Bankruptcy Law Commons^™

America Is Selling Its Seniors Short, Constantine N. Katsoris

Faculty Scholarship

No abstract provided.

Reforming Institutions: The Judicial Function In Bankruptcy And Public Law Litigation, Kathleen G. Noonan, Jonathan C. Lipson, William H. Simon

Faculty Scholarship

Public law litigation (PLL) is among the most important and controversial types of dispute that courts face. These civil class actions seek to reform public agencies such as police departments, prison systems, and child welfare agencies that have failed to meet basic statutory or constitutional obligations. They are controversial because critics assume that judicial intervention is categorically undemocratic or beyond judicial expertise.

This Article reveals flaws in these criticisms by comparing the judicial function in PLL to that in corporate bankruptcy, where the value and legitimacy of judicial intervention are better understood and more accepted. Our comparison shows that judicial …

Manipulating Random Assignment: Evidence From Consumer Bankruptcies In The Nation's Largest Cities, Edward R. Morrison, Belisa Pang, Jonathon Zytnick

Faculty Scholarship

Random case assignment is thought to be an important feature of decision-making in federal courts because it helps guard against favoritism (actual or perceived) toward particular parties or types of cases. In bankruptcy courts, cases are randomly assigned to both judges and trustees. In Chapter 7 cases, for example, the trustee is a quasi-judicial actor, typically a private-sector lawyer, who has been selected to audit the debtor's finances, find and liquidate assets, and police compliance with the law. We study three major bankruptcy jurisdictions (covering Chicago, Los Angeles, and parts of New York) and find that the random-assignment process for …

The Curious Policy Implications Of In Re Semcrude: Do Crude Oil Markets Need A Volcker Rule?, Joseph A. Schremmer

Faculty Scholarship

In the summer of 2008 the nation's largest and fastest growing midstream crude oil purchaser, SemCrude, declared bankruptcy. SemCrude's demise was not the result of a bear market but of its taste for risky options trading. The bankruptcy pitted the competing liens of thousands of unpaid oil and gas producers and royalty owners who sold their crude oil to SemCrude at the wellhead against those of SemCrude's lenders and the claims of downstream purchasers. The Bankruptcy Court for the Federal District of Delaware found none of the producers' lien rights to be perfected under applicable law and awarded priority to …

Brief For Professors, Lamar, Archer & Cofrin, Llp V. R. Scott Appling As Amicus Curiae, Laura Spitz

Faculty Scholarship

This brief is concerned with the Petitioner’s misinterpretation of §523(a)(2) of the United States Bankruptcy Code, 11 U.S.C. §101, et seq., which wrongly maintains that a false oral statement describing a single asset gives rise to a non-dischargeable debt. This brief shows Congress understood that §523(a)(2) simply re-enacted statutory language already having a completely settled understanding that a statement about a single asset was a “statement respecting financial condition” which must be in writing in order to give rise to a nondischargeable debt. This brief also submits that even if, arguendo, Petitioner were correct that a statement respecting financial condition …

Tracing Equity: Realizing And Allocating Value In Chapter 11, Edward J. Janger, Melissa B. Jacoby

Faculty Scholarship

No abstract provided.

Beyond Bankruptcy: Resolution As A Macroprudential Regulatory Tool, Steven L. Schwarcz

Faculty Scholarship

To try to protect the stability of the financial system, regulators and policymakers have been extending bankruptcy-resolution techniques beyond their normal boundaries. To date, however, their efforts have been insufficient, in part because bankruptcy law traditionally has microprudential goals (to protect individual firms) whereas protecting financial stability is a “macroprudential” goal.

This Article seeks to derive a logical and consistent theory of how and why resolution-based regulation can help to stabilize the financial system. To that end, the Article identifies three possible regulatory approaches: reactive resolution-based regulation, which comprises variations on traditional bankruptcy; proactive resolution-based regulation, which consists of pre-planned …

Bankruptcy Law—Rethinking The Discharge Of Late Filed Taxes In Consumer Bankruptcy, Justin H. Dion, Barbara Curatolo

Faculty Scholarship

The 2005 amendments to the Bankruptcy Code, Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) was enacted in order to improve bankruptcy law. However, BAPCPA has made the issue of whether late-filed taxes are dischargeable even murkier than before the amendments. After BAPCPA, some courts continued to analyze claims as they had before the amendment. Others used a “one-day-late rule” that prevented late-filed taxes from being dischargeable—even if the taxes were filed only one day late. This Article suggests a different approach. It argues that the legislature intended tax debt associated with late-filed income tax returns be dischargeable if the …

Valuation Disputes In Corporate Bankruptcy, Kenneth M. Ayotte, Edward R. Morrison

Faculty Scholarship

Prior scholarship points to disagreements about valuation and judicial valuation error as key drivers of Chapter 11 outcomes. Avoiding valuation disputes and valuation errors is also the underlying driver of most proposed reforms, from Baird’s auctions to Bebchuk’s options. In this paper, we undertake a detailed examination of bankruptcy court opinions involving valuation disputes. Our paper has two goals. The first is to understand how parties and their expert witnesses justify their opposing views to the judge, and how judges decide between them. The second is to provide practical guidance to judges in resolving valuation disputes. We document surprisingly pervasive …

Do Economic Conditions Drive Dip Lending?: Evidence From The Financial Crisis, Frederick Tung

Faculty Scholarship

When contemplating Chapter 11, the first step for many firms is to seek financing for their continuing operations in bankruptcy. Because such financing would otherwise be hard to find, the Bankruptcy Code authorizes debtors to offer sweeteners to debtor-in-possession (DIP) lenders. These inducements can be highly effective in attracting financing. But because these sweeteners are thought to come at the expense of other stakeholders, the Code permits these inducements only if the judge determines that no less generous a package would have been sufficient to obtain the loan.

Anecdotal evidence suggests that the use of certain controversial inducements—I focus on …

Cracking The Code: An Empirical Analysis Of Consumer Bankruptcy Outcomes, Sara Sternberg Greene, Parina Patel, Katherine M. Porter

Faculty Scholarship

Chapter 13 is a cornerstone of the bankruptcy system. Its legal requirements strike a balance between the rehabilitation of debtors through keeping assets and reducing debt, and the repayment of creditors over a period of years. Despite the accolades from policymakers, the hard truth is that the majority of the half-million families each year that seek refuge in chapter 13 bankruptcy will not achieve the debt relief of a discharge. Prior research found that those who drop out of bankruptcy quickly endure the serious financial struggles that they had before bankruptcy—now even worse off for having spent thousands of dollars …

Puerto Rico And The Netherworld Of Sovereign Debt Restructuring, Mitu Gulati, Robert K. Rasmussen

Faculty Scholarship

Puerto Rico has incurred debt well beyond its ability to repay. It attempted to address its fiscal woes through legislation allowing the restructuring of some its debt. The Supreme Court put a stop to this effort, holding that Congress in the Bankruptcy Code barred the Commonwealth from enacting its own restructuring regime. Yet all agreed that the Bankruptcy Code did not provide anything in its place. While Congress quickly enacted PROMESA in an attempt to address the Puerto Rico’s fiscal ills, we explore in this paper whether Congress has the power to bar Puerto Rico from enacting a restructuring mechanism …

Courts As Institutional Reformers: Bankruptcy And Public Law Litigation, Kathleen G. Noonan, Jonathan C. Lipson, William H. Simon

Faculty Scholarship

This article compares two spheres in which courts induce and oversee the restructuring of organizations that fail systematically to comply with their legal obligations: bankruptcy reorganization and public law litigation (civil rights or regulatory suits seeking structural remedies). The analogies between bankruptcy and public law litigation (PLL) have grown stronger in recent years as structural decrees have evolved away from highly specific directives to “framework” decrees designed to induce engagement with stakeholders and make performance transparent. We use the comparison with bankruptcy, where the value and legitimacy of judicial intervention are better understood and more accepted, to address prominent criticisms …

Consumer Bankruptcy Pathologies, Edward R. Morrison, Antoine Uettwiller

Faculty Scholarship

This paper questions several long-standing descriptions of consumer bankruptcy in the United States. We focus on Chapter 13, which discharges debts after consumers pay disposable income to creditors for up to five years. Many studies document pathologies, including high failure rates, racial disparities, low creditor recoveries, and attorney biases. We observe the same patterns in new data drawn from Cook County, Illinois, but show that these pathologies are central tendencies that ignore substantial heterogeneity across consumers. Several pathologies are driven by subsets of consumers; some disappear once we take account of consumer heterogeneity. We present new evidence that some pathologies …

Brief For Professors, Czyzewski V. Jevic Holding Corp. As Amicus Curiae, Laura Spitz

Faculty Scholarship

We urge that the decision of the Circuit Court should be affirmed because Petitioners were not injured or prejudiced by the settlement--they are not worse off than if the settlement had been rejected. Aside from that, the remaining issue is whether the bankruptcy court had discretion to approve the instant settlement even though it did not strictly follow the priority rule. We believe that the courts correctly decided not to apply the absolute priority rule under the circumstances of this case. We urge that the Rule need not be followed by a bankruptcy court in approving a settlement. Alternatively, if …

Disciplining Corporate Boards And Debtholders Through Targeted Proxy Access, Michelle M. Harner

Faculty Scholarship

Corporate directors committed to a failed business strategy or unduly influenced by the company’s debtholders need a dissenting voice—they need shareholder nominees on the board. This article examines the bias, conflicts, and external factors that impact board decisions, particularly when a company faces financial distress. It challenges the conventional wisdom that debt disciplines management, and it suggests that, in certain circumstances, the company would benefit from having the shareholders’ perspective more actively represented on the board. To that end, the article proposes a bylaw that would give shareholders the ability to nominate directors upon the occurrence of predefined events. Such …

Sovereign Debt Restructuring: A Model-Law Approach, Steven L. Schwarcz

Faculty Scholarship

The existing contractual framework for sovereign debt restructuring is sorely inadequate. Whether or not their fault, nations sometimes take on debt burdens that become unsustainable. Until resolved, the resulting sovereign debt problem hurts not only those nations (such as Greece) but also their citizens, their creditors, and—by posing serious systemic risks to the international financial system—the wider economic community. The existing contractual framework functions poorly to resolve the problem because it often leaves little alternative between a sovereign debt bailout, which is costly and creates moral hazard, and a default, which raises the specter of systemic financial contagion.

Most observers …

Recent Developments In Bankruptcy Regulation: Mortgage Servicing Rules, The Fdcpa, And The Cfpb, Frederick Tung, Alane A. Becket, Sarah Bolling Mancini, Nick Wooten

Faculty Scholarship

MS. DEPPERT: Welcome back. Before we begin, I'd like to take this opportunity to introduce you to our second panel of the day, our Consumer Panel, which will discuss Recent Developments in Bankruptcy Regulation, including mortgage servicing rules, the Fair Debt Collection Practices Act (the "FDCPA"), and the Consumer Financial Protection Bureau (the "CFPB"). This afternoon we are privileged to have the following distinguished panelists join us. First we have Alane Becket, Managing Partner at Becket & Lee LLP, in Malvern, Pennsylvania, a law firm representing primarily consumer lenders in bankruptcy proceedings. Ms. Becket was elected to the Board of …

Targeted Subordination Of Official Sector Debt, Lee C. Buchheit, Mitu Gulati

Faculty Scholarship

If Greece’s debt is unsustainable, and most observers (including the IMF) seem to think it is, the country’s only source of funding will continue to be official sector bailout loans. Languishing for a decade or more as a ward of the official sector is undesirable from all perspectives. The Greeks bridle under what they see as foreign imposed austerity; the taxpayers who fund the official sector loans to Greece balk at the prospect of shoveling good money after bad. The question then is how to facilitate Greece’s ability to tap the private capital markets at tolerable interest rates. The IMF’s …

Of Progressive Property And Public Debt, Christopher K. Odinet

Faculty Scholarship

Debt is property, and, because of this, property law has a lot to say about how debts are resolved. Indeed, property law is deeply woven into the fabric of the bankruptcy process — a fact that has been woefully neglected by many scholars. The ability to provide debtors with relief and the ability of creditors to demand protections from discharge or diminished payments are both concepts that are intimately tied to property law. However, despite the doctrinal workings of property law in this context, from a theoretical standpoint property law has been underutilized. This is particularly true, as this Article …

Regulating Public Offerings Of Truly New Securities: First Principles, Merritt B. Fox

Faculty Scholarship

The public offering of truly new securities involves purchases by investors in sufficient number and in small enough blocks that each purchaser’s shares can reasonably be expected to be freely tradable in a secondary market that did not exist before the offering. Increasing the ability of small and medium-sized enterprises (SMEs) to make such offerings has been the subject of much recent discussion.

At the time that a firm initially contemplates such an offering, unusually large information asymmetries exist between its insiders and potential investors. These can lead to severe adverse-selection problems that prevent a substantial portion of worthy offerings …

Designing Corporate Bailouts, Antonio E. Bernardo, Eric L. Talley, Ivo Welch

Faculty Scholarship

Although common economic wisdom suggests that government bailouts are inefficient because they reduce incentives to avoid failure and induce excessive entry by marginal firms, in practice bailouts are difficult to avoid for systemically significant enterprises. Recent experience suggests that bailouts also induce litigation from shareholders and managers complaining about expropriation and wrongful termination by the government. Our model shows how governments can design tax-financed corporate bailouts to reduce these distortions and points to the causes of inefficiencies in real-world implementations such as the Troubled Asset Relief Program. Bailouts with minimal distortion depend critically on the government’s ability to expropriate shareholders …

Implementing Symmetric Treatment Of Financial Contracts In Bankruptcy And Bank Insolvency, Edward Janger

Faculty Scholarship

No abstract provided.

The Logic And Limits Of Liens, Edward J. Janger

Faculty Scholarship

No abstract provided.

The Logic And Limits Of Liens, Edward Janger

Faculty Scholarship

No abstract provided.

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

Faculty Scholarship

U.S. bankruptcy law grants special rights and immunities to creditors in derivatives transactions, including virtually unlimited enforcement rights. This Article examines whether exempting those transactions from bankruptcy’s automatic stay, including the stay of foreclosure actions against collateral, is necessary or appropriate in order to minimize systemic risk.

A Model-Law Approach To Restructuring Unsustainable Sovereign Debt, Steven L. Schwarcz

Faculty Scholarship

Unresolved sovereign debt problems are hurting debtor nations, their citizens and their creditors, and also can pose serious systemic threats to the international financial system. The existing contractual restructuring approach is insufficient to make sovereign debt sustainable. Although a more systematic legal resolution framework is needed, a formal multilateral approach, such as a treaty, is not currently politically viable. An informal model-law approach should be legally, politically and economically feasible. This informal approach would not require multilateral acceptance. Because most sovereign debt contracts are governed by either New York or English law, it would be sufficient if one or both …

The Failed Reform: Congressional Crackdown On Repeat Chapter 13 Bankruptcy Filers, Sara Sternberg Greene

Faculty Scholarship

After decades of lobbying to “get tough” on bankruptcy repeat filers, Congress passed the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA). The Bankruptcy Code now requires that the automatic stay, which prevents creditors from pursuing the property of bankruptcy debtors, expires after thirty days for petitioners who file for bankruptcy within one year of a previously failed petition. Debtors can file a motion to extend the stay, but there is a presumption of a bad faith filing, only overcome if a debtor can show there has been a “substantial change in his or her financial or personal …

Disciplining The Financial Failure: An Exploration Of Bankruptcy Law As An Active Discourse In Market Capitalism, Linda E. Coco

Faculty Scholarship

No abstract provided.

The Value Of Soft Variables In Corporate Reorganizations, Michelle M. Harner

Faculty Scholarship

When a company is worth more as a going concern than on a liquidation basis, what creates that additional value? Is it the people, management decisions, the simple synergies of the operating business, or some combination of these types of soft variables? And perhaps more importantly, who owns or has an interest in these soft variables? This article explores these questions under existing legal doctrine and practice norms. Specifically, it discusses the characterization of soft variables under applicable law and in financing documents, and it surveys related judicial decisions. It also considers the overarching public policy and Constitutional implications of …