Bankruptcy Law Commons^™

"We Buy Houses": A Foreclosure Rescue As The Solution To The Trapped Homeowner Equity Problem, Cori Harvey

Journal Publications

Foreclosure rescue transactions are viewed widely as scams designed, among other things, to dupe poor, minority, and elderly homeowners out of the equity in their homes. However, foreclosure rescue transactions come in many forms and, as an alternative to foreclosure, often maintain valuable options for homeowners that the homeowners otherwise would lose in the traditional foreclosure process. For this reason, many of these transactions, though imperfect, should be preserved and supported.

This Article introduces one such foreclosure rescue transaction, the residential sale/leaseback/buyback ("RSLB") transaction, into the legal literature from the perspective of the rescue investors. A basic RSLB transaction allows …

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 …

Bankruptcy Court Jurisdiction After Executive Benefits Insurance Agency V. Arkison, Keith Sharfman, G. Ray Warner

Faculty Publications

(Excerpt)

Bankruptcy law has been struggling for several years now with the so-called "Stern problem”—the jurisdictional cloud of doubt that has been cast by the Supreme Court's decision in Stern v. Marshall over much of the work that bankruptcy courts have done routinely for decades. Since Stern was decided, bankruptcy courts and the litigants who appear before them cannot be confident that it is constitutional for non-Article III bankruptcy judges to adjudicate various matters over which there is clear statutory jurisdiction, such as avoidance actions against third party transferees who are not otherwise involved or participating in the bankruptcy …

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 …

Towards A “Rule Of Law” Approach To Restructuring Sovereign Debt, Steven L. Schwarcz

Faculty Scholarship

No abstract provided.

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

Faculty Scholarship

No abstract provided.

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 …

The Uneasy Case Against Tax Lien Subordination, Shu-Yi Oei

Faculty Scholarship

I.R.C. § 6323, which governs how the federal tax lien ranks against the interests of the taxpayer’s other creditors, subordinates the tax lien to the claims of other creditors in various ways. Tax lien subordination is commonly justified on the grounds that it enhances taxpayer asset value, facilitates commercial transactions, and reduces monitoring costs for private creditors. This short essay argues, however, that these benefits may be illusory. Tax lien subordination may, in fact, create costs and distortions and may lead to unfair distributive results. This essay suggests that the tax lien priority scheme might be made less costly by …

Reclaim This! Getting Credit Seller Rights In Bankruptcy Right, Lawrence Ponoroff

University of Richmond Law Review

No abstract provided.

Opening Remarks, Robert Schapiro

Emory Bankruptcy Developments Journal

Dean Robert Schapiro's remarks honoring Keith Shapiro at the annual Emory Bankruptcy Developments Journal Banquet. Dean Schapiro highlighted Emory's bankruptcy program, the 30th anniversary of the Emory Bankruptcy Developments Journal, and Keith Shapiro's dedication to Emory Law School and role as Alumni Advisor for the Emory Bankruptcy Developments Journal.

Per Se Bad Faith? An Empirical Analysis Of Good Faith In Chapter 13 Fee-Only Plans, Alexander F. Clamon

Emory Bankruptcy Developments Journal

Section 1325(a)(3) of the Bankruptcy Code requires chapter 13 plans to be "proposed in good faith and not by any means prevented by law." Section 1325(a)(7) requires that "the action of the debtor in filing the petition was in good faith." Courts evaluate both good faith provisions through a subjective inquiry into the totality of the circumstances in each case, typically using similar factors in the analysis. Many jurisdictions provide a list of factors for this assessment. Courts caution that any list is non-exhaustive and should not limit the subjective nature of the good faith inquiry. Some chapter 13 plans …

Chapter 9 Bankruptcy In California: The Efficacy Of Mandating Alternative Dispute Resolution In Municipal Bankruptcy Filings, Michael Galen

Cardozo Journal of Conflict Resolution

The subject of this Note is of importance to ADR practitioners: the incorporation of ADR into a new state law can mitigate a heated legal struggle involving state and federal law, while balancing the competing interests of powerful parties like local governments and large unions. This subject demonstrates the efficacy of ADR as applicable to bankruptcy law, a realm with which many ADR practitioners may be unfamiliar. This Note's case study focuses solely on California law and cases because California stands alone in its approach of mandating ADR as a precondition to a municipal bankruptcy filing. Since all states have …

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.

The Undue Hardship Thicket: On Access To Justice, Procedural Noncompliance, And Pollutive Litigation In Bankruptcy, Rafael I. Pardo

Scholarship@WashULaw

This Article offers new insights into understanding the complexities and costs of the litigation burden that Congress has imposed on debtors who seek a fresh start in bankruptcy. In order to explore the problems inherent in a system that necessitates litigation as the path for obtaining certain types of bankruptcy relief, this Article focuses on the particular example of debtors who seek to discharge their student loans in bankruptcy. Such debt may be discharged only if the debtor can establish through a full-blown lawsuit that repaying the loans would impose an undue hardship. The procedure and burdens of proof governing …

Dodd-Frank Orderly Liquidation Authority: Too Big For The Constitution?, Thomas W. Merrill, Margaret L. Merrill

Faculty Scholarship

Title II of the Dodd–Frank Wall Street Reform and Consumer Protection Act of 2010 establishes a new specialized insolvency regime, known as orderly liquidation, for systemically significant nonbank financial companies. While well intended, Title II unfortunately raises a number of serious constitutional questions. To vest authority in an Article III judge to appoint a receiver for such companies, yet also avoid a financial panic, Dodd–Frank requires that the judicial proceedings be conducted in secret, with no notice to the public or other interested parties on pain of criminal penalties, and that the judge rule on the petition to appoint the …

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 …

Taxing Bankrupts, Shu-Yi Oei

Faculty Scholarship

When a debtor goes bankrupt and limited assets have to be divided between competing creditors, should unpaid taxes owed to the government be paid before the debts owed to other creditors? This Article defends the notion that some tax debts should be awarded priority. Insofar as bankruptcy protection transfers the risk of financial distress from a debtor to her creditors, the tax priority debate should be understood as a fight about how much debtor default risk the government should have to assume relative to other creditors. This Article argues that the government’s share of debtor default risk should be limited …

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 …

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.

Preferences Are Public Rights, Brook E. Gotberg

Faculty Publications

In the wake of the Supreme Court’s decision in Stern v. Marshall, there is widespread uncertainty as to what other proceedings may constitutionally fall within a bankruptcy court’s core jurisdiction. Supreme Court jurisprudence has been cryptic regarding the constitutional limitations of non-Article III courts, but the Court has identified a "public rights exception" to the general rule that the judicial power must be exercised only by judges with life tenure and salary protection. This public rights exception has not yet been explicitly extended to a bankruptcy proceeding, but the reasoning of the Court strongly suggests that a trustee’s motion to …