Law Commons^™

Conflicting Preferences In Business Bankruptcy: The Need For Different Rules In Different Chapters, Brook E. Gotberg

Faculty Publications

The law of preferential transfers permits the trustee of a bankruptcy estate to avoid transfers made by the debtor to a creditor on account of a prior debt in the 90 days leading up to the bankruptcy proceeding. The standard for avoiding these preferential transfers is one of strict liability, on the rationale that preference actions exist to ensure that all general creditors of the bankruptcy estate recover the same proportional amount, regardless of the debtor's intent to favor any one creditor or the creditor's intent to be so favored. But preference law also permits certain exceptions to strict preference …

Beyond Carve-Outs And Toward Reliance: A Normative Framework For Cross-Border Insolvency Choice Of Law, John A. E. Pottow

Articles

The title of this Article purports to develop a normative framework for cross-border insolvency choice of law. That can be a task of varying scope, so at the outset any pretense of ambition for a wholly new choice of law model should be dispelled. Indeed, at the most generalized level, bankruptcy choice of law theory has already been fully ventilated in the well-rehearsed universalism versus territorialism debates. And it has been settled. The universalists, at least as a normative matter, appear to have won: choice of law, as it is increasingly accepted, should be determined by the debtor's center of …

Exploring The Boundaries Of Municipal Bankruptcy, Christopher J. Tyson

All Scholarship

Municipal fiscal insolvency has become the central challenge facing American cities. Municipal fiscal insolvency is the result of many factors, including risk taking, fiscal mismanagement, corruption, and the absence of political will to make hard choices. There are also structural factors at play-specifically, local government organization and the fiscal constraints states place on their subdivisions play a significant role in the ability of municipalities to achieve sustainability and growth. These factors are rarely included in the discussion on municipal fiscal insolvency, and understandably so. It is hard to determine the role that local government organization plays in undermining the fiscal …

The Case For Public Pension Reform: Early Evidence From Kentucky, Maria O'Brien

Faculty Scholarship

Kentucky has managed to effect major changes to some of its pension plans in the face of poor funding ratios that threatened to swamp other budget priorities. At this point it is unclear whether the reforms are deep enough to bring the plans funding levels in line with those of “healthy” states like Wisconsin. It is also unclear whether there is the political will in other jurisdictions to curb costs by moving to defined contribution or hybrid cash balance vehicles. Transparency combined with a fear that pension obligations would soon swamp all other state budget priorities appears to have been …

Chapter 11 With A Happy Ending: The Six Flags Bankruptcy, John Capps, Lauren Sherrell

Chapter 11 Bankruptcy Case Studies

This paper discusses the bankruptcy and restructuring that Premier Parks (“Six Flags”) recently underwent in order to return the company to profitability. The discussion begins with a summary of the company’s history and an introduction to the key players in the restructuring process, including the relevant circumstances and management figures responsible for the considerable financial problems that brought Six Flags to make a Chapter 11 filing. Contextually significant factors such as economic and industry conditions, stakeholder motivations, and media occurrences that were particularly relevant are examined as well. The paper provides an account of the bankruptcy proceedings from the company’s …

In Re Fairpoint Communications, Inc., Patrick Green, Todd Blakeley Skelton

Chapter 11 Bankruptcy Case Studies

FairPoint Communications, Inc. (the “Company”) and its subsidiaries (collectively, “FairPoint”) provide communications services to rural and small business customers in eighteen states.[1] As of December 2009, FairPoint had approximately 1.7 million “access line equivalents (including voice access lines and high-speed data lines, which include digital subscriber lines, or DSL, wireless broadband and cable modem) in service.”[2] Challenges presented by industry competition and innovation, the integration of acquired operations, adverse economic conditions, and changes in customer usage and spending habits contributed to FairPoint and its subsidiaries and affiliates’ filing a voluntary Chapter 11 bankruptcy petition on October 26, 2009 …

Borders Group, Inc.’S Final Chapter: How A Bookstore Giant Failed In The Digital Age, Will Hooper, Mary Katherine Rawls

Chapter 11 Bankruptcy Case Studies

In 1995, Borders Group, Inc. was the second largest bookstore in America, boasting massive superstores that housed more titles of books, DVDs, and videos than any of its competitors. Despite its early strength and success, a series of unfortunate business decisions and a general failure to keep up with the times sent Borders spiraling down a path to financial ruin. This paper documents the birth, rapid growth, and eventual downfall of Borders Bookstores through the lens of its Chapter 11 Bankruptcy.

Long-Term Financial Burden Of Breast Cancer: Experiences Of A Diverse Cohort Of Survivors Identified Through Population-Based Registries, Reshma Jagsi, John A.E. Pottow, Kent A. Griffith, Cathy Bradley, Ann S. Hamilton, John Graff Rutgers University, Steven J. Katz, Sarah T. Hawley

Articles

Purpose: To evaluate the financial experiences of a racially and ethnically diverse cohort of long-term breast cancer survivors (17% African American, 40% Latina) identified through population-based registries. Methods: Longitudinal study of women diagnosed with nonmetastatic breast cancer in 2005 to 2007 and reported to the SEER registries of metropolitan Los Angeles and Detroit. We surveyed 3,133 women approximately 9 months after diagnosis and 4 years later. Multivariable models evaluated correlates of self-reported decline in financial status attributed to breast cancer and of experiencing at least one type of privation (economically motivated treatment nonadherence and broader hardships related to medical expenses). …

In Re Qimonda Ag: The Conflict Between Comity And The Public Policy Exception In Chapter 15 Of The Bankruptcy Code, John J. Chung

Law Faculty Scholarship

No abstract provided.

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

Congressional Testimony

No abstract provided.

The Paradoxes Of Secured Landing: Is There A Less Uneasy Case For The Priority Of Secured Claims In Bankruptcy?, Wei Zhang

Research Collection Yong Pung How School Of Law

This paper is inspired directly by two articles coauthored by Professors Bebchuk and Fried, which comprehensively questioned the efficiency of the bankruptcy priority awarded to secured claims. It starts by pointing out the following efficiency benefit of such priority largely unmentioned in the legal literature, including the Bebchuk and Fried articles: the priority of secured debts undermines borrowers’ incentives to pursue excessively risky investment projects under certain circumstances. However, this additional benefit also exposes two interrelated paradoxes pertaining to the welfare effects of secured claims with bankruptcy priority. For one thing, while issuance of secured senior debts helps constrain over-risky …

Single Point Of Entry And The Bankruptcy Alternative, David A. Skeel Jr.

All Faculty Scholarship

This Essay, which will appear in Across the Great Divide: New Perspectives on the Financial Crisis, a Brookings Institution and Hoover Institution book, begins with a brief overview of concerns raised by the Lehman Brothers bankruptcy about the adequacy of our existing architecture for resolving the financial distress of systemically important financial institutions. The principal takeaway of the first section is that Title II as enacted left most of these issues unanswered. By contrast, the FDIC’s new single point of entry strategy, which is introduced in the second section, can be seen as addressing nearly all of them. The …

Bankruptcy Court Jurisdiction After Executive Benefits Insurance Agency V. Arkison, Keith Sharfman, G. Ray Warner

Faculty Publications

(Excerpt)

Bankruptcy law has been struggling for several years now with the so-called "Stern problem”—the jurisdictional cloud of doubt that has been cast by the Supreme Court's decision in Stern v. Marshall over much of the work that bankruptcy courts have done routinely for decades. Since Stern was decided, bankruptcy courts and the litigants who appear before them cannot be confident that it is constitutional for non-Article III bankruptcy judges to adjudicate various matters over which there is clear statutory jurisdiction, such as avoidance actions against third party transferees who are not otherwise involved or participating in the bankruptcy …

Ice Cube Bonds: Allocating The Price Of Process In Chapter 11 Bankruptcy, Edward J. Janger, M. B. Jacoby

Faculty Scholarship

No abstract provided.

"We Buy Houses": Market Heroes Or Criminals?, Cori Harvey

Journal Publications

The residential sale/leaseback/buyback transaction is a socially beneficial foreclosure rescue transaction that is being regulated increasingly by the criminal courts to the detriment of the homeowners, investors, and society at large. Because the transaction is being regulated more aggressively with the criminal law, peculiar outcomes arise, which include investors being sentenced, in some cases, to draconian sentences --a trend that will eviscerate the transactions rather than improving them.

In calling for a retreat from that position, this Article makes both descriptive and prescriptive claims. The first descriptive claim is that the transaction is a beneficial one and that it has …

Repeat Bankruptcies And The Integrity Of The Canadian Bankruptcy Process, Thomas G. W. Telfer

Law Publications

One of the often-cited purposes of bankruptcy law is to permit the rehabilitationof the debtor as a citizen unfetteredby past debts. The bankruptcy regime thus allows an honest but unfortunate debtor toobtain a fresh start through the discharge. However, Canadian bankruptcy law has long taken the position that a repeat bankruptcy will preclude an order of an absolute discharge. The different treatment of repeat bankrupts suggests that there are other policy objectives at play beyond rehabilitation. While the court must consider the interests of the debtor and creditors in a contested discharge hearing an equally important consideration is the protection …

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 …

Seeking Solutions To Financial History Discrimination, Lea Krivinskas Shepard

Faculty Publications & Other Works

Employers’ use of credit reports to evaluate prospective job applicants has generated considerable scrutiny in the popular press and academic literature, but few proposals for reform. This Article explores three possible ways of reducing the risk of financial history discrimination in the employment setting.

First, imposing inquiry limits on employers’ use of credit reports, a policy recently adopted or under consideration in the majority of states, is unlikely to be effective, since states’ inquiry limits are currently narrowly drafted and therefore advance few anti-discriminatory objectives. In addition, inquiry limits cannot prevent self-interested individuals from voluntarily revealing their credit histories and …

When Should Bankruptcy Be An Option (For People, Places Or Things)?, David A. Skeel Jr.

All Faculty Scholarship

When many people think about bankruptcy, they have a simple left-to-right spectrum of possibilities in mind. The spectrum starts with personal bankruptcy, moves next to corporations and other businesses, and then to municipalities, states, and finally countries. We assume that bankruptcy makes the most sense for individuals; that it makes a great deal of sense for corporations; that it is plausible but a little more suspect for cities; that it would be quite odd for states; and that bankruptcy is unimaginable for a country.

In this Article, I argue that the left-to-right spectrum is sensible but mistaken. After defining “bankruptcy,” …

Section 362(C)(3): Does It Terminate The Entire Automatic Stay?, Michael Aryeh

Bankruptcy Research Library

(Excerpt)

Section 362 operates to create an automatic stay upon the filing of a bankruptcy petition. The automatic stay, among other things, prevents a debtor’s creditors from seeking to enforce a judgment against a debtor or against property of the estate, taking any act to obtain possession of property of the estate, or taking any act to create or enforce a lien. Section 362, however, does contain numerous provisions that provide for limitations to the automatic stay.

Among these provisions is section 362(c)(3)(A), which provides in relevant part that “if a single or joint case is filed by or against …

No Second Chances: How Courts Have Interpreted Section 109(G)(2) To Prohibit Debtors From Filing A Second Petition Within 180 Days, Brian Adelmann

Bankruptcy Research Library

(Excerpt)

In 1984, Congress enacted section 109(g)(2) of the Bankruptcy Code for the purpose of curbing the abuse of repetitive bankruptcy filings by debtors. Section 109(g)(2) provides that an individual may not be a debtor if the debtor requested and obtained a voluntary dismissal of a previous bankruptcy case at any time in the preceding 180 days. The typical scenario that section 109(g)(2) is intended to prevent a debtor from voluntarily dismissing his bankruptcy case and subsequent refiling of a new case in order to prevent a creditor from acquiring relief from the automatic stay. The statute gives secured creditors …

The Reciprocal Duty Of Good Faith Negotiations In Chapter 9 Bankruptcies, John Boersma

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code states that municipalities may only proceed under chapter 9 of the Bankruptcy Code if, among other things, they are specifically authorized to do so by their respective state law. As a result, municipal bankruptcies are governed by both the Bankruptcy Code and the state law of the relevant municipality. Under the Bankruptcy Code, the good faith of the parties involved is of primary importance due to its role in the approval or rejection of a debtor’s petition for chapter 9 bankruptcy protection. Given the fact that a successful petition has the ability to significantly alter the …

Whether A Contract Is Divisible For Purposes Of Section 365 Of The Bankruptcy Code, Christopher Bolz

Bankruptcy Research Library

(Excerpt)

Section 365 of the Bankruptcy Code governs the assumption, rejection, and assignment of executory contracts and unexpired leases in bankruptcy cases. Although the definition of an executory contract has not been codified, it is considered to be a contract that has not been fully performed. The assumption or rejection of an executory contract is achieved through court approval, except in certain instances concerning Chapter 7 bankruptcy. Rejection leads to a non-administrative unsecured claim for damages. Following rejection, neither the estate nor the other party owes performance to one another.

The trustee or debtor in possession must assume or reject …

Whether The Equitable Power Of The Bankruptcy Court Can Save The Tardy Filing Of A Nondischargeability Complaint, Aldo A. Caira Iii

Bankruptcy Research Library

(Excerpt)

Courts have long held that the Bankruptcy Code provides a discharge only to those “honest but unfortunate debtors.” To that end, when a debt has been incurred under false pretenses, false representation, or outright fraud, the Bankruptcy Code allows the debtor’s creditors to file a nondischargeability complaint against the debtor. However, in order for the creditor to challenge the dischargeability of a debt, the creditor must file his or her nondischargeability complaint in a timely manner. A creditor who fails to file a timely complaint (or to seek a “for cause” extension) risks losing the right to challenge the …

Determining When Projected Disposable Income Test May Be A Basis For A Post-Confirmation Modification, Steven Ching

Bankruptcy Research Library

(Excerpt)

In order for a chapter 13 plan to be confirmed, the plan must provide that the debtor will contribute his projected disposable income towards his plan payments. However, circumstances may change after confirmation of the chapter 13 plan, and the debtor or trustee may find themselves in need to modify the plan payment. Under section 1329 of the Bankruptcy Code, the debtor, trustee, or an unsecured creditor may request to modify the plan after confirmation of the plan but before completion of the payments.

Generally, bankruptcy courts have broad discretion to approve or disapprove a post-confirmation modification of a …

Whether The Absolute Priority Rule Has Been Abrogated In Individual Chapter 11 Cases, Colin Coburn

Bankruptcy Research Library

(Excerpt)

In recent years, a debate has been raging over whether the absolute priority rule in applies to individual chapter 11 debtors. Essentially, the absolute priority rule dictates that junior creditors cannot retain anything under a plan if an objecting senior creditor is not paid in full. If each class of creditor does not consent to a plan of reorganization, a bankruptcy court can still confirm the plan if it meets statutory requirements and is deemed “fair and equitable.” This method of confirmation is known as a “cramdown.” In order for a plan to be “fair and equitable,” it must, …

Fairness Over Deference: The Shifting Landscape Of Creditors Rights To Claims And Debtor Protection Regarding The Issuance Of Form 1099-C, Patrick Christensen

Bankruptcy Research Library

(Excerpt)

Issues surrounding the discharge of indebtedness with regard to Form 1099-C filings have recently become a difficult issue for bankruptcy courts. When a debtor cannot afford to pay a creditor an outstanding debt, a Form 1099-C is utilized to “discharge the debt.” The resulting cancellation is then reportable for tax purposes for both the debtor (as cancellation-of-debt income – “COD income”) and the creditor (as a deduction). Form 1099-C filings are made by creditors and issued to each “debtor for whom . . . $600 or more of a debt owed” had been cancelled.

Courts have had to consider …

Can A Bankruptcy Trustee Recover Assets Transferred To A Self-Settled Trust?, Christian Corkery

Bankruptcy Research Library

(Excerpt)

A “spendthrift trust” provides a fund for the benefit of another, secures it against the beneficiary’s improvidence, and places it beyond the reach of the beneficiary’s creditors. A spendthrift trust has long been recognized as a useful vehicle for providing the beneficiary with the benefits of the trust while simultaneously preventing the beneficiary from voluntarily transferring his interest in the trust. This is particularly useful where the settlor wants to protect the transfer of wealth to a beneficiary. For instance, if a parent makes a large gift to an irresponsible child, the child will likely squander the gift …

An Assignee Has The Same Right Of Non-Dischargeability Under Section 523(A)(2)(B) As The Assignor, Justin W. Curcio

Bankruptcy Research Library

(Excerpt)

The Bankruptcy Code affords an “honest but unfortunate debtor” a “fresh start” by discharging certain prior financial obligations of the debtor. The bankruptcy process allows debtors to “reorder their affairs, make peace with their creditors, and enjoy ‘a new opportunity in life with a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.’” However, there are limitations on a debtor’s ability to obtain a discharge. For example, a creditor that lent money to a debtor based on a fraudulent writing can seek a determination that the debt is non-dischargeabile under section 523(a)(2)(B).

Issues arise …

The Differences Between The Right To Setoff Under 11 U.S.C. §553 And 11 U.S.C. §558, Maria Ehlinger

Bankruptcy Research Library

(Excerpt)

In bankruptcy cases, the right to setoff is a powerful tool used by both debtors and creditors to avoid having to pay a debt owed to another. The right to setoff is defined as “[a] debtor’s right to reduce the amount of a debt by any sum the creditor owes the debtor the counterbalancing sum owed by the creditor.” A right to setoff usually arises when a debtor owes a debt to a creditor and the creditor owes a debt to the debtor. The purpose of a setoff is to “allow entities that owe each other money to apply …