Help Center

Commentary: Should the Limits of Bankruptcy's Fresh Start Be Expanded?

ABI Bankruptcy Brief
ABI Bankruptcy Brief
Click here to view online version.

October 12, 2017

ABI Bankruptcy Brief

Commentary: Should the Limits of Bankruptcy's Fresh Start Be Expanded?

While the Bankruptcy Code affords corporations, consumers, farms, fisheries and municipalities the opportunity of a financial fresh start, there are other sectors that are absent of any bankruptcy process at all, according to a Bloomberg commentary on Tuesday. One of the most controversial holes in the bankruptcy safety net, according to the commentary, is student debt, which, due to a series of ever-tighter restrictions adopted by Congress starting in 1976, is now so hard to get discharged that few try. The initial reasoning for this divergent treatment was that rising defaults would endanger student loan programs, but, as an anonymous Harvard Law Review editor argued in 2012, the resulting lack of incentive for lenders to adequately assess the risks of loans might have led to far worse problems. Also unable to avail themselves of the bankruptcy process are U.S. states. As Kenneth Katkin of Northern Kentucky University's Chase College of Law explains, this is partly because the Bankruptcy Code doesn't explicitly provide for it and partly because the contracts clause of the Constitution seems to forbid it. As pension obligations have weighed heavily on certain states, some have called on Congress to provide a mechanism to resolve their debt problems (because of the constitutional issues involved, the Supreme Court might have to weigh in as well). Congress did create a bankruptcy-like process last year for the struggling U.S. territory of Puerto Rico, but not having that in place years ago has surely made the island's debt problems much bigger and harder to resolve, according to the commentary. Banks and other financial institutions don't quite fit into the bankruptcy framework, either, as they are vulnerable to liquidity crises when worried creditors try to cash out at once. The Dodd-Frank Act of 2010 created the Orderly Liquidation Authority, giving the FDIC more flexibility in winding down big financial institutions and the ability to borrow from the U.S. Treasury in doing so, but (1) there are those who doubt that this can really work, and (2) the House of Representatives voted earlier this year to dismantle the authority and replace it with bankruptcy rules for financial corporations that, for the reasons discussed above, almost certainly wouldn't work.
read more

White House 'Committed' to Puerto Rico Relief After Trump Criticism

The White House said today that it was “committed” to disaster relief in Puerto Rico after President Donald Trump said government response teams could not stay in the U.S. territory “forever,” Reuters reported. Trump’s comments, in several Twitter posts on Thursday morning, came hours before the House of Representatives approved a $36.5 billion package of emergency relief for Puerto Rico and other recent disaster-hit areas. Leaders of both major parties lauded the bill. Trump criticized Puerto Rico on Twitter for “a total lack of accountability,” saying that “electric and all infrastructure was disaster before hurricanes.” While he noted it was up to “Congress to decide how much to spend,” he also said: “We cannot keep FEMA, the Military & the First Responders, who have been amazing (under the most difficult circumstances) in P.R. forever!” Puerto Rico is burdened with nearly $72 billion in pre-hurricane debt, overseen by a federally created board. Much of the island remains without electricity or running water three weeks after Hurricane Maria made landfall.
read more

This year’s hurricane season has become one of the most destructive in recent memory. To provide assistance to those affected and direct others in how you can help, ABI encourages you to visit our Hurricane Relief webpage.

Latest ABI Podcast Features Restructuring Experts Examining What Is Behind the Ongoing Carnage in Retail

As retail bankruptcy filings continue to climb in 2017, ABI Executive Director Sam Gerdano speaks with Amir Agam of FTI Consulting (Los Angeles) and Bradford J. Sandler of Pachulski Stang Ziehl & Jones (Wilmington, Del.) about the reasons behind the ongoing retail downturn.
read more

Don't miss a panel of bankruptcy judges discussing what the future may hold for retail bankruptcies at ABI's Bankruptcy 2017: Views from the Bench next Tuesday at Georgetown University Law Center.

IMF: Bloated Valuations and Debt Spell Trouble for Growth

The International Monetary Fund said that a shock to credit markets could catch investors flatfooted and derail a global economic recovery that is largely strengthening, Bloomberg News reported yesterday. Near-term risks to world financial stability have declined since April amid improving macroeconomic conditions and the subsiding risk of emerging-market turmoil, the IMF said in its latest Global Financial Stability Report released yesterday. Major banks and insurers have bolstered their balance sheets, while credit spreads have tightened and market volatility is low, the fund said. But rising debt and the search for yield by investors may be adding to the vulnerability of the global financial system, the Washington, D.C.-based lender warned. “A shock to individual credit and financial markets well within historical norms could decompress risk premiums and reverberate worldwide,” the fund said. “This could stall and reverse the normalization of monetary policies and put growth at risk.”
read more

ABI’s International Insolvency & Restructuring Symposium on Oct. 19-20 in Dublin will examine a host of global insolvency topics, and features a special keynote by Sir Ivan Rogers, the former Permanent Representative of the United Kingdom to the European Union. Be sure to register to hear lively panel discussions with top international experts!

Next Consumer Commission Open Meeting to Take Place Nov. 10 at ABI’s Seventh Circuit Consumer Bankruptcy Conference

ABI's Commission on Consumer Bankruptcy will hold a public meeting during the Honorable Eugene R. Wedoff Seventh Circuit Consumer Bankruptcy Conference on November 10, 2017, from 12:00 - 1:30 PM at Jenner & Block in Chicago. The Consumer Commission invites attendees to request time to make an oral statement at this public meeting, and in addition (or alternatively) to submit a written statement to the Commission. To request a time for a public statement or to send a written statement, please use the Commission’s public email address:

To access the list of topics under consideration by the Commission’s committees and previous hearing statements, please click here.

Sign up Today to Receive Rochelle’s Daily Wire by E-mail!
Have you signed up for Rochelle’s Daily Wire in the ABI Newsroom? Receive Bill Rochelle’s exclusive perspectives and analyses of important case decisions via e-mail!

Tap into Rochelle’s Daily Wire via the ABI Newsroom and Twitter!

Georgetown Views from the Bench October 17, 2017 Washington, D.C.
Recent Trends in Lease Rejection Issues October 19, 2017 Online Webinar
International Insolvency & Restructuring Symposium October 19-20, 2017 Dublin, Ireland
Midwestern Bankruptcy Institute October 26-27, 2017 Kansas City, Mo.
River Roast Endowment Wine Dinner November 9, 2017 Chicago, Ill.
Hon. Eugene R. Wedoff Seventh Circuit Consumer Bankruptcy Conference November 10, 2017 Chicago, Ill.
Hon. Steven W. Rhodes Consumer Bankruptcy Conference November 10, 2017 Troy, Mich.
Winter Leadership Conference Nov. 30 - Dec. 2, 2017 Palm Springs, Calif.
ABI/St. John's 40-Hour Bankruptcy Mediation Training December 3-7, 2017 New York, N.Y.
Click here for Full calendar

New on ABI’s Bankruptcy Blog Exchange: Payday Lenders Are Finding Ways Around Google’s Ad Ban

The tech giant's decision to ban ads for high-cost consumer loans won praise from consumer advocates, but the policy contains a big loophole, and advertisers have found multiple ways to exploit it, according to a recent blog post.

To read more on this blog and all others on the ABI Blog Exchange, please click here.

© 2017 American Bankruptcy Institute
All Rights Reserved.
66 Canal Center Plaza, Suite 600,
Alexandria, VA 22314

To UNSUBSCRIBE from future bankruptcy brief emails,
click here.