ANALYSIS: ANOTHER COURT RETAINS ABSOLUTE PRIORITY RULE FOR INDIVIDUALS IN CHAPTER 11
Congress didn't repeal the so-called absolute priority rule for individuals in chapter 11 when it amended the Bankruptcy Code in 2005, according to a recent ruling by a district judge in Philadelphia, Bloomberg News reported yesterday. The issue has divided federal courts, as three circuit courts of appeal and 17 bankruptcy courts follow the narrow view that absolute priority survives in individuals' chapter 11s. One bankruptcy appellate panel, one district court and seven bankruptcy courts read the amendments broadly and contend that the absolute priority rule no longer applies to individuals in chapter 11, according to U.S. District Judge Timothy J. Savage in Philadelphia. The case turns on language added in 2005 to §1129(b)(2)(B)(ii) of the Bankruptcy Code and §1115. The majority take the view that the plain meaning of the two statutes together only allows an individual using cramdown to keep property that was obtained after filing for bankruptcy. Judge Savage found the language unambiguous, and even if it weren't, he nonetheless subscribed to the narrow view. He said that there is nothing in the statute or legislative history to indicate that Congress intended to abrogate absolute priority for individuals. Because repeal by implication is "disfavored," Judge Savage concluded that absolute priority remains because nothing in the statute shows an intention to repeal the rule that existed before 2005. Read more.
SEN. WARREN CONCERNED SALLIE MAE'S LENDING PRACTICES ARE HURTING STUDENTS
In a letter sent to student lender Sallie Mae, Sen. Elizabeth Warren (D-Mass.) said that she is concerned about Sallie Mae's practices affecting student borrowers, TheStreet.com reported yesterday. Warren wrote that data suggests that Sallie Mae is placing borrowers in deferments and forbearances, rather than working with the borrowers to devise other options. "I am concerned that Sallie Mae too often takes steps that hurt its student borrowers," Warren wrote in the letter. "For example, for many struggling borrowers, an income-based plan that decreases a borrower's payment and offers loan forgiveness would be the best option." To read a copy of the letter, please click here.
On May 30, ABI will be holding a Student Loan Debt Crisis Symposium at the Georgetown University Law Center featuring academics, consumer bankruptcy practitioners, bankruptcy judges, consumers and policy-makers addressing the causes, consequences and possible reform of the student debt problem. For more information or to register, click here.
ONLINE CREDITOR VOTING: COMING SOON TO A BANKRUPTCY CASE NEAR YOU?
While creditors voting on a bankrupt company's restructuring plan still receive a paper copy delivered by mail, that process is starting to be modernized, the Wall Street Journal reported yesterday. With the help of tech-friendly claims agent UpShot Services LLC, antifreeze maker Pitt Penn Holding Co. has filed what's thought to be the first-ever set of fully electronic vote-solicitation procedures, with creditors having the option to vote via an online, electronic transmission rather than having to fill out paper forms sent in the mail. Instructions for creditors of Pitt Penn -- one of the subsidiaries of James Margulies's Industrial Enterprises of America Inc. before Margulies was sentenced to 21 years in jail for securities fraud related to the company -- are simple: Fill out an online form accepting or rejecting the plan, enter the pertinent information like name, phone number and tax ID, and click "send." In the voting procedures, filed earlier this month with the U.S. Bankruptcy Court for the District of Delaware, creditors are pointed to a website where they can file the electronic ballot. Robert Klamser, one of UpShot's co-founders, estimates that a completely electronic claims process could save a debtor 90 percent or more on its claims costs. Read more. (Subscription required.)
NONPROFIT LENDER REVIVES THE HOPES OF SUBPRIME BORROWERS
The Neighborhood Assistance Corp. of America (NACA) has $10 billion in funding from Bank of America to make loans on its own terms over the next decade, and it does not require down payments or consult credit scores, and its loans all carry interest rates below 4 percent, the New York Times reported yesterday. It has enough money to mint about 50,000 homeowners, but Bruce Marks, the head of NACA, wants to show that it is possible to lend to lower-income borrowers on terms that are profitable and sustainable. The great recession unsettled the government's longstanding commitment to homeownership. Mortgage companies are reluctant to lend to anybody but the safest of borrowers, and the government -- led by the Consumer Financial Protection Bureau, an agency created largely to protect mortgage borrowers -- has raced to formalize that new caution. Public policy has shifted from expanding homeownership to preventing bubbles. "I've seen too many neighborhoods devastated, too many families devastated by giving them credit that they could not afford," said Ira Rheingold, executive director of the National Association of Consumer Advocates, an umbrella group for legal aid providers. "We need to build communities and wealth so that people can then go ahead and build sustainable homeownership." Marks counters that low interest rates and housing prices have created a second chance -- an opportunity to help lower-income families buy homes, but this time on terms that they can afford. He is part of a growing chorus in the housing industry warning that the government's push toward safety is reviving an earlier era when homeownership was beyond the reach of too many families, particularly minorities. Read more.
ANALYSIS: IN SAN JOSE, GENEROUS PENSIONS FOR CITY WORKERS COME AT EXPENSE OF NEARLY ALL ELSE
In San Jose and across the nation, state and local officials are increasingly confronting a vision of startling injustice: Poor and middle-class taxpayers -- who often have no retirement savings -- are paying higher taxes so that public employees can retire in relative comfort, the Washington Post reported yesterday. In many places, the problem is proving difficult to address because public-sector pensions have strong legal protections and, union officials argue, the benefits are hardly lavish. But the strain on government budgets is undeniable, and California officials are taking the first steps toward a great leveling between retirement's haves and have-nots. Voters in San Jose have ratified unprecedented cuts in public workers' retirement benefits, and San Jose Mayor Chuck Reed is pushing to make it easier for city leaders to enact similar reductions statewide, inviting the ire of unions and many fellow Democrats. But as Reed works to shed government liability, state officials may be piling it on. In Sacramento, lawmakers want to create the nation's first retirement savings plan for private-sector workers in which the state manages the money and guarantees a minimum rate of return. As many as half a dozen other states, including Maryland, are exploring similar ideas. Analysts generally agree that solving the retirement puzzle is likely to require public officials to reduce benefits for some workers while spending more to help others who are in need. Read more.
CFPB CALLS ON TOP CREDIT CARD COMPANIES TO MAKE CREDIT SCORES AVAILABLE TO CONSUMERS
The Consumer Financial Protection Bureau (CFPB) today called on the nation's top credit card companies to make credit scores and related content freely available to their customers, according to a press release. A report released by the CFPB today found that accuracy issues top the list of the credit reporting complaints that the Bureau has received from consumers. The CFPB also warned companies that provide information to credit reporting agencies not to avoid investigating consumer disputes. "Credit reports and scores can determine the terms of people's mortgages, whether they qualify for auto loans, or if they are eligible for different credit cards," said CFPB Director Richard Cordray. "Making consumers' credit scores freely available on their monthly statement or online makes it easier for them to spot problems with their credit report." Fewer than one in five Americans check their credit report in any given year, according to the CFPB. Recently, some credit card companies have made credit scoring information freely and regularly available to their customers on monthly statements or through online access. Read the full release.
PRE-ORDER YOUR COPY OF ABI'S NEWEST PUBLICATION, ADVANCED FRAUDULENT TRANSFERS: A LITIGATION GUIDE
ABI's newest publication, Advanced Fraudulent Transfers: A Litigation Guide, provides insight into the differences between constructive and intentional fraud claims, how the elements of the claims can be proved, and the defenses that are typically raised. Also discussed are some of the modern issues arising in failed leveraged transactions. Written by Edward S. Weisfelner of Brown Rudnick LLP (New York), an active participant in major fraudulent conveyance litigation, the book analyzes such recent cases as Tribune, Lyondell, SemGroup and Tronox, and explores the future of bankruptcy court adjudication of fraudulent conveyance litigation in light of Stern v. Marshall. Advanced Fraudulent Transfers is an indispensable guide for legal and financial professionals who find themselves dealing with the structuring of leveraged deals -- as well as the fallout when those businesses fail. To receive ABI member pricing, be sure to log in to the site prior to ordering. Pre-orders only; the book will ship in late March.
LOOKING TO SEE WHAT IS IN STORE FOR ABI'S 32ND ANNUAL SPRING MEETING? WATCH HERE
DUBERSTEIN GALA AWARDS DINNER ON MONDAY TO PAY TRIBUTE TO BANKRUPTCY JUDGE BURTON LIFLAND AND CHIEF BANKRUPTCY CLERK JOSEPH HURLEY
The Gala Awards Dinner at this year's 22nd Annual Duberstein Bankruptcy Moot Court Competition on March 3 will feature a special tribute to Bankruptcy Judge Burton J. Lifland of the U.S. Bankruptcy Court for the Southern District of New York and Joseph P. Hurley, Chief Bankruptcy Clerk (retired) of the U.S. Bankruptcy Court for the Eastern District of New York. To purchase tickets for the gala or to find out more information, please visit http://www.dubersteingala.com.
LAST WEEK TO TAKE ADVANTAGE OF THE ABI BOOKSTORE CLEARANCE SALE!
To make room for new books in 2014, ABI is having a special Bookstore clearance sale. Now, when you buy either Best of ABI 2013: The Year in Business Bankruptcy or The Year in Consumer Bankruptcy, you can choose a free book from a select list of ABI publications. You'll be able to make your selection when you click "Buy Now" on either edition of the Best of ABI 2013. To purchase the Best of ABI 2013: The Year in Business Bankruptcy, please click here.
But the offer ends at the end of February, so act now to claim your free book! Make your selection when you click "Buy Now" on either edition of the Best of ABI 2013. To purchase the Best of ABI 2013: The Year in Consumer Bankruptcy, please click here.
MONDAY IS THE DEADLINE FOR SUBMISSIONS FOR ABI'S SIXTH ANNUAL LAW STUDENT WRITING COMPETITION!
Law school students are invited to submit a paper between now and March 3, 2014 for ABI's Sixth Annual Bankruptcy Law Student Writing Competition. ABI will extend a complimentary one-year membership to all students who participate in this year's competition. Eligible submissions should focus on current issues regarding bankruptcy jurisdiction, bankruptcy litigation, or evidence issues in bankruptcy cases or proceedings. The first-place winner, sponsored by Invotex Group, Inc., will receive a cash prize of $2,000 and publication of his or her paper in the ABI Journal. The second-place winner, sponsored by Jenner & Block LLP, will receive a cash prize of $1,250 and publication of his or her paper in an ABI committee newsletter. The third-place winner, sponsored by Thompson & Knight LLP, will receive a cash prize of $750 plus publication of his or her paper in an ABI committee newsletter. For competition participation and submission guidelines, please visit http://papers.abi.org.
NEW ABILIVE WEBINAR ON MARCH 20 EXAMINES HOW TO DRAFT LOAN WORKOUT AGREEMENTS
The next abiLIVE webinar will take place on March 20 from 1-2:30 p.m. ET and will examine how to draft loan workout agreements. Learn the purpose and legal underpinnings of the various component parts of frequently used workout documents such as forbearance agreements, intercreditor agreements and restructuring/override agreements. The panel will focus on real-world examples of good and bad provisions of workout documents and will provide drafting tips. Group discounts available! Click here to register.
NEW CASE SUMMARY ON VOLO: GOLD V. FIRST TENNESSEE BANK NATIONAL ASSOCIATION (IN RE TANEJA; 4TH CIR.)
Summarized by Brooke Schumm of Daneker, McIntire, Schumm
Over a dissenting opinion, the Fourth Circuit affirmed 2-1 the ruling of the district court on appeal, and the bankruptcy court's finding at trial, that the bank was a good-faith transferee of assets from a fraudulently operated company, and therefore, in conjunction with the "for value" element (which was conceded by the trustee) in §548(c), the transfers to the bank could not be avoided.
There are more than 1,200 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: SUPREME COURT RULES ALLEN STANFORD PONZI-SCHEME VICTIMS CAN SUE THIRD PARTIES
A recent blog post examined the Supreme Court's decision yesterday that victims of R. Allen Stanford's $7 billion Ponzi scheme can sue law firms and other third parties on allegations that they aided in the fraud.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
ABI Quick Poll
The U.S. Trustee should generally appoint a single creditors' committee in jointly administered bankruptcy cases.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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