ABI Blog Exchange

According to an article in the New York Times, Bank of America and JP Morgan Chase are finally agreeing to properly identify debts that were discharged in bankruptcy.  Bank of America and JPMorgan Chase have agreed to update borrowers’ credit reports within the next three months to reflect that the debts were extinguished. There has been a fierce battle over the lawsuits, brought by Charles Juntikka, a bankruptcy lawyer in Manhattan, and George F. Carpinello, a partner with Boies, Schiller & Flexner. Judge Robert D. Drain, who is presiding over the cases, has repeatedly refused the banks’ requests to throw out the lawsuits. In July, when he refused to dismiss the case against JPMorgan, he said, “The complaint sets forth a cause of action that Chase is using the inaccuracy of its credit reporting on a systematic basis to further its business of selling debts and its buyer’s collection of such debt.” At a hearing in April, transcripts show, the judge criticized Citigroup for not changing the way it reports debts to the credit reporting agencies. “I continue to believe there’s one reason, and one reason only, that Citibank refuses to change its policy,” the judge said. The reason, the judge went on, is “because it makes money off of it.”
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Summary In a 14 page decision released May 12, 2015, Judge Sontchi of the Delaware Bankruptcy Court illustrated why even perfect motions to dismiss may not be worth filing.  Judge Sontchi’s opinion is available here (the “Opinion”).  The Opinion was issued in the adversary proceeding Alamo Group, LLC and Kirin Alamo, LLC v. A&G Realty Partners, LLC, et al., Case No. 14-50103.  In this adversary proceeding the plaintiffs alleged fraudulent misrepresentation, but failed to allege materiality, a necessary element of a Delaware common law fraud claim.  Opinion at *2.  Because the plaintiffs failed to plead materiality, Judge Sontchi held that “there [was] no need to detail the remaining elements of a Delaware common law fraud claim.  Plaintiffs’ Complaint fails on these grounds.”  Opinion at *14.  Yet, even with what amounted to a perfect motion to dismiss, Judge Sontchi concluded his Opinion with a statement that “Plaintiffs will be given an opportunity to amend the Complaint within 30 days…”  Opinion at *14. Background and Ruling
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The Illinois Supreme Court issued its unanimous opinion this past Friday putting a stake through the heart of the legislature's latest attempt to evade its responsibility for woefully underfunding four of the state's five public pensions. Adam (among others) has discussed the pension issue in the Detroit bankruptcy case and the Michigan constitutional provision protecting pension benefits from impairment. The Illinois Constitution of 1970 has an identical provision (art. XIII, s. 5), which will have much more bite in the case of the state of Illinois--an entity that, unlike Detroit, is not eligible for bankruptcy protection. Long story short: the Supreme Court all but scoffed at the state's arguments that contracts can sometimes be impaired (and the state has a really, really good reason here) and that prohibiting the legislature from reducing vested pension benefits is an impermissible abdication of sovereign authority. The Court pointed out that it wasn't the legislature, but the people of Illinois, who imposed the pension protection restriction ...

Read More from: Credit Slips

1 week 2 days ago
Two recent decisions from large and highly contested chapter 11 cases add to the developing body of case law on the treatment of make-whole claims in bankruptcy.  First, in a two-part post, we discuss the United States Bankruptcy Court for the District of Delaware’s decision in Energy Future Holdings, and later, in a follow-up post, we discuss the United States District Court for the Southern District of New York’s affirmation of the United States Bankruptcy Court for the Southern District of New York’s make-whole rulings in Momentive.  (To access our previous post on the Southern District of New York bankruptcy court’s Momentive decision, click here).   
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Reuters/Joshua Roberts
A federal lawmaker is proposing to ban bankruptcy trustees from trying to claw back tuition money from universities and, in some cases, college students themselves—a legal maneuver that can arise in a parent’s bankruptcy case. Rep. Chris Collins (R., N.Y.) Tuesday introduced a bill that would block bankruptcy trustees from filing lawsuits against universities and college students to recover tuition money that had been paid years before. Parents who file for bankruptcy after paying for their children’s college tuition can face scrutiny from court-appointed bankruptcy trustees who argue that the money should have been spent on their own growing debts. But with his bill, Rep. Collins said it is up to parents to decide to prioritize a child’s education over other bills like credit card or medical debt. “That’s a personal decision on the bills you pay and bills you don’t pay,” he said. “Families all over America today, when tuition comes due, are tightening their belts and paying the tuition because it’s the future for their kids.” Rep. Blake Farenthold (R., Texas) has also signed onto the bill, which is called the Protecting All College Tuition Act of 2015.

Read More from: WSJ.com: Bankruptcy Beat

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On May 12, 2015 the US Securities and Exchange Commission announced that it had filed fraud charges against ITT Educational Services Inc., its chief executive officer Kevin Modany, and its chief financial officer Daniel Fitzpatrick. According to the SEC, the national operator of for-profit colleges and the two executives fraudulently concealed from investors the poor performance and looming financial impact of two student loan programs that ITT financially guaranteed. ITT formed both of these student loan programs, known as the “PEAKS” and “CUSO” programs, to provide off-balance sheet loans for ITT’s students following the collapse of the private student loan market. To induce others to finance these risky loans, ITT provided a guarantee that limited any risk of loss from the student loan pools. According to the SEC, the loans were performing so poorly that ITT failed to disclose the fact that it expected to be on the hook for hundreds of millions of dollars on its guarantees. ITT and its management allegedly attempted to create the appearance that the company’s exposure to these programs was much more limited.
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Should the bankruptcy code be amended to make it easier for borrowers to seek forgiveness of student loan debt through a bankruptcy filing? The purpose of bankruptcy laws, as the Supreme Court famously wrote in 1934, is to give “the honest but unfortunate debtor […] a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement of preexisting debt.” Many of today’s young college graduates clearly fit the description of “honest but unfortunate.” Honest in that many have strived for several years to pursue a career in their chosen field and to secure employment that allows them to pay back their debt. Unfortunate in that they have come of age during an era in which college tuition and associated loan burdens are skyrocketing, even as the well-paying jobs they expected after graduation become scarcer. And doubly unfortunate that an expensive post-secondary education is becoming ever more of a prerequisite for a middle-class lifestyle, as non-graduates are shunted further down the economic ladder.

Read More from: WSJ.com: Bankruptcy Beat

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Should the bankruptcy code be amended to make it easier for borrowers to seek forgiveness of student loan debt through a bankruptcy filing? We currently have a new generation of college graduates with the highest debt loads in U.S. history entering a poor job market. This has contributed to a drag on GDP growth due to dwindling disposable income spending. As college tuition hikes continue to increase dramatically, the problem is quickly growing more important to the U.S. economy as a whole. According to Federal Student Aid, the largest provider of student financial aid in the U.S., student loan default rates are around 13%. But this is largely considered to be understated because of deferral programs, which make it relatively easy for graduates to push out maturities and restructure payment plans. The net result of all of this is that overall student loan debt in the U.S. is increasing rapidly and has passed $1 trillion, according to the Consumer Financial Protection Bureau.

Read More from: WSJ.com: Bankruptcy Beat

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All banks must manage risk. But this needn't be their sole focus any more than a restaurateur's sole purpose should be to prevent contaminants from getting into food.

Read More from: BankThink

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Should the bankruptcy code be amended to make it easier for borrowers to seek forgiveness of student loan debt through a bankruptcy filing? This is a question that cannot be answered easily. Without a doubt, there is a financing crisis in higher education. College tuition has increased at least 250% in the last 25 years. However, over a comparable period, real wages for college graduates have risen by less than 20%. Students continue to invest in their college educations as enrollment has generally grown, and they are increasingly borrowing to do so. The total student loan balance has exceeded $1 trillion.

Read More from: WSJ.com: Bankruptcy Beat

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On April 30, 2015, the Delaware Court of Chancery held for the second time in three years that a decision by a board of directors or a board’s compensation committee to award equity to non-employee directors as part of their annual compensation constituted a self-interested transaction and, when challenged in a stockholder derivative action, that (a) stockholder demand was excused and (b) the decision would be reviewed under the heightened “entire fairness” standard. This holding comes despite the fact that the equity compensation plan in question, which included a per-person limit on grants, was previously approved by the company’s stockholders.
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There is a huge misconception out there that basically states that in order to file for bankruptcy relief you have to be penniless. This misconception stems from the fact that most people are not aware of Illinois personal property and real property exemption laws. The exemption laws are actually independent laws separate from the United+ Read More The post You Can Keep Property In Illinois And Still File Bankruptcy: There Are Limits Though appeared first on David M. Siegel.
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The Ninth Circuit recently held that a judgment arising from the sale of a member’s interest in a limited liability company may be subordinated as a claim arising from rescission of a purchase or sale of a security of a debtor and, therefore, is to be subordinated to claims of unsecured creditors pursuant to § 510(b) of the Bankruptcy Code.  In Pensco Trust Company et al v. Tristar Esperanze Properties, LLC (In re Tristar Esperanza Properties, LLC), 2015 WL 1474990 (9th Cir. 2015), Jane O’Donnell, a member of Tristar, acquired her interest in the debtor in 2005 for a price of $100,000.  In 2008, O’Donnell exercised her right under the operating agreement to withdraw from the LLC, and Tristar elected under the operating agreement to purchase her interest.  When they could not agree on a price, the dispute was submitted to an arbitrator O’Donnell a “net award of damages,” including the value of her interest in Tristar plus fees, costs and interest.  When the Tristar failed to pay, O’Donnell sought and obtained a state court judgment against Tristar for the amount awarded by the arbitrator.

Read More from: Creditors' Rights

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While we've made progress in regulating banks, it's also necessary to ask whether we are making the most of an opportunity to ensure that the financial industry serves the best interests of society.

Read More from: BankThink

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Authored by Scott J. Kennelly and Janet C. Owensand Scott J. Kennelly and Janet C. Owens of Rogers TowersIn certain instances, when a creditor has a claim against an insolvent corporation, it may be entitled to seek judicial dissolution of the entity in an effort to collect whatever assets the entity may hold. The Florida Statutes provide that such a remedy is available if:
  • the corporation has admitted in writing that the creditor’s claim is due and owing and that the corporation is insolvent, or
  • the creditor has obtained a judgment against the corporation which is unsatisfied and the corporation is insolvent

Read More from: Florida Banking Law Blog

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Patriot Coal Corp. is in “active negotiations” with an unnamed strategic buyer, hoping for a deal to aid it out of bankruptcy. The Wall Street Journal has the Daily Bankruptcy Review article here. (Daily Bankruptcy Review is a daily newsletter with comprehensive coverage and analysis of emerging and in-progress insolvencies and turnarounds. For a two-week trial, visit http://on.wsj.com/DJBankruptcyNews, scroll to the bottom and click “try for free.”) According to WSJ, the chairman of the Federal Deposit Insurance Corp. said big banks will be allowed to fail in the event of major financial trouble. Private-equity chief Lynn Tilton wants a judge to stop the U.S. Securities and Exchange Commission from putting her before a judge in a fraud case, Reuters reports.

Read More from: WSJ.com: Bankruptcy Beat

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Wall Street Journal The paper provides additional details on expected proposed changes to the Federal Reserve that could be included in the regulatory-reform bill forthcoming from Sen. Richard Shelby. A look at all of the various expected aspects of Shelby's bill was reported in detail in American Banker. According to the Wall Street Journal, Shelby's bill could require the Federal Reserve's Federal Open Market Committee to send to Congress "more details of the analysis and data...

Read More from: BankThink

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In the bankruptcy case of ADI Liquidation, Inc. (f/k/a AWI Delaware, Inc.), Bankr. No. 14-12092 (KJC), the Court considered a motion by creditor Western Family Foods, Inc. (“WFFI”) for relief from the automatic stay to exercise its setoff rights against its general unsecured claim against ADI Liquidation, Inc., et al. (the “Debtors”).  Meanwhile, the Debtors asserted that they also hold certain setoff rights, and have asked for Court approval of the exercise of their setoff rights against claimants who, like WFFI, have asserted administrative priority claims under Bankruptcy Code § 503(b)(9). In the opinion, the Court found that WFFI requested that its setoff rights trump those of the Debtors.  In denying this request, Judge Carey provided that “there is no basis in the Bankruptcy Code or applicable case law to conclude that a claimant’s setoff rights should trump a debtor’s setoff rights.” Citing In re Circuit City Stores, Inc., 2009 WL 4755253, *4 (Bankr. E.D. Va. Dec. 3, 2009), the Court provided:
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At John Rogers, Attorney at Law, we are proud of the customer service we provide our clients. We are happy to share reviews of our service below ! ” You have an excellent reputation in the local area. You are organized, professional and really know how to put a client at ease during a hard time in their life.  After seeing how unorganized some other attorneys were at court, I was thankful I had your office helping me and not someone else. Thank you all so much.” – Carol “Any questions I had I could always talk to someone directly.  I would recommend your office to other people. ” – Jeff “All questions were answered in a manner that we could understand.  We were never rushed and everyone we worked with was always kind and polite.” – Joe “(another attorney) said that John Rogers was the only one he knew who could sort out my difficult situation and that he himself could not help me. Thank you for being there for me.  You were my friends when I have been at my lowest. You helped me and encouraged me. God bless all of you. I am so thankful for you all.” – DKC “Someone was always able to answer my questions. I felt like everyone there actually cared about helping me with my situation and wasn’t just after collecting my money. ” -Julie “I will definitely recommend this office simply for the professionalism and understanding.”  -Melissa “The staff was very easy to talk to, as was Mr. Rogers, and very knowledgeable. We felt very comfortable.”  -Brent
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On May 8, 2015, American Eagle Energy Corporation (“American Eagle”) and its wholly-owned subsidiary AMZG, Inc. (collectively, the “Debtors”) filed for Chapter 11 bankruptcy protection in the United States Bankruptcy Court for the District of Colorado (Denver).    The Debtors are seeking to have their cases jointly administered under the lead case of In re American Eagle Corporation [Case No. 15-15073]. According to the Debtors’ Emergency Motion for Authority to Use Cash Collateral (the “Cash Collateral Motion”), during the past five years, the Debtors have been engaged in exploration and production activities in southeast Saskatchewan, Canada and in the northern United States.  But in July 2014, the Debtors sold all of their working interests in Canada to focus on exploration and production opportunities in North Dakota and Montana, particularly in Divide County, North Dakota in the area commonly referred to as the “Spyglass Area.” Cash Collateral Motion at 2-3. In American Eagle’s bankruptcy petition, the Debtors list total assets of approximately $211.8 million and total liabilities of approximately $215.2 million. Petition at 4.  For its part, AMZG, Inc. has no operations or assets and its only debt are guarantee claims on American Eagle obligations.  Cash Collateral Motion at 2. A copy of the Cash Collateral Motion can be accessed here:  Download Cash Collateral Motion
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