Seventh Circuit's Ortiz opinion (with which it rightly disagreed) and reminded that that court's Stern discussion was dictum.

Still, dictum from a circuit court will surely make others take notice, especially those under its -- yes -- jurisdiction.  But I do feel compelled to play the role of party-pooper and call out the court for having fun by wandering into a constitutinal quagmire and playing around as a pure academic daliance.  (Isn't that what professors are supposed to do?!)

Right of Publicity as an Asset in Bankruptcy?

posted by Melissa Jacoby

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

Continue reading "Right of Publicity as an Asset in Bankruptcy? " »

Brains for Hire

posted by Melissa Jacoby

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

Continue reading "Brains for Hire" »

Elizabeth Warren & LTV Steel

posted by John Pottow

A bankruptcy case from the 1990s called LTV Steel has amazingly enough become an issue in the U.S. Senate race in Massachusetts.  A bankruptcy case!  Just this week, Senator Scott Brown’s campaign released a web ad insinuating that Elizabeth Warren, who worked on the case, somehow fought against LTV Steel’s employees.  The ad demanded to know, “Who is going to defend her?”  Well, given that Warren’s participation in LTV was to defend an arcane but important principle of bankruptcy law—that serves to protect workers—I guess it falls to bankruptcy academics like us to defend her.  So I accept the invitation.  And where better to post than my Blogosphere Alma Mater?

The bankruptcy law question at issue in LTV is complex, and I will discuss it in some detail below.  But in case nobody reads beyond this paragraph, I should quickly dispatch one patent falsehood that gave me a double-take when I viewed the ad.  The video suggests that Warren was somehow trying to make sure LTV’s workers did not receive retirement benefits.  That is objectively false: the workers’ benefits were covered by a trust fund that was fully solvent at the time of the case.  Nobody in good conscience could argue that Warren was somehow trying to deny workers’ benefits that would be paid from an already-funded trust.  LTV and other companies were quarreling over how much each of them needed to contribute to that fund, and Elizabeth Warren only got involved when a federal appellate court issued a decision in the middle of that fight that proposed a novel (and troubling) interpretation of the Bankruptcy Code. 

The full story should dispel the astonishing claim that Warren was somehow a hired gun who hoped to take benefits away from retirees.  Here’s what actually happened.

Continue reading "Elizabeth Warren & LTV Steel" »

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

posted by Melissa Jacoby

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

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A Valuable Resource: NCBRC.org

posted by Jean Braucher

Sometimes we forget that, with all its flaws, consumer bankruptcy is still a remarkable institution, providing meaningful relief to more than two million Americans a year (counting co-debtors and dependents). The system’s singular feature is that most individuals can find a private attorney to represent them at a relatively low flat fee, typically worth it in light of the benefits of a bankruptcy discharge to most debtors.  In other areas of consumer law, it is much harder for individuals to find a private attorney.  Despite changes in bankruptcy law in 2005 that increased the cost of access to the system, the consumer debtor bar has figured out how to deliver services for reasonable fees.

If the need to appeal arises, however, the affordability equation often breaks down, a problem made worse by the wretched drafting of the 2005 law, creating hundreds of difficult new legal issues.  A debtor in bankruptcy may have a good legal case on appeal but no way to pay a private attorney for the expense of researching and writing a brief and preparing for oral argument.  An appeal adds thousands of dollars of additional cost.  The National Consumer Bankruptcy Rights Center was formed to address this problem, helping to protect debtors’ rights as well as the integrity of the consumer bankruptcy system by making sure that cogent arguments are made at the appellate level.  NCBRC (pronounced Nic-Bric) provides assistance by either working directly with debtors’ attorneys or by filing amicus (friend of the court) briefs in courts throughout the country.

Anyone interested in consumer bankruptcy law should find NCBRC’s web site, www.ncbrc.org, useful as a resource, both for its bank of briefs and its blog about important consumer cases.

Continue reading "A Valuable Resource: NCBRC.org" »

Financial Failure Fiction (and Poetry)

posted by Melissa Jacoby

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

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

Tribal Bankruptcy

posted by Katie Porter

The Wall Street Journal reported last week about a challenge to a bankruptcy filing by the Santa Ysabel Resort and Casino. The casino, located on a reservation outside San Diego, filed a chapter 11 case, listing debts of about $40 million. The bankruptcy filing is being contested by the debtor's lender on the grounds that Native American tribes are sovereign nations and they are cannot use chapter 11. The twist in this case is that the lender raising that argument and trying to get the Resort and Casino tossed out of bankruptcy is itself a federally-recognized Native American tribe, the Yavapai-Apache Nation. It bought the Resort and Casinos' debt from JPMorgan Chase.

When I was in practice I worked on some related issues. For example, whether a tribe who was a creditor of a debtor waived its sovereign immunity by filing a proof claim. The Santa Ysabel case seems to raise much more fundamental issues about the availability of bankruptcy protection. If Santa Ysabel cannot file chapter 11, could it somehow file chapter 15? Would it need its own tribal bankruptcy system to do so? Does it matter whether the resort had incorporated under state law (it apparently is unincorporated)? Does it matter if the resort were not located on tribal land, even if it were wholly owned by a tribe?

Bankruptcy Code in ePub and Kindle Formats

posted by Bob Lawless

For readers putting together course syllabi in the bankruptcy area, this post is just a reminder that my able research assistant, Scott Cromar, and I put together ePub and Kindle versions of the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. These versions are based on the public domain files available from the U.S. House of Representatives last December, and I intend to do a new version this December. The files are available for free -- no one is making any money off this -- from this old blog post or from the Center for Computer-Assisted Legal Instruction (CALI).

Bankruptcy on the Bar

posted by Bob Lawless

One of our recent grads tells me that the recent Texas bar exam had a question on bankruptcy law. That got me wondering how many states test bankruptcy law on their bar exam. Two minutes of searching around on Google did not reveal any others, but by then my limited attention span was exhausted.

Except as Provided in the Syllabus, Students Shall Read the Statutory Section (i) Before Coming to Class or (ii) In Class Unless Provided Otherwise

posted by Bob Lawless

VisilawThe legal side of what we do requires comprehending dense statutory texts. Law students, however, arrive in our courses after a first year of law school heavily devoted to case law. When I was teaching corporate law, a student once came up after class with a question about  preparing for the final exam. She earnestly explained that she understood "the law" -- it was just the statute she could not understand. Could I recommend a book that explained the statute? The law apparently was what was in the cases in the textbook, with the statute being some sort of aid to understanding the law. No wonder they put those statutes in books called statutory supplements!

In reaction to what I see as an overemphasis on court decisions in many other law school courses, my courses unashamedly emphasize the statutes we cover. For example, is a spouse is an "insider" under the Bankruptcy Code? Here is a hint for my students this upcoming semester -- the answer does not depend on your gut instinct: "relative" is a defined term. Thus, I was initially appalled on Friday when I got an advertisement from Aspen, a law textbook publisher (including of my own textbook on empirical methods in law), asking if I felt guilty about the amount of statutory material I assigned. If so, the new LoPucki and Warren statutory supplement for Bankruptcy Law and Article 9 (of the Uniform Commercial Code) was now available as a VisiLaw marked version that would make "inaccessible statutes accessible." No, I did not feel guilty about assigning too much statutory material -- if anything I wanted to assign more. This new development just seemed like another sign of the pending zombie apocalypse.

My initial reaction, however, was more "ready, fire, aim" than considered judgment. As I learned more about the product, I've decided it is worth a try. At the least, I wanted to write something here to get reactions from practitioners.

Continue reading "Except as Provided in the Syllabus, Students Shall Read the Statutory Section (i) Before Coming to Class or (ii) In Class Unless Provided Otherwise" »

What's On at a Courthouse Near You

posted by Melissa Jacoby

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

Continue reading "What's On at a Courthouse Near You" »

Representation and Realities of (Bankruptcy) Court Work

posted by Melissa Jacoby

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

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Some Advice from the IMF: Cramdown Mortgages in Bankruptcy

posted by Jean Braucher

The International Monetary Fund has focused its critical gaze on us. Just in time for the holiday marking the end of our colonial period, the IMF has completed its "Mission to the United States of America."  See here.  The IMF has held up its neocolonial mirror and found us problematic: "The U.S. recovery remains tepid."  Anyone disagree? Annoying to have outsiders tell us the truth.

There are many recommendations about how we could reinvigorate our economy. Notably, at number 10, there is this:  "Consideration should also be given to allowing mortgages on principal residences to be modified in personal bankruptcy without secured creditors’ consent (cram-downs)."

Happy Independence Day!

Bankruptcy Court Calls

posted by Melissa Jacoby

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

Sit Back and RadLAX

posted by Adam Levitin

I'm having trouble getting excited over RadLAX going before SCOTUS.  Ronald Mann has written that RadLAX "well might be the most important business bankruptcy case since its 1999 decision in Bank of America National Trust & Savings Ass’n v. 203 North LaSalle Street Partnership." I think that statement is literaly true, but that's not saying much; the Supreme Court doesn't hear very many business bankruptcy cases, period.

As it stands, I don't think the outcome in RadLAX is going to have much of an impact on bankruptcy practice on the ground.  If the creditors prevail, the world will look like status quo, say 2009:  credit bidding is allowed in sales under plans (and there will be little reason to teach RadLAX in a bankruptcy course).

If the debtor prevails, then de jure there will be no right to credit bid, but there will be one de facto in most cases (making the case well worth teaching).  If there's a DIP financing agreement, that agreement will almost certainly provide for the DIP lender to have a right to credit bid.  That means a ruling for the debtors will affect a narrow class of creditors and cases.  It will affect secured lenders not in the DIP consortium, and it will affect secured lenders in cases where there is no DIP financing. That's cases financing themselves on cash collateral or unrestricted cash or trade credit or unsecured insider DIP loans.  In other words, no impact whatsoever on the mega-cases.  Maybe a greater impact on middle market. We'll also see syndication agreements including provisions to deal with cash bidding situations.  In other words, a ruling for the debtors in RadLAX is unlikely to result in a major realignment of power in bankruptcy cases.  

Sadly, SCOTUS taking RadLAX (which is reasonable to deal with a circuit split) is a reminder that SCOTUS hasn't addressed the two key issues in Chapter 11:  the use of DIP financing agreements and asset sales as sub rosa plans.  Obviously SCOTUS has to have a proper case to deal with these problems, and SCOTUS generally has discretion on hearing appeals.  The Court could have dealt with this in Chrysler, but because of the macroeconomic impact of Chrysler (via GM), it was not the ideal case for addressing the interaction between the DIP loan, the sale, and the plan. So while it's nice to see a business bankruptcy case before the Court, I don't think too much rides on this one.  

Littwin on Bankruptcy Without a Lawyer

posted by Bob Lawless

A few weeks ago, Katie Porter noted the release of the new book, Broke: How Debt Bankrupts the Middle Class. We are trying to feature posts from the authors of Broke about their contributions. Today's post comes from Professor Angela Littwin of the University of Texas School of Law and a founding member of Credit Slips:

After a long absence, I am temporarily back on Credit Slips, blogging about my contribution to Broke, the new book edited by Credit Slips’ own Katie Porter. My chapter is about consumers who file for bankruptcy without a lawyer (known as filing “pro se”). The chapter is entitled The Do-it-Yourself Mirage: Complexity in the Bankruptcy System. which should give you a pretty good idea of my take on the matter. Using data from the 2007 Consumer Bankruptcy Project, I found that pro se filers were significantly more likely to have their cases dismissed than their represented counterparts. My most interesting result deals with education. My analysis suggests that consumers with more education were significantly more likely than others to try filing for bankruptcy on their own, but that their education didn’t appear to help them navigate the process. Pro se debtors with college degrees fared no better than those who had never set foot inside a college classroom. I argue that bankruptcy has become so complex that even the most potentially sophisticated consumers are unable to file correctly.

This bad news, however, is not the entire story.

Continue reading "Littwin on Bankruptcy Without a Lawyer" »

The Backdrop for BROKE: Consumer Debt Then and Now

posted by Katie Porter

In the introductory chapter of the book, Broke: How Debt Bankrupts the Middle ClassI present some data about consumer debt levels in the United States. As Bob Lawless and others have shown, levels of consumer debt are strongly correlated with bankruptcy filings. While conditions such as unemployment, rising health care costs, and skyrocketing college tuition--and recessions--all create pressures on consumers that lead to borrow, debt is the sine qua non of bankruptcy--the relief offered by the system is the reduction or elimination of debt--not the promise of a good paying job or a strong social safety net. Because bankruptcy is driven by debt, those filings help reveal whether the levels of consumer debt will create serious problems for the economy and American families.

In Broke, I present a figure, courtesy of the San Francisco Fed, that shows the dramatic growth in household debt in real dollars over the last few decades. Reproduced below, the figure shows that the sharp acceleration began in the mid 1980s. E-letter_figure_8 Figure1This is an important point to understanding why recovery is proving difficult from the recession. As I explain in the book, "The consumer debt overhang, however, began long before the financial crisis and the recession. Exhortations about subprime mortgages reflect only a relatively minor piece of a much broader recalibration in the balance sheets of middle-class families. . . . The boom in borrowing spans social classes, racial and ethnic groups, sexes and generations." Broke, pp 4-5. The gray bands on Figure show recessions; this recovery is more difficult, at least in part, because we have an unprecedented gap between income and debt. Is this gap disappearing as a consequence of consumer reluctance to borrower and tightened credit conditions?

Continue reading "The Backdrop for BROKE: Consumer Debt Then and Now" »

Consumer Friendly Forms for Bankruptcy

posted by Katie Porter

In many respects, bankruptcy is a one-size-fits-all legal process. Yes, there are ample differences in the law (and a world of difference in practice) between the bankruptcy of a large corporation and a typical consumer. But the Bankruptcy Code itself contains plenty of provisions of general applicability. A major example of the one-size-fits-all approach to bankruptcy is the official forms for filing a case. The basic petition and schedules are the same forms for Big Airline Co. and Mr. Joe Blow. The information on the forms is wildly different, with Big Airline Co. listing hundreds or even thousands of creditors, with many more digits in their debts, than Joe Blow. But the form for those debts--Schedule F--is the same form. That may all be changing soon.

The Bankruptcy Rules Committee began a Forms Modernization Project a few years ago, and one of its top agenda items has been creating new forms just for use in consumer bankruptcy cases. Although few people seem to be aware of the effort, a draft version of those new forms is available to the public and to my mind, well worth a look. To see the forms, go here, then click on September 2011, download the file, and look  at pp. 189-315 of the PDF (or tab 7.1 if you use the PDF index.) One thing that is obvious from the page numbers in the prior sentence is that the new forms are really long--way longer than the current forms as completed in the typical consumer case. The added length results in part from the development of extensive instructions for each form. Below is an example of a new form with some commentary on its notable new features.

Continue reading "Consumer Friendly Forms for Bankruptcy" »

Race and Chapter 13

posted by Bob Lawless

As Adam noted in his kind post, the New York Times today featured our study, "Race, Attorney Influence, and Bankruptcy Chapter Choice." My co-authors are Credit Slips blogger Jean Braucher, a law professor at the University of Arizona, and Dov Cohen, a professor at the University of Illinois who holds a cross appointment in psychology and law. And, we all express many thanks to the NYT reporter, Tara Siegel Bernard, who spent a lot of time slogging through the statistics and legal intricacies in our study.

In a nutshell, the study reports real-world data from the Consumer Bankruptcy Project showing that, among bankrupcy filers, blacks file chapter 13 at higher rates than all other races. The effect is large -- for example, blacks even had a higher chapter 13 rate (54.6%) than homeowners (47.1%). The second part of the study showed that, in a random sample, bankruptcy attorneys were more likely to recommend chapter 13 for a hypothetical couple named "Reggie & Latisha" who went to the African Methodist Episcopal Church as compared to "Todd & Allison" who went to the United Methodist Church. Also, attorneys were more likely to see "Reggie & Latisha" as having good values and being more competent when they expressed a preference for chapter 13.

Continue reading "Race and Chapter 13" »

Kindle and ePub Versions of Bankruptcy Code (Updated)

posted by Bob Lawless

One of my crack research assistants, Scott Cromar, put together electronic versions of the U.S. Bankruptcy Code and Federal Rules of Bankruptcy Procedure (FRBP) that can be read using Amazon Kindle or an ePub reader. Because these books were assembled using public-domain materials from the U.S. government, we are making them available free of charge. Keep reading after the page break for links and more information.

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

posted by Melissa Jacoby

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

Foreclosure Timelines and Mortgage Delinquency: More Evidence from Bankruptcy

posted by Melissa Jacoby

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

Continue reading "Foreclosure Timelines and Mortgage Delinquency: More Evidence from Bankruptcy" »

What is the Relationship Between Credit Cards and Mortgage Delinquency?

posted by Melissa Jacoby

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

Continue reading "What is the Relationship Between Credit Cards and Mortgage Delinquency? " »

BROKE: A New Book on Consumer Debt and Bankruptcy

posted by Katie Porter

Just in time for New Year's resolutions on 1) reading more, 2) paring back your own debt, and 3) learning more about consumer bankruptcy to help you do your job (if you are a lawyer, judge, or academic, media, etc), the book, Broke: How Debt Bankrupts the Middle Class was released from Stanford University Press.

BrokeThe book makes extensive use of the 2007 Consumer Bankruptcy Project data, providing statistics, analysis, and commentary on consumer bankruptcy and debt topics. I edited the volume, and chapter contributors are many Credit Slips regulars or guest bloggers--Jacob Hacker, Bob Lawless, Kevin Leicht, Angela Littwin, Deborah Thorne, and Elizabeth Warren--along with other top scholars.

In the next few weeks, the chapter authors will blog here at Credit Slips about the research featured in the book, but to whet your appetite, I've included a table of contents for the book after the break. The book is accessible to lay readers but its scholarly focus provides plenty of data to educate and surprise even bankruptcy experts. Working on the book, I certainly learned a great deal about timely and important topics such as how pro se debtors (those without attorneys) fare in bankruptcy, where families go after they lose their homes to foreclosure, how bankruptcy affects couple's marriages, and the ways that bankrupt households differ in their financial straits from other households of concern such as those with low assets or late payments on debt. Of course I'm biased but I think the book provides the most comprehensive overview of the consumer bankruptcy system since the enactment of the 2005 bankruptcy amendments.

Continue reading "BROKE: A New Book on Consumer Debt and Bankruptcy" »

Law of the Chicken

posted by Bob Lawless

A headline from last Friday's BNA's Bankruptcy Law Reporter, which reports recent cases and other legal developments, caught my eye:

Poultry Farmers Can't Rely on Promissory Estoppel Theory;
Proofs of Claim Denied

That seems like a pretty harsh rule for poultry farmers. I wonder whether it is some sort of corollary to the "widows and orphans rule" -- poultry farmers always lose. Ever since Schechter Poultry was effectively overruled, poultry farmers can't seem to catch a break in the federal courts.

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

posted by Melissa Jacoby

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

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

posted by Melissa Jacoby

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

Anna's Revenge, Episode I

posted by Bob Lawless

We may be beginning to see the fallout from Stern v. Marshall, the Supreme Court case on bankruptcy jurisdiction courtesy of Anna Nicole Smith's bankruptcy. Last week, the U.S. Court of Appeals for the Seventh Circuit issued a broad decision that would call into question the power of the bankruptcy court to hear many state-law defenses to creditor's claims in bankruptcy. To the best of my knowledge, this is the first court of appeals decision applying Stern.

The Seventh Circuit, in a case called In re Ortiz, held the bankruptcy court could not hear claims that a health care company had violated Wisconsin state law by making bankruptcy court filings containing private medical information of bankruptcy debtors. The irony is that the bankruptcy court had found the debtors had failed to establish a claim under state law, thus making the Seventh Circuit's decision a victory for the debtors involved in that particular appeal. For other bankruptcy debtors, however, the Seventh Circuit's decision could hinder their ability to assert state-law defenses such as violations of state UDAP laws (unfair deceptive acts and practices laws).

Continue reading "Anna's Revenge, Episode I" »

Revamping the Advanced Bankruptcy Class

posted by Melissa Jacoby

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

Safe Harbors Gone Wild

posted by Stephen Lubben

Yesterday's decision from the District Court court in the Madoff-Mets litigation is yet another example of why Congress desperately needs to revisit the safe harbors which exempt a host of financial transactions from the workings of the Bankruptcy Code (in this case, the Code as incorporated into SIPA).

The opinion is available here, but briefly, Judge Rakoff blew a giant hole in the trustee's suit against the owners of the Mets, dismissing all claims based on preference and constructive fraudulent transfer, whether under the Code or New York Law. The basis? Section 546(e) of the Code, which provides 

Notwithstanding sections 544, 545, 547, 548 (a)(1)(B), and 548 (b) of this title, the trustee may not avoid a transfer that is a ... settlement payment, as defined in section 101 or 741 of this title, made by or to (or for the benefit of) a commodity broker, forward contract merchant, stockbroker...  in connection with a securities contract, as defined in section 741 (7)...  that is made before the commencement of the case, except under section 548 (a)(1)(A) of this title.

Madoff was a stockbroker, in the loose sense that he was registered as a stockbroker. We now know that he was not actually doing any stockbroker like things for his investors. The Judge does not look into the definition of stockbroker in §101(53A) of the Code -- I think there might be an argument Madoff didn't meet it -- and moves right to the analysis of whether the transactions involved securities contracts and settlement payments.

Of course, there is no real reason to apply the safe harbors to this case. Madoff's transactions are not going to disrupt the financial markets if they were subjected to avoidance actions -- there was essentially no link to the financial markets whatsoever. But the Judge went with the planing meaning of the statute, which contains no such common sense exception. Hence the need for Congress to get involved.

Exemption Policy: Sometimes it Doesn’t Pay to be Debt Free

posted by Nathalie Martin

We have two married 60-something friends who are artists in Santa Fe and own a very simple home with a rental house in the front. The house is tiny by all but New York City standards, and since their income is always in flux (some months several grand, many months nothing at all), they live very close to the bone. No credit card debts, no car payments, no mortgage.  The only fixed expenses they have are their $1,000 a month health care policy and a few utility bills. Generally, they get along just fine, but last month, when he ended up in the hospital for 5 days for literally swallowing wrong. 

Somehow, they now allegedly owe $30,000, despite the expensive health care policy. I know, there is supposed to be a $5,000 deductible limit per person, but there is something about a pre-existing condition etc. etc. She called to ask:  “they can’t take our house to pay a hospital bill, can they?” Given its location, this property is worth a lot, so we all know the answer. 
Now I know that no one exemption scheme can work for everyone, but these people have done everything right. They have lived a Dave Ramsey debt-free life, and while they could have saved more in traditional retirement vessels, they relied on Santa Fe’s outrageous real estate values to set them up for life. So I ask you, are our exemption policies out of sync with reality? Do they work for most people most of the time? I am suddenly dubious.      

Keeping Up With

posted by Stephen Lubben

For those Slips readers who are not regular Bloomberg people, I highly recommend today's bit from Bill Rochelle about the 5th Circuit's recent bankruptcy decisions, and the role of Chief Judge Jones.

Extra Stern

posted by Stephen Lubben

For those of you on the West Coast and others who are not obssessing about the huricane, I give you some further thoughts on the Supreme Court's decision in Stern v. Marshall, this time in the context of the Inkeeper's chapter 11 case. Up now at Dealbook.

Stern Consequences

posted by Stephen Lubben

The folks at the Weil bankruptcy blog do a great service in summarizing some of the initial consequences of the US Supreme Court's Stern v. Marshall decision. Suffice it to say, Mr. Chief Justice Robert's optomisim may have fallen. At the first hurdle.

Bankruptcy Politics and State Bankruptcy

posted by Adam Levitin

I have a new paper out, Bankrupt Politics and the Politics of Bankruptcy, that examines state bankruptcy proposals and then uses them as a jumping-off point for sketching out a political theory of bankruptcy as a "creditor's armistice," an unstable political bargain, rather than an economic bargain ala Jackson & Baird's "creditor's bargain."  

The paper argues that bankruptcy is unlikely to do much good for the states because states' fiscal woes are akin to business model problems, rather than simple overleverage, and bankruptcy cannot fix business models.  States' business model--US fiscal federalism--is an inherently procyclical business model that is exacerbated by a moral hazard problem in state politics. Bankruptcy can no more fix this bad business model than it can make a buggy whip manufacturer (or a brick-and-mortar bookstore or video store) a viable operation.  

The intensely and patently political nature of the issues raised by state bankruptcy show a major set of deficiencies in contractarian theories of bankruptcy law, which have been developed primarily in the business bankruptcy context.  While others (such as our former co-blogger Elizabeth Warren) have criticized the creditors' bargain for failing to account for all of the stakeholders in bankruptcies, I argue that the inclusion or exclusion of various interests in bankruptcy is itself an essential part of a dynamic system of competing rent-seeking interests.

I don't attempt a formal exposition of an alternative political theory of bankruptcy in this paper--that's for another day--instead, I use this paper to lay out the idea and start linking the sovereign debt, subnational debt, business debt, and consumer debt literatures into a "unified theory" (yeah, I'm going to aim big, why not?) of debt restructuring (as in bankruptcy with a small "b").  The abstract is below the break:

Continue reading "Bankruptcy Politics and State Bankruptcy" »

Ain't That the Truth

posted by Bob Lawless

"[L]et us stress being a professor specializing in bankruptcy is not a power position, even at Harvard Law School."

That high truth-value statement is from Yves Smith's post over at Naked Capitalism pondering whether Elizabeth Warren should run for president, a post that comes across as more of a thought experiment on what Obama's failure to appoint Warren to the CFPB post means for the political left. But, I like the idea of blogging for Credit Slips as a step toward the presidency.

Eric Rasmusen's Thoughts on Stern v. Marshall

posted by Bob Lawless

Eric Rasmusen of Indiana University and I were having a back channel communication on the U.S. Supreme Court's holding Stern v. Marshall (see here for a summary). Eric made a very interesting observation about the intellectual move the Supreme Court made and how it relates to ideas of judicial deference to agency expertise. Eric was kind enough to give me permission to share his thoughts with the Credit Slips audience.

by Eric Rasmusen

I’m currently writing on the Intermountain tax case, where the issue is whether after the IRS loses  in  a unanimous en banc Tax Court decision about statutory interpretation, the IRS can then write a regulation asserting its favored interpretation and use that regulation plus Chevron deference to win on appeal to a District Court. The DC Circuit said the IRS can; other circuits vary in their decisions. Brand-X also is an opinion with a similarly expansive view of ; there, the Supreme Court implies that its own precedents can be overruled by executive interpretations that are not arbitrary and capricious.

Continue reading "Eric Rasmusen's Thoughts on Stern v. Marshall" »

Anna Nicole Smith May Be More Than Just the Only Loser on This One

posted by Bob Lawless

Vickie Lynn Marshall, as she is known to bankruptcy mavens, or Anna Nicole Smith, as she is known to normal people, lost today in her second round before the Supreme Court. In his last post with us, John Pottow provided a good summary of the issues, and guest blogger Troy McKenzie also had offered some thoughts about what the case might mean for some other areas of bankruptcy law (here and here). Now that the opinion is out, I would describe it as scary for the daily workings of the bankruptcy system.

Continue reading "Anna Nicole Smith May Be More Than Just the Only Loser on This One" »

A New Study on Medically Related Bankruptcies

posted by Bob Lawless

Thanks to our friends over at WSJ's Bankruptcy Beat, a new study caught my eye on the issue of medical bankruptcies. A new study appearing in the Journal of Clinical Oncology documents an increased risk of bankruptcy with certain types of cancers. The full abstract is available.

The study is principally directed at understanding what contributes to bankruptcy risk as between different types of cancers. But, if we can use cancer as an indicator of serious medical problems, the numbers can be used to draw some comparisons between medical problems and general bankruptcy risk. The conclusions provide some support for both sides of the debate about whether medical problems lead to an increased risk of bankruptcy.

Continue reading "A New Study on Medically Related Bankruptcies" »

Recommended Reading

posted by Stephen Lubben

As I await the arrival of this semester's exams, and all the fun that those will entail, I'm getting caught up on my reading. The best of the bunch thus far is Emily Kaden's history of the Pitkin Affair, which appears at 84 Am. Bankr. L.J. 483 (2010), and online here. Having read a lot of bankruptcy history, I was generally familiar with the plot, but Emily presents the definitive history of the entire episode, which is so often referenced, but not explained, in latter histories of English and American bankruptcy.

A Deeper Dive into Racial Disparities in Chapter Choice and Women in Bankruptcy

posted by Geoff Smith

Thanks again to Bob Lawless for his excellent post this morning highlighting the findings from our latest report, “Bridging the Gap II: Examining Trends and Patterns of Personal Bankruptcy in Cook County's Communities of Color." The report found evidence of racial disparities in chapter choice in Cook County, IL, as well as a disproportionately high concentration of filings among women living in communities of color. If you don’t have time to read the whole thing, check out our press release and policy brief.

If this report raised any burning questions, feel free to ask them on a conference call we will be hosting on Thursday at 11am CT (follow the link to register and get the call-in information).  If you’re shy, you can also send questions via Facebook or Twitter, and I’ll answer them on the call. I will be joined by Megan Cottrell of the Chicago Reporter.  The Reporter is an investigative magazine that published a companion piece to our report asking why these racial disparities in chapter choice might exist. I will also be joined by Woodstock Institute’s Policy and Communications Associate Katie Buitrago who will close out the call by telling the story of one bankruptcy filer, Roxie King, a grandmother of 20 from an African-American neighborhood in Chicago who went through Chapter 13 bankruptcy after being laid off from her job as an echocardiogram technician. Roxie tells her story in the video below:

Continue reading "A Deeper Dive into Racial Disparities in Chapter Choice and Women in Bankruptcy" »

A Conversation with Trailblazing Women

posted by Lois R. Lupica

Yesterday, I attended the International Women's Insolvency and Restructuring Confederal (IWIRC) Annual Spring Program. The featured event was entitlted, "A Conversation with Trailblazing Women in the Insolvency Field." Moderated by the Hon. Marjorie Rendell of the 3rd Cir. Court of Appeals, the panel's participants incuded Norma Corio of JPMorgan Chase, Marcia Goldstein of Weil Gotshal & Manges, Hon. Barbara Houser, Chief Bankruptcy Judge, N.D. Texas, Hon. Mary Walrath, Bankruptcy Judge, District of Delaware, and Bettina Whyte of Alvarez and Marsal. The program opened with a parable. A man cuts himself shaving in the shower. He wonders out loud what is wrong with the razor. A woman cuts herself shaving in the shower. She wonders out loud what she did wrong. 

Continue reading "A Conversation with Trailblazing Women" »

Trouble, Scope, Apostrophes, and State Bankruptcy

posted by Jonathan Lipson

When Bob Lawless introduced me a couple of weeks ago, he promised that I would stir up trouble.  If responses to my post on amending the Bankruptcy Code to permit states to file are any indication, I have kept Bob's promise.

While no one seemed especially interested in the merits--does Wisconsin's budget fight show that amending the Bankruptcy Code is unnecessary?--the post nevertheless brought out the mob.

Respondents attacked me and each other (sometimes pretty crudely) for, among other things:

  • Writing about something too "political" for Credit Slips (yes, well, amending the Bankruptcy Code is political, as are state budgets); 
  • Allegedly having a conflict of interest for writing about this at all (not quite:   I am not a member of a union, which is what the fight here is about); and
  • Failing to use apostrophes correctly (sorry, but for some reason the  blogging response function doesn't always pick up apostrophes or quotation marks).

While there were plenty of personal attacks,  no one really responded to the basic observation in the original post:  Why amend the Bankruptcy Code if states have the political will and ability to get their debt under control on their own?  

My view is that negotiated debt restructurings usually preserve more value than other ways of dealing with distress.  This, of course, is a principle underlying much of the Bankruptcy Code (see, e.g., chapter 11).  It would likely be imputed to a "chapter 8" for state bankruptcies--if enacted--as well.

In Wisconsin, Governor Walker has said he won't negotiate with the unions.  But all that tells me is that he has more power than a new chapter 8 would likely give him.  He doesn't need state bankruptcy.

While I am suspicious of Governor Walker's claim that Wisconsin's fiscal "crisis" warrants severe reductions in public employees' power to bargain collectively, he was duly elected governor in a state with Republican majorities in both houses.  I have little doubt that his proposals, unlike Newt Gingrich's on state-bankruptcy, will eventually become law.

Continue reading "Trouble, Scope, Apostrophes, and State Bankruptcy" »

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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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