Bankruptcy Law Commons^™

Against Bankruptcy: Public Litigation Values Versus The Endless Quest For Global Peace In Mass Litigation, Abbe Gluck, Elizabeth Chamblee Burch, Adam Zimmerman

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Can bankruptcy court solve a public health crisis? Should the goal of “global peace” in complex lawsuits trump traditional litigation values in a system grounded in public participation and jurisdictional redundancy? How much leeway do courts have to innovate civil procedure?

These questions have finally reached the Supreme Court in Harrington v. Purdue Pharma L.P., the $6 billion bankruptcy that purports to achieve global resolution of all current and future opioids suits against the company and its former family owners, the Sacklers. The case provides a critical opportunity to reflect on what is lost when parties in mass torts find …

Silencing Litigation Through Bankruptcy, Pamela Foohey, Christopher K. Odinet

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Bankruptcy is being used as a tool for silencing survivors and their families. When faced with claims from multiple plaintiffs related to the same wrongful conduct that can financially or operationally crush the defendant over the long term—a phenomenon we identify as onslaught litigation—defendants harness bankruptcy’s reorganization process to draw together those who allege harm and pressure them into a swift, universal settlement. In doing so, they use the bankruptcy system to deprive survivors of their voice and the public of the truth. This Article identifies this phenomenon and argues that it is time to rein in this destructive use …

Bankruptcy Grifters, Lindsey Simon

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Grifters take advantage of situations, latching on to others for benefits they do not deserve. Bankruptcy has many desirable benefits, especially for mass-tort defendants. Bankruptcy provides a centralized proceeding for resolving claims and a forum of last resort for many companies to aggregate and resolve mass-tort liability. For the debtor-defendant, this makes sense. A bankruptcy court’s tremendous power represents a well-considered balance between debtors who have a limited amount of money and many claimants seeking payment.

But courts have also allowed the Bankruptcy Code’s mechanisms to be used by solvent, nondebtor companies and individuals facing mass-litigation exposure. These “bankruptcy grifters” …

Portraits Of Bankruptcy Filers, Pamela Foohey, Robert M. Lawless, Deborah Thorne

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One in ten adult Americans have turned to the consumer bankruptcy system for help. For the past almost forty years, the only systematic data collection about the people who file bankruptcy comes from the Consumer Bankruptcy Project (CBP), for which we serve as co-principal investigators. In this Article, we use CBP data from 2013 to 2019 to describe who is using the bankruptcy system, providing the first comprehensive overview of bankruptcy filers in thirty years. We use principal component analysis to leverage these data to identify distinct groups of people who file bankruptcy. This technique allows us to situate the …

Steering Loan Modifications Post-Pandemic, Pamela Foohey, Dalie Jimenez, Christopher K. Odinet

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As part of federal and state relief programs created during the COVID-19 pandemic, many American households received pauses on their largest debts, particularly on mortgages and student loans. Others may have come to agreements with their lenders, likewise pausing or altering payment on other debts, such as auto loans and credit cards. This relief allowed households to allocate their savings and income to necessary expenses, like groceries, utilities, and medicine. But forbearance does not equal forgiveness. At the end of the various relief periods and moratoria, people will have to resume paying all their debts, the amounts of which may …

The Settlement Trap, Lindsey Simon

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Mass tort victims often wait years for resolution of their personal injury claims, but many who successfully navigate this arduous process will not receive a single dollar of their settlement award. According to applicable bankruptcy and state law, settlement payments may be an asset of the estate that the trustee, exercising its significant authority, administers and distributes to creditors instead of a claimant who had filed for bankruptcy. This distribution power maximizes repayment, a critical counterbalance to the robust protections and benefits that debtors receive in bankruptcy.

Setting aside the perceived unfairness of taking desperately needed money from tort victims, …

Debt’S Emotional Encumbrances, Pamela Foohey

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This chapter focuses on the role of emotions in the theory and practice of commercial and consumer credit laws, including bankruptcy, in the United States. It assesses knowledge about people’s emotions regarding personal and business financial problems, and evaluates how “money law” systems account for these emotions. This assessment finds that emotions surrounding taking on and being able to pay back debt differ between business leaders and people who shoulder household debt. These differences are traceable in large part to historical understandings of the respectability of incurring debt. This history has shaped the development of bankruptcy, commercial, and consumer credit …

Changing The Student Loan Dischargeability Framework: How The Department Of Education Can Ease The Path For Borrowers In Bankruptcy, Pamela Foohey, Aaron Ament, Daniel Zibel

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Our nation’s consumer bankruptcy system supposedly gives “honest but unfortunate” individuals “a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Access to bankruptcy’s discharge of debt is especially important in the wake of the COVID-19 pandemic, which has resulted in a once-in-a-century economic crisis that is projected to increase consumer bankruptcy filings. The people who file bankruptcy will find a system that is already difficult to navigate and has long-recognized racial and gender disparities in access and outcomes. Student loan borrowers will find a system with even more …

Driven To Bankruptcy, Pamela Foohey, Robert M. Lawless, Deborah Thorne

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Over the last ten years, 15.1 million people filed for bankruptcy owning 16.4 million cars. These cars provided access to work, education, medical care, childcare, food, and other life necessities. They also were major household investments, the most expensive asset most bankruptcy filers owned other than a house. Using original data from the Consumer Bankruptcy Project, we document what happens to car owners and their car loans when they enter bankruptcy. In brief, we find that people who file bankruptcy own automobiles at the same rate as the general population, and that they overwhelmingly indicate that they want to use …

Fines, Fees, And Filing Bankruptcy, Pamela Foohey

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This essay was written in conjunction with the “Court Debt”: Fines, Fees, and Bail, Circa 2020 symposium held during the Association of American Law Schools' 2019 annual meeting. The essay details the extent to which "court debt" -- civil and criminal fines, fees, and interest -- can be dealt with by filing bankruptcy. In short, although filing bankruptcy on balance may help people deal with court debt and other debts, the barriers that people face to filing raise questions about the accessibility of civil courts and suggest that the consumer bankruptcy system itself is yet another place in which race …

The Debt Collection Pandemic, Pamela Foohey, Dalie Jimenez, Christopher K. Odinet

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As of May 2020, the United States' reaction to the unique and alarming threat of COVID-19 has partially succeeded in slowing the virus’s spread. Saving people’s lives, however, came at a severe economic cost. Americans’ economic anxiety understandably spiked. In addition to worrying about meeting basic expenses, people’s anxieties about money necessarily included what might happen if they could not cover already outstanding debts. The nearly 70 million Americans with debts already in collection faced heightened anxiety about their inability to pay.

The coronavirus pandemic is set to metastasize into a debt collection pandemic. The federal government can and should …

Consumer Bankruptcy Should Be Increasingly Irrelevant--Why Isn't It?, Pamela Foohey

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This symposium piece is a response to Professor Nathalie Martin's Bringing Relevance Back to Consumer Bankruptcy. This response overviews the place consumer bankruptcy presently occupies in the United States. In doing so, it details why consumer bankruptcy remains relevant in the face of a socio-economic structure and of laws that suggest that bankruptcy may not be a particularly useful place for struggling Americans to turn to for help. The response ends by calling for a bolder vision for consumer bankruptcy in light of the shifting place of the bankruptcy system in America’s increasingly thread-bare social safety net.

Claim Preclusion And The Problem Of Fictional Consent, Lindsey Simon

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The doctrine of claim preclusion promotes fairness and finality by preventing parties from raising claims that already were (or could have been) raised in a prior proceeding. This strict consequence can be imposed only when the litigant received minimal due process protections in the initial proceeding, including notice and direct or indirect participation.

Modern litigation has caused a new problem. In some cases, a party may be precluded from ever raising a claim on the grounds of “fictional consent” to a prior court’s decisionmaking authority. Litigation devices have expanded the potential reach of judgments through aggregation and broad jurisdictional grants, …

The Guardian Trustee In Bankruptcy Courts And Beyond, Lindsey Simon

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Litigation systems create dangers of unfairness. Citizens worry, and should worry, about exploitive settlements in aggregate litigation, potential biases in administrative proceedings, and troubling power imbalances in criminal trials. Public confidence in adjudicative processes has eroded to an all-time low. This Article explores the untapped potential of adding independent watchdog entities to address systemic threats to the integrity of government decisionmaking. These entities, which I call “guardian trustees,” do not fit within the traditional framework of our adversary system. Though guardian trustees already operate in bankruptcy proceedings, they have thus far received little attention in scholarly literature. This Article begins …

Consumers’ Declining Power In The Fintech Auto Loan Market, Pamela Foohey

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Automobiles have become part of America’s infrastructure. For most people, having access to a car is crucial to their livelihoods and they will take on significant amounts of debt to purchase vehicles. Auto debt is unlike any other consumer debt, both in its structure, which allows creditors to easily seize collateral, and in its lack of regulation. The unique and lucrative nature of auto debt has not gone unnoticed by lenders or by companies leveraging fintech to offer people new ways to purchase cars and car loans. This Article assesses the evolving marketplace for auto sales, leasing, and loans to …

A New Deal For Debtors: Providing Procedural Justice In Consumer Bankruptcy, Pamela Foohey

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Across the criminal and civil justice systems, research regarding procedural justice — feeling that one has a voice, is respected, and is before a neutral and even-handed adjudicator — shows that people’s positive perceptions of legal processes are fundamental to the legal system’s effectiveness and to the rule of law. About a million people file bankruptcy every year, making the consumer bankruptcy system the part of the federal court system with which people most often come into contact. Given the importance of bankruptcy to American families and the credit economy, there should exist a rich literature theorizing and investigating how …

Graying Of U.S. Bankruptcy: Fallout From Life In A Risk Society, Deborah Thorne, Pamela Foohey, Robert M. Lawless, Katherine Porter

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The social safety net for older Americans has been shrinking for the past couple decades. The risks associated with aging, reduced income, and increased healthcare costs, have been off-loaded onto older individuals. At the same time, older Americans are increasingly likely to file consumer bankruptcy, and their representation among those in bankruptcy has never been higher. Using data from the Consumer Bankruptcy Project, we find more than a two-fold increase in the rate at which older Americans (age 65 and over) file for bankruptcy and an almost five-fold increase in the percentage of older persons in the U.S. bankruptcy system. …

Asset Partitioning And Financial Innovation, Christopher Bruner

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Review of the article by Ofer Eldar and Andrew Verstein titled “The Enduring Distinction between Business Entities and Security Interests”, 92 Southern California Law Review, no. 2 (2019).

Jevic's Promise: Procedural Justice In Chapter 11, Pamela Foohey

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In this Response to Jonathan Lipson's article, The Secret Life of Priority: Corporate Reorganization After Jevic, 93 Wash. L. Rev. 631 (2018)), I focus on Czyzewski v. Jevic Holding Corp.'s implications for procedural justice and corporate reorganization. In his article, Lipson explicitly links the chapter 11 process with the Bankruptcy Code’s substantive rules about priority, crafting a forceful argument about what procedural values the U.S. Supreme Court sought to uphold when it penned Jevic. In doing so, Lipson expounds on a broader truth about the co-option of corporate reorganization’s process in the name of value preservation. Procedural justice teaches that …

Life In The Sweatbox, Pamela Foohey, Robert M. Lawless, Katherine Porter, Deborah Thorne

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The time before a person files bankruptcy is sometimes called the financial “sweatbox.” Using original data from the Consumer Bankruptcy Project, we find that people are living longer in the sweatbox before filing bankruptcy than they have in the past. We also describe the depletion of wealth and well-being that defines people’s time in the sweatbox. For those people who struggle for more than two years before filing bankruptcy — the “long strugglers” — their time in the sweatbox is particularly damaging. During their years in the sweatbox, long strugglers deal with persistent collection calls, go without healthcare, food, and …

Access To Consumer Bankruptcy, Pamela Foohey

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This essay examines the state of access to justice in the context of consumer bankruptcy from two vantage points: (1) how people decide that their money problems are legal problems addressable by filing bankruptcy; and (2) the barriers people face in using the consumer bankruptcy system. To shed new light on how people decide to use bankruptcy to address their financial troubles, I analyze a sample of narratives accompanying consumers' complaints about financial products and services submitted to the Consumer Financial Protection Bureau. I also chronicle the evolution of research regarding consumer bankruptcy’s “local legal culture,” systemic racial bias, and …

Lender Discrimination, Black Churches, And Bankruptcy, Pamela Foohey

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Based on my original empirical research, in this Article, I expose a disparity between the demographics of the roughly 650 religious congregations that have filed for chapter 11 bankruptcy during part of the last decade and congregations nationwide. 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.

Why are Black …

'No Money Down' Bankruptcy, Pamela Foohey, Robert M. Lawless, Katherine Porter, Deborah Thorne

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This Article reports on a breakdown in access to justice in bankruptcy, a system from which one million Americans will seek help this year. A crucial decision for these consumers will be whether to file a chapter 7 or chapter 13 bankruptcy. Nearly every aspect of their bankruptcies — both the benefits and the burdens of debt relief — will be different in chapter 7 versus chapter 13. Almost all consumers will hire a bankruptcy attorney. Because they must pay their attorneys, many consumers will file chapter 13 to finance their access to the law, rather than because they prefer …

Consumer Credit In America: Past, Present, And Future (Introduction), Pamela Foohey, Jim Hawkins, Creola Johnson, Nathalie Martin

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In September 2016, in conjunction with Law & Contemporary Problems at Duke University School of Law, we organized a symposium on Consumer Credit in America. We sought to assess the state of consumer credit in America — to review and examine its recent history, to consider arguments for and against regulation, and to discuss the potential for future innovation. This is the introduction to the volume of articles coming out of that symposium.

Chapter 11 Shapeshifters, Lindsey Simon

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Logic and equity would seem to demand that when administrative agencies are creditors to a bankrupt debtor, they should have the same status as other creditors. But a creditor agency retains its regulatory authority over the debtor, permitting it to continue with agency business such as conducting enforcement proceedings and awarding licenses. As a result, though bankruptcy law and policy both strongly support equal distribution of the estate, administrative agencies have been able to circumvent these goals through the use of “shapeshifting” behaviors. This Article evaluates two dangerous shapeshifting scenarios:

(1) where the agency avoids the limitations of creditor status …

When Faith Falls Short: Bankruptcy Decisions Of Churches, Pamela Foohey

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What does a church do when it is about to go bust? Religious organizations, like any business, can experience financial distress. Leaders could try to solve their churches’ financial problems on their own. Perhaps leaders do not view the problems as addressable with law. Or perhaps they do not think, as a moral or spiritual matter, that they should resort to the legal system, such as bankruptcy, to deal with their churches’ inability to pay its debts. Yet about ninety religious organizations seek to reorganize under the Bankruptcy Code every year. This Article relies on interviews with forty-five of these …

Secured Credit In Religious Institutions' Reorganizations, Pamela Foohey

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Scholars increasingly assume that most businesses enter Chapter 11 with a high percentage of secured debt, which leads to a high percentage of cases ending in the sale of the debtor’s assets under section 363 of the Bankruptcy Code rather than with confirmation of a reorganization plan. However, evidence and discussions about “the end of bankruptcy” center on secured creditors’ role in the reorganizations of very large corporations. The few analyses of cross-sections of Chapter 11 proceedings suggest that secured creditor control is not nearly as omnipresent as asserted and that 363 sales are not as dominant as assumed.

This …

When Churches Reorganize, Pamela Foohey

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This Article combines an analysis of documents submitted in connection with Chapter 11 cases filed by religious organizations with the results of in-depth interviews with these organizations’ leaders and their bankruptcy attorneys to assess whether reorganization has the potential to offer an effective solution to these debtors’ financial distress. In doing, it makes three contributions. First, it identifies a subset of organizations that seemed more likely to turn to bankruptcy: small congregationalist and non-denominational churches, often with predominately African-American membership. The Article pinpoints salient questions about these churches’ access to credit and use of bankruptcy for future study. Second, it …

Bankrupting The Faith, Pamela Foohey

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This Article presents the results of a comprehensive empirical study of religious organizations that filed bankruptcy under Chapter 11 from the beginning of 2006 to the end of 2011. It examines the institutions’ characteristics, reasons for filing, and case outcomes to investigate whether Chapter 11 is an effective solution to their financial problems. In investigating the religious organizations’ cases, the Article also assesses the role of bankruptcy courts in adjudicating Chapter 11 cases and places the cases within theories about the larger purposes of Chapter 11.

The study finds that the vast majority of debtors are small organizations that operate …

Chapter 11 Reorganization And The Fair And Equitable Standard: How The Absolute Priority Rule Applies To All Nonprofit Entities, Pamela Foohey

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In recent years, nonprofit entities increasingly have sought bankruptcy protection. Though the Bankruptcy Code does not prevent nonprofits from reorganizing, Chapter 11 was designed for and applies best to for-profit businesses. This creates challenges for courts evaluating a nonprofit’s reorganization plan. This Article focuses on one crucial aspect of a court’s evaluation — the fair and equitable standard, a necessary, but not sufficient condition of which is satisfaction of the absolute priority rule.

The few courts addressing absolute priority claims in nonprofit reorganizations have held that the rule is categorically inapplicable to nonprofit entities except in limited circumstances. These courts …