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.

Silencing Litigation Through Bankruptcy, Pamela Foohey, Christopher K. Odinet

Articles

Bankruptcy is being used as a tool for silencing survivors and their families. When faced with claims from multiple plaintiffs related to the same wrongful conduct that can financially or operationally crush the defendant over the long term—a phenomenon we identify as onslaught litigation—defendants harness bankruptcy’s reorganization process to draw together those who allege harm and pressure them into a swift, universal settlement. In doing so, they use the bankruptcy system to deprive survivors of their voice and the public of the truth. This Article identifies this phenomenon and argues that it is time to rein in this destructive use …

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.

Third-Party Releases Under The Bankruptcy Code After Purdue Pharma, Jeanne L. Schroeder, David G. Carlson

Articles

The biggest bankruptcy case ever (as measured by unsecured claims against a debtor-in-possession) is In re Purdue Pharma, LLC. The bankruptcy court affirmed a plan discharging the Sackler family (equity owners and often officers of Purdue) of all “derivative” claims that belonged to the debtor-in-possession. The settlement was bought for a substantial sum payable over time by the Sacklers. A debtor-in-possession is the sole owner of a derivative claim and has the power to bind all the creditors to a settlement. Under the Bankruptcy Code, a plan discharging derivative claims is confirmable. In fact, as we will, show, a great …

Generalized Creditors And Particularized Creditors: Against A Unified Theory Of Standing In Bankruptcy, David G. Carlson, Jeanne L. Schroeder

Articles

Courts have struggled toward a unified theory to explain when the trustee has exclusive jurisdiction to sue a third party for harms done to a bankrupt debtor, and when creditors have exclusive jurisdiction to sue the third party. Courts have proclaimed that when every creditor can sue the third party, then none of them can, and the right belongs solely to the trustee. Creditor rights are “generalized.” If only a proper subset of creditors can sue the third party, then the trustee is not able to subrogate to the subset. Such creditors are “particularized.” This paper proclaims the test a …

Bankruptcy As Social Safety Net, Pamela Foohey

Online Publications

One in ten Americans have filed bankruptcy at some point during their adult lives. Contrary to the pronouncements of some politicians, these filings do not reflect a series of personal failures and should not be understood as failures of character. Indeed, most of the people who file bankruptcy struggle for years to pay their debts before turning to bankruptcy law and courts for help. And most of the people who file say that they felt shame upon filing. Instead, the bankruptcy filings of millions and millions of people reflect systematic policy choices over the past forty years that have left …

Portraits Of Bankruptcy Filers, Pamela Foohey, Robert M. Lawless, Deborah Thorne

Articles

One in ten adult Americans has turned to the consumer bankruptcy system for help. For almost forty years, the only systematic data collection about the people who file bankruptcy has come from the Consumer Bankruptcy Project (CBP), for which we serve as co-principal investigators. In this Article, we use CBP data from 2013 to 2019 to describe who is using the bankruptcy system, providing the first comprehensive overview of bankruptcy filers in thirty years. We use principal component analysis to leverage these data to identify distinct groups of people who file bankruptcy. This technique allows us to situate the distinctions …

Steering Loan Modifications Post-Pandemic, Pamela Foohey, Dalie Jimenez, Christopher K. Odinet

Articles

As part of federal and state relief programs created during the COVID-19 pandemic, many American households received pauses on their largest debts, particularly on mortgages and student loans. Others may have come to agreements with their lenders, likewise pausing or altering payment on other debts, such as auto loans and credit cards. This relief allowed households to allocate their savings and income to necessary expenses, like groceries, utilities, and medicine. But forbearance does not equal forgiveness. At the end of the various relief periods and moratoria, people will have to resume paying all their debts, the amounts of which may …

Tuition As A Fraudulent Transfer, David G. Carlson

Articles

Bankruptcy trustees are suing universities because the insolvent parent of an adult student has written a tuition check while insolvent. The theory is that the university is the initial transferee of a fraudulent transfer that has provided benefit to the student but not to the parent debtor. This article claims that the university is never the initial transferee of tuition dollars. Rather, the student is. Where the university has no knowledge of parent insolvency, the university can count educating the student as a good faith transfer for value, thus immunizing the university from liability. The unpleasant side effect is that …

Giving Back A Fraudulent Transfer: A Defense To Liability?, David G. Carlson

Articles

In Whitlock v. Lowe (In re Deberry) (5th Cir. 2019), the Fifth Circuit court of appeals found it obvious that if a transferee gives back fraudulently transferred funds (which the debtor then dissipates), the transferee has a complete defense to liability to the transferor’s bankruptcy trustee. This puts the Fifth Circuit at odds with the Sixth and Seventh Circuits, where the prepetition give-back counted as no defense. This article concludes that a more nuanced position should mediate between these extremes, based on an “innocent donee” defense retrieved from Nineteenth Century precedent. The article emphasizes that if bad faith transferees for …

Mere Conduit, David G. Carlson

Articles

"Mere conduit" is a legal fiction in fraudulent transfer and other avoidance cases. This article argues that the legal fiction is misleading, unnecessary and rendered obsolete by the Supreme Court's recent opinion in Merit Management Group v. FTI Consulting, Inc. (2018). The article further contends that a huge majority of leading cases confound fraudulent transfer law with the law of corporate theft. This error leads to depriving financial intermediaries of their opportunity to avoid liability on the ground of being bona fide transferees for value. Finally, courts often mistake banks as initial transferees of fraudulent transfers (absolutely liable in spite …

Three Against Two: On The Difference Between Property And Contract And The Example Of Deposit Accounts In Bankruptcy, Jeanne L. Schroeder, David G. Carlson

Articles

In Citizen's Bank v. Strumpf (1995), Justice Scalia announced that deposit accounts are not "property". Five years later, the Uniform Commercial Code was amended to make deposit accounts collateral for the depositary bank maintaining the account, thereby crowding the field previously occupied by the common law right of setoff. Security interests attach to personal "property." Security interests attach to deposit accounts. Deposit accounts, by syllogistic logic, are property. Does this mean that the UCC has overruled the Supreme Court? We argue not. A deposit account is a mere contract in the two-person universe that contract law presupposes. A deposit account …

Constructive Trusts And Fraudulent Transfers: When Worlds Collide, David G. Carlson

Articles

When Ponzi schemes collapse and enter into bankruptcy liquidation, bankruptcy trustees assume that conveyances made by the debtor for no consideration are fraudulent conveyances. This Article argues that they are not. Virtually all the assets held by a Ponzi scheme are held in constructive trust for the victims of the fraud. If victims of the fraud can trace the proceeds of their investments into property transferred to a third party, the third party holds the asset transferred in trust for the relevant victim. When a bankruptcy trustee characterizes the asset as a fraudulently conveyed asset, the trustee expropriates the asset …

Check Clearing And Voidable Preference Law Under The Bankruptcy Code, David G. Carlson

Articles

Every business practice must withstand the critique of federal voidable preference law. This article surveys how well check clearing system fares under this adjunct to the principle that unsecured creditors should share equally in a bankruptcy proceeding. Check clearing involves extending short-term credit by depositary banks to their customers. Banks routinely extend unsecured and secured credit. The fate of a bank in its customer's bankruptcy differs, depending on what kind of credit is extended. In the case of an overdraft, banks have preference risk, but they also have powerful defenses to muster against liability. In the case credit is advanced …

Postdefault Interest Rates In Bankruptcy, David G. Carlson

Articles

This Article shows that as Bankruptcy Code section 506(b) is currently written, postdefault interest rates are prohibited when the default is an “ipso facto event” — a filing for bankruptcy or insolvency as the event of a default. Yet some courts have insisted on postdefault interest in situations reinstating a loan agreement and have been ignoring restrictions on pendency interest to permit oversecured creditors from obtaining penalty rates of interest. This Article argues that those holdings violate section 506(b) and Supreme Court precedent. It begins with an analysis of ipso facto defaults, showing that the Bankruptcy Code prohibits ipso facto …

Cars In Chapter 13: Does Negative Equity Destroy The Jurisdiction Of The Hanging Paragraph, David G. Carlson

Articles

Roughly speaking, the “hanging paragraph” to Bankruptcy Code 1325(a), enacted in 2005, requires that a debtor pay the full debt on any automobile acquired within 910 days before bankruptcy – a boon for car financiers. Prior to 2005 the debtor had to pay only the appraised value of the car – usually a lesser amount. But the privilege bestowed on car financiers by the hanging paragraph depends on the financier providing “purchase money” credit. About one-third of the time, however, the financier advances funds to repay a prior car loan as part of the “trade-in” of an old vehicle for …

The Role Of Valuation In Federal Bankruptcy Exemption Process: The Supreme Court Reads Schedule C, David G. Carlson

Articles

In Taylor v. Freeland & Kronz, a debtor claimed a law suit was exempt. The bankruptcy trustee failed to object within the required period. Later, the law suit realized an amount that far exceeded the monetary limit to which the debtor was entitled. The Supreme Court permitted the debtor to keep all of the proceeds, even beyond the statutory limit, claiming that a deadline was a deadline. Recently, in Schwab v. Reilly, the Supreme Court overruled Taylor, holding that a claim to a monetarily limited item can only exempt the monetary limit. The Court tries and fails to "reconcile" these …

Modified Plans Of Reorganization And The Basic Chapter 13 Bargain, David G. Carlson

Articles

A very large number of chapter 13 plans are confirmed each year. Unlike chapter 11 plans (for non-individuals), these plans may be revised after confirmation. The modification provisions of the Bankruptcy Code, however, give very little guidance as to what constitutes a permissible modification. In contrast, confirmation of the original plan is very carefully governed. This article theorizes that modification must honor the basic chapter 13 bargain. According to this bargain, the debtor is entitled to the bankruptcy estate and the creditors are entitled to net surplus income. The article assesses whether the diffuse and disorganized caselaw of modification adheres …

The Chapter 13 Estate And Its Discontents, David G. Carlson

Articles

Thirty years after the enactment of the Bankruptcy Code, the courts have yet to agree on a theory of the bankruptcy estate in Chapter 13 cases. This is not the fault of the courts. The Bankruptcy Code is contradictory as to the composition of the chapter 13 estate. This article selects one of four possible theories and defends it as the one that does the least violence to the plain meaning of the Bankruptcy Code.

This theory is referred to in this article as the "Divestment Theory," because it holds that, upon confirmation of a chapter 13 plan, the debtor …

Cars And Homes In Chapter 13 After The 2005 Amendments To The Bankruptcy Code, David G. Carlson

Articles

No abstract provided.

Ethical Issues In Asbestos Litigation, Lester Brickman

Articles

Asbestos litigation has given rise to over 50,000,000 claims against 8400 former producers, distributors, installers and sellers of asbestos-containing products. To date, 850,000 claimants have sought compensation, costing businesses and insurance companies over $70 billion and resulting in more than 70 bankruptcies. Over 100,000 deaths are attributable to asbestos exposure with an additional 40,000 deaths anticipated over the next 30 years. Despite the significance of the ethical issues generated by the processes of acquiring, pressing and settling the most massive litigation in history, the legal literature is substantially devoid of any such discussion. One possible reason for this paucity of …

Bankruptcy's Acephalous Moment: Postpetition Transfers Under The Bankruptcy Code, David G. Carlson

Articles

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Indemnity, Liability, Insolvency, David G. Carlson

Articles

Suppose A has a claim against B. B has a claim over against C. B, however, is insolvent and has not actually paid A. B's only asset is, in fact, B v C. To what extent can C claim that B v C is valueless - that B was not damaged because B was too broke to pay A?

This paper argues that the fundamental legal distinction between indemnity and liability is beginning to dissolve, because B can always pay A (and thereby give value to B v C) by borrowing the amount B owes and using B v C …

The Logical Structure Of Fraudulent Transfers And Equitable Subordination, David G. Carlson

Articles

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Avoidance Theory According To Steve Nickles, David G. Carlson

Articles

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The Truth About The New Value Exception To Bankruptcy’S Absolute Priority Rule, David G. Carlson, Jack F. Williams

Articles

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Bankruptcy's Organizing Principle, David G. Carlson

Articles

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Junior Secured Creditors And The Automatic Stay, David G. Carlson

Articles

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Rake's Progress: Cure And Reinstatement Of Secured Claims In Bankruptcy Reorganization, David G. Carlson

Articles

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Security Interests On Exempt Property After The 1994 Amendments To The Bankruptcy Code, David G. Carlson

Articles

No abstract provided.