Law Commons^™

A Proposal For Chapter 10: Reorganization For 'Too Big To Fail' Companies, George Kuney, Michael James

Michael C James

The Bankruptcy Code provides tools that are well-suited to addressing and resolving the financial problems faced by the "Big Three" automakers and other "too big to fail" companies ("TBTF Companies"). But Chapter 11 as it presently exists would inevitably impose great harm on vendors and other interrelated businesses resulting in a ripple effect causing cascading business failures and lay-offs. With comparatively minor changes to the Bankruptcy Code, enacted in the form of a streamlined new Chapter 10, however, TBTF Companies could use the powerful tools of the bankruptcy process to remedy their core financial problems without imposing on society unnecessary …

Bankruptcy Law As A Liquidity Provider, Kenneth Ayotte, David Skeel

Kenneth Ayotte

Since the outset of the recent financial crisis, liquidity problems have been cited as the cause behind the bankruptcies and near bankruptcies of numerous firms, ranging from Bear Stearns and Lehman Brothers in 2008 to Kodak more recently. This paper expands the prevailing normative theory of corporate bankruptcy — the Creditors’ Bargain theory — to include a role for bankruptcy as a provider of liquidity. The Creditors’ Bargain theory argues that bankruptcy law should be limited to solving problems caused by multiple, uncoordinated creditors, but focuses almost exclusively on the problem of creditor runs. We argue that two well-known problems …

Bankruptcy Or Bailouts?, Kenneth Ayotte, David Skeel

Kenneth Ayotte

The usual reaction if one mentions bankruptcy as a mechanism for addressing a financial institution’s default is incredulity. Those who favor the rescue of troubled financial institutions, and even those who prefer that their assets be promptly sold to a healthier institution, treat bankruptcy as anathema. Everyone seems to agree that nothing good can come from bankruptcy. Indeed, the Chapter 11 filing by Lehman Brothers has been singled out by many the primary cause of the severe economic and financial contraction that followed, and proof that bankruptcy is disorderly and ineffective. As a result, ad-hoc rescue lending to avoid bankruptcy …

Florida's Troubled Phosphate Companies: Can Bankruptcy Law Be Used To Relieve Their Obligation To Reclaim The Land?, Mary Jane Angelo

Mary Jane Angelo

The conflict that brings us here arises when the earth is disturbed and the environment in which we live is threatened. . . . On the one hand are the corporations who mine phosphate reserves in Florida—their intentions are based on the argument that an ever-shrinking agrarian base in America must have fertilizer to remain effective and productive. On the other hand are the individuals and groups who oppose that mining and their argument is based upon the contention that such mining is too destructive of a unique and very fragile ecosystem. By the year 2000, phosphate companies will have …

When Does Some Federal Interest Require A Different Result?: An Essay On The Use And Misuse Of Butner V. United States, Juliet Moringiello

Juliet M Moringiello

Thousands of judges and scholars have relied on the statement in the 1979 Supreme Court opinion in Butner v. United States that “property interests are created and defined by state law...unless some federal interest requires a different result.” Often, they cite to the statement as a policy constraint that elevates state property law over federal bankruptcy law. This Essay, written for the American Bankruptcy Institute – University of Illinois Symposium on Chapter 11 Reform, posits that the Butner rule is not as broadly applicable as commonly believed. To do so, the Essay surveys some notable uses and misuses of the …

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.

Medical Debt As A Cause Of Consumer Bankruptcy, Daniel Austin

Daniel A. Austin

During his 2009 State of the Union Address, President Obama urged Americans to support healthcare reform, stating “[t]his is a cost that now causes a bankruptcy in America every thirty seconds.” That attention-grabbing statistic was based on a 2009 study, co-authored by now Sen. Elizabeth Warren, which concluded that 62.1% of consumer bankruptcies are medical bankruptcies. The figure has been widely cited by lawmakers, academics, and in the media. Other researchers dispute the study findings, and the issue of medical bankruptcies continues to be a focal point in debates over healthcare policy and bankruptcy law reform.

Several other studies have …

Utilizing Bankruptcy To Reduce Outstanding Tax Debts, T. Fogg, Kenneth Weil

T. Keith Fogg

In general, Congress set out to strike a balance in the bankruptcy code between the need for government entities to collect taxes, the need to promote a fresh start for debtors and the desire to create a relatively balanced playing field for competing creditors. This chapter explains how tax creditors will do well when they quickly collect the debts due to them. They will do much less well if the debts have gotten old. Exceptions to this general rule exist for tax debts secured by a tax lien or debts arising from the debtor's collection of funds on behalf of …

Statutory Liens And The Bankruptcy Act: U.C.C. § 2-702 And Section 67(C), Robert Green

Robert A. Green

Ending The Nonsense: The In Pari Delicto Doctrine Has Nothing To Do With What Is § 541 Property Of The Bankruptcy Estate, Jeffrey Davis

Jeffrey Davis

The recent wave of disregard for corporate fiduciary responsibilities has provided numerous opportunities for courts to consider whether the corporations bankrupted by the unlawful acts of their principals should be prohibited by the in pari delicto doctrine from pursuing liability claims against third parties who contributed to the harm. In an array of recent cases, courts have reluctantly and apologetically, yet uniformly, permitted third parties who contributed to the demise of these corporations to escape liability because they felt § 541 of the Bankruptcy Code (the "Code") left them no other choice. Section 541 provides that the filing of a …

Florida's Beefed-Up Assignment For The Benefit Of Creditors As An Alternative To Bankruptcy, Jeffrey Davis

Jeffrey Davis

Two new corporate clients have been referred to you. The owners of both corporations have consulted lawyers about their struggling businesses and now seek second opinions. The first was advised by its attorney to file a Chapter 7 bankruptcy petition, the second was advised to file a Chapter 11 petition. You think both should consider an assignment for the benefit of creditors. Why? Stated simply, an assignment for the benefit of creditors, or an ABC, is normally much simpler and almost always less expensive than a comparable bankruptcy proceeding.' The substantial savings in expense results in larger payouts to both …

Chapter 9 Plan Confirmation Standards And The Role Of State Choices, Juliet Moringiello

Juliet M Moringiello

Because so few municipalities have ever filed for bankruptcy, none of the Chapter 9 confirmation standards have benefitted from extensive judicial scrutiny. The standards are particularly undeveloped as applied to cities and counties, whose debt structure and service obligations are more complicated and diverse than those of the special purpose districts whose cases generate the vast majority of Chapter 9 judicial opinions. The lack of clarity is not only bad for distressed cities and their creditors, it is undesirable from a public policy standpoint. States can choose whether to permit their municipalities to file for bankruptcy, and clear plan confirmation …

Exploring Chapter 11 Reform: Corporate And Financial Institution Insolvencies; Treatment Of Derivatives -, Michelle Harner

Michelle M. Harner

No abstract provided.

When Does Some Federal Interest Require A Different Result?: An Essay On The Use And Misuse Of Butner V. United States, Juliet Moringiello

Juliet M Moringiello

Thousands of judges and scholars have relied on the statement in the 1979 Supreme Court opinion in Butner v. United States that “property interests are created and defined by state law . . . unless some federal interest requires a different result.” Often, they cite to the statement as a policy constraint that elevates state property law over federal bankruptcy law. This Essay, written for the American Bankruptcy Institute – University of Illinois Symposium on Chapter 11 Reform, posits that the Butner rule is not as broadly applicable as commonly believed. To do so, the Essay surveys some notable uses …

Not So Fast, Senator! How To Really Solve The Student-Loan Debt Crisis, Daniel Austin

Daniel A. Austin

No abstract provided.

Iflas And Chapter 11: Classical Islamic Law And Modern Bankruptcy, Abed Awad, Robert Michael

Robert E Michael

There is no question that the orderly development of Islamic finance will require finding ways to amalgamate the classical Islamic law of bankruptcy with the needs of the modern Islamic finance industry. The unreasonable reliance on ever-expanding opportunities has disappeared along with the global credit markets. It is therefore inescapable that loss scenarios must be dealt with. That in turn means effective bankruptcy laws. We hope this article will help foster the effort.

Do Inherited Iras Protect Assets Well?, Lindsey Paige Markus, Assistance From Evan D. Blewett

Evan Blewett

Whether a client has a complex or simple estate plan, failure to properly address a retirement plan (IRA) beneficiary designation may cause havoc. Regardless of what a client’s estate plan may say, the beneficiary designation under the client’s IRA governs.

‘Don’T File!’: Rehabilitating Unauthorized Practice Of Law-Based Policies In The Credit Counseling Industry, Lea Krivinskas Shepard

Lea Krivinskas Shepard

No abstract provided.

The Indentured Generation: Bankruptcy And Student Loan Debt, Daniel Austin

Daniel A. Austin

A generation of Americans has borrowed heavily for their education, and hundreds of thousands of them are deeply in debt. Some 37 million Americans owe a total of approximately $1 trillion dollars in student loans. They constitute an Indentured Generation as many of them will be paying student loan debt for much of their lives. Some will eventually pay their loans, others will obtain full or partial loan forgiveness, and many will default or die before completing payments. Members of the Indentured Generation in particularly dire circumstances will look to consumer bankruptcy for relief. But with very few exceptions, student …

Involuntary Bankruptcy As Debt Collection: Multi-Jurisdictional Lessons In Choosing The Right Tool For The Job, Adrian Walters

Adrian J Walters

This paper contrasts the usage of creditor-initiated or 'involuntary' bankruptcy in England, the Netherlands and the United States, and it presents empirical evidence to reveal and explain stark divergences among these three otherwise very similar systems. US practice is consistent with the hypothesis that involuntary bankruptcy should represent a rare exception to the ordinary process of individual claims enforcement. Elevated levels of involuntary bankruptcy in England and the Netherlands pose a theoretical and practical conundrum. Analysis of empirical data suggests that involuntary bankruptcy is commonly used in England and the Netherlands for deleterious purposes inconsistent with the modern goals of …

Bankruptcy And The Myth Of "Uniform Laws", Daniel Austin

Daniel A. Austin

The Bankruptcy Clause of the Constitution empowers Congress to enact “uniform Laws on the subject of bankruptcies.” Common definitions of the word uniform include “always the same” and “not variable.” Yet the rights and remedies of debtors and creditors in a bankruptcy case vary significantly depending upon the state and federal jurisdiction in which the case is filed. Rather than a single uniform law of bankruptcy, the U.S. has multiple bankruptcy laws and regimes based upon geography.

The cause of bankruptcy nonuniformity lies in the structure of our bankruptcy system. Many sections of the Bankruptcy Code incorporate state law, which …

The History And Rationale For A Separate Bank Resolution Process, Thomas Fitzpatrick, Moira Kearney-Marks, James Thomson

James B Thomson

Everyone recognizes the need to have a credible resolution regime in place for fi nancial companies whose failure could harm the entire financial system, but people disagree about which regime is best. The emergence of the parallel banking system has led policymakers to reconsider the dividing line between fi rms that should be resolved in bankruptcy and firms that should be subject to a special resolution regime. A look at the history of insolvency resolution in this country suggests that a blended approach is worth considering. Activities that have potential systemic impact might be best handled administratively, while all other …

(Mis)Use Of State Law In Bankruptcy: The Hanging Paragraph Story, Juliet Moringiello

Juliet M Moringiello

This article addresses the use of state law in bankruptcy in the context of the controversial “hanging paragraph” of the Bankruptcy Code, which was added to the Code by the 2005 amendments. The hanging paragraph appears to grant undersecured car lenders full payment in Chapter 13 bankruptcy cases, treatment that gives such lenders better treatment than other secured lenders. The provision is particularly controversial when applied to negative equity financing. Negative equity financing is provided by lenders when a car buyer offers a trade-in vehicle that is worth less than the outstanding loan that it secures. When a lender makes …

Resolving Large, Complex Financial Firms, Thomas Fitzpatrick, Mark Greenlee, James Thomson

James B Thomson

How to best manage the failure of systemically important fi nancial fi rms was the theme of a recent conference at which the latest research on the issue was presented. Here we summarize that research, the discussions that it sparked, and the areas where considerable work remains.

How Well Does Bankruptcy Work When Large Financial Firms Fail? Some Lessons From Lehman Brothers, Thomas Fitzpatrick, James Thomson

James B Thomson

There is disagreement about whether large and complex financial institutions should be allowed to use U.S. bankruptcy law to reorganize when they get into financial difficulty. We look at the Lehman example for lessons about whether bankruptcy law might be a better alternative to bailouts or to resolution under the Dodd-Frank Act’s orderly liquidation authority. We find that there is no clear evidence that bankruptcy law is insufficient to handle the resolution of large complex financial firms.

Debtors Beware: The Expanding Universe Of Non-Assumable/Non-Assignable Contracts In Bankruptcy, Michelle Harner, Carl Black, Eric Goodman

Michelle M. Harner

No abstract provided.

Lessons From The Nextwave Saga: The Federal Communications Commission, The Courts, And The Use Of Market Forms To Perform Public Functions, Rodger Citron, John Rogovin

Rodger Citron

No abstract provided.

Widener Law Analysis: Share Pain Or Deal With Bankruptcy, Juliet Moringiello, Michael Hussey

Michael Hussey

No abstract provided.

Widener Law Analysis: Share Pain Or Deal With Bankruptcy, Juliet Moringiello, Michael Hussey

Juliet M Moringiello

No abstract provided.

Federal Oil Price Controls In Bankruptcy Cases: Government Claims For Repayment Of Illegal Overcharges Should Not Be Subordinated And “Penalties” Under 11 Usc §726(A)(4), Thomas Schweitzer

Thomas A. Schweitzer

No abstract provided.