Bankruptcy Law Commons^™

Tempering Bankruptcy Nondischargability To Promote The Purposes Of Student Loans, John P. Hunt

SMU Law Review

Student loans, unlike other debts, are not dischargeable in bankruptcy unless the debtor starts a special proceeding and proves that repayment would cause “undue hardship.” This requirement probably accounts for the fact that only a tiny fraction of bankrupt debtors succeed in discharging their student loans. This article is the first to make the case that student- loan nondischargeability interferes with achieving the student-loan pro- grams’ goals and to propose solutions that courts and the Department of Education (the Department) can employ under current law.

The article draws on the legislative history of the student-loan programs to establish that they …

How Far Does The Rabbit Hole Go: The Interaction Between Set-Off Rights And The Voidable Preference Hypothetical In Chapter 7 Liquidation, Josh Rutstein

Cardozo Law Review de•novo

This Note highlights the tension between Section 547 and Section 553 of the Bankruptcy Code, with specific attention paid to the interaction between set-off rights and the hypothetical liquidation invoked by a court in a voidable preference action, and proposes adopting the Ninth Circuit’s reasoning as a bankruptcy court standard when confronted with a similar conflict between the formalized tests in Sections 547 and 553, in an attempt to achieve a more equitable outcome.

Federally Funded Slaving, Rafael I. Pardo

Scholarship@WashULaw

This Article presents a new frame of reference for thinking about the federal government’s complicity in supporting the domestic slave trade in the antebellum United States. While scholars have accounted for several methods of such support, they have failed to consider how federal bankruptcy legislation during the 1840s functionally created a system of direct financial grants to slave traders in the form of debt discharges. Relying on a variety of primary sources, including manuscript court records that have not been systematically analyzed by any published scholarship, this Article shows how the Bankruptcy Act of 1841 enabled severely indebted slave traders …

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 …

In Re Minter-Higgins, Deanna Scorzelli

Bankruptcy Research Library

(Excerpt)

A Chapter 7 trustee cannot recover from the debtor, through a turnover motion, postpetition transfers that were made out of the debtor’s bank account that resulted from pre-petition checks and debit expenditures that were not transferred by the bank to the payees until after the debtor filed for bankruptcy. The § 362(b)(11) exception from the automatic stay insulates a consumer debtor from the trustee’s attempt to require her to “turnover” these amounts.

It Is Possible To Incriminate Yourself In The United States Bankruptcy Courts, Andre Brittis-Tannenbaum

Bankruptcy Research Library

(Excerpt)

The Fifth Amendment of the United States Constitution’s Self Incrimination Clause provides that, “[n]o person shall . . . be compelled in any criminal case to be a witness against himself. . . .” This right protects an individual from “answer[ing] official questions put to him in any [] proceeding . . . where the answers might incriminate him in future criminal proceedings.” While the drafters of the Constitution only included language related to criminal cases, the Supreme Court has extended the privilege to civil proceedings, including bankruptcy cases. However, this privilege is not absolute, and can be waived …

Circuit Split Created Over Enactment Of Section 510(A) Of The Bankruptcy Code And Its Effect On The Rule Of Explicitness, Rossella Scarpa

Bankruptcy Research Library

(Excerpt)

Bankruptcy law seeks to equitably distribute a debtor’s remaining assets among creditors. However, prior to bankruptcy, creditors can contract around their pro rata equitable distribution by executing inter-creditor agreements. Inter-creditor agreements are executed to delegate the rights and priorities of creditors as to a common borrower in the event the borrower defaults. Subordination agreements are a type of inter-creditor agreement, where junior creditors consent to senior creditors having their loans repaid in full before junior creditors receive their payment. Bankruptcy courts enforce subordination agreements through section 510(a) of title 11 of the United States Code (the “Bankruptcy Code”), which …

Determining When The Granting Of Relief Is Deemed Abuse Of The Bankruptcy Code Under Section 707, Angela Bonica

Bankruptcy Research Library

(Excerpt)

There is no constitutional right for an individual to have their debts discharged. A discharge is a privilege offered to the honest but unfortunate debtor pursuant to title 11 of the United States Code (the “Bankruptcy Code”). A bankruptcy court considers different standards and/or tests to determine when a debtor may be abusing the relief provided under the Bankruptcy Code. The specific provision that restricts relief because of abuse was originally enacted in 1984, and then amended in 2005 under the Bankruptcy Abuse Prevention and Consumer Protection Act (“BAPCPA”). A main purpose of the BAPCPA was to deter abuses …

Constructive Fraudulent Transfers—Determining Insolvency, Tyler Beach

Bankruptcy Research Library

(Excerpt)

When a debtor files for bankruptcy, all of the debtor's assets and liabilities are automatically transferred into a bankruptcy estate. These assets are then used either to help a debtor reorganize or to repay all of the debtor’s creditors in liquidation. Under the United States Bankruptcy Code (the “Bankruptcy Code”), to preserve the estate assets a bankruptcy trustee can avoid certain transfers made by debtors as fraudulent transfers. Without this power to avoid transactions that occur prior to a debtor filing for bankruptcy, debtors could engage in transactions that drain the company of any of its valuable assets and …

Filing A Proof Of Claim In A Bankruptcy Court Subjects The Filing Party To The Court’S Jurisdiction. Anti-Waiver Clauses In The Proof Of Claim Are Not The Same Thing As Objecting To Jurisdiction, Christina Buru

Bankruptcy Research Library

(Excerpt)

In the United States, a federal court must have both personal and subject-matter jurisdiction to hear and rule on a case. Subject-matter jurisdiction can be met by satisfying the requirements under §1331 or §1332 of title 28 of the United States Code. These are typically referred to as “federal question” jurisdiction and “diversity” jurisdiction. §1331(a) allows district courts to exercise original jurisdiction over “civil actions arising under the Constitution, laws, or treaties of the United States”. §1332(a) allows district courts to exercise original jurisdiction over civil actions “where the matter in controversy exceeds the sum or value of $75,000…and …

Debtor-Tenants Located In Shopping Centers Must Satisfy Heightened Requirements When Assuming And Assigning Their Unexpired Lease In Bankruptcy, Kristin Catalano

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a debtor filing for bankruptcy with an executory contract or unexpired lease will be relieved of their obligation under that contract or lease when it is properly assumed and assigned to a third party with court approval. Section 365(b) mandates that the debtor meet certain requirements to assume a contract or lease, which includes providing adequate assurance of future performance.

Section 365(b)(3) governs the assumption and assignment for debtor-tenants located in shopping centers. Section 365(b)(3) enumerates heightened requirements in providing adequate assurance in order for the debtor-tenant in …

Balancing And Protecting Competing Interests Of A Landlord-Tenant Relationship In A Section 363 Sale, Kayla Dimatos

Bankruptcy Research Library

(Excerpt)

Section 363(f) of title 11 of the United States Code (the “Bankruptcy Code”) gives the trustee or debtor in possession a powerful tool to sell property of the estate “free and clear of any interest in such property.” Before the estate can sell an asset “free and clear of any interest in such property,” the Bankruptcy Code requires that a debtor or trustee satisfy the statutory requirements enumerated in section 363(f). A sale of property of the debtor’s estate is permissible only if:

(1) applicable nonbankruptcy law that permits such a sale, (2) the nondebtor entity consents, (3) the …

Constraints On The Breadth Of A Bankruptcy Trustee’S Power To Demand A Turnover Of Assets, Timothy Diprisco

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) empowers bankruptcy trustees to compel entities to turn over property to the bankruptcy estate. Property subject to the turnover provision includes “all legal and equitable interests of the debtor in property at the commencement of the case.” Although the Bankruptcy Code is federal law, property interests are still defined by state law. Occasionally, bankruptcy trustees claim property as part of the estate that courts later deem is beyond the breadth of their authority.

This memorandum examines the extent of a bankruptcy trustee’s power to compel turnover of assets. Part …

Analyzing A Creditor’S Ability To Exercise Its Shareholder Rights To Prevent A Bankruptcy Filing By A Company, Frank Pecorelli

Bankruptcy Research Library

(Excerpt)

Title 11 of the United States Code (the “Bankruptcy Code”) operates as a tool allowing an honest, struggling debtor to gain a fresh start absent of their burdensome debts. Generally, when a company is about to enter bankruptcy, shareholders and creditors of the insolvent company play two distinct roles. Shareholders, those with an ownership stake in the company, have voting rights enumerated in their shareholder agreement, allowing them to vote on certain actions, including the company’s bankruptcy filing. On the other hand, creditors generally have a claim (i.e., a right to payment) against the company, which typically has arisen …

Discharge Under Section 524(A) Does Not Preclude A Suit To Recover From A Debtor’S Insurer, Michael P. Pitre

Bankruptcy Research Library

(Excerpt)

Under title 11 of the United States Code (the “Bankruptcy Code”), a discharge of a debt “operates as an injunction against the commencement or continuation of an action . . . to collect, recover, or offset any debt as a personal liability of the debtor.” This discharge is the “principle advantage bankruptcy offers an individual” because it provides the debtor with a “fresh start” by freeing him from the chains of previous debts.

Even so, a “discharge in bankruptcy does not extinguish the debt itself, but merely releases the debtor from personal liability for the debt.” Therefore, as provided …

Distribution Of Property Overseen By Family Courts Will Not Bar Constructive Fraudulent Transfer Claims, Allyson Rivard

Bankruptcy Research Library

(Excerpt)

In general, a transfer made by a debtor may be avoided under title 11 of the United States Code (the “Bankruptcy Code”) or applicable state law, if the transfer was actually or constructively fraudulent. Actual fraudulent transfer claims require a showing of actual intent to hinder, delay, or defraud creditors. Constructive fraudulent transfer claims do not require proof of actual intent. Instead, a transfer will generally be constructively fraudulent if it is shown that (1) the debtor was insolvent at the time of, or rendered insolvent by, the transfer and (2) so long as the debtor received “less than …

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 …

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 …

Catholic Dioceses In Bankruptcy, Marie T. Reilly

Catholic Dioceses in Bankruptcy

The Catholic Church is coping with mass tort liability for sexual abuse of children by priests. Since 2004, eighteen Catholic organizations have filed for relief in bankruptcy. Fifteen debtors emerged from bankruptcy after settling with sexual abuse claimants and insurers. During settlement negotiations, sexual abuse claimants and debtors clashed over the extent of the debtors’ property and ability to pay claims. Although such disputes are common in chapter 11 plan negotiations, the Catholic cases required the parties and bankruptcy courts to account for unique religious attributes of Catholic debtors. This article reviews the arguments and outcomes on property issues based …

The Impact Of Law On The State Pension Crisis, Elizabeth S. Goldman, Stewart E. Sterk

Articles

While some state and municipal pension plans have funds sufficient to meet obligations to retirees without imposing onerous obligations on current and future taxpayers, underfunding of plans in other states has reached disastrous proportions, raising the possibility of default on pension obligations, cuts in public services, steep tax increases, or some combination of the three. The substantial differential in pension funding might be attributed to divergent political pressures, different responses to uncertainty about investment returns, or other factors. Our examination of pension funding law in ten states-five with the best-funded plans and five with the worst-funded plans-highlights the role of …

Optimal Deterrence And The Preference Gap, Brook Gotberg

BYU Law Review

It is generally understood that the way to discourage particular behavior in individuals is to punish that behavior, on the theory that rational individuals seek to avoid punishment. Laws aimed at deterring behavior operate on the assumption that increasing the likelihood of punishment, the severity of punishment, or both, will decrease the behavior. The success of these laws is evaluated by how much the targeted behavior decreases. The law of preferential transfers—which punishes creditors who have been paid prior to a bankruptcy filing at the expense of other, unpaid creditors—has been defended on the grounds that it deters a race …

Penerapan Saksi Pidana Korporasi Pada Bank Dan Implikasinya, Yudha Ramelan

Jurnal Hukum & Pembangunan

A criminal act by corporation is criminal offense that can be asked for criminal liability to the corporation in accordance with the laws and regulations concerning the corporation. Corporation can be punished to pay fine penalties and other additional penalties such as dissolution or revocation of business licenses. As a trust-based financial institution, if a bank commits a crime, the impact caused by the crime is not only detrimental to the bank itself, damages the reputation of the bank but also harms the community of depositors and other parties responsible for handling bank resolutions. Looking at the impact, the application …

Mission Product Holdings, Inc. V. Tempnology, Llc, Nka Old Cold Llc: Brief Of Law Professors As Amici Curiae Supporting Petitioner, John A. E. Pottow

Appellate Briefs

Amici, whose names and affiliations are set forth in alphabetical order in the attached Appendix, are law professors who study the United States bankruptcy system. They write solely to share their disinterested views regarding the important question of federal bankruptcy law presented in this case. To the best of their knowledge, no amicus has any financial interest in the outcome of this case.

The First Circuit's decision below inexplicably resuscitates a long-rejected decision-Lubrizol Enters., Inc. v. Richmond Metal Finishers, Inc., 756 F.2d 1043 (4th Cir. 1985) that allowed intellectual property licensors to exploit a bankruptcy filing to unilaterally …

“I’Ll Know It When I See It”: Defending The Consumer Financial Protection Bureau’S Approach Of Interpreting The Scope Of Unfair, Deceptive, Or Abusive Acts Or Practices (“Udapp”) Through Enforcement Actions, Stephen J. Canzona

Journal of Legislation

No abstract provided.

Too-Big-To-Fail Shareholders, Yesha Yadav

Vanderbilt Law School Faculty Publications

To build resilience within the financial system, post-Crisis regulation relies heavily on banks to fund themselves more fully by issuing equity. This reserve of value should buttress failing banks by providing a mechanism to pay off creditors and depositors and preserve the health of financial markets. In the process, shareholders are wiped out. Scholars and policymakers, however, have neglected to examine which equity investors, in fact, are purchasing bank equity and taking on the default risk of U.S. banks. This Article addresses this question. First, it shows that five asset managers - BlackRock, Vanguard, State Street Global Advisors, Fidelity and …

Absolute Priority Redux: First-Day Orders And Pre-Plan Settlements In Chapter 11 Post-Jevic, Bruce Grohsgal

William & Mary Business Law Review

This Article considers the problem of priority-skipping distributions made by a chapter 11 debtor outside of a plan, following the Supreme Court’s Jevic decision. The Jevic Court extended the absolute priority rule—which under U.S. bankruptcy enactments dictates the order of distributions to creditors under a chapter 11 cramdown plan and in a chapter 7 liquidation—to a chapter 11 case-ending settlement known as a “structured dismissal.”

The Jevic Court limited its holding to a case-ending settlement. It did not extend the absolute priority rule to an interim or pre-plan settlement or other transaction that is not case-ending or to a “first-day” …

Life In The Sweatbox, Pamela Foohey, Robert M. Lawless, Katherine Porter, Deborah Thorne

Notre Dame Law Review

The time before a person files bankruptcy is sometimes called the financial “sweatbox.” Using original data from the Consumer Bankruptcy Project, we find that people are living longer in the sweatbox before filing bankruptcy than they have in the past. We also describe the depletion of wealth and well-being that defines people’s time in the sweatbox. For those people who struggle for more than two years before filing bankruptcy—the “long strugglers”—their time in the sweatbox is particularly damaging. During their years in the sweatbox, long strugglers deal with persistent collection calls, go without healthcare, food, and utilities, lose homes and …

The Suitability Of South Africa's Business Rescue Procedure In The Reorganization Of Small-To-Medium-Sized Enterprises: Lessons From Chapter 11 Of The United States Bankruptcy Code., Mikovhe Maphiri

Michigan Business & Entrepreneurial Law Review

South African small- to medium-sized enterprises (“SMEs”) are the bread and butter of our economy. Providing much-needed employment and developing the skills of historically disadvantaged persons formally and informally are some of the most significant benefits of SMEs in a developing country such as South Africa. However, despite these significant contributions to the socioeconomic development of the country, SMEs generally have the lowest survival rates in the world as compared to large enterprises globally, resulting in high rates of business failure and the loss of jobs which these entities create. The Companies Act of 2008 replaces the previous judicial management …

Bankruptcy Fiduciary Duties In The World Of Claims Trading, John A.E. Pottow

Articles

In earlier work, I explored the role of fiduciary duties in the bankruptcy trustee's administration of a debtor's estate, noting the absence of any explicit demarcation of those duties in the Bankruptcy Code. In this piece, I report the highlights of that analysis and see to what extent (if any) fiduciary duties can inform policy prescriptions for the issue of bankruptcy claims trading, colorfully referred to by some as the world of "bankruptcy M&A." My initial take is pessimistic. Fiduciary duties, at least as traditionally conceived in bankruptcy, are unlikely to provide much help. But there is still a source …