391 posts categorized "Bankruptcy Generally"

Filling in the Blank (Forms)

posted by Bob Lawless

The last thing I was going to mention from last week's Senate hearing was this somewhat surreal exchange about the structure of the forms used to compute the application of the new means test in bankruptcy court. Before I get into the details of last week's Senate hearing, it should be noted that Sen. Carl Levin has announced that he will hold hearings next year about abuses in the consumer credit industry. These hearings will go beyond the bankruptcy law and address broader issues about the lending practices of credit card companies and other consumer lenders.

Returning to a narrower issuer that was vetted at last week's Senate hearing, Senator Grassley appears quite concerned about the new forms used to decide whether someone has passed the means test to be eligible to file bankruptcy. For the nonspecialists, this issue requires only a basic understanding of the means test. To decide whether someone is eligible for chapter 7, the law requires two basic calculations: (1) is your income over the state median for a household of your size and (2) do your expenses leave you $100 month (generally speaking) with which to pay your creditors. The bankruptcy law calculates your monthly expenses based on guidelines the IRS uses in making determinations whether to compromise on tax liabilities.

Senator Grassley expressed his displeasure with the forms used in the federal courts to compute the application of the means test. After railing against the "powerful special interests here in Washington that opposed bankruptcy reform," Grassley's next stated, "For example, the federal courts produced a bankruptcy form that is supposed to measure repayment ability. But it's my understanding that this form actually directs consumers to claim deductions for expenses a debtor may not even have." The federal courts are an example of special interests opposed to bankruptcy reform! What logic could possibly twist the federal judiciary into a special interest group on this particular issue? I suppose we can chalk the statements up to more rhetorical excess--if you oppose me, you're a special interest--but what was Grassley talking about?

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Small Business Loses Again

posted by Bob Lawless

Why is bankruptcy law the only area where Congress seems to go out of its way to strike out at small business? Hey, I understand that Congress routinely does things that disadvantage small business, but it seems to make laws that are hostile on its face to small business. A bill is sitting on the president's desk that would again do just that.

In October, I wrote about S. 4044, the Religious Liberty and Charitable Donation Clarification Act of 2006. This is another truth-in-advertising violation in the naming of statutes. Who can be against religious liberty and charitable donations? I'll leave the details of how this amendment works to my previous post, but what it's trying to do is make it clear that chapter 13 debtors can make charitable donations at the expense of their creditors. The problem is that by including one thing, Congress is excluding others. The law does not mention the expenses of a business, meaning self-employed chapter 13 debtors who are above their state median income may not be able to deduct the expenses of a business in a chapter 13 plan. That would pretty much leave them out of chapter 13 altogether.

I doubt Congress is deliberately try to harm small business on this one. It is just another example of what can happen when Congress shuts out bankruptcy professionals from the process of drafting the bankruptcy laws. The president almost certainly will sign this bill. It is noncontroversial (although it should be). Maybe someone can get something inserted in the Congressional Record to make it clear this law does not change long-standing rules for self-employed debtors in chapter 13.

Some Data Points from the Senate Hearing

posted by Bob Lawless

In my blog post summarizing last week's Senate hearing, I promised to make this post about some statistics from the Executive Office of U.S. Trustee (EOUST) and from the Financial Services Roundtable. In my earlier post, I had remembered the data on credit counseling came from the Association of Independent Credit Counseling Agencies, but it was the Financial Services Roundtable, which represents "100 of the largest integrated financial services companies providing banking, insurance, and investment products." As to the EOUST is part of the Department of Justice and is charged with overseeing all bankruptcy cases to ensure fair administration. At the hearing, the acting director of the EOUST, Cliff White, testified and offered some interesting statistics about the means test, which is the new gatekeeping mechanism to determine which debtors are eligible for chapter 7.

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The Rise of Chapter 13

posted by Katie Porter

Despite credit industry claims that BAPCPA is succeeding in reducing the number of bankruptcies, the 2006 bankruptcy filings may well be a poor predictor of the future number of total consumer bankruptcies. The run-up in filings before the effective date of the law, publicity and misunderstanding about the current law, an adjustment to higher fees for bankruptcy and the exit of some attorneys from bankruptcy practice are all likely factors in the overall drop in filings in 2006. Hidden within the gross number of cases is an interesting trend in the relationship between Chapter 7 and Chapter 13 filings.

Based on year-to-date figures running through December 2nd that were provided by Bankruptcy Lookup, the proportion of Chapter 7 and Chapter 13 is wildly different in 2005 and 2006. In 2005, Chapter 7s were 81% of the 7/13 caseload and Chapter 13s were 19%. In 2006, there is a dramatic jump in the proportion of Chapter 13 cases--42% of all Chapter 7 and Chapter 13 cases are Chapter 13s. On a district by district basis, from what my poking around and talking to people has turned up, the absolute number of Chapter 13 filings are almost back to pre-BAPCPA levels in many districts.

I'd really like to hear your explanations or insights on this trend. Higher mortgage foreclosures and housing delinquencies could be pushing more homeowners to seek help from Chapter 13. Another possibility is that the dramatically higher fees for bankruptcy are pushing more people to file Chapter 13 so that they can pay their fees over time. Or maybe these numbers are the means test at work? Or more accurately, the spectre of the means test--fear of the additional scrutiny that comes with filing an above-median Chapter 7?

Being a Judge Means Never Having to Say You're Garbage

posted by Bob Lawless

The 2005 bankruptcy amendments (known as BAPCPA) are garbage. Shhh. Don't tell Senator Grassley I said that, or he might be angry with me also.

At Wednesday's Senate hearing, Senator Grassley expressed his displeasure with bankruptcy judges criticizing the 2005 law and stated he was going to write a letter to Chief Justice Roberts asking if such criticisms were unethical. Senator Grassley said that such statements undermined respect for the law. Senator Grassley's full statement is here. Although lengthy for a blog post, it is only fair to reproduce his exact words:

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Crashing the Credit Industry's Party

posted by Bob Lawless

Mr. Lawless has come back from Washington. Yesterday, I was a witness at the Senate hearing on the first year's experience with the 2005 bankruptcy law. My written testimony is here. To get to Capitol Hill, I took the Metro to Union Station, and browsed the shops to kill a little time. As I walked out the front doors, it was a perfect duplicate of that scene from Mr. Smith Goes to Washington, the same spot where Jimmy Stewart stands in awe of the Capitol dome. That movie served as a metaphor for the rest of the afternoon.

Make no mistake about it. This hearing was a party for the credit-card industry. It was the industry's chance to crow about how great the 2005 bankruptcy law is working, at least while their congressional friends still control the committee hearings. Along with Hank Hildebrand, a chapter 13 trustee, and the Hon. Randall Newsome, chief bankruptcy judge for the U.S. Bankruptcy Court for the Northern District of California, I had been invited to testify by Senator Schumer's office. We were clearly crashing the party.

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Scheduled Senate Hearing on Bankruptcy Law

posted by Bob Lawless

Tomorrow (December 6), the Subcommittee on Administrative Oversight and the Courts of the Senate Judiciary Committee is holding hearings on "Oversight of the Implementation of the Bankruptcy Abuse Prevent and Consumer Protection Act." I will be one of the witnesses along with Cliff White (acting director, Executive Office of U.S. Trustees), Todd Zywicki (George Mason law school), Steve Bartlett (Financial Services Roundtable), David Jones (Ass'n of Independent Consumer Credit Counseling Agencies), Judge Randall Newsome (U.S. Bankruptcy Court for the Northern District of California), and Henry Hillebrand, III (chapter 13 standing trustee in Nashville, Tennessee). More information about the hearing appears here: http://judiciary.senate.gov/hearing.cfm?id=2442.

Having never testified before Congress, it should be an interesting experience for me. Obviously, the Republicans are still in charge of Congress, and they were the ones who decided to hold the hearing. I'll post something on Credit Slips (probably Thursday morning) about what happened.

Debtors Want Their MTV

posted by Bob Lawless

Filing bankruptcy can be harsh, but to lose one's cable TV on top of it. In a recent case from the U.S. Court of Appeals for the Fifth Circuit, a debtor tried to use the Bankruptcy Code to require the local cable television company to continue providing service. After the debtor filed bankruptcy, the cable provider disconnected his service. Bummer. The debtor then invoked Bankruptcy Code § 366, which states that a utility may not "alter, refuse, or discontinue service" solely because of the commencement of a bankruptcy case. That same section also provides that the utility can refuse to continue service unless the debtor gives adequate assurance of future payment. Fine, the bankruptcy court reasoned, the cable company was entitled to a superpriority payment from the debtor's bankruptcy estate if the debtor did not pay the bill.

Although the dollar amount at issue could not have been large, the cable company would face this issue in future cases and appealed the bankruptcy court's decision. The case ended up in the Fifth Circuit, turning on the momentous issue of whether cable television is a "utility" within the meaning of the Bankruptcy Code.

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Fake News Gets It Right

posted by Angie Littwin

Today the satirical newspaper The Onion unwittingly parodied one of the central debates in consumer bankruptcy – whether American consumers are choosing to spend too much money on luxuries or being forced to spend too much money on necessities.  The "news article" is entitled "End-Life Crisis Marked By Extravagant Spending Spree" and describes the "indulgent" spending of a 75-year-old grandfather on items such as blood transfusions and visits to the cardiologist.  The article "quotes" friends and family members who criticize "all those fancy new breathing tubes he now wears" and ask, "What's he going to do next, gallivant off to some $10,000-a-day, all-inclusive hospice?"

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Why Hang Just the Paragraph?

posted by Bob Lawless

Among the many fine drafting points--where "fine" means "disastrous"--of the 2005 bankruptcy amendments was the so-called hanging paragraph in section 1325 where the law lists the requirements for a court to approve a consumer's chapter 13 plan. Wacky bankruptcy types like myself refer to this provision as the "hanging paragraph" because Congress did not bother to number it and just threw it in at the end of a section. Today, we have news on the hanging paragraph.

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How Many Hours of Bankruptcy?

posted by Bob Lawless

Yesterday, the University of Illinois faculty voted to increase the number of credit hours for Bankruptcy class from three to four. Granted, this may seem like a small administrative detail for one law school, but I think it has broader relevance for those concerned about credit and bankruptcy. My bankruptcy colleagues here at Illinois, Ralph Brubaker and Charles Tabb, and I proposed the  increase in credit hours because of the increasingly complex bankruptcy law. Increased complexity means lawyers will be even more powerful players because they serve to intermediate between the  law and those to whom it applies. Increased complexity will and already has driven up the cost of legal services for bankruptcy.

I attribute this complexity to two things. First, with more people filing bankruptcy, the practice of bankruptcy law is more nuanced and contextual. A wider variety of bankruptcy filers means that practitioners will encounter a wider variety of factual circumstances in which the law must be applied. Second, the 2005 bankruptcy amendments were 500 pages long. Not all of those pages went into the Bankruptcy Code, but the law changed dramatically. As my students have heard me say, when I was a student even someone of my limited talents could do well in Bankruptcy because things like section 707(b) were only a few sentences long but now take up four pages in the statute books. Still, there is a part of me that wonders whether we did the right thing.

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Credit Gobblers

posted by Bob Lawless

With Thanksgiving almost upon us, I am going to start taking nominations for the Credit Slips first (and possibly last) annual BARF Turkey Award. This distinction looks back at the last twelve months and goes to the most misguided federal or state statute, administrative agency rule or action, or judicial decision in the area of credit and bankruptcy law. For those not in on the joke, "BARF" or "Bankruptcy Abuse Reduction Fiasco" was the more deserving moniker for the 2005 bankruptcy law. In this instance, I am using the term more generically, to describe any law, statute, reg, court decision, whatever.

My first nominee is . . . .

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Winners Win

posted by Bob Lawless

I just finished reading Barbara Ehrenreich's book, Bait and Switch (Owl Books 2005). Ehrenreich chronicles her undercover job search as a middle-aged public relations consultant. Credit Slips readers will find plenty to interest them. In addition to disparaging the expensive but almost worthless pop psychology that passes for advice in the career counseling industry, Ehrenreich explores the messages sent to job seekers. One particular passage (p. 85) makes a point that carries over to issues of credit policy:

But from the point of view of the economic "winners" -- those who occupy powerful and high-paying jobs -- the view that one's fate depends entirely on oneself must be remarkably convenient. It explains the winners' success in the most flattering terms while invalidating the complaints of the losers. [Participants in a job advice "boot camp"], for example, came to the boot camp prepared to blame their predicament on the economy, or the real estate market, or the inhuman corporate demands on their time. But these culprits were summarily dismissed in favor of alleged individual failings: depression, hestitation, lack of focus. It's not the world that needs changing, is the message it's you. No need, then, to band together to work  for a saner economy or a more human-friendly corporate environment, or to band together at all. As one of my fellow campers put it, we are our own enemies.

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Values and Expectations About the Discharge

posted by Bob Lawless

A while back, I posted about the daunting task of summarizing all of U.S. bankruptcy law in a 75 minutes class for non-U.S. graduate students. The class was part of a course to introduce the students to various areas of U.S. law. In the end, the class turned out to be a lot of fun to teach and required me to think seriously about what I consider to be the essential elements of bankruptcy law. When the class began, I let the students take charge of the discussion. Perhaps not surprisingly, we spent very little time talking about the finer doctrinal points of U.S. bankruptcy law. What took up most of the class was the concept of a discharge in bankruptcy.

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Improvident Travelers

posted by Bob Lawless

Judge Keith Lundin dropped a comment on a three-week old post about the pending Supreme Court case involving Travelers' attorneys fees in the PG&E bankruptcy. Professor Stephen Lubben from Seton Hall kindly sent along some thoughts on the case. Judge Lundin makes an important point that really deserves more attention. The case may not belong at the Supreme Court at all, meaning the Court might dismiss the case as having improvidently granted certiorari. (For nonlegal types the Supreme Court is said to "grant certiorari" when it agrees to a hear a case.)

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75 Minutes

posted by Bob Lawless

This evening, I have 75 minutes to summarize U.S. bankruptcy law to our graduate-level law students who are here from other countries. We have a class that introduces them to U.S. law, and I was told they expressed an interest in bankruptcy law. That statement may have been a clever persuasive technique so that I would agree to give the lecture. Wait a minute . . . now that I think about it the instructor also teaches a class on effective advocacy. Duped again.

Actually, it is more likely that this interest in bankruptcy law reflects the growth of consumer credit overseas. As American-style consumer credit has spread around the globe so has American style consumer financial distress. I do not want to overstate the point because I am sure the class has an interest in both business and consumer bankruptcy. What I would like to do is focus on one or the other, but my task is to cover both.

I agreed to give the lecture because that is what colleagues should do at a university. As I have been preparing for the lecture, however, I have come to realize this has been an incredibly useful learning exercise for myself. It has focused me to think about what I consider to be the essential pieces of knowledge for this area. What should be emphasized in a 75-minute class that covers the whole of bankruptcy law?

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Judge Edith Jones & "Political Activity?"

posted by Bob Lawless

Over the past two weeks, I have been following a story about Leif Clark, a bankruptcy judge in San Antonio (see here and here). As regular Credit Slips readers will remember, Judge Clark wrote a letter to National Public Radio responding to an interview. In the letter, Judge Clark made remarks highly critical of the Bush Administration's attitude toward civil liberties. At the time, I thought we had the proverbial tempest in a teapot about whether Judge Clark's comments violated the Canons of Judicial Ethics which forbid judges from engaging in "political activity." The San Antonio News-Express has reported that Judge Clark's comments are now "under review by the chief judge of the 5th Circuit Court of Appeals, the tribunal that disciplines federal judicial misconduct in Texas, Louisiana, and Mississippi."

When I saw that, it reminded me of another time a judge commented on public issues. In Judge Edith H. Jones & Todd J. Zywicki, It's Time for Means-Testing, 1999 B.Y.U. L. Rev. 177, Judge Jones and Professor Zywicki urged Congress to adopt means testing as a gatekeeping rule before consumers could file bankruptcy. At the time, that proposal was hotly contested, but it ultimately became law in 2005. Judge Jones, of course, is chief judge of the Fifth Circuit. She is the very same judge who is now reviewing Judge Clark's comments.

What justification can exist for possibly treating the two situations differently? As a bankruptcy judge, Judge Clark made comments on matters that could not conceivably become an issue in his bankruptcy courtroom. Judge Jones on the other hand will be hearing appeals involving the means test that she advocated as a panacea to the bankruptcy system's ills. If anything, Judge Jones's article raises more serious concerns about the appearance of impartiality because she commented on matters that could come before her court.

I suppose one might say that Judge Clark's comments concerned a matter on the front page of every newspaper, but Judge Jones wrote about an issue that arises less passion. Surely that cannot be the basis for a principled distinction. Given the numbers of persons affected by the U.S. bankruptcy system each year, Judge Jones wrote about an issue of great important to a great many people, even if it is a topic that does not exactly cause protests in the streets.

One might also try to say that Judge Clark's letter to the editor somehow expressed mere opinion and does not rise to the formality and dignity of the academic article where Judge Jones expressed her views. Without rehashing here the entire debate about the current state of legal scholarship, let's just say that legal journals are not exactly renowned for their dispassionate empirical analyses and are characterized principally by normative argument. In fact Judge Jones and Professor Zywicki did not disguise that their conclusions in the article rested on their personal views:

Unlike, perhaps, the critics of means testing, we believe that the dramatic escalation in consumer bankruptcies in an era of prosperity is a troubling and costly social phenomenon. In our view, the evidence now available tends to suggest that the recent rise in personal bankruptcies has been significantly influenced by a decline in the personal shame and social stigma traditionally accompanying bankruptcy, and by changes in the law and legal practice that have facilitated filing bankruptcy.

1999 B.Y.U. L. Rev. at 180. Unlike the supporters of means testing, I believe differently. In my view, the evidence is different than what Judge Jones and Professor Zywicki see. I do not expect they agree with me, but their opinion is no less an opinion for being published in an academic journal.

At the end of its article, the San Antonio News-Express article quotes DePaul law professor Jeffrey Shaman: "'We need judges to participate in the public discourse,' he said. 'We need their wisdom and their experience.'" That's exactly right, and it's right whether we are talking about Judge Jones's views on means testing or Judge Clark's views on detainee rights. By even initiating the review of Judge Clark's comments, the Fifth Circuit has put a significant chill on speech protected by core First Amendment values. Another expert, James Alfini of the South Texas College of Law, wondered whether the Fifth Circuit's actions did not implicate a recent Supreme Court case that struck down a rule prohibiting judges running for office from expressing their views. Coincidentally enough, it was also reported today that a Texas appeals court panel had dismissed a complaint against a judge who had spoken out in favor of Harriet Meiers's nomination to the Supreme Court. The Fifth Circuit should take note and quickly shut down this review.

The 33% Solution

posted by Bob Lawless

Debtor audits begin today. In the 2005 bankruptcy amendments, Congress decreed that one of every 250 cases shall be randomly audited under procedures established by the Executive Office for U.S. Trustees. In addition, Congress declared there shall be an audit . . . and here is where it gets really fun . . . of every schedule "of income and expenses that reflect greater than average variances from the statistical norm of the district in which the schedules were filed." Greater than average variance from the statistical norm. How erudite. How brilliant. Who says Americans lag the world in math education?

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Travelers Fees

posted by Bob Lawless

One of the great things about running a blog is that hear more from all of your far-flung friends. Stephen Lubben at Seton Hall wrote me with the following: "When the Boston Red Sox failed to make the playoffs, my life lost most of its meaning. I turn to your blog postings daily for the insight that can only come from someone wise enough to follow the St. Louis Cardinals. What have you to say about the news that the Supreme Court agreed to hear the Ninth Circuit decision in the PG&E bankruptcy about Travelers' attorneys fees?" Well, I don't have the original e-mail anymore, but I remember it something like that. And, OK, some of that was only implicit in Stephen's e-mail.

OK, actually, none of that was implicit in the e-mail. In reality, I asked Stephen if he had any thoughts on the case with the hope that he would allow me to post them here. He wrote back with the following:

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"By Cancelling These Debts, We Want to Give Rise To An International Debate on Lender Responsibility"

posted by Melissa Jacoby

The title of this post is a quote from the development minister of the nation of Norway.  Norway is unconditionally forgiving debt owed to it by five countries (thanks to Adam Feibelman for the tip).  Some sovereign debts can be characterized as illegitimate or, in some cases, even "odious" (in general because they are unbeneficial to, and perhaps affirmatively bad for, the people of the debtor nation) and there is no standard mechanism by which they can be released of those obligations.  Countries and institutions are not exactly lining up to unilaterally forgive other countries' debts, so Norway's decision to do so is highly significant.  But the stated and suggested reason for the debt forgiveness is also notable - that the lending was motivated by Norway's self/sovereign-interest and not legitimate developmental objectives in the five debtor nations.  Although lending to countries and individuals are two very different animals, those in the sovereign debt and consumer/private entity debt worlds are engaging in parallel responsible lending debates.   

Update: Detainee Rights & Bankruptcy Courts

posted by Bob Lawless

Last week, I posted about some comments on another blog about the propriety of a federal bankruptcy judge writing to National Public Radio and commenting negatively about the detainee rights bill. Today, the Houston Chronicle ran a story on the topic: "Bankruptcy Judge Denounces U.S. Policy." (The story appeared on the Dow Jones Newswire, so it likely ran in other places as well.) From the article:

The outburst surprised other judges and could subject Clark to disciplinary action, lawyers said. Clark, a judge in San Antonio, Texas, was unavailable to comment Monday.

Chief Judge Edith H. Jones of the 5th Circuit, where Leif is based, said this is the first time in her eight-month tenure she has heard of a bankruptcy judge commenting publicly on a legal issue.

"This is a very novel situation," Jones said in an interview. She said she wasn't sure how the situation would be handled, if at all, but that she planned to look into it.

"I do not want to be saying anything definite at this point," Jones said.

Bankruptcy judges are appointed by the U.S. Court of Appeals for the circuit in which they are located and are subject to oversight, discipline, and possibly removal by the judicial council for the circuit. Bankruptcy judges are appointed for 14-year terms, and I believe the judge in this situation was reappointed in 2001. For those who are interested, section 152 of title 28 of the United States Code has all the rules. It's far from clear that anything will come of this, but if a controversy does develop, it could highlight the always delicate relationship between the Article III judiciary and the bankruptcy judiciary.

Consumption as a Means of Empowerment

posted by Debb Thorne

I'm leading a tutorial with Bethan Eynon, probably one of the brightest college students I've ever encountered. She's working on an honor's thesis that explores the connection between feminism/women's empowerment and consumption/capitalism. Specifically, she's studying magazine ads to uncover how the empowerment of women (which includes the second and third waves of feminism) has been constructed as their penchant for consuming stuff.

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Detainee Rights & Bankruptcy Courts

posted by Bob Lawless

There are two topics I didn't expect to see intersect, but yesterday morning, National Public Radio's Morning Edition ran a letter from Judge Leif Clark of the United States Bankruptcy Court for the Western District of Texas. Judge Clark was reacting to an interview that Morning Edition did with John Yoo, a former official with the Bush Administration. Judge Clark wrote:

Listening to John Yoo talk about this new legislation was chilling. I'm a federal judge, and have taught constitutional law for 16 years. The very idea of holding anyone without trial, without the right to see the evidence that was used to justify naming them an "enemy combatant," and depriving them of the ability to challenge why they are even there is so repugnant to a constitutional democracy that I am shocked that this man actually claims to be defending American values. These are the tactics of the old Soviet Union, not of a country that stands for freedom and the rule of law.

I also quibble with his contention that U.S. citizens still have the right to habeas review. I've read the law. The president can form his own tribunal, which can determine who is an "enemy combatant" (not just an alien enemy combatant), and the decision of that tribunal would not be subject to habeas review. Moreover, persons targeted by this tribunal would not even have access to the military tribunal trial created under this law.

How easy it would be for a president to use such a law to make his political enemies simply disappear.  Can this be America?

This letter has stirred a minor controversy over at Is That Legal? Although the initial blog post was quite complimentary to Judge Clark, a comment asked whether he had violated canon 7 of the Code of Judicial Ethics, which requires judges to refrain from political activity and should not publicy endorse or oppose a candidate for office. Can that possibly be right? Is a statement criticizing the executive branch "political activity?" There have to be some limits to the reach of canon 7 or every public utterance a judge made could be construed as being "political activity." Are First Amendment issues raised by disciplining a judge for such a statement? Not being an expert in judicial ethics, I ask these as questions, not to suggest an answer.

Stampeding Past the Self-Employed

posted by Bob Lawless

Will Congress just cut it out? Now, their inept drafting coupled with pandering to the religious right threatens the ability of the self-employed to fund chapter 13 plans. I thought we were supposed to like small business? As Melissa Jacoby reports, the Senate recently passed S. 4044 to protect charitable giving in bankruptcy. This bill comes on the heels of a bankruptcy court decision (In re Diagostino) where the bankruptcy court ruled that the 2005 bankruptcy amendments prevented above-median income chapter 13 debtors from making charitable contributions.

The need for congressional action is slim at best. It's a decision from one bankruptcy court that arguably misreads the statute (see a previous post). Bankruptcy court decisions don't create binding precedent, even for other judges in the same district. Senators Grassley, Hatch, and Sessions wrote a letter to the Executive of Office of U.S. Trustee's asking it to adopt a different rule as a matter of administrative enforcement. The political forces that have arrayed to attack this bankruptcy court decision are roughly the same coalition that sold a story about a bankruptcy system that was so rife with irresponsible debtors that it needed a major overhaul in 2005. Apparently, it's OK to stiff your creditors so long as you give that money to your church. In the stampede to pay obeisance to the religious right, the Senate has missed the fact that its actions could make it impossible for some self-employed debtors to fund chapter 13 plans.

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New Bankruptcy Legislation

posted by Melissa Jacoby

S. 4044, the Religious Liberty and Charitable Donation Clarification Act of 2006, was introduced on Sept. 29 and passed by unanimous consent on Sept. 30.  For the story that led up to this, see here and here.

UPDATE: My link to the bill isn't holding, so here's the substantive content of the bill: "Section 1325(b)(3) of title 11, United States Code, is amended by inserting `, other than subparagraph (A)(ii) of paragraph (2),' after `paragraph (2)'.

U.S. Trustee, Part II

posted by John Pottow

Following up on Professor Porter's excellent observations on the U.S. Trustee program, while she is interested in the normative power wielded by the UST, I am taken by the more tawdry matter of the expansion of institutional bureaucracy.  BAPCPA has mandated a hugely invasive role for the UST office (certifying decisions not to bring means test challenges, etc.), which means that my taxpaying dollars are going to subsidize a government-run debt collection agency for the benefit of for-profit creditors.  Yes, fees have been raised, but I'm not so sure how much they'll cover.  BAPCPA's proponents must have been fans of an active, involved, and well-funded federal government!  (I wrote about this in a piece for a Spanish commercial law journal, but I don't have the link to the journal and, for that matter, only take it on good faith that they translated the piece instead of just inserting gibberish -- at least random gibberish as opposed to my structured gibberish.)

Seniors and Bankruptcy: America's Dirty Little Secret

posted by Debb Thorne

Recently a frequent reader of Credit Slips, a legal secetary of 30 years, shared an observation and made a request. Her observation: a marked increase in the number of seniors calling the office where she works seeking information about filing for bankruptcy. Her request: Would we be interested in blogging about the subject. I asked to respond to her request because this is one of the issues associated with bankruptcy that most dismays.

In 2001, I co-authored a paper, "Young, Old, and In Between: Who Files for Bankruptcy?" with Teresa Sullivan and Elizabeth Warren. One of the most interesting and disturbing findings was that the percent of filers 65 and over (seniors) had increased significantly since 1991. In 1991, seniors comprised right around 2.4 percent of the population of filers; by 2001, that had climbed to 5.1 percent. This represents more than a 200 percent increase in the rate at which seniors filed. Now, we must be cautious when we discuss these findings because the percent of senior filers is quite low to begin with. But so is the percent of filers under 25. They were 7.9 percent of filers in 1991, but only 5.5 percent in 2001--which demonstrates a decrease in the rate at which they filed. And consider folks in the 55-64 age range: in 1991, they were 6.8 percent of the bankruptcy population, while in 2001 they had increased only a very little to 7.6 percent. So my point is that while seniors may make up only a small portion of the filing population, they, unlike other "minority" age groups, experienced a serious spike in filings. Thus, I would suggest that we take the 200 percent increase quite seriously.

The reader also asked if we would speculate on why this was happening. For insight, I turned to an article by McGhee and Draut, "Retiring in the Red: The Growth of Debt Among Older Americans."  First, the authors point out that while the number of seniors with credit cards has held relatively constant (1992-2001), the amount of credit card debt that they are carrying has increased 89 percent--to an average balance of just over $4,000. If they make minimum payments of 2%, it would take 42 years to pay off the balance. Thus, odds are, they will live out the rest of their lives making payments on this debt. The authors also point out that among those seniors who have annual incomes of less than $50,000 (which is 70 percent of the senior population), one in five of those with credit card debt spend more than 40 percent of their income servicing their debts!

Interviews that I've conducted with seniors have convinced me that few of them are making charges to their credit cards willy-nilly. So how to explain the increased balances? McGhee and Draut make the following observations: between 1992 and 2001, the retirement wealth of the majority of seniors declined; seniors became increasingly asset-poor; and the cost of health care and housing for seniors rose considerably.

When the basic costs of living rise, while income and assets decline, something has to give. And what has given is the ability of seniors to evade credit card debt. This cohort of Americans has historically been quite frugal and averse debt, but when there is no choice, they have few options but to turn to credit cards.

And so the cycle goes....And as the credit card debt piles up, and incomes remain inadequate to cover medical care and housing costs, eventually, bankruptcy is the only choice. I have talked the seniors who have filed for bankruptcy and they are humiliated about their situation. They often refuse to tell their friends or children because they are too ashamed. These are not deadbeats who are out to bilk the system. But until we do something to address the skyrocketing costs of health care and housing, we will continue to see increased bankruptcy rates among our seniors. This is a trend of which Americans should be ashamed.

One Call Too Many?

posted by Ronald Mann

If most bankruptcy is induced by external factors -- divorce, health problems, and job loss being the most commonly mentioned -- we still don't really know why people call lawyers when they do.  Is it too many calls from a collection agent?  Or perhaps a collection lawsuit is filed.  I suspect that most families use the legal system only when they are already involved in it.  This question of course can be addressed through surveys, but I am considering a project designed to shed some light on this question using quantitative data about bankruptcy filings.

Weekly bankruptcy filings over the last several years reveal several patterns.  For example, at the end of each year, Chapter 7 filings fall steeply during December but rise shortly after the first of the year.  Total filings fall sharply after the first week of the year and then increase steadily through the first quarter (until April 15).  Chapter 13 filings, by contrast, are more evenly distributed throughout the year.  Notably, both Chapter 7 and Chapter 13 filings show a monthly peak.

This led me to wonder what would cause bankruptcy filings to surge on a monthly basis.  In Texas where I live the obvious answer is foreclosures.  Because all foreclosures in Texas happen on the first Tuesday of the month, it might be possible to isolate the share of bankruptcy filings motivated by foreclosure avoidance.  Georgia has a similar statute, so I plan to collect the number of Chapter 7 and Chapter 13 filings by individuals in Texas and Georgia on each date from January 1, 2004 through December 31, 2006.  The statistical analysis might be tricky, especially if foreclosure-motivated filings are a small share of filings.  And I don't see any easy way to account for differences in state foreclosure law or practice.  Still, a discernible rise in the last few days before the foreclosure date might quantify a share of filings attributable to foreclosures.

Looking forward, what would it tell us about bankruptcy filings if we know how many were filed to protect homes?  Also, how can we quantify bankruptcy filings that might be attributable to other causes?  Ultimately, I would be interested in trying to isolate the filings caused by informal collection practices -- people trying to escape what they perceive as harassment.  The policy initiative I would like to explore is the idea that borrowers would benefit if lenders were forced to initiate formal collection procedures more quickly.  When I interviewed collection attorneys several years back, one of the things I learned is just how much information collection calls can produce.  People are willing to give out bank account numbers and places of employment that enable the formal collection actions to proceed.  If the caller can persuade the debtor to make even a single $10 payment, the collector then has access to the acccount information from that check.  It is not clear how much of this activity is efficient.  More fundamentally, as I argue elsewhere, procedures designed to push individuals into bankruptcy more rapidly might be beneficial.

Senators on Tithing in Bankruptcy

posted by Melissa Jacoby

Bob recently posted about a court decision refusing a deduction for tithing in a chapter 13 case.   That case has prompted Senators Grassley, Hatch, and Sessions to write a letter to the Attorney General asking the DOJ to direct chapter 13 trustees not to object to tithing that meets the requirements of the Religious Liberty and Charitable Donation Protection Act of 2005.   

Tithing Overheats

posted by Bob Lawless

There has been a heated press release and news coverage (Wash. Times, Salt Lake Tribune, Albany Times-Union) about a case called In re Diagostino. The bankruptcy court in Albany, New York, ruled that the Diagostinos could not make a charitable contribution of $100/month but instead had to pay that money to their creditors in chapter 13. This case has been cited as yet another example of the problems with the 2005 bankruptcy amendments. Your creditors now come before your church! No more tithing in chapter 13! What's next? Didn't the Republicans know they were taking money from churches and giving it to the credit card companies? For shame, Doc.

The hype on the Diagostino case seems a little overblown. I'm no fan of the 2005 bankruptcy amendments. Never have so many been bought by so few for so much. That act could be the poster child for campaign finance reform. On this one, however, I'll give the 2005 amendments a pass.

First, the facts of the case do not support the rhetoric. The Statement of Financial Affairs, which is filed in every bankruptcy case, asks the debtor to list all charitable contributions made in the year before filing. The Diagostinos responded "None," making them not the first set of debtors to discover a sudden interest in charitable giving after filing bankruptcy. Also, the Diagostinos proposed to give $100/month in charitable contributions. There is no indication in the judicial opinion that the contributions were intended for a church. Indeed, the words "tithe" or "church" do not appear in the opinion, although the reasoning in the opinion would apply to tithes and church contributions. This is simply not a case of a couple with a long history of making charitable contributions to a church suddenly being deprived of this right in bankruptcy.

Second, I am not known for my sympathy toward unpaid consumer lenders, but when one donates to a church or charity at the expense of creditors, one is not giving. The ethic of charity is to give of oneself. One of my favorite law review pieces is an essay by Dan Keating about the ethics of charitable giving in bankruptcy. As he writes:

What has always puzzled me . . . is why debtors do not view their insistence on tithing while insolvent as simply trading one sin for another. I realize there is no "standard" Christian doctrine, but most Christian churches consider the Bible to be at least a primary source of moral and spiritual guidance. And just as the Bible supports the notion that its adherents ought to tithe, it also makes clear that repaying one's legal debts is a significant moral obligation.

Daniel Keating, Bankruptcy, Tithing, and Pocket-Picking Paradigm of Free Exercise, 1996 U. Ill. L. Rev. 1041.

Third, on the doctrine, the judicial opinion is a plausible reading of the bankruptcy statute. It certainly is a literal reading of the statute. This is not the place to get into whether section 707(b)(2)(A)(ii)(I) incorporates section 707(b)(1) or what parts of section 1325(b)(2)(A)(ii) are covered by the income test in 1325(b)(3)(A). There are a lot of cross-referenced sections, and we have had a few posts suggesting the 2005 bankruptcy amendments were not the most artfully drafted provisions in the history of Western legal thought. (OK, there have been more than a few such posts.) For present purposes, suffice it to say that a reading of the statute that considered the Bankruptcy Code as a whole might have come to a different conclusion. For example, if the Diagostino opinion is correct, then high-income chapter 13 debtors no longer can pay the expenses of their business. That cannot possibly be what Congress intended as it would remove the ability of self-employed persons to fund a chapter 13 plan.

If you want to read the Diagostino opinion for yourself, I have made a copy through the Credit Slips site. I could not find the opinion posted on the New York bankruptcy court's web site. Click below

Download diagostino.pdf

UPDATE (9/22): For some reason, I am having trouble downloading the file with Mozilla Firefox, but I have no problems with Internet Explorer (sigh). Try Internet Explorer if you have trouble with the download.

Workload Up in Bankrutpcy Courts

posted by Katie Porter

An August report by the Administrative Office of the U.S. Courts to the House and Senate Committees on Appropriations contains a few interesting data nuggets about how BAPCPA is affecting the bankruptcy judicial system. A few quick highlights: 1) Preliminary analysis indicates that BAPCPA caused a 10 percent increase in the staffing requirements of the bankruptcy courts. The report notes that while courts will work harder, the effect on judges remains unclear.  2)  The AO apparently counted them up! The new law creates more than 35 different types of motions, objections and hearings that did not exist before. 3) The report offers that "most judges believe" that case filings will return to pre-BAPCPA levels.

The aggregate effect of these changes is that the entire bankruptcy system will likely be bigger, more complex, and more costly in the future. The report has no answers about how to pay for the changes BAPCPA is bringing about in the court system, but does express concern that if the number of in forma pauperis debtors climbs from the 2% rate that has been established in the months immediately after BAPCPA, that this loss of filing fees could be a significant hit on the revenue available to run the bankruptcy courts.

Bad News and Bankruptcy

posted by Elizabeth Warren

One of the most contentious debates of the past two decades has been the argument over whether  consumer debtors file for bankrutpcy largely because they have run out of other options following significant financial disruptions, such as job loss, medical problems and family break up.  Teresa Sullivan, Jay Westbrook argued this position in Fragile Middle Class based on 1991 studies of the families that filed, and Tyagi and I add more data on the the point using 2001 data in Two-Income Trap.  Fay, Hurst & White analyzed PSID data and concluded that debtors were more strategic, filing when it was economically rational to do so and not when triggered by other events.  (Fay, Hurst, White, The Household Bankruptcy Decision, 92 American Economic Review 706 (2002))

Now comes Jonathan Fisher at the Bureau of Labor Statistics with a new paper that analyzes the same PSID data the earlier economist team used.  Fisher has several interesting findings, but two are highly relevant to the negative-event/strategic debates.  The first is that people do not file when they could best maximize their benefits.  If debtors behaved like the rational maximizers beloved by all economists, then they would have filed for bankruptcy at least a year earlier.  Instead, they held off, kept paying and filed only later.   Fisher concludes that something else held these people back (could it be stigma?).  He suggests that they filed only when it was clear that they were in a deep enough hole that things were never going to get better. 

Fisher also noted that White has a problem with the fact that about 17% of the population would benefit from bankruptcy, but only about 1.5% actually file.  But Fisher made an interesting observation about the benefit-but-not-file group:  they were in a lot better financial shape than the benefit-and-file group.  While Fisher doesn't push any conclusions about this, the finding is consistent with a picture of debtors who do not want to file for bankruptcy, no matter how attractive bankruptcy might seem to an economist.  Instead, these people file only when the pressure from their creditors are greater and the likelihood they can ever pay these debts off is smaller.

The PSID data pose substantial challenges.  For example, there is gross under-reporting of bankruptcy filings (.42% in PSID when national rate was .89%). This means either the sample isn't representative of Americans generally or people are concealing their bankruptcy filings even as they fill out PSID questionnaires.  ("Bankruptcy?  Me?  No way!") 

The paper has many nuggests, but the headline finding goes right to the question about who uses the bankruptcy system.   

OJ, Rights of Publicity, and Debtor-Creditor Relationships

posted by Melissa Jacoby

According to an Associated Press report (yes, as published on ESPN.com), Ron Goldman's father has asked to receive OJ' Simpson's rights of publicity because Simpson has never paid out on the multi-million dollar wrongful death claim.  Seems to me that if the right of publicity is considered a property right under the relevant state laws that a judgment creditor should be able to reach it.  After all, some sports figures create separate corporate entities that manage and own their rights of publicity.  Of course, as Diane Zimmerman and I wrote here a few years ago, the issues may be just a bit more complicated than I'm now suggesting  . . . 

Filing Fee Fiasco

posted by Katie Porter

There is no rest for those weary of heated and divisive debate about changing the bankruptcy laws. Congress is currently considering legislation to fund a hike in the no-asset fee for Chapter 7 panel trustees. There seems to be general support that the current no asset fee of $60  is too low. Since 95 percent or more of Chapter 7 cases result in no distributions to generate additional revenue for trustees, most trustees receive only the $60 per case. The problem is how Congress is proposing to generate the extra $40 per case--by raising the Chapter 7 filing fee. Groups like the National Associaton of Consumer Bankruptcy Attorneys are concerned about the affordability of bankruptcy relief. Since October 2005, the filing fee has already increased to $299 through a series of rate hikes in BAPCPA and in legislation that followed. Combined with the costs of credit counseling and financial education, the total costs of a Chapter 7 consumer bankruptcy filing now are $399. The National Association of Bankruptcy Trustees is pushing the fee hike on the basis that additional work is required of trustees under BAPCPA and a raise in fees is needed to ensure the recruitment and retention of quality trustees.

The tension over the fee hike illustrates the "law is not free" adage. Somebody has to pay for the law's new requirements. Should it be consumers who are the "users" of the bankruptcy system? Don't creditors (or at least certain types of creditors) benefit from bankruptcy as well? After all, isn't that purpose of the meeting of creditors and the trustee's work--to ensure that all available assets are identified and distributed to creditors.

This problem gets tougher to resolve when the fee increase issue is combined with BAPCPA's addition of an in forma pauperis filing option for debtors. When a court waives the filing fee for a debtor, the Adminstrative Office of the U.S. Courts doesn't collect any money. And it is this money that is supposed to fund the trustee's fee. Who takes it on the chin in these situations? Why should the trustee work for free? Should taxpayers collectively have to bear the cost of a new bankruptcy system? If creditors wanted the means test and more trustee scrutiny, should they have to pay for it--for example, by making the distribution of assets to a trustee larger in asset cases to compensate for the work in all the no-asset cases?  What should a court do that is concerned about ensuring that trustees do quality work but that also wants to ensure access to the bankruptcy system for the most needy debtors when evaluating whether to let a debtor proceed without paying the filing fee?

Commissions, Specialized Courts, and Business Law

posted by Melissa Jacoby

At the end of a forthcoming Columbia Law Review article, Lucian Bebchuk and Assaf Hamdani propose that Congress establish a National Corporate Law Commission to comprehensively review corporate law and -- not surprisingly given their prior work -- determine which aspects should be federalized.  Bebchuk and Hamdani mention in a footnote (fn 184 to be exact) that their preferred model for the corporate commission is . . . the National Bankruptcy Review Commission

Putting aside whether corporate law should be federalized, I'm wondering whether the bankruptcy commission is the right model.  For one thing, the bankruptcy commission had a limited existence (I remain hopeful that the provision in a recent Senate bill proposing to forcibly reconvene the bankruptcy commission will never become law).  But Bebchuk and Hamdani suggest in the article that they think a standing commission is preferable.  I'll leave to the public choice scholars to discern the implications of the distinction here for purposes of turning commission recommendations into law.    In addition, the bankruptcy commission's members were selected not only by Congress, as the authors indicate they desire for the corporate commission, but by the President and by the Chief Justice.  I suspect it was well understood that the late Chief Justice Rehnquist would choose federal judges for the bankruptcy commission (he chose one circuit judge and one bankruptcy judge). Given the underlying federalization mission that Bebchuk and Hamdani advocate for this commission, identifying the right judicial members of such a commission could be delicate. 

In any event, Bebchuk and Hamdani would like the corporate commission to consider the creation of a specialized federal corporate law court (they don't advocate for the specialized court but note its possibility as a response to those who like the idea of the Delaware Chancery Court).  Here's another place where the bankruptcy experience might be useful.  Bankruptcy cases are part litigation, part transactional, part administrative.  Assuming a specialized federal forum is justified at all, it seems that this is a better reason than in-depth knowledge of a substantive legal field.   Notably, the recently-created "business courts" in states like Nevada are far broader in jurisdictional scope than the Delaware Chancery Court (admittedly, the new courts would probably go out of business quickly if their jurisdiction was limited to corporate disputes as traditionally defined).  Even the Delaware Chancery Court is getting a bit more generalist; the state of Delaware has given the court jurisdiction over money damage technology disputes and mediation-only business disputes.   All this being said, one federalization possibility -- certainly controversial -- would be to expand the bankruptcy court to include corporate and related matters.  Greater legal integration of shareholders and creditors would be a good development, and perhaps more exposure to the governance of financially healthy corporations would aid courts in presiding over the bankruptcy cases of insolvent corporations.      

Disclose, Disclose, Hide

posted by Elizabeth Warren

All my professional life, I have heard that there are three rules of bankruptcy:  "disclose, disclose, disclose."  Worried about a conflict?  Disclose it. Want to make a payment? Disclose it.  Starting a new business initiative? Disclose it.  In fact, I thought disclosure was the quo for the quid of the automatic stay and other bankruptcy-induced protection.  Evidently I was misinformed.

Gretchen Morgensen reported in the New York Times yesterday that Delaware bankruptcy judge Kevin Carey ruled that the Werner Company, a ladder maker, wouldn't have to disclose the bonsues it was handing out to the executives as part of the reorganization plan.  The reason?  Such disclosure ""may create low morale and an unhealthy work environment." Just to drive home the point, the hearing itself was closed to the public.

What can this mean except that the employees are asked to take a hit while the executives are taking home sacks of money?  And if keeping it a secret is supposed to help morale, then is it fair to assume that the amount of money the executives are keeping is more even than the rank-and-file employees could possibly imagine?

So the new rule is "discose, disclose, and keep it a secret if the big boys want it that way"?  I just want to be sure that I have it right before I try to teach it to a new generation of students.

A Real Live Involuntary Bankruptcy

posted by Melissa Jacoby

Involuntary bankruptcy petitions are a fascinating and a fundamental part of our bankruptcy system.  They are quite rare overall, although somewhat less so in the biggest chapter 11 cases, according to LoPucki and Whitford's early research.   But the disappearance of a Chapel Hill lawyer has prompted the filing of an involuntary petition - - a media report here.   Pursuing a bankruptcy case against a missing person will be a challenge worth watching.

On Absurdity

posted by Bob Lawless

A few days ago, I discussed the sloppy drafting in the 2005 bankruptcy amendments, focusing on one particular piece of drafting that could be construed to eliminate involuntary bankruptcy petitions. Tom Perkins made a good point in the comments. A venerated legal maxim holds that courts are to apply the plain meaning of a statute unless the results would be absurd, but "[c]ourts are now faced with having to define absurdity much more frequently in light of many of the curiously drafted or pasted together provisions of BAPCPA."

In January, Judge Bruce Markell published a thoughtful opinion exploring what it means for a result to be absurd such that a court should not follow the literal words of the statute. Judge Markell was dealing with a part of the 2005 amendments related to homestead exemptions. He uses Justice Scalia's legisprudential writings as a point of departure: "Justice Antonin Scalia is one of the strictest, if not the strictest, textualists active today. . . .  If the methods used by Justice Scalia would lead to the reformation of the statute, then the statute probably should be reformed, and little time need be spent in discerning the proper or ultimate test for all federal statutes." This opinion has been called the WWSD or "What Would Scalia Do" approach. The legal citation is In re Kane, 336 B.R. 477 (Bankr. D. Nev. 2006) and is well worth a read by anyone grappling with applying the 2005 bankruptcy amendments.

Floyd Norris Asks a Good Question

posted by Bob Lawless

In today's N.Y. Times ($), columnist Floyd Norris asks a good question. Were parts of the 2005 bankruptcy amendments meaningless? Specifically, Mr. Norris writes about a section of the new law that appears to put limits on retention bonuses for executives of bankrupt firms. Mr. Norris details the dispute between the reorganizing Dana Corporation and its creditors. Dana wants to pay its CEO a $3 million bonus for staying with the company until it emerges from bankruptcy.

As the law that eventually emerged in 2005 wended its way through Congress in the early part of this decade, reports appeared about bankrupt corporations signing multimillion dollar contracts with corporate executives to ensure the executives stayed with the company through bankruptcy. If generals make the mistake of always fighting the last war, politicians make the mistake of always solving the last corporate crisis. Hence, the congressional solution was a new law banning payments to induce a corporate insider to remain with the bankrupt business. These payments are allowed only if the insider was essential to the business, the insider had a competing offer to go elsewhere, and the payment was no more than 10 times the amount paid to nonmanagement employees to induce them to stay with the company.

To answer Mr. Norris's question, this particular section is meaningless. The weakness lies in the way the section was drafted, a point I made yesterday about the 2005 law generally. The predicate for its application is that the payment has to be made for purposes of inducing the insider to stay with the business. It is a simple matter to structure a compensation package so the payment is made for other purposes. For example, a bonus payable upon confirmation of a chapter 11 plan or to meet certain performance goals is an incentive payments to meet those goals, not retention payments. I have yet to encounter an attorney doing chapter 11 work who thinks this new provision will have any substantial effect on compensation practices in chapter 11.

College Students' Responses to their Parents' Bankruptcies

posted by Debb Thorne

Regardless of the class I'm teaching, I always find some way to incorporate the subjects of credit, debt and bankruptcy into my lectures. In Introduction to Sociology, I tie the subjects to discussions of social institutions; in Research Methods, I talk about the methods we use to collect data on the Consumer Bankruptcy Project (and share many of our findings); and in Social Inequality, well, the connection is pretty obvious.

One consequence of these lectures on credit/debt/bankruptcy is that students feel free to come talk with me in the privacy of my office about their parents' bankruptcies. Some cry because they are frightened that their parents will no longer be able to afford to pay for college, which translates into either more student loans or postponing their education. Some are afraid that their friends will find out the truth about why the family sold the house and moved out of the neighborhood. Others are angry at their parents' (assumed) financial stupidity. And still others are relieved to know that their parents are not to blame--their mom's medical bills or the loss of their dad's job better explains what happened to the family.

Granted, these observations are nothing more than anecdotal evidence, but they do suggest that when parents file for bankruptcy, the experience extends to their children. The kids are frightened, embarrassed and angry--all of the emotions that their folks probably felt. Unfortunately, these kids don't feel that they can talk with their parents about the bankruptcy (we all know that people will talk about their sex lives long before they will chat about their finances). Instead, they turn to their professor for reassurance.

Cars in Bankruptcy

posted by Bob Lawless

Last night around the dinner table, I was saying how my day involved pulling 32 bankruptcy court files. "Guess," I said, "what was the average age of the car in which the debtor was claiming an exemption?" As my children rolled their eyes at another boring dinner conversation, my wife said "six months," and a guest offered "one year."

The answer is . . . .

Continue reading "Cars in Bankruptcy" »


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