Bankruptcy Law Commons^™

The Housing Bubble And Consumer Banruptcy (Parts Iii And Iv), David G. Carlson

Articles

During the COVID pandemic housing prices have soared. Consumers who have filed for bankruptcy are now looking at enormous realized and unrealized capital gains. This article assesses the chances that these consumer debtors can keep these gains out of the hands of their creditors. Part II of this two-part article addresses chapter 13 issues, which concern plan modification by the chapter 13 trustee to capture realized and unrealized capital gains. It also covers whether a trustee in a converted case can capture these gains. The law of the coverted chapter 7 case is spectacularly contradictory.

The Housing Bubble And Consumer Bankruptcy (Parts I And Ii), David G. Carlson

Articles

During the COVID pandemic housing prices have soared. Consumers who have filed for bankruptcy are now looking at enormous realized and unrealized capital gains. This article assesses the chances that these consumer debtors can keep these gains out of the hands of their creditors. Part I of this two-part article addresses chapter 7 issues, which concern lien stripping, abandonment, and monetary exemptions. It also addresses lien stripping in chapter 13 cases. Part II will address whether a chapter 13 debtor must surrender appreciation value to the chapter 13 trustee or to a trustee in a converted chapter 7 case.

Loopholes For The Affluent Bankrupt, David R. Hague

St. John's Law Review

(Excerpt)

Recent bankruptcy cases are exposing a problem. Affluent individuals filing for bankruptcy are treated more favorably under the Bankruptcy Code than those debtors with little to no means of financial sustenance or income. Did Congress intend this result? The legislative history is unclear. But one thing seems certain: The United States Bankruptcy Code contains a set of loopholes that appear to be designed for the well-to-do segment of society. Courts throughout the United States are either overlooking these provisions or simply condoning their utilization under the defensible conviction that the Bankruptcy Code permits it.

In this Article, I argue …

Bankruptcy & The Underwater Home: A Case For Real Property Redemption, David Sheinfeld

Michigan Business & Entrepreneurial Law Review

Chapter 7 of the U.S. Bankruptcy Code exists to satisfy the claims of creditors and preserve an economic “fresh start” for the debtor after bankruptcy. In exchange for surrendering her property to the trustee to have it monetized (i.e., sold), the debtor receives a discharge of her debts and an injunction against future creditor in personam actions to recover them. However, the in personam injunction is insufficient to protect consumer debtors who are in default on mortgages encumbering underwater homes because the creditor’s in rem rights remain; after the conclusion of the case, the creditor can continue foreclosure proceedings, which …

The Settlement Trap, Lindsey Simon

Scholarly Works

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, …

Loopholes For The Affluent Bankrupt, David R. Hague

Faculty Articles

Recent bankruptcy cases are exposing a problem. Affluent individuals filing for bankruptcy are treated more favorably under the Bankruptcy Code than those debtors with little to no means of financial sustenance or income. Did Congress intend this result? The legislative history is unclear. But one thing seems certain: The United States Bankruptcy Code contains a set of loopholes that appear to be designed for the well-to-do segment of society. Courts throughout the United States are either overlooking these provisions or simply condoning their utilization under the defensible conviction that the Bankruptcy Code permits it.

In this Article, I argue that …

Race And Bankruptcy: Explaining Racial Disparities In Consumer Bankruptcy, Edward R. Morrison, Belisa Pang, Antoine Uettwiller

Faculty Scholarship

African American bankruptcy filers select Chapter 13 far more often than other debtors, who opt instead for Chapter 7, which has higher success rates and lower attorneys’ fees. Prior scholarship blames racial discrimination by attorneys. We propose an alternative explanation: Chapter 13 offers benefits, including retention of cars and driver’s licenses, that are more valuable to African American debtors because of relatively long commutes. We study a 2011 policy change in Chicago, which seized cars and suspended licenses of consumers with large traffic-related debts. The policy produced a large increase in Chapter 13 filings, especially by African Americans. Two mechanisms …

Manipulating Random Assignment: Evidence From Consumer Bankruptcies In The Nation's Largest Cities, Edward R. Morrison, Belisa Pang, Jonathon Zytnick

Faculty Scholarship

Random case assignment is thought to be an important feature of decision-making in federal courts because it helps guard against favoritism (actual or perceived) toward particular parties or types of cases. In bankruptcy courts, cases are randomly assigned to both judges and trustees. In Chapter 7 cases, for example, the trustee is a quasi-judicial actor, typically a private-sector lawyer, who has been selected to audit the debtor's finances, find and liquidate assets, and police compliance with the law. We study three major bankruptcy jurisdictions (covering Chicago, Los Angeles, and parts of New York) and find that the random-assignment process for …

Milking The Estate, David R. Hague

Faculty Articles

Recent Chapter 7 bankruptcy cases are exposing a widespread problem. Chapter 7 trustees are retaining their own law firms to represent them and then in clear breach of their fiduciary duties to creditors-requesting illegitimate legal fees to be paid by the estate. This practice is immoral and particularly harmful to creditors. Indeed, every dollar paid to the trustee and his firm is a dollar that will not be distributed to creditors. The Bankruptcy Code, remarkably, allows a trustee to retain his own law firm to represent him in his capacity as a trustee. But this inherently conflicted arrangement is not …

Combating Professional Error In Bankruptcy Analysis Through The Design And Use Of Decision Trees In Clinical Pedagogy, Timothy R. Tarvin

St. John's Law Review

(Excerpt)

This Article will address the positive impact of using the decision tree model in four parts. Part I will provide a historical overview of the evolution of legal education and the profession’s call for more experiential education, both generally and specifically, through clinical training and the use of technology. This Section will provide context and argue that the use of decision trees in the clinical setting is the natural culmination of the legal academy’s goals of teaching analytical skills, preparing graduates for practice, and incorporating new technology into the practice of law.

Part II will describe the legal malpractice …

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

Articles by Maurer Faculty

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 Bankruptcy Pathologies, Edward R. Morrison, Antoine Uettwiller

Faculty Scholarship

This paper questions several long-standing descriptions of consumer bankruptcy in the United States. We focus on Chapter 13, which discharges debts after consumers pay disposable income to creditors for up to five years. Many studies document pathologies, including high failure rates, racial disparities, low creditor recoveries, and attorney biases. We observe the same patterns in new data drawn from Cook County, Illinois, but show that these pathologies are central tendencies that ignore substantial heterogeneity across consumers. Several pathologies are driven by subsets of consumers; some disappear once we take account of consumer heterogeneity. We present new evidence that some pathologies …

Ten Years After Consumer Bankruptcy Reform In The United States: A Decade Of Diminishing Hope And Fairness, Robert J. Landry Iii

Catholic University Law Review

The tenth anniversary of the effective date of Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (Reform Act), the largest reform to the consumer bankruptcy in the United States in a quarter of a century, will be marked in October of 2015. Prior to, and since its passage, scores of scholars have theorized about the impact of the Reform Act. The vast majority of research since its passage shows that the Reform Act has not had a long-term impact on filing rates. With this backdrop, the paper explores how the virtues of fairness for creditors and hope for individuals …

Can A Consumer Debtor Voluntarily Dismiss Own Chapter 7 Bankruptcy Case?, Shane P. Walsh

Bankruptcy Research Library

(Excerpt)

Under Section 707(a) of title 11 of the United States Code (the “Bankruptcy Code”), a court may dismiss a chapter 7 bankruptcy case for cause. Section 707(a) provides a list of examples of conduct that constitutes cause to guide the court in making its determination. A chapter 7 consumer debtor has the right to voluntarily dismiss his own chapter 7 case, however, that right is not absolute. When a consumer debtor seeks to voluntarily dismiss his chapter 7 case he must establish cause for dismissal under section 707(a). The court will determine whether the debtor’s voluntary motion to dismiss …

Chapter 11 Shapeshifters, Lindsey Simon

Scholarly Works

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 …

Whether Undistributed Chapter 13 Payment Plan Funds Held By A Chapter 13 Trustee Should Be Distributed To The Debtor Or The Debtor’S Creditors After Conversion From Chapter 13 To Chapter 7, Rosa Aliberti

Bankruptcy Research Library

(Excerpt)

Qualified individuals seeking to reorganize their debts may file under Chapter 13 of the Bankruptcy Code. Under chapter 13, a debtor makes payments according to a court approved payment plan, which is administered by a chapter 13 trustee, and remains in possession of all the property of the estate. Once a debtor makes all his payments under the chapter 13 payment plan, he has a right to seek a discharge, provided that he meets certain requirements. These requirements include that the debtor: (1) certifying that he paid all domestic support obligations prior to the certification being made; (2) received …

Despite A Very High Income, Chapter 7 Debtor’S May Succeed, Pamela Frederick

Bankruptcy Research Library

(Excerpt)

Section 707 of the Bankruptcy Code governs when a court may dismiss a chapter 7 bankruptcy case. Under section 707(a), a court may dismiss a chapter 7 case “for cause.” In 2005, Congress enacted the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) and amended section 707(b) to include the so-called “means test,” which provides a formula for determining whether “cause” exists to dismiss (or convert with the debtor’s consent) the debtor’s case. Courts split as to whether this amendment to section 707(b) permits a court to consider the debtor’s income when deciding whether to dismiss the debtor’s chapter …

The Chapter 13 Debtor's Absolute Right To Dismiss, Daniel J. Sheffner

Cleveland State Law Review

This Article discusses the current state of the Chapter 13 dismissal circuit split, providing an overview of 1307(b) and other relevant sections of the Bankruptcy Code, illustrative pre Marrama case law on either side of the divide, and the Marrama decision itself. This Part examines Marrama’s role in shifting the debate from one based primarily on 1307’s text to that of the bankruptcy courts’ general powers to sanction bad faith conduct, as well as lower courts’ responses to that decision. Part III examines Law, paying special attention to the Court’s discussion of the limitations placed on bankruptcy courts’ statutory and …

Reforming Preference Law, Dalie Jimenez

Dalie Jimenez

This article responds to Brook Gotberg's proposal to do away with preference liability in certain Chapter 11 cases and provides empirical evidence of preferential transfers in consumer Chapter 7 cases.

The Role Of Empirical Data In Developing Bankruptcy Legislation For Individuals, Marjorie L. Girth

Marjorie L. Girth

Symposium: As We Forgive Our Debtors

Survey 2014: Bankruptcy + Student Loan Debt Crisis, Brenda Beauchamp, Jason R. Cooper

Touro Law Review

No abstract provided.

Ponzi Schemes In Bankruptcy, Honorable Dorothy T. Eisenberg, Nicholas W. Quesenberry

Touro Law Review

No abstract provided.

Not Just Anna Nicole Smith: Cleavage In Bankruptcy, David G. Epstein

Law Faculty Publications

This is an essay about the unwarranted erosion of two basic bankruptcy principles:the cleavage effect of a debtor's filing of a bankruptcy petition and the equality of treatment of prepetition unsecured claims. These are two of the most fundamental bankruptcy concepts. First courts and then Congress have fashioned rules favoring the prepetition unsecured claims of vendors and lessors that are inconsistent with these concepts. We explore the origins of such favored treatment, question the commonly offered policy justifications, and argue that the prepetition unsecured claims of vendors and lessors generally should be afforded the same treatment in bankruptcy as other …

Can A Debtor’S Exemption Assets Be Surcharged As A Sanction For Misconduct?, Marshall E. Tracht

Articles & Chapters

CASE AT A GLANCE

In chapter 7 bankruptcy, a debtor keeps certain statutorily defined “exempt” assets, while all other assets are sold to pay creditors. In exchange, most of the debtor’s debts are discharged. In this case, the Court must decide whether a debtor may be sanctioned by the loss of exempt assets as an equitable remedy for trying to fraudulently claim excess exemptions or hide assets, with the forfeited assets awarded to the bankruptcy estate to recover litigation costs arising from the debtor’s misconduct.

The Unlucky Penny: How $0.01 In Collateral Value Can Limit The Debtor's Ability To Strip Off A Junior Mortgage In A Chapter 7 Bankruptcy Proceeding, Keri Mahoney

Touro Law Review

No abstract provided.

The Debtor Class, Kara J. Bruce

Kara J. Bruce

In recent years, individuals seeking bankruptcy protection have encountered an unexpected harm: their lenders have misrepresented the amounts they owe, lost or misapplied their loan payments, and violated clear requirements of bankruptcy law and procedure. Recent investigations of consumer bankruptcy cases reveal widespread abuse of the bankruptcy code, ranging from the filing of unsupported or overinflated proofs of claim to violations of the automatic stay and discharge injunction. Such practices undermine consumer bankruptcy’s central goals to provide consumer debtors a fresh financial start and to achieve the fair treatment of and distribution of assets to creditors. Because many debtors affected …

Not "Special" Enough For Chapter 7: An Analysis Of The Special Circumstances Provision Of The Bankruptcy Code, Roma Perez

Cleveland State Law Review

The “special circumstances” provision of the Bankruptcy Code, Section 707(b)(2)(B), allows a consumer debtor to rebut the presumption of abuse that is triggered when debtor fails the means test. Congress enacted the statute as a procedural safeguard fully aware that means testing, as set-out in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, could lead to arbitrary results for some debtors. For consumer debtors, the provision functions as a type of escape-hatch. It allows a debtor to avoid dismissal of his Chapter 7 bankruptcy case by introducing documentary evidence that the means test calculation, and its attendant income …

Turnover Actions And The “Floating Check” Controversy, David R. Hague

Faculty Articles

When a debtor files for Chapter 7 bankruptcy, a Chapter 7 trustee is appointed and is charged with collecting and reducing to money the property of the bankruptcy estate. One of the most basic collection methods a trustee possesses is its turnover power under § 542(a) of the Bankruptcy Code. Pursuant to § 542(a), an entity in possession, custody, or control, during the bankruptcy case, of property that the trustee may use, sell, or lease, must deliver to the trustee, and account for, such property or the value of such property.

An interesting issue has arisen that is placing debtors …

Home Mortgage Strip Down In Chapter 13 Bankruptcy: A Contextual Approach To Sections 1322(B)(2) And (B)(5), Mark S . Scarberry, Scott M. Reddie

Pepperdine Law Review

No abstract provided.

Playing The "Get Out Of College Free" Card: Dischargeability Of Educational Debts In Chapter 7 Bankruptcy, Julie J. Heimark

Pepperdine Law Review

No abstract provided.