Time to take a break from BAPCPA case law outlines to consider some interesting BAPCPA-related scholarly articles that are available for downloading from the Social Science Research Network (sorted by SSRN ID No):

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University of Illinois College of Law’s Robert M. Lawless: "Bankruptcy Filing Rates After a Major Hurricane." (SSRN ID: 919861)

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University of Iowa College of Law’s Katherine M. Porter: "The Bright Side of BAPCPA." (SSRN ID: 919322)

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UNC-Chapel Hill School of Law’s Melissa B. Jacoby: "Bankruptcy Reform and Homeownership Risk." (SSRN ID: 918006)

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University of Wisconsin School of Law’s Bernard Trujillo: "Regulating Bankruptcy Abuse: An Empirical Study of Consumer Exemptions Cases." (SSRN ID: 914019)

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University of Arizona College of Law’s Jean Braucher: "A Fresh Start for Personal Bankruptcy Reform: The Need for Simplification and a Single Portal." (SSRN ID: 912561)

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Univ. of Missouri School of Law’s Michelle A. Cecil: "Bankruptcy Reform: What’s Tax Got to Do With It?" (SSRN ID: 912263)

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University of Wisconsin Law School’s William C. Whitford: "A History of the Automobile Lender Provision of BAPCPA." (SSRN ID: 907086)

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University of Illinois College of Law’s Robert M. Lawless: "The Paradox of Consumer Credit."
(SSRN: 906868)

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Federal Reserve Bank of Philadelphia’s Robert M. Hunt: "Whither Consumer Credit Counseling." (SSRN ID: 905263)

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N. D. Fisher: "The Effect of Unemployment Benefits, Welfare Benefits, and Other Income on Personal Bankruptcy." (SSRN ID: 904759)

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Harvard Law School’s Elizabeth Warren, UT-Austin Law School’s Jay Lawrence Westbrook and Univ. of Mich. Law School’s Teresa A. Sullivan: "Less Stigma or More Financial Distress: An Empirical Analysis of the Extraordinary Increase in Bankruptcy Fillings." (SSRN ID: 903355)

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Univ. of Michigan’s Dennis R. Capozza and UT-San Antonio’s Thomas A. Thomson: "Subprime Transitions: Lingering or Malingering in Default?" (SSRN ID: 902882)

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UT-Austin School of Law’s Ronald J. Mann: "Bankruptcy Reform and the ‘Sweatbox’ of Credit Card Debt." (SSRN ID: 895408)

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Univ. of Iowa College of Law’s Katherine M. Porter and Ohio University’s Deborah Thorne: "The Failure of Bankruptcy’s Fresh Start." (SSRN ID: 894453)

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Univ. of Nevada Las Vegas School of Law’s Judge Bruce Markell: "The Sub Rosa Subchapter: Individual Debtors in Chapter 11 after BAPCPA." (SSRN ID: 893582)

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Widener University School of Law’s Juliet Moringielio: "Has Congress Slimmed Down the Hogs?: A Look at the BAPCPA Approach to Pre-Bankruptcy Planning." (SSRN ID:892034)

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National Consumer Law Center’s Deanne Loonin and Elizabeth Renuart: "Life and Debt: A Survey of Data Addressing the Debt Loads of Older Persons and Policy Recommendations." (SSRN ID: 885398)

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NYU Law School’s Karen Gross and Fordham Univ. School of Law’s Susan Block Lieb: "Empty Mandate or Opportunity for Innovation? Pre-Petition Credit Counseling and Post-Petition Financial Management Education." (SSRN ID: 884487)

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UT-Austin’s Li Gan and Washington Univ.-St. Louis’ Tarun Sabarwal: "A Simple Test of Adverse Events and Strategic Timing Theories of Consumer Bankruptcy." (SSRN ID: 847035)

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Abstracts for each of these papers follow:

 

Continue Reading Nineteen Recent BAPCPA-Related Articles of Interest Available on SSRN

Univ. of Richmond Law School’s Professor A. Benjamin Spencer, founder of the Split Circuits Blog (previously noted here), has posted today on a split recently discussed by Columbus Bankruptcy Judge John E. Hoffman, Jr. regarding the level of proof (whether "preponderance" vs. "clear and convincing") necessary to establish the existence of an intentional fraudulent transfer under Bankruptcy Code section 548(a)(1)(A) (which enables a trustee to avoid a transfer or obligation incurred "with actual intent to hinder, delay, or defraud" the debtor’s creditors).  See In re Canyon Systems Corp., 343 B.R. 615 (Bankr. S.D. Ohio 2006) (pdf)

According to Chicago’s Bankruptcy Judge Eugene R. Wedoff, the reason the preponderance standard must apply is because the US Supreme Court held in Grogan v. Garner, 498 U.S. 279, 286 (1991) (WL), that the "preponderance" standard of proof applies to all causes of action arising under the Bankruptcy Code “unless particularly important individual interests or rights are at stake.”  As Judge Wedoff explained in Baldi v. Lynch (In re McCook Metals, L.L.C), 319 B.R. 570 (Bankr. N.D. Ill. 2005) (pdf): 

There is a dispute over whether the higher, clear and convincing evidence standard applies to proof of actual fraud under 548(a)(1).  See Taylor v. Rupp (In re Taylor), 133 F.3d 1336, 1338 (10th Cir. 1998) [pdf].  The same dispute exists under the UFTA [i.e., the Uniform Fraudulent Transfer Act, adopted in most states (but not NY)].  See In re Solomon, 300 B.R. 57, 62-63 (Bankr. N.D. Okla. 2003) (holding that Oklahoma would apply the preponderance standard); Word Investments, Inc. v. Bruinsma (In re TML, Inc.), 291 B.R. 400, 436 [Bankr. W.D. Mich. 2003] (collecting authorities, and holding that Michigan would apply the clear and convincing standard under its version of the UFTA’s predecessor, the Uniform Fraudulent Conveyance Act). The Illinois courts do not appear to have addressed the question.

There is no apparent reason for treating the interests of a defendant in an actual fraud proceeding under § 548(a)(1) as more important than the interests at stake in Garner-the dischargeability of a debt under § 523(a)(2). 

Conversely, while there are cases holding that the "preponderance" standard applies in state law-based intentional fraudulent transfer actions, a strong majority of UFTA cases appear to favor application of the "clear and convincing" standard to such cases.  See, e.g., Grochocinski v. Zeigler  (In re Zeigler), 320 B.R. 362 (Bankr. N.D. Ill. 2005), where Chicago’s Bankruptcy Judge John Squires (author of these handy tips) wrote:

Continue Reading Proving an Intentional Fraudulent Transfer under the Bankruptcy Code and the UFTA: A Clear and Convincing Preponderance of Uncertainty

A month ago, as part of my continuing BAPCPA Consumer Outline series, I posted an outline section entitled Attorneys as ‘Debt Relief Agencies’ — Court Decisions and Constitutional Challenges, in which I reviewed various cases winding their way through the federal courts challenging the constitutionality of BAPCPA’s "debt relief agency" provisions.  Yesterday, Dallas’ District Court Judge David C. Godbey declared in Hersh v. United States, No. 05-2330-N (N.D. Tex. 7/26/05) (pdf), that BAPCPA did indeed transform consumer bankruptcy lawyers into "debt relief agents."  More significantly, however, Judge Godbey also held that BAPCPA unconstitutionally restricts an agent’s free speech rights in certain respects, but not in others.

In finding that BAPCPA does unconstitutionally restrict a debt relief agent’s free speech rights, Judge Godbey focused on Code section 526(a)(4), which prohibits a debt relief agent from "advis[ing] an assisted person or prospective assisted person to incur more debt in contemplation of such person filing a case under this title."  In finding this provision "not sufficiently narrow," and thus an unconstitutional restriction of an agent’s free speech rights, Judge Godbey concluded:

Section 526(a)(4), therefore, is overinclusive in at least two respects:  (1) it prevents lawyers from advising clients to take lawful actions; and (2) it extends beyond abuse to prevent advice to take prudent actions.  Gentile, 501 U.S. at 1075; see a/so In re R. M. J., 455 U.S. 191, 203 (1982) (Even under intermediate scrutiny, "[s]tates may not place an absolute prohibition on certain types of potentially misleading information … if the information also may be presented in a way that is not deceptive."); Conant v. Walters, 309 F.3d 629, 638-39 (9th Cir. 2002) (pdf) (finding that government could not justify policy that threatened to punish a physician for recommending to a patient the medical use of marijuana on ground that such a recommendation might encourage illegal conduct by the patient). Thus, section 526(a)(4) of the BAPCPA imposes limitations on speech beyond what is "narrow and necessary."  Accordingly, the Court finds 11 U.S.C. § 526(a)(4) facially unconstitutional and denies the Government’s motion to dismiss Hersh’s claim.

Judge Godbey then invited the plaintiff-agent (the humble Princteon undergrad and UT JD-MBA grad, Susan B. Hersh) to "move for summary judgment on that claim once she amends her complaint to assert it explicitly."

Judge Godbey, however, refused to strike down as unconstitutional Code section 527, which requires debt relief agents to provide "assisted persons" with certain mandatory disclosures (also listed at p.9, fn.11) that were designed, on the one hand, to protect consumers from overreaching debt relief agents, while on the other hand, to scare the bejesus out of them when contemplating a bankruptcy filing.  In holding that these mandatory disclosures do not "unconstitutionally compel speech," Judge Godbey concluded:

Continue Reading Texas District Court Rules that BAPCPA’s Section 526(a)(4) Unconstitutionally Restricts a “Debt Relief Agent’s” Free Speech Rights, But Section 527 Doesn’t

About a year ago, I was moved to start this blog primarily because of the surprising dearth of blogs that addressed bankruptcy-related issues.  Well, colonization of the bankruptcy blogosphere has increased significantly since.  Here are a few recent entrants that surely deserve your attention:

Credit Slips:  A Discussion on Credit and Bankruptcy:  This blog brings together seven strong academics, including Harvard’s Elizabeth Warren and Univ. of Illinois’s Bob Lawless, to discuss and debate "what does happen and what should happen when consumers and businesses borrow money."  Of course, anyone toiling in BAPCPA’s consumer trenches knows well that there’s a big disconnect between "what does happen" and "what should happen," so expect many quality posts from this cerebral bunch.

In the (Red):  The Business Bankruptcy Blog:  This blog aims at helping non-bankruptcy professionals "stay informed about important business bankruptcy issues and developments."  I suspect that posts from the blog’s founder, Bob Eisenbach of Cooley Godward LLP, also will provide bankruptcy professionals with lots of good material to ponder.

The Georgia Bankruptcy Law Blog:  Atlanta’s Scott Riddle is equally obsessive in maintaining a current working knowledge of bankruptcy law, and invariably posts about new and interesting cases you’re likely not to have heard about yet.

The latter two blogs, along with this blog and a host of others, are affectionately maintained by LexBlog, founded by Kevin O’Keefe, whose foresight, dedication, and good business sense have significantly contributed to the advancement of quality legal blogs.  Thanks again, Kevin.

Good luck to all!

One idiomatic expression that translates well in any language is "his bark is worse than his bite" (which I suppose is a testament to the universality of both dogs and common sense).  This expression comes to mind when considering BAPCPA’s new bankruptcy "means test."  This eighth installment of the BAPCPA Consumer Bankruptcy Outline for cases decided between 6/1/05 and 5/31/06 addresses issues arising in the chapter 7 context, including BAPCPA’s barking dog, the "means test."

In signing BAPCPA, President Bush issued a statement in which the "means test" was cited as one of BAPCPA’s prime movers.  The President said:

In recent years, too many people have abused the bankruptcy laws. They’ve walked away from debts even when they had the ability to repay them. This has made credit less affordable and less accessible, especially for low-income workers who already face financial obstacles. The bill I sign today helps address this problem.

Well, it turns out there’s more bark than bite to the means test, and that the many modifications to the means test over the nine years it took to get BAPCPA enacted diluted it to such a great extent that only a handful of debtors will ever flunk it.  Even before BAPCPA became effective, however, Chicago’s Judge Eugene Wedoff was among the first to have predicted as much.  He wrote:

Perhaps the best-known and most discussed feature of [BAPCPA] is its means test. Indeed, means testing has been a central feature of the bankruptcy reform legislation that Congress has considered in every term since 1997.  As reflected in the comments of Senator Grassley set out above, means testing has a simple purpose: to measure the ability of Chapter 7 debtors to repay debt and then, if they have sufficient debt-paying ability, to make them repay at least some of their debt–likely through Chapter 13–in order to receive a bankruptcy discharge. This Article suggests, however, that BAPCPA’s means test is not simple and is not likely to achieve what its sponsors intended.  See Hon. Eugene R. Wedoff, Means Testing in the New § 707(b), 79 Am. Bankr. L. J. 231 (2005). 

Still, even if the new law’s bark is worse than its bite, the new law has taken a significant bite out of bankruptcy filings by consumers, at least in the short term.  As reported here, with consumer bankruptcy filings down to about 1/3 of last year’s levels, Sam Gerdano (the American Bankruptcy Institute’s executive director, and former chief legal counsel to BAPCPA’s sponsor, Senator Charles Grassley) remarked, "[t]he big story is, Congress wanted to suppress the number of filings, and they have succeeded mightily."

In the past year, cases interpreting the means test in the chapter 7 context have been few and far between, with no reported cases addressing the nuances of the means test head on (at least in the chapter 7 context).  Still, as Judge Wedoff’s article makes clear, calculating whether someone passes or flunks the means test is one of BAPCPA’s most mystifyingly mind-numbing tasks, and fundamental misunderstandings still abound among experienced practitioners. 

I think the most interesting of all cases cited below is that of Judge Leslie J. Tchaikovsky in In re Pak, 343 B.R. 239 (Bankr. N.D. Cal. 2006) (see Section D, below), where the court held that there is no safe harbor for debtors who flunk the means test on the petition date such as would prevent the court from exercising its own discretion and dismissing the case under Code section 707(b)(3)(B)’s "totality of circumstances" test.  Most notably, Judge Tchaikovsky weighed in on the raging debate between "respected academics" Marianne B. Culhane and Michaela M. White on the one hand, and Judge Wedoff, "also highly respected for his expertise on BAPCPA," on the other. In the end, Judge Tchaikovsky rejected Culhane and White’s views, reflected in this article (entitled Catching Can-Pay Debtors: Is the Means Test the Only Way?, 13 Am. Bankr. Inst. L. Rev. 665 (2005)), which they wrote for purposes of rebutting certain of Judge Wedoff’s views in the article cited above (which views were adopted by Judge Tchaikovsky).  In conclusion, Judge Tchaikovsky held, "while BAPCPA did severely limit judicial discretion…, [it] has not been entirely eliminated."

Thanks for reading.

Continue Reading BAPCPA Outline: Part VI, Sections A-I: Chapter 7 Liquidations — Means Testing: Is Its Bark Worse Than Its Bite?

This seventh post of the BAPCPA Consumer Bankruptcy Outline for cases decided between 6/1/05 and 5/31/06 addresses one of BAPCPA’s worst provisions, the requirement that all consumer debtors obtain credit counseling in order to be eligible for bankruptcy.  Because these provisions determine whether a debtor is eligible to file for bankruptcy relief, courts were forced to address the meaning of BAPCPA’s new credit counseling provisions early on.

BAPCPA’s rigid credit counseling provisions have spawned perhaps the best BAPCPA-bashing that we’ll likely ever again witness.  The most famous (discussed here) was Judge Frank Monroe who — while ordering the dismissal on Christmas eve of a petition filed by another hapless consumer who failed to seek pointless credit counseling — ripped into Congress for selling consumers out to special interest groups, courtesy of BAPCPA.  Other judges inquiring into the purpose of the credit counseling requirements have similarly been left scratching their heads wondering, for example, why the case of an indigent debtor who couldn’t afford credit counseling should be dismissed when the debtor’s so poor that "cause" exists to waive the bankruptcy filing fee.  Still, courts agree that BAPCPA’s inflexible wording compels such dismissals.

In sum, what started out as an nice idea in theory (encourage people to think about bankruptcy alternatives) has sadly degenerated into an expensive shakedown, with consumers being charged about $50 on average by some faceless entity who provides "instant counseling" and "instant certification" (including over the internet) in about as much time as it takes to get a passport photo.  Not surprisingly, recent studies conclude that only about 3% of those receiving mandatory credit counseling since October 17 have opted for the non-bankruptcy workout alternative (though that percentage is likely to come down over time), thus proving that BAPCPA’s credit counseling requirement is truly an exercise in futility (though perhaps without all its Sisyphean implications).

So who are these credit counseling agencies in whose hands Congress entrusted our fellow bankrupt Americans?  Well, they’re quite well to do, to be sure, with industry revenues topping about $1 billion annually.  As such, they likely had $ignificant influence over the pa$$age of these provi$ion$.  As reported here, they’re also teeming with potential and actual conflicts.  Then, of course, there’s that remarkable IRS news release of a couple of months ago in which the IRS reported that a two-year examination of the "tax-exempt" status of the top 41 credit counseling agencies (representing about 40%-50% of the industry’s revenues) will result in the revocation of the tax-exempt status of  EVERY ONE of the 41 agencies examined (with the prospects looking equally grim for the next 22 on the list)!

In short,  BAPCPA’s credit counseling additions are a debacle.  It doesn’t matter much anymore, however, as the law’s not going to change for a good long while.  So we’re stuck with it whether we like it or not.  I suppose, as Judge Monroe said, you can thank the House and the Senate for that.  (And wouldn’t it be nice to see just one aspiring politican make a campaign issue of this in the upcoming election?) [NB: Anyone wondering why Sen. Hillary Clinton missed the vote will find the answer here.  What better day for her husband to schedule elective surgery?]

As for the cases involving credit counseling, if there’s a single area of BAPCPA’s developing jurisprudence where you’re sure to find a case to support pretty much any proposition you need, this outline demonstrates that credit counseling is that area.  Some issues generating the most splits include:

Continue Reading BAPCPA Outline: Part V, Sections A-J: Credit Counseling — BAPCPA’s Exercise in Futility

To Shakespeare’s Juliet, "a rose by any other name would smell as sweet."  To Gertrude Stein, "a rose is a rose is a rose."  In an article referenced here, titled "When Is a Lease Not a Lease? Seventh Circuit Adopts ‘Substance Over’ Form Test for True Lease Determination," Jones Day’s Mark Douglas and  David Hatch reviewed the first of the 7th Circuit’s rulings on whether UAL’s airport leases were "true leases" or secured financings.

Last week, Judges Manion, Easterbrook, and Bauer, in the final installment of their "trilogy" on whether "a lease is a lease is a lease by any other name," concluded that the answer — at least for airport leases — depends on whether "the ground and facilities arrangements were addressed in separate documents."  United Air Lines, Inc. v. HSBC Bank USA (In re United Air Lines, Inc.), 2006 WL 1841461 (7th Cir. 7/6/06) (Manion, J.) (pdf).  Judge Manion, writing on behalf of the same unanimous panel that decided the previous two installments of the trilogy, summarized the facts and issues presented as follows:

Continue Reading When Is a Lease a “Lease”? The 7th Circuit’s “Trilogy of the UAL Leases” Tackles This Perennial Question