NEWS AND ANALYSIS
WHITE HOUSE STUDYING NEW BANKRUPTCY OPTIONS FOR STUDENT LOAN BORROWERS
The White House said today that it is weighing whether to make it easier for Americans to discharge student loans through bankruptcy, a major change that would effectively open the door for student debt being treated on par with credit card debt and mortgages, the Wall Street Journal reported today. Federal law prohibits student loans -- whether made by private lenders or the federal government -- from being wiped out in bankruptcy, except in rare circumstances. Other forms of consumer credit, including mortgages, credit card balances and auto loans, face looser requirements for being discharged in bankruptcy. In a presidential memorandum today, President Barack Obama directed administration officials to study whether to push for legislation to loosen the rules imposed on "all student loan borrowers" in the bankruptcy process. The effort was announced as part of a broad initiative the White House labeled a "Student Aid Bill of Rights." The other steps under Obama's plan include setting up a system for borrowers to register complaints about the companies, known as servicers, that collect student-loan payments on behalf of the government. The servicers would face stricter federal oversight and new rules designed to make them more proactive in reaching out to distressed borrowers and offering better repayment terms. Read more. (Subscription required.)
For more on student loans and bankruptcy, be sure to register for the next ABI Live Webinar on March 18 titled, "New Developments in Student Loans: Need to Know," or purchase ABI's Graduating with Debt: Student Loans under the Bankruptcy Code.
COMMISSION COMPARISON: FILING OF AN SME PETITION AND DOCUMENT DEADLINES
By ABI Resident Scholar Prof. Anne Lawton
The American Bankruptcy Institute Commission to Study the Reform of Chapter 11 on Dec. 8, 2014, released its Final Report and Recommendations. Part VII of the Report contains the Commission's recommendations for small or medium-sized enterprise cases (SMEs). In this article, the second of several comparing the Commission's recommendations for SMEs with the Bankruptcy Code's small business debtor provisions, Prof. Lawton contrasts the Commission's discretion-based model with the Code's bright-line, rules-based approach not only to what happens at the time of case filing, but also to the deadlines applicable to small-entity chapter 11 cases. Click here to read the comparison.
CFPB STUDY SCRUTINIZES ARBITRATION CLAUSES FOR CREDIT CARDS, CHECKING ACCOUNTS
The Consumer Financial Protection Bureau (CFPB) released a study today criticizing routine fine print that limits credit card and checking-account holders from taking disputes to court, signaling that it may attempt to restrict the use of arbitration clauses in account agreements, the Wall Street Journal reported today. The CFPB's report, pursuant to the 2010 Dodd-Frank financial law, concluded that arbitration clauses in product agreements are keeping people from getting financial relief from class-action lawsuits, which pool complaints into group litigation. The clauses typically require consumers to resolve disputes over such issues as checking account fees and credit-card charges through industry-organized private arbitration and bars them from joining group litigation. Read more. (Subscription required.)
To read the full study, please click here.
For perspective on the study, please click here for an analysis by Ballard Spahr LLP.
COMMENTARY: PUERTO RICO CRISIS NEEDS MORE THAN A BANKRUPTCY TWEAK
During a Feb. 26 hearing of the House Judiciary Committee's Subcommittee on Regulatory Reform, Commercial and Administrative Law, panel members considered H.R. 870 to make Puerto Rico's public corporations and municipalities eligible for debtor status under chapter 9. Yet, given the gravity of the situation, Congress ought to give serious consideration to a more long-term, comprehensive approach to Puerto Rico's debt, according to a commentary yesterday in The Hill. Decades of spending too much, promising even more, dysfunctional (occasionally corrupt) governance, arbitrary tax collection procedures, and other factors made Puerto Rico particularly vulnerable to the headwinds of the Great Recession, according to the commentary. Even with the exodus of over 200,000 of its 3.7 million people, the unemployment rate is above 13 percent. The roughly $70 billion in debt that Puerto Rico has floated now approaches 70 percent of its gross domestic product, and shows few signs of receding. The unfunded liabilities in pension and health care benefits, along with projected budget deficits, makes this picture even worse. That will mean thinking beyond simply allowing Puerto Rico's public corporations and municipalities to use Chapter 9's debt-restructuring procedures, according to the commentary, which proposes a variety of steps to be taken:
- Reconsider the Jones Act, which effectively requires only U.S. ships to carry goods between U.S. ports despite Puerto Rico's proximity to other Caribbean countries. The result has been higher raw materials and inventory costs for Puerto Rico's already-beleaguered businesses.
- A wider and deeper probe could identify ways to reduce high regulatory costs and introduce greater uniformity in the administration of sales and use taxes. Currently, more than 40 percent of such taxes are not collected, leading to a lack of confidence and predictability in the tax system itself.
- The Commonwealth should also consider strengthening some of the advantages of its constitutional balanced budget requirement, which is too dependent on gubernatorial discretion, as well as touting its investor-friendly policy toward taxation of capital gains.
To read the full commentary, please click here.
SOUTHERN METHODIST UNIVERSITY DEDMAN SCHOOL OF LAW TAKES TOP HONORS AT 23rd ANNUAL DUBERSTEIN MOOT COURT COMPETITION
Students from Southern Methodist University Dedman School of Law prevailed over nearly 60 other student teams to win first place at the 23rd Annual Conrad B. Duberstein National Bankruptcy Moot Court Competition, held March 7-9 in New York. The competition is co-sponsored by the American Bankruptcy Institute and St. John's University School of Law. The University of Miami School of Law took second place in the competition. Third place honors were shared by teams from the University of Texas School of Law and a second team from Southern Methodist University Dedman School of Law. SMU Dedman also won the event in 2013. The Best Brief award this year went to a team from the University of San Diego School of Law. Jennifer Leah Aaronson of the University of Miami School of Law took the honor of Best Advocate. Click here to read the press release.
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PRE-ORDER NOW: ABI'S NEWEST PUBLICATION EXAMINES ISSUES SURROUNDING LITIGATION AND LIQUIDATION TRUSTS IN BANKRUPTCY
ABI's newest publication, A Practitioner's Guide to Liquidation and Litigation Trusts, tackles issues surrounding litigation and liquidation trusts established in an insolvent company's bankruptcy proceedings. Such cases as General Motors, ASARCO, Tronox, Enron and Bernard L. Madoff Investment Securities LLC have established these types of trusts as vehicles that can be separated from the insolvent company's business operations to administer assets that have uncertain recoveries or that may require significant time to handle (such as environmental claims). A Practitioner's Guide to Liquidation and Litigation Trusts is designed to give bankruptcy and other professionals an overview of how and when trusts can be used to handle significant large-scale litigation matters and the liquidation of other assets for the purpose of accumulating recoveries and distributing them across multiple claimants. The book offers guidance on the most common issues faced in establishing, managing, monitoring and ultimately concluding a liquidation trust or litigation trust. Convenient checklists, relevant case citations and references to bankruptcy-related issues, as well as recommended forms of trust agreements and suggested provisions for bankruptcy plans and disclosure statements, are also provided in this 300-page guide (which includes a separate thumbdrive containing more than 500 sample pages from liquidation and litigation cases).
A Practitioner's Guide to Liquidation and Litigation Trusts is currently available for pre-order (make sure to log in to receive the ABI member price of $85).
NEW CASE SUMMARY ON VOLO: HART V. KARAEFF (IN RE HART; 9TH CIR.)
Summarized by Thomas Phinney of Parkinson Phinney
BAP affirmed bankruptcy court judgment that loans totaling $400,000 were nondischargeable under Section 523(a)(2)(A), and remanded to correct an error in the judgment.
There are more than 1,500 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.
NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: ARCHDIOCESE'S POTENTIAL FRAUDULENT TRANSFER NOT PROTECTED BY RFRA, FIRST AMENDMENT
The Archdiocese of Milwaukee's chapter 11 case remains the longest-running chapter 11 case filed by an Archdiocese or other Catholic entity, according to a recent blog post. It filed in January 2011, and because of religious-based objections to the application of the Code's fraudulent and preferential transfer provisions, Bankruptcy Judge Susan Kelley has declined to rule on any reorganization plan until the objections are settled.
To read more on this blog and all others on the ABI Blog Exchange, please click here.
ORDER YOUR PRINTED COPY OF THE FINAL REPORT OF ABI'S COMMISSION TO STUDY THE REFORM OF CHAPTER 11!
Order your printed copy of the Final Report of ABI's Commission to Study the Reform of Chapter 11! The 402-page Final Report contains more than 200 discrete recommendations of chapter 11 policy reforms. ABI's Commission to Study the Reform of Chapter 11 was established in 2012 with a mission to study and propose reforms to Chapter 11 of the Bankruptcy Code and related statutory provisions. After months of deliberations, the Commission unanimously adopted this report to provide to Congress. For the special price of $40, you will have all the testimony, studies and figures that went into compiling the recommendations at your fingertips! Click here to order.
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