Law Commons^™

Section 365 Of The Bankruptcy Code Preempts Provisions Of State Dealer Statutes, Andrew Ziemianski

Bankruptcy Research Library

(Excerpt)

In bankruptcy proceedings, the rejection of an executory contract by a trustee under section 365 of the Bankruptcy Code constitutes a prepetition breach of contract, which gives rise to a general unsecured claim. The rejection damages claim, which is governed by state common law, will generally not be paid in full in bankruptcy.

The Bankruptcy Code will impliedly preempt state statutes that impose additional statutory damages, as these statutes impose damages for economic benefit of the counterparty and “‘frustrate section 365’s purpose of giving a debtor the power to decide which contracts it will assume and assign or reject …

Whether Non-Spousal Inherited Retirement Accounts Are Exempt Under The Bankruptcy Code, Kimberly Tracey

Bankruptcy Research Library

(Excerpt)

Recently, the Court of Appeals for the Seventh Circuit, in In re Clark, adopted a new approach to the treatment of non-spousal inherited individual retirement accounts (hereinafter referred to as IRAs) in bankruptcy cases. This case exemplified a typical situation in which a debtor inherits a non-spousal IRA, and then files for bankruptcy. Often times this debtor will claim that the non-spousal, inherited IRA is a “retirement account” that is exempt from the bankruptcy estate under sections 522(b)(3)(C) and (d)(12) of the Bankruptcy Code. However, frequently the trustee managing the bankruptcy estate will object to the debtor’s proposed …

Article Iii And Bankruptcy Code Standing: Preserving A Party’S Right To Object To A Proposed Reorganization Plan, James Scahill

Bankruptcy Research Library

(Excerpt)

In a chapter 11 bankruptcy proceeding, a troubled company can either restructure or liquidate through a confirmed chapter 11 plan. To encourage more participation in reorganization cases, courts have broadly interpreted section 1109(b) of the Bankruptcy Code, which determines who may object to a plan. Section 1109(b) states that “a party in interest, including the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee, may raise and may appear and be heard on any issue in a case under this chapter.” A party wishing to object to …

Sheppard V. Taylor, 5 Peters 675 (1831): Deception On The High Seas And The Quest For Lost Wages, Steven Zerhusen

Legal History Publications

This Article follows the case of the ship Warren, which set sail in 1806 to take part in illicit trade with the Spanish colonies, unbeknownst to all on board except for the supercargo. After dealing with the suicide of the captain and capture in Concepcion Bay, Chile, the crew languished for years in Spanish prison. After trying for almost 20 years the proceeds of the ship were finally returned to the owners, and the crew filed petition. Not until 1831 was their libel upheld, and wages from their voyage 25 years earlier to be paid to the crew. This article …

A People’S History Of Collective Action Clauses, Mark C. Weidemaier, Mitu Gulati

Faculty Scholarship

For two decades, collective action clauses (CACs) have been part of the official-sector response to sovereign debt crisis, justified by claims that these clauses can help prevent bailouts and shift the burden of restructuring onto the private sector. Reform efforts in the 1990s and 2000s focused on CACs. So do efforts in the Eurozone today. CACs have even been suggested as the cure for the US municipal bond market. But bonds without CACs are still issued in major markets, so reformers feel obliged to explain why they know better. Over time, a narrative has emerged to justify pro-CAC reforms. It …

Contract Claims And The Willful And Malicious Injury Exception To The Discharge In Bankruptcy, Scott F. Norberg

Faculty Publications

No abstract provided.

Swords, Shields, And Shackles: Human And Corporate "Persons" Under The Bankruptcy Abuse Prevention And Consumer Protection Act Of 2005, Linda E. Coco

Faculty Scholarship

No abstract provided.

Detroit's Real Challenge, John A. E. Pottow

Articles

When Detroit became the largest city in U.S. history to file for bankruptcy, it was a bad thing—unless you have the unique world-view of a bankruptcy lawyer, in which case it was marvelous news, worthy of celebration.

When Churches Reorganize, Pamela Foohey

Articles by Maurer Faculty

The article complements and expands the author’s prior article, Bankrupting the Faith. This article primarily relies on interviews with attorneys who represented religious organizations in chapter 11 bankruptcy to assess whether reorganization has the potential to offer an effective solution to religious organizations’ financial problems. In doing so, it makes three contributions. First, it tracks the post-bankruptcy outcomes of a portion of the debtors to find that approximately 65% remained operating post-bankruptcy; these outcomes contradict previous studies of small business bankruptcy and are important to current debates about reforming small business bankruptcy. Given this—and in keeping with the ABLJ’s …

The Bankruptcy-Law Safe Harbor For Derivatives: A Path-Dependence Analysis, Steven L. Schwarcz, Ori Sharon

Faculty Scholarship

U.S. bankruptcy law grants special rights and immunities to creditors in derivatives transactions, including virtually unlimited enforcement rights. This article argues that these rights and immunities result from a form of path dependence, a sequence of industry-lobbied legislative steps, each incremental and in turn serving as apparent justification for the next step, without a rigorous and systematic vetting of the consequences. Because the resulting “safe harbor” has not been fully vetted, its significance and utility should not be taken for granted; and thus regulators, legislators, and other policymakers—whether in the United States or abroad—should not automatically assume, based on its …

Pensioners, Bondholders, And Unfair Discrimination In Municipal Bankruptcy, Andrew B. Dawson

Articles

Detroit recently confirmed its plan of debt adjustment under which the city has endeavored to adjust its pension obligations. The court's confirmation order and oral opinion on the record present what is perhaps the most significant decision regarding a key question facing any city attempting to adjust pensions in bankruptcy: can a city propose to pay its pension claimants significantly more than its other unsecured creditors? This question involves interpreting the Bankruptcy Code's unfair discrimination rule.

The Detroit bankruptcy court applied a novel interpretation of unfair discrimination, eschewing the relatively thin body of case law interpreting this rule, and suggesting …

Rollover Risk: Ideating A U.S. Debt Default, Steven L. Schwarcz

Faculty Scholarship

This article examines how a U.S. debt default might occur, how it could be avoided, its potential consequences if not avoided, and how those consequences could be mitigated. To that end, the article differentiates defaults caused by insolvency from defaults caused by illiquidity. The latter, which are potentiated by rollover risk (the risk that the government will be temporarily unable to borrow sufficient funds to repay its maturing debt), are not only plausible but have occurred in the past. Moreover, the ongoing controversy over the federal debt ceiling and the rise of the shadow-banking system make these types of defaults …

Derivatives And Collateral: Balancing Remedies And Systemic Risk, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

Hedge Funds In Bankruptcy, Keith Sharfman, G. Ray Warner

Faculty Publications

(Excerpt)

Hedge funds and other professional and institutional investors are playing an increasingly important role in bankruptcy cases. As buyers of financially distressed securities, they provide a valuable outlet for holders of such securities who wish to exit those markets. They also facilitate the consolidation of distressed securities into the hands of owners who are well-equipped to press for outcomes in Chapter 11 cases that maximize the value of those securities. At the same time, the active participation of hedge funds in the bankruptcy process at times gives them access to nonpublic information that may afford them an undue advantage …

House Swaps: A Strategic Bankruptcy Solution To The Foreclosure Crisis, Lynn M. Lopucki

UF Law Faculty Publications

Since the price peak in 2006, home values have fallen more than 30%, 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, the Court misinterpreted reasonably clear statutory language and invented legislative history to resolve a 3-1 split of circuits in favor of the minority view. The Court …

Clearinghouses As Liquidity Partitioning, Richard Squire

Faculty Scholarship

To reduce the risk of another financial crisis, the Dodd-Frank Act requires that trading in certain derivatives be backed by clearinghouses. Critics mount two main objections: a clearinghouse shifts risk instead of reducing it; and a clearinghouse could fail, requiring a bailout. This Article’s observation that clearinghouses engage in liquidity partitioning answers both. Liquidity partitioning means that when one of its member firms becomes bankrupt, a clearinghouse keeps a portion of the firm’s most liquid assets, and a matching portion of its short-term debt, out of the bankruptcy estate. The clearinghouse then applies the first toward immediate repayment of the …

Securitization Of Aberrant Contract Receivables, Thomas E. Plank

Scholarly Works

Originators of traditional receivables, such as automobile loans, use securitization and structured finance debt transactions to obtain financing at lower net costs than traditional secured financing. The typical securitization or structured finance debt transaction combines (i) a sale of receivables to a separate, bankruptcy remote, special purpose legal entity (an “SPE”) and (ii) a loan to the SPE secured by the receivables. This combination produces lower net financing costs because the SPE’s lender can obtain repayment of its loan from the receivables while avoiding the costs that the Bankruptcy Code imposes on direct secured lenders to originators that could become …

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.

Rolling Back The Repo Safe Harbors, Edward R. Morrison, Mark J. Roe, Christopher S. Sontchi

Faculty Scholarship

Recent decades have seen substantial expansion in exemptions from the Bankruptcy Code's normal operation for repurchase agreements. These repos, which are equivalent to very short-term (often one-day) secured loans, are exempt from core bankruptcy rules such as the automatic stay that enjoins debt collection, rules against prebankruptcy fraudulent transfers, and rules against eve-of-bankruptcy preferential payment to favored creditors over other creditors. While these exemptions can be justified for United States Treasury securities and similarly liquid obligations backed by the full faith and credit of the United States government, they are not justified for mortgage-backed securities and other securities that could …

Extraterritorial Avoidance Actions: Lessons From Madoff, Edward R. Morrison

Faculty Scholarship

The Madoff case continues to provide fertile ground for testing boundaries of the U.S. Bankruptcy Code (Code). In July 2014, Judge Rakoff issued an important decision regarding the extraterritorial scope of the Code’s avoidance rules. The Trustee for the Madoff Estate, Irving Picard, sought to recover cash withdrawn by “feeder funds.” These funds pooled customer assets, invested them in Bernard L. Madoff Investment Securities (Madoff Securities), withdrew proceeds from the investment prior to Madoff’s SIPA filing, and distributed the proceeds to customers before the funds themselves collapsed. The funds are located abroad: one, Fairfield Sentry, is a British Virgin Islands …

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,” …

The Bankruptcy Code’S Safe Harbors For Settlement Payments And Securities Contracts: When Is Safe Too Safe?, Charles W. Mooney Jr.

All Faculty Scholarship

This Article addresses insolvency law-related issues in connection with certain financial-markets contracts, such as securities contracts, commodity contracts, forward contracts, repurchase agreements (repos), swaps and other derivatives, and master netting agreements. The Bankruptcy Code provides special treatment—safe harbors—for these contracts (collectively, qualified financial contracts or QFCs). This special treatment is considerably more favorable for nondebtor parties to QFCs than the rules applicable to nondebtor parties to other contracts with a debtor. Yet even some strong critics of the safe harbors concede that some special treatment may be warranted. This Article offers a critique of the safe harbor for settlement payments, …