Fake and Real People in Bankruptcy

This draft essay, Fake and Real People in Bankruptcy, just posted on SSRN, is considerably less far along than Unbundling Business Bankruptcy Law, posted last week. Fake and Real starts with a Third Circuit case that tends to be less well known: it upheld the dismissal of an individual bankruptcy filer whose primary asset was a home he had built with his own hands. Perhaps you will find that story relevant to current debates about what is permissible in large chapter 11 cases. Like Unbundling Business Bankruptcy Law, Fake and Real reflects some of my in-depth research on The Weinstein Company.  

Here is the abstract: 

This draft essay explores how the bankruptcy system is structurally biased in favor of artificial persons - for-profit companies, non-profit enterprises, and municipalities given independent life by law - relative to humans. The favorable treatment extends to foundational issues such as the scope and timing of permissible debt relief, the conditions to receiving any bankruptcy protections, and the flexibility to depart from the Bankruptcy Code by asserting that doing so will maximize economic value. The system's bias contributes to the "bad-apple-ing" of serious policy problems, running counter to other areas of law have deemed harms like discrimination to be larger institutional phenomena. These features also make bankruptcy a less effective partner in the broader policy project of deterring, remedying, and punishing enterprise misconduct.

Tort Law, Social Policy... and Bankruptcy

I cannot tell you what to think about the fact that the long-running Clifford Symposium on Tort Law and Social Policy, at DePaul University College of Law in Chicago, kicks off with a bankruptcy panel this year.  The official title of the conference this year is Litigating the Public Good: Punishing Serious Corporate Misconduct. Much of the June 2-3 conference is scheduled to occur in person but online observation is available and free: register here. 

Harmony or Mismatch? A virtual event on mass torts and bankruptcy on February 28

Just wanted to make sure Credit Slips readers were aware of this virtual event at noon Eastern/3 Pacific on February 28. Bonus: a link to a masterful analysis of the topic by Professor Elizabeth Gibson that the Federal Judicial Center published in 2005. (click here for information and registration)

Annotated Bibliography of Histories of Debt and Bankruptcy

I just read a really fabulous annotated bibliography of books (alas, articles by such luminaries as Emily Kadens are excluded) on the history of credit, debt, and bankruptcy in the United States. Many of my favorites are on here, along with a few new entrants with which I was, embarrassingly, unfamiliar. This is a great resource for new lawyers and law professors, in particular, but also for anyone interested in this fascinating history and/or looking for something to help while away the cold, blizzard-bound winter hours. Enjoy! 

Just posted: Other Judges' Cases

This article has been in the works a long time. During the Detroit bankruptcy, I wrestled with some of its topics on Credit Slips.  

The case studies involve bankruptcy. The mediators in those cases are life-tenured judges.

The footnotes make it long; the text is short.  

Other Judges' Cases remains in the edits stage and is scheduled to be published later this year.  

Please read it. Thank you!

Shocking Business Bankruptcy Law

Another quick announcement that I have posted a draft essay on some under explored intersections between big business bankruptcy and big shocks here. The abstract is short, yes, but so is the essay. It also discusses ice cream. Thanks for reading! 

Who extracts the benefits of big business bankruptcy?

The Deal has a new podcast called Fresh Start hosted by journalist Stephanie Gleason. Stephanie and I recently chatted about big bankruptcies with litigation management at their core and the stakes those cases raise. We covered a lot of ground along the way, including non-debtor releases and the SACKLER Act, notice and voting, forum shopping, equitable mootness, the homogeneity of the restructuring profession, bankruptcy administrators and the United States Trustee system, and the skinny clause of the Constitution at the heart of all of this. We begin by reminiscing about the mass tort and future claims discussion during the deliberations of the National Bankruptcy Review Commission, for which Elizabeth Warren was the reporter, and how much has changed. Check it out here.

Five reasons to read Unsettled by Ryan Hampton

Ryan Hampton, author of a book about the Purdue Pharma bankruptcy published earlier this month, is a "national addiction recovery advocate, community organizer, author, and person in long-term recovery" who also was a member of the Purdue Pharma bankruptcy official unsecured creditors' committee. On Purdue's committee, Hampton and three other personal injury claimants sat alongside five institutional/corporate creditors, at least some of which were defendants in other opioid crisis lawsuits.  This is a quick post to recommend that the bankruptcy world read Unsettled for at least the five following reasons: 

Personal Insolvency in Asia and Currency Comparison

While Shenzhen has gotten all the good press since its March launch of the first personal bankruptcy regime in Mainland China, a number of other Asian regimes have also been on the move. I recently examined the rapidly developing personal insolvency system in Singapore, and others have done great work on the unique processes in Japan and Korea. As an outsider, I struggle to capture the real feeling of life under these procedures. The challenge is expressed brilliantly by my favorite article on the difficulty of examining legal phenomena that are utterly foreign to the examiner, a paper that sought to answer the question "what was it like to try a rat?" This struggle is particularly acute in a new paper I've just posted on the fascinating evolution of Shenzhen's new law from its roots in a little-known 2008 consumer insolvency law in Taiwan. The Taiwan law is still in effect, of course (as amended in important respects), and the rocky experience of its first decade offers important lessons for personal insolvency policymakers in Asia and beyond. In both Taiwan and Shenzhen, a potential continuing challenge that intrigues me is among the most important and impactful in any such law--the measure of "necessary" household expenses to be budgeted to debtors for the purgatory period of three years (in Taiwan, it's six!) preceding a discharge. Both Taiwan and Shenzhen chose the social assistance minimum income; basically, the poverty level. Taiwan recently increased this by 20% after years of criticism of forcing bankrupt debtors into the extreme austerity of living within these tight budgets. Shenzhen has decided not to go beyond the poverty level, at least for now.

Expressing the strictures of these poverty levels in useful comparative terms is really difficult for me. Official exchange rates are quite misleading when the question is "what is it like to try to make do on X [local currency units] for three years in [X country]?" Purchasing power parity exchange rates likely get closer to the mark, but with China, I'm not even sure that approach captures the pain (or ease) that debtors in the "discharge examination period" must endure. The figures I'm wrestling with are 1950 yuan in Shenzhen and about 18,000 new Taiwan dollars (15,000 x 1.2) in Taipei (less in the outlying areas). I vaguely understand these to correspond to about US$465 and US$600, respectively, per month, but this just seems untenable to me. How could anyone survive on these amounts for 36 months in Shenzhen or 72 months in Taipei? Granted, both sets of figures are per person, so a debtor caring for parents and/or children might end up with several multiples of these figures per month, but even then, supporting a family of four on US$1860 per month for three years in a major city like Shenzhen still strikes me as so austere as to dissuade people from seeking relief. Am I just out of touch with the reality of modern financial struggles generally (I know some low-income Americans also strain to make ends meet on somewhat similar budgets), or am I not understanding something about life in big-city China, or are the figures just not reflecting the feeling of life within these limits? Any insight would be greatly appreciated.

Recommended Reading: Bannon and Keith on Remote Court

Virtual court proceedings, an important public health intervention, have prompted many a judge and lawyer to envision heavy use of virtual hearings in more ordinary times - including in bankruptcy courts, which carry the highest federal court case load and feature financially distressed parties. The benefits of remote court are often touted, but what about the costs? Can "virtual justice" be achieved? To explore these issues, check out an article by Alicia Bannon and Douglas Keith of NYU's Brennan Center for Justice published in the Northwestern University Law Review.  

Here is the abstract: 

Across the country, courts at every level have relied on remote technology to adapt the justice system to a once-a-century global pandemic. This Essay describes and assesses this unprecedented journey into virtual justice, paying particular attention to eviction proceedings. While many judges have touted remote court as a revolutionary innovation, the reality is more complex. Remote court has brought substantial time savings and convenience to those who are able to access and use the required technology, but it has also posed hurdles to individuals on the other side of the digital divide, particularly self-represented litigants. The remote court experience has varied substantially depending on the nature of the proceedings, the rules and procedures courts put in place, and the relevant court users’ resources and tech savvy. Critically, the challenges posed by remote court have often been less visible to judges than the efficiency benefits. Drawing on these lessons, this Essay identifies a series of principles that should inform future uses of remote technology. Ultimately, new technology should be embraced when—and only when—it is consistent with fair proceedings and access to justice for all.

Afsharipour on "Women and M&A"

I'm writing to second Melissa's wonderful post (below) on Afra Afsharipour's recent article.  My thanks to Melissa for pointing out this super piece.

There is a rich literature on the question of the gender gap in the legal profession, with wonderful work by scholars such as Elizabeth Gorman, Ronit Dinotvitzer, Fiona Kay, Joyce Sperling and others. One of the gaps in this literature that I've found over the years though is the lack of in-depth analyses of particular practice areas or individual firms.  Many of the analyses look at the gender gaps in the fractions of law students, junior associates and partners and stop there (I am guilty as charged on this). But, of course, we know (or at least suspect) that there is likely tremendous variation across fields. Understanding that variation might help us better understand what causes the gender gap and how to remedy it.

Recommended reading: Afsharipour on Women and M&A

For many reasons and no reasons, blogging on Credit Slips during the COVID-19 pandemic has not come easy, or at all, for me (Twitter, a different story). Rejoining the Credit Slips conversation by recommending scholarship relevant to bankrupty-land even if not directly about bankruptcy-land. 

Today's recommendation is an empirical study, Women and M&A, by Professor Afra Afsharipour.  

Chapter 11 has become the forum for lots of mergers and acquisition activity, including and particularly in sales outside of plans. Some think that's great and others are skeptical (I have work in progress that further tallies the costs of unbundling chapter 11's package deal, or what I call bankruptcy a la carte). While Professor Afsharipour's article does not focus on M&A in bankruptcy, the law firms appearing in the study will be familiar names in the larger chapter 11 practice world. 

Many readers likely will have a prediction about the demography of the people taking the lead in M&A. Check out how your prediction compares to Professor Afsharipour's findings and why her findings matter. Read more about and download the article here.  

Book Rec: Range (or Yet Another Paean to Learning from Failure)

With summer upon us, I thought others might be searching for good new reading, as I was when I took up a smart friend's longtime recommendation to read Range: Why Generalists Triumph in a Specialized World. So much good stuff in here. Perhaps contrary to the topic of the book, my brain is constantly in "insolvency policy" mode, so I was particularly interested in the many passages about famous people's meandering struggles to find their passion that catapulted them to success.

Among my favorites was a description of Nike co-founder Phil Knight's entrepreneurship philosophy: [155] "his main goal for his nascent shoe company was to fail fast enough that he could apply what he was learning to his next venture. He made one short-term pivot after another, applying the lessons as he went." This is exactly the advice offered to country after country hoping to develop more effective SME-friendly bankruptcy regimes ... as they unfortunately continue to stick to Old English draconian policies of imposing various restrictions and disabilities on post-bankruptcy entrepreneurs. Range offers yet another extended analysis of why this mindset is so persistent and so counterproductive. We need to let people fail, learn from whatever caused that failure (either mistakes or general economic volatility ... or COVID) and get back on their feet quickly to move on to other ventures.

Bankruptcy on Last Week Tonight with John Oliver

The consumer bankruptcy system has made it to late-night television! The main segment on Last Week Tonight with John Oliver this week focused on bankruptcy. As described: "John Oliver details why people file for bankruptcy, how needlessly difficult the process can be, and the ways we can better serve people struggling with debt." Twenty minutes about consumer bankruptcy!

Per usual, it's a well-researched, understandable, and fast-moving segment, with dashes of dark humor. My favorite references Julianne Moore's character in Magnolia. To the well-research part: It is supported by a host of papers about consumer bankruptcy, including the work of several current and former Slipsters. Among them is Portraits of Bankruptcy Filers (forthcoming Georgia Law Review), the most recent article based on Consumer Bankruptcy Project (CBP) data, co-authored with Slipster Bob Lawless and former Slipster Debb Thorne. In Portraits, we rely on data from 2013 to 2019 to describe who is using the bankruptcy system, providing the first comprehensive overview of bankruptcy filers in thirty years.   

Also referenced are Life in the Sweatbox, former Slipster Angela Littwin's The Do-It Yourself Mirage: Complexity in the Bankruptcy System, Slipster Bob Lawless, Jean Braucher, and Dov Cohen's Race, Attorney Influence, and Bankruptcy Chapter Choice, and the ABI Commission on Consumer Bankruptcy's report. The segment closes by highlighting the Consumer Bankruptcy Reform Act of 2020 (and includes a bonus at the end, which you'll have to watch to find out what that's about).

The New Thing in Contract Research - The Contract Production Process

Cathy Hwang and Matt Jennejohn, two of the brightest young stars of the contract world, just put up a paper summarizing their view of one of the exciting new directions that contract research is taking. They describe it as the study of contractual complexity ("The New Research on Contractual Complexity", is their title). But I don't like the term "contractual complexity" at all, since I simply cannot take seriously the idea that anything that lawyers do is all that complex.  Convoluted, confused and obscure, yes.  But complex? Hell no.  What I see their wonderful paper as being about is the new research on the production of contracts.  As they point out, it all starts from the foundations laid in a set of important papers by the brilliant Barak Richman.  Barak has long been puzzled as to why contract scholars have generally had little interest in how contracts are produced -- even though key assumptions about the production process form the backbone for theories and doctrines of contract interpretation (something that contract scholars, old and new, do care deeply about).

And now we have an entire cool new set of papers by folks like Rob Anderson, Jeff Manns, Dave Hoffman, Tess-Wilkinson Ryan, Michelle Boardman, Julian Nyarko, John Coyle, Mark Weidemaier, Adam Badawi, Elisabeth de Fontenay, Anna Gelpern and, of course, Cathy and Matt (and more).  Some using fancy empirical techniques well beyond my capacity (yes, those are complex), others use cool experiments (again, complex and beyond my skill level) and still others use interviews (yup, complex).

Three cheers for the study of how contracts are produced -- complex ones, confused ones and all the rest.

The ssrn link to Cathy and Matt's paper from the Capital Markets Law Journal is here: 

Their abstract reads:

In the last few years, the academic literature has begun catching up with private practice. In this essay, we review the growing literature on contractual complexity and outline its key insights for contract design and enforcement. Our purview is broad, capturing new theories and new empirical tools that have recently been developed to understand contractual complexity. We also propose avenues for future research, which we extend as an invitation to academics and practitioners as an opportunity to further the collective knowledge in this field. 

The Resurgence of Calls For Financial Literacy

Today is the last day of National Financial Literacy Month. At a time when the economy has come to a grinding halt, it seems pertinent to talk about financial literacy, or, more accurately, the fallacy of financial education. Agata Soroko recently published a short essay in Public Seminar -- The Financial Literacy Delusion. In it, she details how calls for financial education already are ramping up in light of the coronavirus's highlighting how little savings most Americans have. I suspected that the refrain that it's people's fault that they didn't have sufficient savings to cover a few months, and thus that they exacerbated the economic downturn with their inability to control themselves enough to save, would emerge with a vengeance in the coming months.

Combating that narrative will become more important than ever, as a matter of economic policy, but also of kindness and understanding to each other. Indeed, it's important right now as Congress considers how to help American families during the crisis. As Slipster Dalie Jimenez, Chris Odinet, and I wrote in our just-uploaded-to-SSRN essay, The Folly of Credit As Pandemic Relief, forthcoming in UCLA Law Review Discourse, in the CARES Act, Congress predominately provided relief to Americans in the form of credit products, not actual cash. This very likely will prove to be problematic because people will be unable to repay in the coming months, just as they are unable to pay for their necessities now. They simply do not have the money, and will not in the future because people still won't have sufficient income to accumulate meaningful savings. As Soroko writes, financial education cannot solve widening income disparities, rising costs, and wealth inequality--the roots of why many Americans have so little savings.

Coronavirus Will Hasten the Shift To App-Based Banking and Lending. How Will That Affect People's Pocketbooks?

Over at the Machine Lawyering blog -- organized and edited by the Chinese University of Hong Kong's Law Faculty’s Centre for Financial Regulation and Economic Development -- Slipster Nathalie Martin and I just posted some commentary about our new article, Reducing The Wealth Gap Through Fintech "Advances" in Consumer Banking and Lending, forthcoming in the University of Illinois Law Review. The article, in part, assessing new "advances" in fintech products that promise to provide people with lower-cost banking and lending options. We focus on prepaid cards for wages, early wage access programs, and auto lending apps. We conclude that these products more likely than not will prove to be disadvantageous to consumers. The article's connection to the wealth gap is the recognition that high-cost banking and lending products impede people's ability to convert income into savings. We put forth a few ideas about the hallmarks of banking and lending products that actually may help close the wealth gap by targeting Americans’ unequal access to banking and lending services. 

Nathalie and I, of course, wrote this article before the coronavirus pandemic. With stay-at-home orders and social distancing in effect, it is highly likely that people's already increasing use of online and app-based banking and lending products will increase even faster. If our analysis proves correct, the spoils of the increased shift will accrue more to providers than to consumers, and people may be able to save even less of their income. The pandemic has highlighted American's lack of savings. Hopefully helping Americans save will become more of a focus in the future.

Also, on the note of early wage access programs, when we drafted the article, we found effectively no published analysis of early wage access programs. As we were writing, Nakita Cuttino and Jim Hawkins kindly shared their draft articles with us. Both articles are now available SSRN and present interesting (and different) analyzes of early wage access programs. Nakita's article is titled, The Rise of "FringeTech": Regulatory Risk in Early Wage Access. And Jim's article is titled, Earned Wage Access and the End of Payday Lending.

The Myth of Optimal Expectation Damages

Roughly eighty years ago, Lon Fuller and William Perdue (the former, then a faculty member at Duke Law, and the latter, a 3L), wrote two of the most famous articles in contract law (here). One of the puzzles they posed -- about why the law favors the expectation damages measure -- resulted in an entire body of scholarship, including the theory of efficient breach. And although there are a number of superb articles that have been written on this matter (Craswell, Scott, Goetz, Triantis, Posner, Klass and more), I confess that I have always had a strong distaste for this body of optimal damages scholarship because it was too complicated for me. I have, however, been most grateful to Fuller and Perdue because, in the wake of their famous collaboration, they set up a scholarship at Duke to fund faculty-student research collaborations that I have frequently applied for funding to. Last summer, I finally had to pay the price though, because three of my Duke students (one former and two current) asked if we could work on a legal realist examination of the Fuller-Perdue optimal damages question itself. I was resistant, but Jamie Boyle (who has written a fabulous piece linking Fuller's work in both public and private law (here)), urged that the students were right about this being a fun project. 

Jamie and the students were right about this being a fun project, in spades (we owe a special debt to Mark Weidemaier, who is a saint in terms of his generosity with comments and advice). All credit to Theresa, Amanda and Madison (errors are mine).

With thanks to Lon Fuller and William Perdue, the paper is here, and the abstract is below:

One of the most debated questions in the literature on contract law is what the optimal measure of damages for breach should be.  The standard casebook answer, drawing from the theory of efficient breach, is expectations damages.  This standard answer, once considered a major contribution of the law and economics field, has increasingly come under attack by theoreticians within that field itself. To shed an empirical perspective on the question, we look at data in one setting (prepayment clauses in international debt contracts) on what types of damages provisions parties contract for themselves. We find little evidence of a preference for the expectations damages measure.

Consumer Bankruptcy, Done Correctly, To Help Struggling Americans

Today, Senator Elizabeth Warren unveiled her new plan to reform the consumer bankruptcy system. The plan is simple, yet elegant. It is based on actual data and research (including some of my own with Consumer Bankruptcy Project co-investigators Slipster Bob Lawless, former Slipster, now Congresswoman Katie Porter, and former Slipster Debb Thorne). Most importantly, I believe it will make the consumer bankruptcy system work for American families. And, as a bonus, it will tackle the bad behavior that big banks and corporations currently engage in once people file, like trying to collect already discharged debts, and some non-bankruptcy financial issues, such as "zombie" mortgages.

In short, the plan provides for one chapter that everyone files, combined with a menu of options to respond to each families' particular needs. It undoes some of the most detrimental amendments that came with the 2005 bankruptcy law, including the means test. In doing so, it sets new, undoubtedly more effective rules for the discharge of student loan debt, for modification of home mortgages, and for keeping cars. It also undoes "smaller" amendments that likely went unnoticed, but may have deleterious effects on people's lives. Warren's plan gets rid of the current prohibition on continuing to pay union dues, the payment of which may be critical to allowing people who file bankruptcy to keep their jobs and keep on their feet. Similarly, the plan eliminates problems debtors face paying rent during their bankruptcy cases, which can lead to eviction.

One chapter that everyone files means that the continued racial disparities in chapter choice my co-authors and I have documented will disappear. No means test, combined with less documentation, as provided by Warren's plan, means that the most time-consuming attorney tasks will go away. Attorney's fees should decrease. Warren's plan also provides for the payment of fees over time. People will not have to put off filing for bankruptcy for years while they struggle in the "sweatbox." Costly "no money down" bankruptcy options should disappear. People will have the chance to enter the bankruptcy system in time to save what little they have, which research has shown is key to people surviving and thriving post-bankruptcy.

Bankruptcy and Mindfulness

The practice of mindfulness and other types of meditation are growing on the coasts and within the law school and lawyer communities. Perhaps these practices can provide meaningful benefits to bankruptcy clients, bankruptcy lawyers and bankruptcy professors and judges. The essence of "mindfulness for lawyers" efforts begins with the notion that the adversary system can take a toll on home life, friendships and our own notions of who we want to be. A meditation practice can help us concentrate and be the best lawyers we can be and also the best friends and family members we want to be; and perhaps even help us to be the kind of persons we want to be. It is a mix of focusing more fully on the present, mixing that with lovingkindness to ourselves and others, and observing what is going on in our minds, all without judgment.

Consumer bankruptcy debtors, creditors, practitioners and judges are constantly faced with problems for which the legal system is at best a partial solution. In most cases there are a few true winners and a host of partial winners, partial losers and complete losers. Mindfulness can help us keep a focus on the matter in front of us and also help us maintain our passion for life and practice.  On the business bankruptcy side, our duty of loyalty combined with the zealous representation ethic can allow the day-to-day fighting to change our character and perhaps even our values. In every community there are a host of ways of starting such a practice.  The book 10% Happier by Dan Harris is an easy entry point and in most communities there is a Mindfulness Based Stress Reduction course available.  More and more law schools and bar associations are providing such opportunities. Mindfulnessinlawsociety.com and themindfullawstudent.com are excellent resources.  I am enjoying teaching mindfulness to law students as well as faculty and staff at Saint Louis University Law School. 

 

 

Supreme Court Grants Cert To Decide Fate of Repossessed Cars in Bankruptcy

Yesterday, the SCOTUS granted certiorari in City of Chicago v. Fulton, 19-357, to resolve a circuit split about whether a creditor's inaction in not returning property repossessed pre-petition can violate the automatic stay. The split arises predominately from chapter 13 cases in which, pre-petition, creditors repossessed or cities impounded debtors' cars. As the petition for cert stated, this issue is of significant practical importance. As Slipster Bob Lawless, former Slipster Debb Thorne, and I set forth in our new paper based on Consumer Bankruptcy Project data, Driven to Bankruptcy (Wake Forest Law Review, forthcoming 2020), bankruptcy courts deal with more than a million cars in every year. Creditors will have repossessed, but not disposed of some of those cars, and cities (for instance, Chicago) and municipalities will have impounded some of those cars.

In our new paper, we note that bankruptcy seems to be an important tool for some people to keep their cars, including getting their cars back from creditors and impound yards. As will be decided by the Supreme Court in addressing the issues regarding the automatic stay raised by the circuit split, if debtors need to request that bankruptcy courts order creditors or cities to return their cars after they file bankruptcy, the usefulness of filing bankruptcy will decrease, potentially significantly. Stated differently, people need their cars now -- to get to work, to get food, to get their kids to daycare, to get to the doctor. For some households, one of the biggest benefits of filing bankruptcy seems to be that their creditors must turn over repossessed and impounded cars as soon as the debtor files . The question now is -- is that actually what the Code provides? 

What a Local Traffic Snafu Teaches About Artificial Intelligence in Underwriting

The DC suburbs are a case study in NIMBYism. Lots of communities try to limit through-traffic via all sorts of means:  speed bumps, one-way streets, speed cameras, red-light cameras, etc.  The interaction of one of these NIMBYist devices with GPS systems is a great lesson about the perils of artificial intelligence and machine learning in all sorts of contexts.  Bear with the local details because I think there's a really valuable lesson here.

Matt Levine, Insider Trading and Mr. Potato Chip

Matt Levine is my favorite financial journalist to read on a regular basis because he is so darn funny (yes, there is lots of substance too, but I'm shallow and want to be entertained). Today's piece though, especially to someone who used to teach the law on insider trading, was priceless.

I want to cut and paste the entire piece here, because it made me smile and laugh out loud at the same time.  But I worry that Bloomberg might get annoyed and chase after me for stealing their content.  The link is here -- hope you find it as funny I did.

 

Anderson and Nyarko's Cool New Papers on Contract Evolution

Two of the contracts papers I’ve been most looking forward to this fall have just been posted on ssrn. They are are Rob Anderson’s “An Evolutionary Perspective on Contracting: Evidence From Poison Pills” (here) and Julian Nyarko’s “Stickiness and Incomplete Contracts” (here).

Both papers aim at deepening our understanding of how contracts evolve and, in particular, why they evolve in ways so very different from the standard model used in law schools where parties are assumed to negotiate for an optimal set of terms for their relationships.

One would predict a very different set of contract terms for parties if one takes the contract production process seriously and thinks of contract provisions as products (ala Barak Richman, here) or product attributes (ala Doug Baird, here).  Specifically, Rob and Julian both use models of contract production where new contracts are constructed by building on pre-existing templates.

In this world, one should expect a high degree of path dependence in the data.  And that is precisely what Rob and Julian demonstrate, looking at two very different areas of commercial contracting – poison pill and choice-of-forum provisions. The implications of their papers, both of which are studying the most sophisticated and well-heeled of all contracting parties, for the one of the core exercises in contract law – how should judges interpret contracts – are considerable.  That said – and this is not meant to take away from the two papers at all -- these papers are more about empirically documenting and understanding the phenomena than normative questions of what judges should be doing.

There is an enormous amount of new material in both papers and I will not do more than scratch the surface in terms of their respective contributions.  Here, however, are a couple of things about each of the papers that stood out to me.

My Favorite Contract Metaphors: Skeuomorphs, Sea Squirts, Barnacles and Black Holes

I love contract metaphors. I’m especially fond of metaphors for the phenomenon of antiquated and useless contract provisions that find a way to persist over the decades in boilerplate contracts.  Philip Wood, the legendary English lawyer, uses the metaphor of barnacles on a ship’s hull to describe how more and more of these useless provisions can accumulate over the years, eventually severely impacting the efficiency of the ship. If you like boats and hate barnacles (perhaps because one of your most hated chores in the summers was for you to attempt to scrape barnacles off the hull of your uncle’s fishing boat), this metaphor may work especially well for you (sorry, Uncle Marvin). Another favorite of mine, that does not bring up memories of unpleasant chores, is Doug Baird’s skeuomorph.  To quote Douglas, who in the course of his explaining why we should not be surprised that suboptimal contract terms both emerge and then persist, has some wonderful examples:

To take a[n] . . .  example, maple syrup is often sold in a glass bottle with a small handle that serves no discernable utilitarian purpose. This is a relic of the time when maple syrup came in jugs and the handles were large enough to be useful. This phenomenon—of a product feature persisting when incorporated in a new environment in which it no longer serves a function—is well known and has a name: skeuomorph.

Douglas goes on to explain that these skeuomorphs can bizarrely become desired features of the product in question (and remember he is drawing an analogy to contract drafting). He writes, while continuing with the maple syrup bottle example:

Buyers of maple syrup want to see a small handle on the bottle. It serves no purpose, but it is what consumers have come to expect. Blue jeans are no longer made for working men who carry pocket watches, but buyers of blue jeans want a watch pocket all the same, even though they have no idea of the purpose it serves and have no use for it. Everyone expects Worcestershire Sauce bottles to come wrapped in paper even though the reason for doing this has long disappeared. Tagines took a particular shape for functional reasons when they were made of clay, and they retained this shape when made of aluminum even though there was no longer a functional reason for doing so. Skeuomorphs can be found everywhere on the “desktops” of personal computers

In short, the idea that a clause could be added to a contract and remain there merely because everyone expected it to be there suggests nothing special about either pari passu clauses in particular or contract terms more generally. The same forces are at work as with ordinary product attributes. Crafting legal prose is hard, and few contracts are ever written from scratch. Lawyers almost always start with a template taken from someplace else. For this reason, those who draft contracts are likely to import features from earlier contracting environments, even when they serve no purpose, merely because they are familiar. To give another example involving financial instruments, the first railway bonds were based on real estate mortgages. They still bear some of the attributes of real estate mortgages, and not always for the better.

If you like this topic, I recommend Douglas’ piece “Pari Passu Clauses and the Skeuomorph Problem in Contract Law” (you should of course ignore all the bits of this brilliant piece that are critical of my paper with Bob Scott and Steve Choi on Contractual Black Holes (yes, another metaphor I’m very fond of) that Douglas’ piece was a comment on).

Last but not least is the Sea Squirt, a close cousin of the barnacle.  This one comes from M&A guru, Glenn West who was speaking on a panel at UT in 2018 on M&A Contracting.  The title of his presentation was: “Have Sea Squirts Invaded Your Contract?—Avoiding Mindless Use of So Called ‘Market’ Terms You May or May Not Understand”.  Below I’ve excerpted some priceless language from an August 2017 blog post by Glenn on MAC clauses in M&A agreements.  And yes, Glenn is talking about M&A contracts containing brainless bits of language; the contracts drafted by the most elite among all transactional lawyers.

As an aside, there are a number of excellent recent papers arguing over how brainless M&A contracts are; see here (Anderson & Manns) and here (Coates, Palia & Wu).

From Glenn’s blog post, here goes:

The sea squirt is an animal that begins life with a brain and a tail.  Immediately after it is born, it uses its brain and tail to propel itself through the water until it finds some rockto attach itself.  Once it attaches itself to that rock it consumes its brain, absorbs its tail, and thereafter never moves again; it lives out its remaining life as a brainless water filter.

Many of the standard terms of M&A agreements also began their existence with a brain—the brain of a smart lawyer who perceived an issue that needed to be addressed and drafted a clause to address it.  And then other smart lawyers recognized the value of that newly drafted clause, and adapted and improved it until it became a standard part of most M&A agreements.  But once that clause became attached to the “market” it became divorced from the brain or brains that created it, and soon everyone was using it regardless of whether they truly understood all the reasons that prompted its drafting.  Even worse, market attachment is so strong that even after a standard clause has been repeatedly interpreted by courts to have a meaning that differs from the meaning ascribed to that clause by those who purport to know but do not actual know its meaning (mindlessly using the now brainless clause), it continues to be used without modification.  Such is the case for many with the ubiquitous Material Adverse Change (“MAC”) or Material Adverse Effect (“MAE”) clause.

My friend at UNC Chapel Hill, John Coyle, has an article coming out soon on “Contract as Swag”.  I’m eager to see how that metaphor will work. I like swag and I want learn how to get more of it.

Coyle on Studying the History of a Contract Provision

The way many of us teach interpretation in Contract Law, there is little role for history (admittedly, this is just based on casual observation). The meaning of a clause is a function of the words that make up that clause.  The parties to the transaction are assumed to have drafted it to document the key aspects of their transaction, to balance risks and rewards blah blah.  If a dispute arises, we might have an argument as to whether a strict textualist reading of the words accurately represent what the parties really meant by them or whether we need to also examine the context of the relationship. What we do not ever do, however, is to delve into the history of the clause from before these parties contemplated using it – that is, of what prior drafters of the original versions of this clause might have meant in using it.

The foregoing makes sense in a world in which the contracts for each deal are drafted from scratch. But does anyone draft contracts from scratch?  What if we live in a world where 99.9% of contracts are made up of provisions cut and paste from prior deals; provisions that are assumed to cover all the key contingencies, but not necessarily understood (or even read)? In this latter world, where there are lots of provisions that the parties to the transaction never fully focused on (let alone understood), might there be an argument – in cases where there are interpretive disputes -- for the use of a contract provision’s history? Might that history not sometimes be more relevant than the non-understandings of the parties as to what they did or did not understand they were contracting for? (Among the few pieces that wrestle with this question are these two gems: Lee Buchheit's Contract Paleontology here and Mark Weidemaier's Indiana Jones: Contract Originalist here)

I’m not sure what the answer to the foregoing question is. But it intrigues me.  And it connects to a wonderfully fresh new body of research in Contract Law where a number of scholars have been studying the production process for modern contracts.  The list of papers and scholars here is too long to do justice to and I’ll just end up making mistakes if I try to do a list.  But what unites this group of contract scholars is that for them it isn’t enough to assume that contracts show up fully formed at the time of a deal, purely the product of the brilliant minds of the deal makers who anticipate nearly every possible contingency at the start.  Instead, understanding what provisions show up in a contract, and in what formulation, requires understanding the contract production process. (Barak Richman's delightful "Contracts Meet Henry Ford" (here) is, to my mind, foundational).

It is perhaps too early to tell whether this research will catch on and revolutionize contract law. I hope it does, but I’m biased.

One of my favorite papers in this new body of contract scholarship showed up recently on ssrn. It is John Coyle’s “A History of the Choice-of-Law Clause” (here). I have rarely found a piece of legal scholarship so compelling.  The paper is not only a model of clarity in terms of the writing, but it is brave. It is completely unapologetic in not only taking on an entirely new mode of research (a painstaking documentation of the historical evolution of the most important terms in any and every contract), but in coming up with a cool and innovative research technique for unpacking that history (this project would have been impossible to do without that innovation).

Ramming Bow Contracts

Have you heard of Ramming Bows? Or did you know that they describe a category of boilerplate contract provisions?  Until a couple of weeks ago, I had not either.  That was when I came across Glenn West’s two delightful blog posts at the Weil Gotshal & Manges site (here and here). Glenn is a senior partner in the Private Equity/M&A practice at Weil. And in his spare time, he writes wonderfully witty blog posts and articles about wide range of legal issues; many of which are about the bizarre world of sophisticated boilerplate contracting.  Even if you have no interest in contract law, let alone boilerplate contracts, I suspect that you will enjoy his writing.  It is insightful about the way in which contracts get produced and evolve in the real world and, even better, is funny.

Home Contract Financing and Black Wealth

A remarkable new quantitative study finds that over two decades, African American home buyers in Chicago lost between $3 and $4 billion in wealth because of credit apartheid. The study authors from research centers at Duke, UIC and Loyola-Chicago reviewed property records for more than 3,000 Chicago homes. During the 1950s and 1960s, up to 95% of homes sold to black buyers were financed with land installment sale contracts rather than mortgages. Mortgage loans were largely unavailable due to continued redlining by banks and the Federal Housing Administration (FHA). Instead, a limited group of speculators bought homes for cash and resold them with large price markups to newcomers in the Great Migration. The interest rates for  land installment contracts were several points higher than comparable mortgage loans offered to whites. Thus, black home buyers were overcharged for the home price and the interest rate they paid compared with similar white home buyers. The authors quantify this as a 141% race tax on housing.

Buyers financing homes with installment land contracts also face greater risks of losing their homes and accumulated equity than buyers with a deed and mortgage purchase, for reasons we teach, or ought to teach, in any Property Law or Real Estate class in law school. A missed payment on a land contract can mean quick eviction, while a homeowner behind on a mortgage is protected in many states by foreclosure procedures and redemption rights. More importantly, when a bank, FHA or other lender finances a home, the lender has strong incentives to protect the buyer and itself from defective home conditions or title problems. Those protections are missing from the installment land contract financing structure. The Duke study did not include the cost of premature evictions, home repairs, and title problems experienced by black contract buyers, all of which would further magnify the wealth gap between white and black home buyers. 

New (From the Archives) Paper on Determinants of Personal Bankruptcy

This working paper is a longitudinal empirical study of lower-income homeowners, including a subset of bankruptcy filers, produced with an interdisciplinary team of cross-campus colleagues, including Professor Roberto Quercia, director of UNC's Center for Community Capital. We just posted this version on SSRN for the first time yesterday in light of continued interest in its questions and findings. The abstract does not give too much detail (see the paper for that), but here it is:

Personal Bankruptcy Decisions Before and After Bankruptcy Reform

Abstract

We examine the personal bankruptcy decisions of lower-income homeowners before and after the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA). Econometric studies suggest that personal bankruptcy is explained by financial gain rather than adverse events, but data constraints have hindered tests of the adverse events hypothesis. Using household level panel data and controlling for the financial benefit of filing, we find that stressors related to cash flow, unexpected expenses, unemployment, health insurance coverage, medical bills, and mortgage delinquencies predict bankruptcy filings a year later. At the federal level, the 2005 Bankruptcy Reform explains a decrease in filings over time in counties that experienced lower filing rates.

Liked Evicted? -- Read Maid

Stephanie Land recently tweeted this depressing statistic: "a single parent would have to work 140 hours a week at minimum wage to pay for basic necessities." And Land would know. Her new memoir -- Maid: Hard Work, Low Pay, and a Mother's Will to Survive -- chronicles her time as a single mother working as a house cleaner and just scraping by on the combination of her paycheck and various forms of government assistance. In telling her story of ending up a single mother living in a homeless shelter with effectively no family or friends to turn to for help, of figuring out how to make a little money working insanely hard, and of dealing with the stigma of asking for government "handouts," Land weaves a narrative about life on the financial precipice that sticks with you. And embedded in her story are glimpses into the lives of her clients, through which Land creates portraits of the trials of (usually) better off families who nonetheless struggle in different ways.

In short, read her memoir. It's fantastic. And if you're not totally convinced that you must read it right now, there's more after the jump.

Seeking nominations for the Grant Gilmore Award

The American College of Commercial Finance Lawyers seeks nominations for scholarly articles to be considered for the Grant Gilmore Award. It is not awarded every year, but when it is, the main criteria is "superior writing in the field of commercial finance law."  I am chairing the award committee this year, so please email me or message me on Twitter before December 14 to ensure your suggestion is considered. Especially eager to get suggestions of articles written by newer members of the academy that might otherwise be missed.

Older Americans’ Rising Bankruptcy Filings

Older Americans (age 65 and over) are increasingly likely to file bankruptcy and now comprise a larger proportion of the people who file bankruptcy -- and the effects are not small. Using data from the Consumer Bankruptcy Project, in a new working paper just posted to SSRN -- Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society -- my co-authors (past Slipster Debb Thorne, Slipster Bob Lawless, and past Slipster Katie Porter) and I find a more than two-fold increase between 1991 and now in the rate at which older Americans file bankruptcy. We further find an almost five-fold increase in the percentage of older persons in the bankruptcy system. The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect.

In the paper, we link older Americans’ increased filing rates with the shrinking social safety net. A story published today in the New York Times (on actual paper and on the front page!) does an exceptional job of both describing our study and detailing the ways in which the risks of aging have been off-loaded onto older Americans: “vanishing pensions, soaring medical expenses, inadequate savings.” The story also highlights the financial and life travails of a few older Americans who filed bankruptcy. Their struggles stem from declining income, lost insurance, and unmanageable medical expenses.   

Access to Justice, Consumer Bankruptcy Edition

The Great Recession, the CFPB's creation, the rise of debt buying, changes in the debt collection industry, and advances in data collection have encouraged more research recently into issues of access to justice in the context of consumer law and consumer bankruptcy. This spring, the consumer bankruptcy portion of the Emory Bankruptcy Development Journal's annual symposium focused on access to justice and "vindicating the rights of all consumers." Professors Susan Block-Lieb, Kara Bruce, Alexander Sickler, and I spoke at the symposium about how a range of consumer law, finance, and bankruptcy topics converge as issues of access to justice.

We recently posted our accompanying papers (detailed further below) to SSRN. My essay overviews what we know about the barriers people face entering the consumer bankruptcy system, identifies areas for further research, and proposes a couple ideas for improving access to bankruptcy. Susan Block-Lieb’s essay focuses on how cities can assist people dealing with financial troubles. And Kara Bruce’s and Alex Sickler’s co-authored essay reviews the state of FDCPA litigation in chapter 13 cases in light of Midland Funding v. Johnson and explores alternatives to combat the filing of proofs of claim for stale debts.

Please support empirical study of decision making in business insolvency

Leiden University in the Netherlands has established an impressive strength in insolvency law studies. For example, following his retirement, the eminent Bob Wessels left his massive collection of literature on the subject to a foundation, which permanently lent the collection to the school as the Bob Wessels Insolvency Law Collection. Credit Slips readers can support the efforts of Leiden researchers without parting with their libraries by simply responding to a 15-minute online questionnaire. Niek Strohmaier is a Ph.D. candidate at Leiden conducting a study on judgment and decision making within the areas of business rescue and insolvency law. As he puts it, "We offer a novel perspective on these fields by utilizing the interdisciplinary nature of our research team and by adopting a social sciences approach with empirical research methods." If there's one thing that Credit Slips can rally around, it's empirical research! So I'm hoping we can show Niek our community spirit by responding to his survey at this link (http://leidenuniv.eu.qualtrics.com/jfe/form/SV_51GewBINfBAyfzv). The survey has received a good response from the professional membership of INSOL Europe, but I hope we can supercharge this qualitative data collection with responses from North America and elsewhere, as well. Thanks for your help!

Debbie Does Damages: the Stormy Daniels Contract Clusterf*ck

There's been a lot of poorly informed reporting about the Stormy Daniels contract litigation, including in some quite reputable publications, but by reporters who just aren't well versed in legal issues.  For example, I've seen repeated reference to an "arbitration judge" (no such creature exists!) or to a "restraining order" (there's no enforceable order around as far as I can tell.  So what I'm going to do in this blog post, as a public service and by virtue of some tangential connection to our blog's focus, dealing with arbitration agreement (to satisfy Sergeant-at-Blog Lawless), I want to clarify some things about the Stormy Daniels contract litigation and engage in a wee bit of informed speculation based on tantalizing clues in the contract.  As a preliminary matter, though, I apologize for the clickbait title.  

Let's start with the facts as we know them.

People’s Pre-Bankruptcy Struggles -- New Paper from the Consumer Bankruptcy Project

The current Consumer Bankruptcy Project (CBP)’s co-investigators (myself, Slipster Bob Lawless, and past Slipsters Katie Porter & Debb Thorne) just posted to SSRN our new article (forthcoming in Notre Dame Law Review), Life in the Sweatbox. “Sweatbox” refers to the financial sweatbox—the time before people file bankruptcy, which is when they often are on the brink of defaulting on their debts and lenders can charge high interest and fees. In the article, we focus on debtors’ descriptions of their time in the sweatbox.

Based on CBP data, we find that people are living longer in the sweatbox before filing bankruptcy than they have in the past. Two-thirds of people who file bankruptcy reported struggling with their debts for two or more years before filing. One-third of people reported struggling for more than five years, double the frequency from the CBP’s survey of people who filed bankruptcy in 2007. For those people who struggle for more than two years before filing—the “long strugglers”—we find that their time in the sweatbox is marked by persistent debt collection calls, the loss of homes and other property, and going without healthcare, food, and utilities. And although long strugglers do not file bankruptcy until long after the benefits outweigh the costs, they still report being ashamed of needing to file.

The Bootstrap Trap

I just had the pleasure of reading Duke Law Professor Sara Sternberg Greene's paper The Bootstrap Trap.  I highly recommend it for anyone who is interested in the intersection of consumer credit and poverty law.  The paper is chok full of good insights about the problems that arise when low-income households strive for the goal of self-sufficiency, which results in the replacement of a public welfare safety net with what Professor Sternberg Green describes as a private one of credit reporting and scoring systems.  The paper shows off Professor Sternberg Greene's training in sociology with some amazing interviews, particularly about the perceived importance of credit scores in low-income consumers' lives.  

Other respondents referred to their credit reports or scores as “the most important thing in my life, right now, well besides my babies,” as “that darned thing that is destroying my life,” and as “my ticket to good neighborhoods and good schools for my kids.” Many respondents believed that a “good” credit score was the key to financial stability.

One respondent, Maria, told a story about a friend who was able to improve his score. She said, “He figured out some way to get it up. Way up. I wish I knew what he did there, because I would do it. Because after that, everything was easy as pie for him. Got himself a better job, a better place to live, everything better.” Maria went to great lengths to try to improve her score so that she, too, could live a life where everything was “easy as pie.”

Credit scores have become a metric of self worth and the perceived key to success.  

Whitford on Law School Financial Aid

Although technically emeritus and making history as a named plaintiff in a gerrymandering case before the U.S. Supreme Court, our commercial law colleague Professor Bill Whitford remains worried about law schools in a way in a way that connects with an issue well known to Credit Slips: student loans. Whitford's latest analysis of law school financial aid is forthcoming in the Journal of Legal Education but is available to us now on SSRN.

Audio Recordings of Bankruptcy Court: News from Delaware

Several Credit Slips posts from earlier this year (here and here) focused on the virtues of courts releasing digital audio recordings of hearings, and specified the Judicial Conference authority for doing so. Over the summer, I found about three dozen bankruptcy courts for which at least one audio recording had been posted on a court docket in the prior year, albeit with significant variation in frequency of posting. 

It is great to be able to report that the U.S. Bankruptcy Court for the District of Delaware has joined the group of bankruptcy courts using this technology  (announcement here with the details). Proceedings before Judge Carey are the first to be posted, with other judges' hearings potentially to follow. 

 

 

More on Personal Debt and Multilevel Marketing Companies

Last year, I posted about John Oliver's segment on Last Week Tonight dissecting multilevel marketing (MLM) companies (aka pyramid schemes), and proposed a link between personal debt, bankruptcy, and MLM companies. Prominent MLM companies include Amway, Herbalife, the relatively new Rodan + Fields, and the even newer (to me, at least) LuLaRoe, through which women sell brightly-colored stretchy women's and kids' clothing. Indeed, posts about LuLaRoe--complete with mom and daughter wearing matching leggings--increasingly are overshadowing posts about Rodan + Fields in my Facebook feed. Since 2010, the MLM industry has grown 30%. LuLaRoe apparently adds 150 retailers a day (a figure unconfirmed by LuLaRoe). This all makes the MLM industry ripe for budget-crushing debt -- and for more news stories about that debts' effects on people's lives.

Quartz recently published such a piece, aptly titled: Multilevel-marketing companies like LuLaRoe are forcing people into debt and psychological crisis. Although the piece is far from a rigorous study of the financial pitfalls of joining a MLM, it is an interesting and entertaining read. It uses LuLaRoe to highlight the reality of MLMs: lots of self-empowerment language and lots of debt. According to an FTC study cited in the piece, 99% of people who join MLMs lose money.

New Museum of Failure

A new Museum of Failure in Sweden stands as a tribute to the notion that failure is just an opportunity for learning, powering growth and future innovation. I thought no group could appreciate that as much as Credit Slips readers. Europe is still in the process of shaking off its ages old stigma with respect to failure, especially in the context of individual entrepreneurialism. It's amazing how difficult real reform of both business and personal insolvency law has been and continues to be there (and elsewhere outside the Anglo-American world). I've long thought that shaking off these hangups, embracing failure, and facilitating fresh innovation are among the core attitudes that have made America great. Three cheers for failure!

New Article from the Consumer Bankruptcy Project: Attorneys’ Fees and Chapter Choice

Many of us on Credit Slips have been part of the Consumer Bankruptcy Project (CBP), a long-term research project studying people who file chapter 7 and 13 bankruptcy. Several years ago, some of us blogged about the writings from the last CBP iteration in 2007.  In 2013, the CBP was relaunched as an ongoing data collection effort. The CBP’s current co-investigators – myself, Bob Lawless, Katie Porter, and Debb Thorne – recently posted “No Money Down” Bankruptcy, the first article analyzing data from the Current CBP (data from 2013-2015), combined with 2007 CPB data. The article focuses on the timing of when debtors are required to pay their bankruptcy attorneys to report on the increasingly prevalent phenomenon of debtors paying nothing in attorneys’ fees before filing chapter 13.

This nationwide phenomenon raises questions about how people are accessing bankruptcy and the extent of the benefits they receive from the system. The phenomenon also explains some prior findings about the intersection of race and bankruptcy filings. And it adds to our knowledge about regional disparities in the percentage of people who file chapter 7 versus chapter 13 bankruptcies.

Scarcity, Money, and Undocumented Immigrants

Scarcity refers to having less than one needs -- time, money, calories when on a diet. For example, not having enough money reduces a person's cognitive capacity as much as missing one full night of sleep. When Scarcity, by Sendhil Mullainathan and Eldar Shafir, was published, Slipster Katie Porter connected its lessons about the mental tax of not having enough to adding a "cushion" to a chapter 13 plan. And now, Slipster Nathalie Martin's recently published paper, Survival in the Face of Scarcity: The Undocumented Immigrant Experience, uses her hour-long interviews with 50 undocumented immigrants living in Albuquerque, New Mexico to explore how their acute financial scarcity impacts their lives. Though the paper is focused on undocumented immigrants, some of the lessons of the narrative that Martin weaves apply equally to all cash-strapped people.

Book of the Year

Credit Slips readers are invited to share the best credit/finance book of this year. The book can be a monograph, fiction, textbook, anything. It doesn't have to be published this year; just that you found it this year.

My nomination is Evicted by Matthew Desmond. It's an ethnography of evictions in Milwaukee and compellingly describes the problems of financial distress. The book describes how tenants struggle to make rent, and the strategies used by landlords, with the help of the courts and sheriff's department, to collect if they cannot. The site for the book contains amazing photographs-- check it out.

While the book focuses on evictions for nonpayment of rent, the foreclosure crisis also wreaked havoc on millions of lower-income Americans who may never own a home. When the property owner was foreclosed upon, the tenants found themselves on the street. The scarce and uneven protections available led to the enactment of the Protecting Tenant at Foreclosure Act. That law expired two years ago, leaving at-will tenants in about half of states vulnerable to eviction immediately after foreclosure.

Evicted describes the heartache that comes with home loss: the strain on family relationships, the mental anguish, the physical illness, and other harms. These problems are all too familiar to those who study consumer bankruptcy, but Desmond's work is a powerful story of financial distress that ensnares families who cannot make ends meet.

How Consumers Use the CFPB's Complaint Function

I recently posted to SSRN my new article, Calling on the CFPB for Help: Telling Stories and Consumer Protection (Law & Contemporary Problems, forthcoming 2017). In the article, I survey a random sample of consumers' narratives detailing their complaints about consumer credit and financial service providers, with the goal of assessing how people engage with the complaint function in light of how the CFPB processes complaints. In short, consumers submit complaints via the CFPB's website and by phone, the CFPB forwards the complaints to companies, and the companies are required to respond. That the CFPB does not respond to complaints in the first instance may come as a surprise to some consumers, despite the CFPB's websites’ prominent statements about where it sends complaints. Importantly, the CFPB is not the only federal or state agency that maintains a complaint function. The DOJ, FTC, and other agencies similarly take complaints from constituents, and likewise often do not respond directly to the complaining individuals. Identifying when and how people are not understanding how their complaints will be processed may provide agencies an opportunity to further help constituents and to augment how they meet their goals.

Civil Rights and Economic Justice in a New Era

Sharing news of this post-election civil rights conference on December 2, 2016 that, notably for Credit Slips, features pathbreaking research by Professors Mechele Dickerson and Bob Lawless (in collaboration with Dov Cohen and the late Jean Braucher) on the intersection of race with debt and bankruptcy and an exploration of how this research informs policymaking and advocacy going forward. Time permitting, I will address a different intersection between race and debt: collecting judgments arising from police misconduct when cities file for bankruptcy. Thanks to Professor Ted Shaw and the Center for Civil Rights for recognizing the role debtor-creditor research can play in the quest for equality. 

Register using this link.

 

Join us for the "The NCBJ at 90"

Will you be in San Francisco for the National Conference of Bankruptcy Judges annual meeting and related events? Please mark your calendars now for Thursday October 27, 3:oo pm Pacific Time: a special educational session honoring the 90th anniversary of the NCBJ.^* We (Profs. Gebbia, Simkovic, Pottow, and me, with great guidance and input from Judge Colleen Brown and Judge Mel Hoffman) will be discussing original historical research on bankruptcy courts and bankruptcy law conducted for this occasion. Early abstracts can be found on the NCBJ blog. In the meantime, Prof. Gebbia has been posting quizzes; I suspect some Credit Slips readers would ace these tests, but you won't know until you try!

So please do join us on October 27 to be part of this commemoration and conversation.

* The mission of the NCBJ, according to its website, is:

The National Conference of Bankruptcy Judges is an association of the Bankruptcy Judges of the United States which has several purposes: to provide continuing legal education to judges, lawyers and other involved professionals, to promote cooperation among the Bankruptcy Judges, to secure a greater degree of quality and uniformity in the administration of the Bankruptcy system and to improve the practice of law in the Bankruptcy Courts of the United States.

 

Puerto Rico Symposium: Of Wills and Ways

Debt relief without Congress? No one promised it would be pretty.  

Our brainstorm (remember the ground rules) has included Levitin's MacGyver-inspired local currency, eminent domain, and liberally-interpreted exchange stabilization, Weidemaier's use of COFINA doubts to wedge open the door for a Executive Branch/Puerto Rico partnership, and, thanks to economist Arturo Estrella, a long menu of options with examples, summarized succinctly as "where there is a will, there is a way" (p. 1) (english report at bottom of this page). Could the federal government underwrite new bonds in an exchange offer, asks Pottow? Be the mediator with a big stick, asks Lubben?  Might a holdout creditor be liable to shareholders if it rebuffed a reasonable deal, asks Jiménez? (scroll to the comments). Marc Joffe notes the potential analogy of the City of Hercules tender offer (as well as the fact that Levitin's local currency suggestion has a history from the Depression). 

Lawless reminds us of the risks associated with discriminatory treatment of Puerto Rico's debt and access to legal tools. Of course, there is a long history here. Maria de los Angeles Trigo points to UT professor Bartholomew Sparrow's study of the Insular cases. And while most expect debt relief will be conditioned on some sort of fiscal oversight, it needs to be designed in a way to avoid the foibles of the past.

Returning to Lubben's mediation theme, let's push the brainstorming a step farther: could Treasury appoint a federal judge, such as Chief District Judge Gerald Rosen (E.D. Mich.), to oversee the mediation, and demand that all creditors participate in good faith until released? Even in the absence of legal authority for this move, would creditors formally object or fail to show up? 

Thanks to participants and readers for active involvement so far, and please keep your thoughts and reactions coming this way.  

Puzzle photo courtesy of Shutterstock.com

The Financial Lives of Undocumented Immigrants

We know little about the financial lives and credit constraints of undocumented immigrants, partly because they are such a difficult to reach population. But Slips contributor Nathalie Martin gained access to this population in Albuquerque, New Mexico, interviewed 50 immigrants, and recently published a paper that provides an important glimpse into how this population handles money and finances. As the paper's title -- Giving Credit Where Credit Is Due: What We Can Learn from the Banking and Credit Habits of Undocumented Immigrants -- suggests, this population is leery of taking out credit, despite having so little income and savings that unexpected expenses quickly can become financial crises.

One of the most interesting, but expected findings is this population's extremely low level of savings. When asked if they could handle an unexpected expense of $100, three-quarters of respondents (37 of the 50) said they could not. But the majority of interviewees also expressed serious concerns with taking out credit, including via credit cards and the almost inevitable title loans (and payday loans, but most payday loans require a bank account, which a majority of respondents did not have). Indeed, they stated that they would rather ask family and friends for help, including help in trying to find work, which adds nuance to what we know about low-income individuals' feelings about relying on family and friends to deal with unexpected expenses (for instance, see Laura Tach and Sara Greene, Robbing Peter to Pay Paul). Martin's paper also contains data about how undocumented immigrants think about what ultimately often are legal problems and using (or not using) the legal system. Taken together, the paper provides a needed first glimpse into the financial lives of a subset of people who are in the country.

Foohey on Black Churches in Bankruptcy

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

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