||NEWS AND ANALYSIS
WHO GETS FUNDS HELD BY CH. 13 TRUSTEE WHEN CASE CONVERTS TO CHAPTER 7? SUPREME COURT LOOKS TO POLICY, EQUITY AND THE CODE DURING ORAL ARGUMENT
by Prof. Anne Lawton
ABI Resident Scholar
On Wednesday, April 1, 2015, the U.S. Supreme Court heard oral argument in two bankruptcy cases: Harris v. Viegelahn and Bullard v. Blue Hills Bank. The issue for the Court in Harris is whether funds already paid to, but not yet disbursed by, the chapter 13 trustee should revert to the debtor or be distributed to creditors when the debtor converts his case to chapter 7 after confirmation of his chapter 13 plan. Many of the questions that the Justices asked at oral argument focused not on the nuances of statutory language, but rather on the usefulness of trust law principles in analyzing proposed distribution rules, the wisdom of creating a rule of distribution based on little more than happenstance, and the desire to adopt a rule consistent with Congress's intent to provide debtors with incentives to file for relief under chapter 13. Click here to read Prof. Lawton's full analysis of the Harris case.
An analysis of the oral argument in Bullard will appear in Thursday's edition of the ABI Bankruptcy Brief.
COMMENTARY: CONGRESS MUST REFORM THE STUDENT LOAN SYSTEM
Americans owe $1.2 trillion in student loan debt -- almost double what they owe on credit cards and auto loans -- and most student loans aren’t dischargeable in bankruptcy. However, a U.S. Senate bill would reverse a 2005 law that prevents debtors from gaining relief from private student loans in bankruptcy cases, according to an editorial in Sunday's Pittsburgh Post-Gazette. Another proposal would let borrowers refinance their loans at lower interest, so that students aren’t locked into high rates for life. All of these measures would help, but they would only tweak a badly broken student borrowing system, according to the editorial. Borrowers who fail to repay on time can have their paychecks and Social Security benefits garnished, and have almost no exit options. Congress must help students who are in dire straits get relief from federal loan debt, through bankruptcy or another process. If lawmakers are serious about preserving the American dream for the next generation, according to the editorial, they must reform the financial aid program, starting with lower interest rates and bankruptcy relief. Read the full editorial.
For more on student debt and bankruptcy, be sure to pick up ABI's Graduating with Debt: Student Loans under the Bankruptcy Code, available now in the ABI Bookstore.
NEW COLLEGE LOAN TARGETS PARENTS
A new private student loan is aimed at parents who want to limit the debt their offspring take on, the Wall Street Journal reported today. Citizens Financial Group this month launched a loan for parents on which the interest rate can be lower than that of the federal loan used by many parents to pay for college. And unlike the federal loan, the new loan doesn't charge an origination fee, thereby allowing parents to save hundreds or more dollars upfront. Applicants must have good credit, generally a FICO score above 700, show that they have the income to pay back the loan and that their monthly debt payments aren’t high compared with their income. With the new Citizens loan, unlike most bank loans, everyone who gets approved will be offered the same rates. The basic rate on the loan with a 10-year repayment is 7.2 percent, and it can decline to 6.7 percent if borrowers arrange for their loan to be paid automatically each month and if they open a Citizens bank account. Borrowers who opt for a five-year repayment period are looking at rates of 7.1 percent and 6.6 percent, respectively. Read more. (Subscription required.)
REPORT: THE IMPACT OF TIGHT CREDIT STANDARDS ON LENDING FROM 2009-13
A recent report from the Urban Institute predicted that an additional 1.25 million mortgage loans would have been made in 2013 if the cautious lending standards from 2001, rather than the strict lending standards of 2013, had been in place. Between 2009 and 2013, the number of "missing" loans grew from 0.50 million to 1.25 million annually, for a total of more than 4 million missing loans over the five years, according to the report. African-American and Hispanic families have been particularly affected by this tight credit environment. In 2013, the severe standards meant that lending to African-American and Hispanic borrowers was 50 and 38 percent less, respectively, than what it was in 2001. In contrast, the more severe standards reduced lending to white borrowers by about 31 percent and did not reduce lending to Asian families at all. Read the full report.
ANALYSIS: COMPANIES PAY LATER, SQUEEZING THEIR SUPPLIERS
Adopting a tactic widely used by 3G Capital, the Brazilian private investment group behind the recent merger of Heinz and Kraft Foods, a growing number of the world’s largest food and packaged goods companies are asking their suppliers to give them as much as four months to pay their bills -- even though they typically require payment from their own customers in 30 days, the New York Times reported today. The tactic has gained in popularity ever since an affiliate of 3G Capital put it to use after it bought Anheuser-Busch in 2008. In the past, extended payment terms often were a signal that a company was experiencing worrisome cash flow problems, but these days big, robust companies are imposing new schedules on suppliers as a business strategy, analysts say. Bea Chiem, a credit analyst who follows food companies at Standard & Poor's, offered several reasons that companies might use the tactic: "Their recent performance has been soft, many are in the middle of restructuring, and all are trying to balance the need for cash for their business and shareholder returns." The practice is often crippling for suppliers, especially smaller businesses that have little cushion. In Britain, the Marketing Agencies Association called on its member advertising agencies to "strike" in April against Anheuser-Busch InBev, the beer behemoth created by an affiliate of 3G, after the company began seeking new terms. Those included acceptance of a payment period longer than 120 days and a request for pro bono work. Read more.
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NEW CASE SUMMARY ON VOLO: PAWTUCKET CREDIT UNION V. BOYAJIAN (1ST CIR.)
Summarized by Guy Moss of Riemer & Braunstein LLP
Reversing and remanding, the First Circuit BAP concluded that the binding effect of a confirmed chapter 13 plan prevails over a claim that is disallowed under the claims-allowance process set forth in the Bankruptcy Code and Rules. Plan confirmation is a final order, with res judicata effect, so long as the due process requirements, as here, of reasonable and actual notice are satisfied. Accordingly, where a confirmation order specifically deems an unsecured claim as "allowed" in the context of a stripdown of a mortgage, notwithstanding the absence of a filed claim at the time and the disallowance of a late-filed claim thereafter, all parties are bound, including a chapter 13 trustee.
There are nearly 1,700 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: CURTAILED SPENDING FOR OIL AND GAS PRODUCERS COULD PROLONG INDUSTRY PAIN
A recent blog post states that decreases in the price of crude oil will have significant impact on oil and gas companies and several related sectors in a series of waves that have already begun and will most likely continue for some time.
To read more on this blog and all others on the ABI Blog Exchange, please click here.
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