Law Commons^™

The Law And Economics Of Consumer Debt Collection And Its Regulation, Todd J. Zywicki

Todd J. Zywicki

This article reviews the law and economics of consumer debt collection and its regulation a topic that has taken on added urgency in light of the announcement by the Consumer Financial Protection Bureau that it is considering new regulations on the subject. Although stricter regulation of permissible debt collection practices can benefit those consumers who are in default and increase demand for credit by consumers, overly-restrictive regulation will result in higher interest rates and less access to credit for consumers, especially higher-risk consumers. Regulation of particular practices may also have the unintended consequence of providing incentives for creditors to more …

Divorcing Into Debt: How Bankruptcy Abuse Prevention And Consumer Protection Act Created A New Class Member In America's Debtors' Prisons, Bobby A. Lean Jr.

Bobby A Lean Jr.

This paper takes a look into BAPCPA and how 11 U.S.C. § 523(a)(15) of the bankruptcy code creates a debtors' prison. It then compares the Florida courts and the Ohio courts and how creditors can use this section to potentially jail their debtors. Using policy analysis the paper turns to possible solutions and the cost there of.

Through The Lens Of Innovation, Mirit Eyal-Cohen

Mirit Eyal-Cohen

The legal system constantly follows the footsteps of innovation and attempts to discourage its migration overseas. Yet, present legal rules that inform and explain entrepreneurial circumstances lack a core understanding of the concept of innovation. By its nature, law imposes order. It provides rules, remedies, and classifications that direct behavior in a consistent manner. Innovation turns on the contrary. It entails making creative judgments about the unknown. It involves adapting to disarray. It thrives on deviations as opposed to traditional causation. This Article argues that these differences matter. It demonstrates that current laws lock entrepreneurs into inefficient legal routes. Using …

The Orderly Liquidation Authority: Fanatical Or Familiar? Idealistic Or Unrealistic?, Stephanie P. Massman

Stephanie P Massman

The systemic financial crisis of 2008 spurred the failure of numerous financial and non-financial entities. Regulators addressed each of these failures on an ad hoc ex-post basis, granting multiple bailouts in various forms. The refusal to extend these bailouts to one firm, Lehman Brothers, however, caused further panic and contagion throughout the already unstable market as one of the largest financial institutions of the U.S. underwent an extremely lengthy and value-destructive Chapter 11 bankruptcy. Criticism surrounding not only the bailouts, but also the decision to allow Lehman to fail under the Bankruptcy Code, led to the inclusion of the Orderly …

Turnover Actions And The "Floating Check" Controversy, David R. Hague

David R Hague

When a debtor files for Chapter 7 bankruptcy, a Chapter 7 trustee is appointed and is charged with collecting and reducing to money the property of the bankruptcy estate. One of the most basic collection methods a trustee possesses is its turnover power under section 542(a) of the Bankruptcy Code. Section 542(a) requires any entity that is in “possession, custody, or control,” during the bankruptcy case, of property that the trustee may use, sell or lease to turn it over to the trustee and account for such property or its value.

An interesting issue has arisen that is placing debtors …

Improving Bankruptcy Sales By Raising The Bar: Imposing A Preliminary Injunction Standard On Objections To Section 363 Sales, Matthew Adam Bruckner

Matthew Adam Bruckner

In response to objections causing wasteful, unnecessary, and inappropriate delay in the bankruptcy sale context, this article concludes that bankruptcy courts should employ a preliminary injunction standard for evaluating objections to bankruptcy sales. Employing a strict, clear and uniform standard would decrease the likelihood that strategic objectors will succeed in delaying bankruptcy sales, but should not bias creditors with “legitimate” objections. By preventing inappropriate delay, courts will ensure that creditors receive an appropriate amount of procedural protection for their legitimate claims, while at the same time preventing parties-in-interest from engaging in rent-seeking behavior by making strategic objections to bankruptcy sales.

Epic Fail: An Institutional Analysis Of Financial Distress, Jonathan C. Lipson

Jonathan C. Lipson

This paper presents an institutional analysis of financial distress. “Institutional analysis” compares the effectiveness of large-scale processes, such as markets, courts, and governments, at solving social problems. Although financial distress is one of our most acute problems, there has been virtually no effort to analyze it from an institutional perspective. This paper begins to fill that gap.

Institutional analysis shows that, contrary to conventional wisdom, financial distress is not a problem that courts, such as bankruptcy courts, usually solve by themselves. Instead, it is increasingly a problem that political organs (whether elected or regulatory) both create and purport to resolve. …

Revisiting Clear Channel – Acquiring Real Property In A Section 363 Bankruptcy Sale “Free And Clear” Of Liens, Joseph Bolnick

joseph bolnick

This article addresses the impact that the Clear Channel decision has had on 363 sales. In 2008, the bankruptcy bar anticipated that Clear Channel was likely to inhibit buyers from participating in 363 sales, potentially crippling the usefulness of this important preconfirmation procedure. Now, four years later, it is timely to assess the case's impact on 363 sales.

Indiana State Police Pension Trust V. Chrysler: A Missed Opportunity To Improve Collateral Valuation Doctrine, Jason A. Pan

Jason A Pan

Section 506(a)(1) of the Chapter 11 bankruptcy code addresses how to value collateral. This issue arose in Indiana State Police Pension Trust v. Chrysler, but unfortunately the Supreme Court declined to hear the case. As a result the current doctrine on whether to value collateral according to a liquidation versus a going concern standard is Assocs. Commercial Corp. v. Rash, which held that collateral should be valued according to its proposed use. The Rash doctrine, that collateral is to be valued using a going concern standard when proposed to be used in a going concern context, creates opportunity for economic …

Debtor’S Prison In The Neoliberal State: “Debtfare” And The Cultural Logics Of The Bankruptcy Abuse Prevention And Consumer Protection Act Of 2005, Linda E. Coco

Linda E. Coco

The enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) of 2005, amending the Bankruptcy Reform Act of 1978, marks a transformation in bankruptcy law and policy that is representative of larger shifts in dominant economic and political models from “embedded liberalism” to free market “neoliberalism.” BAPCPA’s provisions are part of the new practices of the emergent neoliberal state as they relate to the American middle class segment of the population. In disciplining the middle class, BAPCPA shifts the risk and the responsibility of the lending relationship onto consumer debtors. BAPCPA does this by keeping financially distressed individuals …

Debtor’S Prison In The Neoliberal State: “Debtfare” And The Cultural Logics Of The Bankruptcy Abuse Prevention And Consumer Protection Act Of 2005, Linda E. Coco

Linda E. Coco

The enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”) of 2005, amending the Bankruptcy Reform Act of 1978, marks a transformation in bankruptcy law and policy that is representative of larger shifts in dominant economic and political models from “embedded liberalism” to free market “neoliberalism.” BAPCPA’s provisions are part of the new practices of the emergent neoliberal state as they relate to the American middle class segment of the population. In disciplining the middle class, BAPCPA shifts the risk and the responsibility of the lending relationship onto consumer debtors. BAPCPA does this by keeping financially distressed individuals …

Non-Recourse Mortages – A Fresh Start, Ron Harris, Asher Meir

Ron Harris

In about a quarter of US states, all residential mortgages are essentially non-recourse, meaning that in case of default, the lender can only repossess the house but cannot collect on the private assets and future income of the borrower. This American innovation is now beginning to attract extensive interest abroad, but ironically in the US itself is getting a bad name. The law has been blamed for exacerbating the financial crisis, while stricken homeowners who take advantage of it have been scolded by lenders and even by the Secretary of the Treasury. We propose a fresh and more balanced look …

The Uncertainty Of “True Sale” Analysis In Originator Bankruptcy, Stephen P. Hoffman

Stephen P. Hoffman

While much of law is complex or unclear, it is unusual for a judge to comment that a legal doctrine is so unsettled that courts “could flip a coin” to decide an issue. Unfortunately for practitioners, determining what constitutes a “true sale” for bankruptcy purposes is such an issue. Add to this the recent novel and innovative processes of structured finance and asset-backed securitization, and you have the stuff of law students’—and corporate counsels’—nightmares. As a result, courts and legislatures need to provide clarity in this area so that originators can safely structure investments and transactions, not only for the …

Should Ad Hoc Committees Have Fiduciary Duties?: Judicial Regulation Of The Bankruptcy Market, David L. Perechocky

David L Perechocky

This article is the first to substantively and directly address the question of whether informal creditor groups in bankruptcy cases could and should have fiduciary duties to other creditors. The rise of activist investors and claims traders in bankruptcy proceedings has significantly changed the bankruptcy process, to much controversy. One particularly contentious topic is the growing presence of informal, or “ad hoc,” creditor groups. Proponents argue that these groups are beneficial by enabling creditors to work together efficiently and effectively, but critics view their actions as disruptive and often unfair to other creditors. A recent decision in the Washington Mutual …

Doma’S Bankruptcy, Mark Strasser

Mark Strasser

Over the past few years, several federal courts have suggested or held that section three of the Defense of Marriage Act (DOMA) violates constitutional guarantees. The courts have differed, however, both with respect to the appropriate standard of review and with respect to the particular constitutional guarantees that the section allegedly violates. Ironically, the resolution of these debates may ultimately have less import for the constitutionality of the section at issue than for the constitutionality of DOMA’s full faith and credit section and for the constitutionality of state same-sex marriage bans. This article addresses the constitutionality of section three of …

Running On Empty: Municipal Insolvency And Rejection Of Collective Bargaining Agreements In Chapter 9 Bankruptcy, Richard W. Trotter Esq.

Richard W. Trotter Esq.

Abstract: This article conducts an in-depth analysis of the facts and law surrounding the potential modification and rejection of collective bargaining agreements by municipal debtors in Chapter 9 bankruptcy. American municipal governments are in the midst of a widespread financial crisis. Many are facing enormous budget deficits in 2011 and beyond. As a result, the heretofore-unthinkable option of filing for bankruptcy protection pursuant to Chapter 9 of the Federal Bankruptcy Code is becoming increasingly viable. One of the most vital issues presented by this poorly understood chapter of the Bankruptcy Code is if and how would-be municipal debtors can modify …

Running On Empty: Municipal Insolvency And Rejection Of Collective Bargaining Agreements In Chapter 9 Bankruptcy, Richard W. Trotter Esq.

Richard W. Trotter Esq.

Abstract: This article conducts an in-depth analysis of the facts and law surrounding the potential modification and rejection of collective bargaining agreements by municipal debtors in Chapter 9 bankruptcy. American municipal governments are in the midst of a widespread financial crisis. Many are facing enormous budget deficits in 2011 and beyond. As a result, the heretofore-unthinkable option of filing for bankruptcy protection pursuant to Chapter 9 of the Federal Bankruptcy Code is becoming increasingly viable. One of the most vital issues presented by this poorly understood chapter of the Bankruptcy Code is if and how would-be municipal debtors can modify …

Dip Lending And The Death Of Emergence: Reorganization Outcomes Post-Crisis, Aditya Habbu, Nikhil Abraham

Aditya Habbu

In this paper we examine bankruptcy successes and failures before and after the credit crisis for those debtors that sought DIP loans. We found that post-crisis, for companies that filed for bankruptcy stand alone emergences decreased (percentage-wise), while sales increased. Additionally, we found that post-crisis private equity fund involvement in debtor in possession (“DIP”) loans increased, and DIP loan interest rates increased as well. To supplement the analysis we surveyed practitioners, interviewing two Federal bankruptcy judges, a restructuring investment bank managing director, as well as DIP lenders. These interviews and our data support the view that while DIP loans were …

Debt, Financial Distress, And Bankruptcy Over The Life Course, Allison L. Mann, Ronald J. Mann

Ronald Mann

This paper examines how the risks of debt, financial distress, and bankruptcy shift over the life course. Comparing parallel data from the 2007 Survey of Consumer Finances and the 2007 Consumer Bankruptcy Project, we analyze use of the bankruptcy process as a product of the distribution of unplanned events, the ability of households to use credit markets to limit the adverse effects of such events, and barriers in access to the bankruptcy system. Our findings suggest two things. One, bankrupt households generally come from the bottom quartiles of the population in assets and income and the top quartile in debt, …

Cleaning Up Bankruptcy: Limiting The Dischargeability Of Environmental Cleanup Costs, Sonali P. Chitre

Sonali P Chitre

This article reconciles the joint aims of environmental and bankruptcy law after Judge Posner’s myopic opinion in the Seventh Circuit’s resolution of U.S. v. Apex Oil. These two areas of law represent alternative means to the same end—the equitable distribution of limited resources—and share equity’s traditional emphasis of function over form. Ignoring these principles, Judge Posner ruled in Apex that a cleanup order constitutes a dischargeable “claim” when styled as a legal judgment but not when styled as an equitable injunction. This despite the fact that in either case the liability amounts to the same thing-payment must be made for …

Cleaning Up Bankruptcy: Limiting The Dischargeability Of Environmental Cleanup Costs, Sonali P. Chitre

Sonali P Chitre

This article reconciles the joint aims of environmental and bankruptcy law after Judge Posner’s myopic opinion in the Seventh Circuit’s resolution of U.S. v. Apex Oil. These two areas of law represent alternative means to the same end—the equitable distribution of limited resources—and share equity’s traditional emphasis of function over form. Ignoring these principles, Judge Posner ruled in Apex that a cleanup order constitutes a dischargeable “claim” when styled as a legal judgment but not when styled as an equitable injunction. This despite the fact that in either case the liability amounts to the same thing-payment must be made for …

Interpreting The Supreme Court’S Treatment Of The Chrysler Bankruptcy And Its Impact On Future Business Reorganizations, Fred N. David

Fred David

On June 9, 2009, the Supreme Court terminated its stay of Chrysler’s sale of substantially all of the company’s assets to a new entity, dubbed “New Chrysler” with the backing of European automaker Fiat. The effect of that ruling was to permit the sale to close the next day and bring to an end a chaotic period that determined Chrysler’s future. However, critics of the sale to Fiat argued that the Supreme Court’s ruling would also have a detrimental effect on secured credit and undermined the creditor protections normally afforded by Chapter 11 going forward.

But the Supreme Court was …

Marriage And Law Reform: Lessons From The Nineteenth Century Michigan Married Women’S Property Acts, Ellen Dannin

Ellen Dannin

If law reform had the neat trajectory of a bullet from a smoking gun, life and law would be neater – but less interesting. This article began as a simple empirical study to test whether Michigan’s 1844 Married Women’s Property Act affected conveyancing.

When the results showed that it had no effect – that married women were included as grantors even before the MWPA made it legal for them to own property – the study expanded into a quest to identify the processes that led to its enactment and explained its operation on the family, a fundamental social institution. In …

The Conflicting Concerns Of The Automatic Stay And Environmental Laws, Brett T. Bradford

Brett T. Bradford

This paper explores the conflict between the automatic stay in bankruptcy law and environmental laws regarding cleaning up pollution. It is shown that the two areas of law have fundamentally different purposes that work to disrupt the bankruptcy process. The purpose of the automatic stay is seriously disrupted by the government imposing clean up costs on the debtor while in bankruptcy. This paper shows the affects of the two conflicting areas of law and possible solutions to the problem.

A Consequential Approach To Interpretation And Interpretive Risk: Rethinking Judicial Intervention From Contracts To The Chrysler Bankruptcy, J. P. Kostritsky

Juliet P Kostritsky

Abstract When contracts remain ambiguous or incomplete, courts and scholars must confront the inevitable question of when intervention in private contracts is justified. To deal with the unresolution or residual uncertainty, the Austrian economists and the new textualists suggest that any intervention would be a fool’s errand. Their position amounts to an unvarying posture that any party asking for an additional term or a broad interpretation will always lose. Recognizing that there is an interpretive risk in all contracts, the court should adopt an interpretive methodology that parties would be willing to adopt and that would enhance the willingness of …

Bankruptcy Reorganizations And The Troubling Legacy Of Chrysler And Gm, Ralph E. Brubaker, Charles J. Tabb

Ralph E. Brubaker

BANKRUPTCY REORGANIZATIONS AND THE

TROUBLING LEGACY OF CHRYSLER AND GM

Ralph Brubaker

University of Illinois College of Law

Charles Jordan Tabb

University of Illinois College of Law

Abstract:

The Chrysler and General Motors bankruptcy reorganizations represent the culmination of a sea-change in corporate restructuring practice that has occurred largely over the course of just the past decade. A bankruptcy reorganization has traditionally been effectuated though a chapter 11 plan of reorganization, with elaborate requirements for disclosure, creditor voting, and allocation of stakes in the reorganized debtor entity’s new capital structure among creditors and owners. Such an internal boot-strap reorganization, though, …

Bankruptcy Reorganizations And The Troubling Legacy Of Chrysler And Gm, Ralph E. Brubaker

Ralph E. Brubaker

BANKRUPTCY REORGANIZATIONS AND THE

TROUBLING LEGACY OF CHRYSLER AND GM

Ralph Brubaker

University of Illinois College of Law

Charles Jordan Tabb

University of Illinois College of Law

Abstract:

The Chrysler and General Motors bankruptcy reorganizations represent the culmination of a sea-change in corporate restructuring practice that has occurred largely over the course of just the past decade. A bankruptcy reorganization has traditionally been effectuated though a chapter 11 plan of reorganization, with elaborate requirements for disclosure, creditor voting, and allocation of stakes in the reorganized debtor entity’s new capital structure among creditors and owners. Such an internal boot-strap reorganization, though, …

The Roles Of Acceleration, David Hahn

David Hahn

Acceleration clauses are found in most debt instruments. Upon the occurrence of predetermined triggering event, acceleration makes a creditor's future claim due and payable. While debt covenants have been analyzed extensively in the academic literature, the role of acceleration has been overlooked. This paper examines the role of acceleration clauses and maintains that they play a critical role in debt financing. The paper argues that the prime role of acceleration is to perfect a complex set of governance mechanisms within the corporate setting. This governance role is comprised of three parts. First, acceleration is a complementary measure that supports debt …

The Case For "Cramdown": Eliminating The Practical And Ideological Barriers To Pure Mortgage Modification, Peter J. Leo

Peter J Leo

This article was prepared for a seminar in Consumer Protection. The article makes the case that Congress should modify the Bankruptcy Code to allow for judicial modification of home mortgages on a bankrupt’s principal residence as a means of combating the foreclosure crisis. The article examines two different proposals originally published in the Minnesota Law Review and the Yale Journal on Regulation, examines some of the deficiencies in those proposals, and concludes that “cramdown” will be a more effective means of keeping consumers in their homes.

Student Loans In Bankruptcy: The Undue Hardship Test Is An Unnecessary Burden, James M. Leiby

James M Leiby

No abstract provided.