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Full-Text Articles in Law
House Swaps: A Strategic Bankruptcy Solution To The Foreclosure Crisis, Lynn M. Lopucki
House Swaps: A Strategic Bankruptcy Solution To The Foreclosure Crisis, Lynn M. Lopucki
Michigan Law Review
Since the price peak in 2006, home values have fallen more than 30 percent, leaving millions of Americans with negative equity in their homes. Until the Supreme Court’s 1993 decision in Nobelman v. American Savings Bank, the bankruptcy system would have provided many such homeowners with a remedy. They could have filed bankruptcy, discharged the negative equity, committed to pay the mortgage holders the full values of their homes, and retained those homes. In Nobelman, however, the Court misinterpreted reasonably clear statutory language and invented legislative history to resolve a three-to-one split of circuits in favor of the minority view …
A Capital Market, Corporate Law Approach To Creditor Conduct, Mark J. Roe, Frederico Cenzi Venezze
A Capital Market, Corporate Law Approach To Creditor Conduct, Mark J. Roe, Frederico Cenzi Venezze
Michigan Law Review
The problem of creditor conduct in a distressed firm—-for which policymakers ought to have the distressed firm’s economically sensible repositioning as a central goal—-has vexed courts for decades. Because courts have not come to coherent, stable doctrine to regulate creditor behavior and because they do not focus on building doctrinal structures that would facilitate the sensible repositioning of the distressed firm, social costs arise and those costs may be substantial. One can easily see why developing a good rule here has been hard to achieve: A rule that facilitates creditor intervention in the debtor’s operations beyond the creditor’s ordinary collection …
The Law Of Ponzi Payouts, Spencer A. Winters
The Law Of Ponzi Payouts, Spencer A. Winters
Michigan Law Review
When a Ponzi scheme collapses, there will typically be net winners and net losers. The bankruptcy trustee will often seek to force the net winners - those who received more money back from the Ponzi scheme than they invested - to disgorge their profits. Courts diverge on whether they should compel disgorgement in this instance. This Note argues that under prevailing fraudulent transfer law, net winners in a Ponzi scheme need not disgorge their profits. This is because the investor's dollar-for-dollar discharge of a preexisting debt constitutes the transfer of value in exchange for the payout. There are two exceptions …
Undocumented Debtors, Chrystin Ondersma
Undocumented Debtors, Chrystin Ondersma
University of Michigan Journal of Law Reform
Undocumented immigrants in financial distress are barred from seeking many forms of assistance. Bankruptcy is one tool that is, in theory, available to undocumented debtors because legal status is not a prerequisite to bankruptcy relief. This Article explores undocumented debtors' interactions with the bankruptcy system. Undocumented debtors face both formal and informal barriers to bankruptcy filing, including fear of deportation, misinformation, and the legal requirement that the debtor produce financial records. It is both possible and desirable to ease many of these barriers. Bankruptcy relief facilitates the rehabilitation of debtors in financial distress, contributes to the economic well-being of the …
Considerations For Private Equity Firms When Utilizing Chapter 11 New Value Deals, Alexandra Wilde
Considerations For Private Equity Firms When Utilizing Chapter 11 New Value Deals, Alexandra Wilde
Michigan Business & Entrepreneurial Law Review
The new value exception to the Chapter 11 absolute priority rule provides a narrow avenue for equity holders to retain an equity interest in a reorganized company over the objections of senior creditors and interest holders. With the increasing number of Chapter 11 reorganization filings by private equity owned companies, private equity firms may be interested in exploring ways to retain their equity ownership in the debtor company. This Note explores the unique implications a private equity firm may encounter when attempting to utilize the new value exception as a last resort to maintain ownership in a debtor company. Part …
A New Approach To Section 363(F)3, Evan F. Rosen
A New Approach To Section 363(F)3, Evan F. Rosen
Michigan Law Review
Section 363(f) of the Bankruptcy Code provides five circumstances in which a debtor may be permitted to sell property free of all claims and interests, outside of the ordinary course of business, and prior to plan confirmation. One of those five circumstances is contained in § 363(f)(3), which permits such a sale where the "interest is a lien and the price at which such property is to be sold is greater than the aggregate value of all liens on such property." While it is far from certain whether § 363(f)(3) requires a price "greater than the aggregate [face value] of …
The Rise In Elder Bankruptcy Filings And The Failure Of U.S. Bankruptcy Law, John A. E. Pottow
The Rise In Elder Bankruptcy Filings And The Failure Of U.S. Bankruptcy Law, John A. E. Pottow
Articles
Recent empirical legal scholarship on the consumer bankruptcy system has uncovered a marked rise in the proportion of elder Americans filing for relief under the Bankruptcy Code. But these studies have not probed the reasons behind that rise, an omission this Article seeks to address. Professor John Pottow and colleagues recently assembled the new dataset of the Consumer Bankruptcy Project (CBP), the largest national sample of consumer debtors in this country, which he uses to explore the sources of elder bankruptcy. The findings are both striking and ominous. While multiple factors, such as health problems and medical debts, contribute to …
A New Role For Secondary Proceedings In International Bankruptcies, John A. E. Pottow
A New Role For Secondary Proceedings In International Bankruptcies, John A. E. Pottow
Articles
Secondary proceedings-the ugly stepsisters to main proceedings-get short shrift in international bankruptcy scholarship. This article seeks to remedy that deficiency. First, it describes what it argues are the traditional conceptions-both stated and implicit-of secondary proceedings in international bankruptcies. Second, it offers a revised way of thinking about secondary proceedings, proposing to restrict their scope through the use of "synthetic" hearings. Third, it addresses some problems with the proposed new role of secondary proceedings and sketches a possible solution involving the creation of an international priorities registry.
Government Involvement In Chrysler Bankruptcy: The Least-Worst Alternative?, John A. E. Pottow
Government Involvement In Chrysler Bankruptcy: The Least-Worst Alternative?, John A. E. Pottow
Articles
As usual, my colleague Jim White has hit many nails on many heads. Also as usual, however, I’m going to be a pain and part ways with him a bit. First, was Chrysler’s bankruptcy “suspicious” in its use of section 363 of the Bankruptcy Code? You bet. Leaving aside the proliferation of 363 sales to swallow Chapter 11 as we once knew it, Chrysler was out in left field. Not only was it a “sale” of everything meaningful in the company, it was to a seller—Fiat—that put in no money. (To be fair, Fiat agreed to contribute technological know-how on …
Interpreting Data: A Reply To Professor Pardo, Robert M. Lawless, Angela K. Littwin, Katherine M. Porter, John A. E. Pottow, Deborah K. Thorne, Elizabeth Warren
Interpreting Data: A Reply To Professor Pardo, Robert M. Lawless, Angela K. Littwin, Katherine M. Porter, John A. E. Pottow, Deborah K. Thorne, Elizabeth Warren
Articles
Professor Pardo has published a pointed critique to our Report, raising three major complaints. First, he claims that we make two predicating assumptions in our study that are flawed. Second, he contends that we misunderstand the means test and fail to appreciate with sufficient "nuance" its "operative effect." Third, he maintains that our Report suffers from methodological problems. We can address the two impugned assumptions quickly. The first one - that BAPCPA's means test is the sole causal agent driving 800,000 putative filers from the bankruptcy courts - is not one we make. The second - regarding the income profiles …
Bankruptcy Vérité, Lynn M. Lopucki, Joseph W. Doherty
Bankruptcy Vérité, Lynn M. Lopucki, Joseph W. Doherty
Michigan Law Review
In the empirical study we report in Bankruptcy Fire Sales, we compared the recoveries from the going-concern bankruptcy sales of twenty-five large, public companies with the recoveries from the bankruptcy reorganizations of thirty large, public companies. We found that, controlling for the asset size of the company and its presale or pre-reorganization earnings ("EBITDA"), reorganization recoveries were more than double sale recovenes. We are honored that Professor James J. White has chosen to comment on our study. White is an eloquent defender of the status quo, pulls no punches, and always has something interesting to say. Bankruptcy Noir is …
Bankruptcy Noir, James J. White
Bankruptcy Noir, James J. White
Articles
In Bankruptcy Fire Sales, Professor LoPucki and Dr. Doherty do two things. First, they present provocative data about the relative payoff to be had in Chapter 11 by a full reorganization compared with the payoff from a section 363 sale without a full reorganization. Second, they give a yet more provocative explanation for their data. Taking a page from Professor LoPucki's recent book, they blame the meager return that they observe on 363 sales on the unprincipled behavior of the lawyers, managers, creditors, investment bankers, and even judges involved in the sales. Messrs. LoPucki and Doherty's data appear to …
Did Bankruptcy Reform Fail? An Empirical Study Of Consumer Debtors, Robert M. Lawless, Angela K. Littwin, Katherine M. Porter, John A. E. Pottow, Deborah K. Thorne, Elizabeth Warren
Did Bankruptcy Reform Fail? An Empirical Study Of Consumer Debtors, Robert M. Lawless, Angela K. Littwin, Katherine M. Porter, John A. E. Pottow, Deborah K. Thorne, Elizabeth Warren
Articles
Before 2005, many people went broke and many filed for bankruptcy. After 2005, many people still go broke, but not so many file for bankruptcy. Why has the number of bankruptcies declined? Surely it is not the economy. All throughout the 2000s, families have been under increasing economic pressure. Median family incomes have declined, basic expenses have risen, and families are shouldering unprecedented debt loads. Defaults remain high for credit cards and car loans, while mortgage foreclosures have soared. By 2008, over half of all Americans reported that their incomes were falling behind their cost of living. These data all …
Private Liability For Reckless Consumer Lending, John A. E. Pottow
Private Liability For Reckless Consumer Lending, John A. E. Pottow
Articles
Congress recently enacted amendments to the Bankruptcy Code that possess the overarching theme of cracking down on debtors due to the increasing rate at which individuals have been filing for bankruptcy. Taking into account the correlation between the overall rise in consumer credit card debt and the rate of individual bankruptcy filings, the author nevertheless hypothesizes that not all credit card debt is troubling. Instead, the author proposes that the catalyst driving individual bankruptcy rates higher than ever is the level of "bad credit"-or credit extended to individuals even though there is a reasonable likelihood that the individual will be …
The Myth (And Realities) Of Forum Shopping In Transnational Insolvency, John A. E. Pottow
The Myth (And Realities) Of Forum Shopping In Transnational Insolvency, John A. E. Pottow
Articles
A decade ago, in 1996, the landscape of transnational insolvencies was vastly different from today. The UNCITRAL Model Law had not been finished, the efforts at the E.U. Insolvency Treaty were jeopardized by mad cows, and no one had heard of Chapter 15. Now, all three universalist projects are up and running, putting universalism in a comfortable state of ascendancy. The paradigm has not been without critics, however, the most persistent and eloquent of which has been Professor Lynn LoPucki. LoPucki has periodically attacked universalism on a number of grounds. These grievances include a sovereigntist complaint of universalism's insensitivity to …
Contract As Statute, Stephen J. Choi, G. Mitu Gulati
Contract As Statute, Stephen J. Choi, G. Mitu Gulati
Michigan Law Review
The traditional model of contract interpretation focuses on the "meeting of the minds." Parties agree on how to structure their respective obligations and rights and then specify their agreement in a written document. Gaps and ambiguities are inevitable. But where contract language exists for the point in contention and a dispute arises as to the meaning of this language, courts attempt to divine what the parties intended. Among the justifications for deferring to the intent of the parties is the assumption that parties know what is best for themselves. Deference also arguably furthers autonomy values. Not all contracts and contract …
The Totality Of The Circumstances Of The Debtor's Financial Situation In A Post-Means Test World: Trying To Bridge The Wedoff/Culhane & White Divide, John A. E. Pottow
The Totality Of The Circumstances Of The Debtor's Financial Situation In A Post-Means Test World: Trying To Bridge The Wedoff/Culhane & White Divide, John A. E. Pottow
Articles
Bankruptcy Judge Eugene Wedoff and Creighton Law School professors Marianne Culhane and Michaela White engage in a spirited debate over a series of law review articles about the proper scope of motions to dismiss a debtor's petition under section 707(b) of the freshly revised Bankruptcy Code. It is an interesting and provocative dialogue, with both sides advancing their respective positions persuasively. As a result, I find myself in the unfortunate position of wanting to agree with both. Since that is impossible, however, this brief article is my attempt to find a middle ground between their two positions. It does so …
Abuse Prevention 2005, James J. White
Abuse Prevention 2005, James J. White
Articles
Today I do not debate the empirical question (what is the cause of the increase in bankruptcy filings?) nor do I address the buried moral question (who deserves the protection of bankruptcy law?). Rather, I speculate about the consequences of 2005 amendments to the Bankruptcy Code and about the reasons it will achieve or fail to achieve the goals of its sponsors. Along the way I hope to learn something about how law changes, or fails to change behavior.
Greed And Pride In International Bankruptcy: The Problems Of And Proposed Solutions To 'Local Interests', John A. E. Pottow
Greed And Pride In International Bankruptcy: The Problems Of And Proposed Solutions To 'Local Interests', John A. E. Pottow
Articles
The collapses of Yukos, Parmalat, and other international juggernauts have focused scholarly attention on the failure of multinational enterprises. Even what one might consider "American" companies, such as Chicago-based United Airlines, have made clear in their restructuring plans that their operations have profound effects on the dozens of nations around the globe where they transact business. Government and quasi-government reform efforts to regulate these cross-border insolvencies have abounded, including among others, the UNCITRAL Model Law on Cross-Border Insolvency. UNCITRAL is also building on World Bank and INSOL efforts at promulgating a Legislative Guide for "best practices" bankruptcy codes. Scholars vary …
Procedural Incrementalism: A Model For International Bankruptcy, John A. E. Pottow
Procedural Incrementalism: A Model For International Bankruptcy, John A. E. Pottow
Articles
The headline-grabbing business failures of late have brought increased attention to the relatively unresolved area of multinational bankruptcies. Parmalat, Global Crossing, and United Airlines are among the few international juggernauts that have foundered. In the financial meltdowns of these cross-border institutions, assets and creditors are dispersed throughout commercial environments that rarely end neatly at national borders. There has been heated debate, both in scholarly literature and the practical battlefield, over how best to resolve these transnational insolvencies, and there is nothing yet approaching a consensus. Reform efforts of various stripes have almost uniformly failed to gain meaningful international support. At …
Can The Sauvegarde Reform Save French Bankruptcy Law?: A Comparative Look At Chapter 11 And French Bankruptcy Law From An Agency Cost Perspective, Robert Weber
Michigan Journal of International Law
This Note will attempt to explain the intersection of agency costs and bankruptcy law, looking first to general agency problems involved when firms are insolvent and moving next to discussions of how U.S. Chapter 11 and French bankruptcy laws attempt to address these problems. First, I will attempt to articulate the relationship between agency costs and (1) debtor control over the firm during Chapter 11 reorganizations and (2) deviations from the absolute priority rule in Chapter 11. Specifically, I will argue that creditors voluntarily accede to plans proposed by management that impair the same creditors' legal entitlements, and that this …
Failure And Forgiveness: A Review, James J. White
Failure And Forgiveness: A Review, James J. White
Reviews
In Failure and Forgiveness, Professor Karen Gross has written two books about bankruptcy. The first book, found in the first nine chapters, describes the bankruptcy law, the bankruptcy system, its operation, and the policies that support that law and system. This first book is written for a lay audience, and it is an admirable exposition of the law and policy. The second book, chapters ten to fifteen, contains several proposals for change in the bankruptcy law and states arguments to justify those proposals. The second book shows Professor Gross to be a kindly socialist, deeply suspicious of free markets and …
Corporate Judgement Proofing: A Response To Lynn Lopucki's 'The Death Of Liability', James J. White
Corporate Judgement Proofing: A Response To Lynn Lopucki's 'The Death Of Liability', James J. White
Articles
In "The Death of Liability" Professor Lynn M. LoPucki argues that American businesses are rendering themselves judgment proof.- Using the metaphor of a poker game, Professor LoPucki claims American businesses are increasingly able to participate in the poker game without putting "chips in the pot." He argues that it has become easier for American companies to play the game without having chips in the pot because of the ease with which a modern debtor can grant secured credit, because of the growth of the peculiar form of sale known as asset securitization, because foreign havens for secreting assets are now …
The Political Economy Of The Bankruptcy Reform Act Of 1978, Eric A. Posner
The Political Economy Of The Bankruptcy Reform Act Of 1978, Eric A. Posner
Michigan Law Review
These are the goals of this article. In particular, this article analyzes the legislative history of the Bankruptcy Reform Act of 19783 and related materials, in the hope of describing the influence of interest groups on the final statute. It has, of course, long been assumed that certain narrow provisions of the 1978 Act reflect the influence of interest groups - for example, the section that gives special protection to security and lease interests in aircraft. This article goes farther and argues that fundamental elements of the 1978 Act reflect political compromises among competing interest groups. In particular, I claim …
Rights Of Subrogation In Letters Of Credit Transactions, James J. White
Rights Of Subrogation In Letters Of Credit Transactions, James J. White
Articles
The past twenty years have seen more than a dozen cases, in which parties to letter of credit transactions have sought subrogation to the rights of the person they have paid or to the rights of the persons on behalf of whom, they have acted.' The most obvious case arises when the issuer of a standby letter of credit pays a beneficiary on a debt that is owed to the beneficiary by a bankrupt applicant. Having failed to take 'collateral from the applicant, the issuer seeks to be subrogated to the security interest of the beneficiary. Failing subrogation, the issuer …
Harmonizing The Policy Of The Bankruptcy Code And Article 9, Edwin E. Smith, Elizabeth Warren, James J. White
Harmonizing The Policy Of The Bankruptcy Code And Article 9, Edwin E. Smith, Elizabeth Warren, James J. White
Other Publications
In a true sense bankruptcy law--at least as represented by the 1978 Code--is in conflict, not in harmony, with Article 9. To a considerable degree (perhaps more than they realize) debtors and unsecured creditors got things they wanted from Congress by the adoption of the Bankruptcy Reform Act of 1978. It is doubtful that that Act could have been passed in any Congress before or since. In many ways, the rights of the debtor and of the unsecured creditors have been cut back since the adoption of the Bankruptcy Reform Act.
Preference Conundrums, James J. White, Daniel Israel
Preference Conundrums, James J. White, Daniel Israel
Articles
Every law teacher and many law students and practitioners understand the intellectual sport to be found in Section 547 on preference law. Because the preference rules are so intricate, rigorously logical-but really not logical-they command more than their fair attention, not only in law school but also in continuing legal education and even in the courts. Our purpose in this article is not to answer any of the difficult questions or to give a global explanation of preference law. Rather it is to confront a few of the conundrums in Section 547 and to follow the paths of those conundrums …
Revising Article 9 To Reduce Wasteful Litigation, James J. White
Revising Article 9 To Reduce Wasteful Litigation, James J. White
Articles
For reasons that are unclear to me, the committees reviewing the articles of the Uniform Commercial Code and drafting revisions are congenitally conservative. Perhaps these committees take their charge too seriously, namely, to revise, not to revolutionize. Perhaps their intimate knowledge of the subject matter exaggerates the importance of each section and consequently magnifies the apparent size of every change. In any case, my own experience with two such committees tells me that the members quickly become focused on revisions and amendments that any outsider would describe as modest. To the extent that the revision of any of the articles …
Absolute Priority And New Value, James J. White
Absolute Priority And New Value, James J. White
Articles
This paper is based on a lecture given on December 6, 1990 ast the Second Annual Robert E. Krinock Lecture. The absolute priority rule is a specific application of the broader doctrine that reorganization plans must be "fair and equitable." Both have their origins in the railroad reorganization cases of the early 20th century. The general doctrine is now codified in section 1129(b)(2) of the Bankruptcy Code and the rule is codified in subsection 1129(b)(2)(B)(ii) which provides that the debtor must pay a nonconsenting class of unsecured creditors in full or "the holder of any claim or interest that is …
Mediation In Debtor/Creditor Relationships, Edward A. Morse
Mediation In Debtor/Creditor Relationships, Edward A. Morse
University of Michigan Journal of Law Reform
Two states that have substantial interests in agricultural debtor/creditor relationships have attempted to limit the social and economic costs of prematurely terminating the debtor/creditor relationship. Iowa and Minnesota have adopted a statutory requirement that the creditor offer to submit to mediation prior to taking any debt collection action against an agricultural borrower. This Note argues that requiring creditors to offer mediation as a statutory prerequisite to debt collection is an effective means of reducing the social and economic costs of the premature termination of a debtor/creditor relationship in business contexts. Part I examines the conceptual foundations of the mediation process …