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Report: Lessons from Detroit and Other Local Government Bankruptcies

 
 

August 18, 2015

 
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  NEWS AND ANALYSIS

REPORT: LESSONS FROM DETROIT AND OTHER LOCAL GOVERNMENT BANKRUPTCIES

The recent high-profile bankruptcy filings by Detroit and a handful of other local governments around the country have renewed state and local policymaker interest in strategies to prevent future financial crises, as well as in the choices states face about whether to intervene to help distressed cities and counties, according to a new report from the Pew Charitable Trusts. Starting with Vallejo, Calif., in 2008, a string of chapter 9 bankruptcies have shaken Prichard, Ala., Central Falls, R.I., Jefferson County, Ala., Detroit, and Stockton and San Bernardino, Calif. Detroit was the largest municipal bankruptcy in U.S. history, and Jefferson was the largest county bankruptcy. According to the report, a few of the lessons learned are:

- Early state intervention in local governments' financial emergencies can help avert a crisis or possible insolvency.
- By taking active steps to budget over the long term -- matching expenses and revenue over several years -- local officials can promote fiscal health and increase their city's capacity to weather the ups and downs of the business cycle.
- Regular monitoring of local government finances can help state officials detect early signs of distress.
- State policymakers can prevent chapter 9 filings by developing alternatives, such as naming a monitor or temporary manager to restore a city's finances.

Click here to read the full report.

ANALYSIS: HIGH CREDIT QUALITY CITED IN MORTGAGE DELINQUENCY DECLINE

TransUnion said that the mortgage delinquency rate -- the rate of borrowers 60 days or more delinquent on their mortgages -- has continued its fast decline, falling to 2.72 percent in the second quarter ended June 30, Collections&Credit Risk reported today. The delinquency rate dropped 20 percent in the last year after reaching 3.42 percent in Q2 2014. The rate has contracted by half in just the last three years (5.39 percent in Q2 2012). "This is the lowest mortgage delinquency level we've seen in several years -- down from a peak of nearly 7 percent in early 2010," said Joe Mellman, vice president and head of TransUnion's mortgage group. "This is largely due to foreclosures and other seriously delinquent accounts continuing to work their way through the foreclosure process, as well as a reflection of the high credit quality of recent originations." Forty-eight states and all of the top 10 largest major metropolitan statistical areas saw double-digit year-over-year declines in seriously delinquent balances. Read more.

 

 

COMMENTARY: U.S. LACKS AMMO FOR NEXT ECONOMIC CRISIS

As the U.S. economic expansion ages and clouds gather overseas, policymakers worry if they will have the firepower to fight back a recession when one does arrive, according to a commentary today in the Wall Street Journal. The U.S. generally injects cash into the economy through interest-rate cuts, tax cuts or ramped-up federal spending. Those tools could be hard to employ when the next dip comes: Interest rates are near zero, and fiscal stimulus plans could be hampered by high levels of government debt and the prospect of growing budget deficits to cover entitlement spending on retired baby boomers. Although economists believe that the U.S. is near recession, looming threats are a reminder that the slow-growing global economy is just a shock away from peril. Japan’s economy contracted in the second quarter, and Europe recorded lackluster growth. China's slowdown, meanwhile, appears to be more severe than global policymakers initially realized, and a currency devaluation there might spur trade frictions. With the U.S. expansion entering its seventh year, policymakers are planning how to respond to the next downturn, which history shows is inevitable. The current expansion is now 16 months longer than the average since World War II, and none has lasted longer than a decade. Read more. (Subscription required.)

FORMER GOLDMAN EXECUTIVE IS CHOSEN TO LEAD DALLAS FED

The Federal Reserve Bank of Dallas yesterday chose for its new president Robert Steven Kaplan, a former Goldman Sachs executive, the New York Times reported today. Kaplan was head of investment banking at Goldman Sachs until leaving in 2006 for a job as a management professor at Harvard Business School. He will succeed Richard Fisher, an outspoken president who left the Fed in March. Kaplan will take office Sept. 8, in time to participate in a potentially important meeting of the Federal Open Market Committee the following week, when policymakers may decide to raise interest rates for the first time since the financial crisis. He will not vote, however. The presidents of the Fed's 12 regional reserve banks vote on a rotating basis, and the Dallas Fed does not hold a vote until 2017. Read more.

ABI WANTS TO SEE YOU IN PHOENIX THIS DECEMBER FOR THE WINTER LEADERSHIP CONFERENCE!

Join ABI on Dec. 3-5, 2015, at the historic Arizona Biltmore in downtown Phoenix for the 27th Annual Winter Leadership Conference. This can't-miss event is always a member favorite and this year will be no exception! There will be topics designed for consumer and business practitioners, as well as financial advisors. Earn up to 12/14 hours of CLE/CPE credit and 2.75/3 hours of ethics, and enjoy a plethora of social and networking events.

Highlights from the conference include:

  • Optional events, including a golf tournament, kayaking, tennis, horseback riding and much more
  • Great Debates on chapter 11 plans, whether a bankruptcy judge can disband a creditors' committee and must a creditor file a proof of claim
  • BAPCPA Consumer Issues: 10-Year Anniversary Special
  • Nine joint committee sessions, provided by ABI's 18 committees
  • A live Bloomberg "Eye on Bankruptcy" luncheon presentation
  • A special Casino Night!
  • A judges' roundtable on hot-button issues

Early-bird registration ends Oct. 2 so be sure to register to take advantage of the savings!

ATTENDING AN ABI CONFERENCE? MAXIMIZE YOUR EXPERIENCE WITH THE OFFICIAL ABI EVENTS APP!

With this interactive mobile app, you can:

- View a complete listing of ABI events
- View the full schedule for specific ABI conferences, including all educational sessions and networking and optional events
- Access conference educational materials
- Access maps of meeting spaces and get information about the hotels and host cities
- View ABI conference exhibitors and sponsors
- Create your own profile, message other conference attendees, post photos and view up-to-the-minute schedule changes for ABI conferences
- Access information from previous ABI conferences

Everything you need to attend ABI events is a few taps away: Download the ABI Events app today!

- iOS: https://goo.gl/mVO5JG
- Android: https://goo.gl/CJyLaL

ABI thanks Donlin, Recano & Co. for its generous sponsorship of the ABI Events app.

ON-DEMAND VIDEO COURSE HELPS YOU PREPARE FOR THE ABC BOARD CERTIFICATION TEST!

Achieving American Board Certification (ABC) means you have met the rigorous, objective standards of a top professional in the areas of bankruptcy and/or creditors' rights. The ABC Exam is the essential step in this process, and this 5-part on-demand course will prepare you for the test. This intro video explains the benefits of ABC certification, the steps in the process and what to expect in the exam. The full exam prep course will qualify for 6 hours of CLE credit (where permitted for online learning), including 1 hour of ethics. The course is $295 for ABI members; $395 for non-members. The non-member $395 fee also includes 1 year of ABI Membership (a $295 value). Click here for more information and to purchase the course.
 

NEW CASE SUMMARY ON VOLO: BELSER V. NATIONSTAR MORTGAGE LLC (IN RE BELSER; 1ST CIR.)

Summarized by Hale Yazicioglu of Hinshaw & Culbertson LLP

The BAP first determined that Nationstar had standing to object to the plan confirmation contrary to the debtor's reasoning that Nationstar lacked standing because it did not file a proof of claim before objecting to Belser’s plan. According to the BAP, there is no requirement in Sect. 1324(a) that in order to be considered a "party in interest" and object to a plan, the creditor must have already filed a claim. Second, the BAP affirmed the bankruptcy court's application of the informal proof of claim doctrine in determining that Nationstar's plan objection constituted a valid informal proof of claim because it put the amount of the claim into the public record and put the debtor on notice of the existence, nature and amount of its claim and arrearage. In light of the circumstances (i.e., the plan objection, the debtor's filing of a claim on behalf of Nationstar and Nationstar's subsequent filed claim), the BAP affirmed the bankruptcy court's ruling that the Nationstar's claim would not be disallowed on the grounds of timeliness. No ruling was made on the merits of the claim filed.

There are more than 1,800 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: U.S. DEPARTMENT OF LABOR REINS IN INDEPENDENT CONTRACTOR MISCLASSIFICATION

A recent blog post reported on David Weil, Administrator for the U.S. Department of Labor, Wage and Hour Division, who recently issued an “Administrator’s Interpretation” regarding independent contractor misclassification — essentially firing a warning shot at the armada of rising independent-contractor-model businesses navigating the current markets.

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

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 23 member associations worldwide with more than 9,800 professionals participating as members of INSOL International. As a member association of INSOL, ABI's members receive a discounted subscription rate. See ABI's enrollment page for details.

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UPCOMING EVENTS:

41st Lawrence P. King & Charles Seligson Workshop on Bankruptcy and Business Reorganization
Sept. 16-17, 2015
Register Today!

20th Annual Views from the Bench Conference
Oct. 9, 2015
Register Today!

7th Circuit Consumer Bankruptcy Conference
Oct. 12, 2015
Register Today!

35th Annual Midwestern Bankruptcy Institute
Oct. 15-16, 2015
Register Today!

Beijing Insolvency & Restructuring Symposium
Ritz-Carlton

Oct. 19-20, 2015
Register Today!

11th Annual International Insolvency and Restructuring Symposium
Oct. 23, 2015
Register Today!

Corporate Restructuring Competition
Nov. 5-6, 2015
Register Today!

Complex Financial Restructuring Program
Nov. 5, 2015
Register Today!

11th Annual Detroit Consumer Bankruptcy Conference
Nov. 11, 2015
Register Today!

27th Annual Winter Leadership Conference
Dec. 3-5, 2015
Register Today!

ABI/St. John’s Bankruptcy Mediation Training Program
Dec. 6-10 2015
Register Today!

 
   
  CALENDAR OF EVENTS
 

2015

September
- Southwest Bankruptcy Conference
Sept. 10-12, 2015 | Las Vegas, Nev.
- Lawrence P. King & Charles Seligson Workshop on Bankruptcy and Business Reorganization
Sept. 16-17, 2015 | New York, N.Y.

October
- Views from the Bench Conference
Oct. 9, 2015 | Washington, D.C.
- 7th Circuit Consumer Bankruptcy Conference
Oct. 12, 2015 | Chicago, Ill.
- Midwestern Bankruptcy Institute
Oct. 15-16, 2015 | Kansas City, Mo.
- Beijing Insolvency & Restructuring Symposium
Oct. 19-20, 2015 | Beijing, China
- International Insolvency and Restructuring Symposium
Oct. 23, 2015 | Madrid, Spain
 

 

 

November
- Corporate Restructuring Competition
Nov. 5-6, 2015 | Philadelphia, Pa.
- Complex Financial Restructuring Program
Nov. 5, 2015 | Philadelphia, Pa.
- Detroit Consumer Bankruptcy Conference
Nov. 11, 2015 | Detroit, Mich.

December
- Winter Leadership Conference
Dec. 3-5, 2015 | Phoenix, Ariz.
- ABI/St. John’s Bankruptcy Mediation Training Program
Dec. 6-10, 2015 | New York, N.Y.

 

 
 
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