Bankruptcy Brief

REPUBLICAN SENATORS PROPOSE BILL TO BRING LARGE BANKS THROUGH BANKRUPTCY

Two Republican Senators proposed changes to the Bankruptcy Code to help unwind a large, failing financial institution, the latest salvo in an ongoing policy debate over how to avoid future taxpayer bailouts, the Wall Street Journal reported today. Sens. John Cornyn (R-Tex.) and Pat Toomey (R-Pa.) introduced a bill today that provides a new bankruptcy process for large firms, including the creation of a new "bridge" company to keep a failing firm operating and prevent a destabilizing run by all its creditors. Many experts and U.S. officials have said changes to the Bankruptcy Code are needed to allow it to accommodate a large firm's failure without market chaos, and the bill's "bridge" framework resembles a plan the Federal Deposit Insurance Corp. is developing to deal with failing firms. But the Senators' bill also would repeal a section of the 2010 Dodd-Frank financial overhaul: Title II, the part that allows the FDIC to take over a failing firm and unwind it, potentially with temporary taxpayer backing to keep its subsidiaries operating if no other options are available. Title II is only supposed to be used in cases where the firm can't be brought through bankruptcy. That piece of the bill is likely to draw opposition from Democrats who oppose changing the Dodd-Frank law, as well as the White House, which has said it's opposed to changing Dodd-Frank until its rules are largely written and implemented. Read more. (Subscription required.)

Click here to read the press release from Sen. Cornyn's office explaining the bill.

COMMENTARY: BIG BANKS AND THE FAILURE OF BANKRUPTCY

At a meeting of the Federal Deposit Insurance Corp. on Dec. 11, there was a complete and public collapse of the notion that today's large complex financial institutions could actually go bankrupt without causing a great deal of collateral damage, according to an editorial by Prof. Simon Johnson of the M.I.T. Sloan School of Management in the New York Times Economix blog today. In a free and fair discussion before the FDIC's Systemic Resolution Advisory Committee, proponents of bankruptcy as a viable option acknowledged that this would require substantial new legislation, implying a significant component of government support -- or what would reasonably be regarded as a form of "bailout" to a failing company and its stakeholders. As matters currently stand, bankruptcy for a big financial company would imply chaotic disaster for world markets (as happened after Lehman Brothers failed), according to Johnson. It is completely unrealistic to propose "fixing" this problem with legislation that would create a new genre of bailouts. Under current law -- and as a matter of common sense -- the Federal Reserve should take the lead in forcing megabanks to become smaller and simpler, according to the commentary. Under Section 165 of the 2010 Dodd-Frank financial reform legislation, large nonbank financial companies and big banks are required to create and update "the plan of such company for rapid and orderly resolution in the event of material financial distress or failure." The design is that this plan -- known as a "living will" -- should explain how the company could go through bankruptcy. Read the full commentary.

SEN. WARREN INTRODUCES BILL TO PROHIBIT COMPANIES FROM RUNNING CREDIT CHECKS ON JOB CANDIDATES

Sen. Elizabeth Warren (D-Mass.) introduced legislation on Tuesday that would prohibit employers from requiring job applicants to disclose their credit history, MassLive.com reported yesterday. Warren said that a person's poor credit history is often the result of medical bills, job loss or divorce and does not reflect his ability to perform a job. "Let people compete for jobs on the merits, not on whether they already have enough money to pay all their bills," Warren said. "Research has shown an individual's credit rating has little to no correlation with his or her ability to succeed in the workplace." But business organizations argue that credit checks are used in a targeted way to guard against things like theft by employees who have financial responsibilities at a company. Jon Hurst, president of the Retailers Association of Massachusetts, said that the association does not want to see tools taken away from an employer during the hiring process. Hurst said that credit reports are a good indicator of risk and of how responsible a person is. A 2012 report by the Society for Human Resource Management found that around half (47 percent) of companies conduct credit checks on some or all prospective employees. The bill, titled the "Equal Employment for All Act," would amend the Fair Credit Reporting Act to prohibit employers from procuring a job applicant's credit report and would forbid employers from denying a person a job based on poor credit history. (The bill includes an exception for jobs requiring national security clearance.) The bill is co-sponsored by Democratic U.S. Sens. Edward Markey of Massachusetts, Richard Blumenthal of Connecticut, Sherrod Brown of Ohio, Patrick Leahy of Vermont, Jeanne Shaheen of New Hampshire and Sheldon Whitehouse of Rhode Island. A similar bill was introduced by Rep. Steve Cohen (D-Tenn.) in 2011, although it did not go anywhere. Sen. Warren, although she is a freshman senator, has significant political clout because of her strong following among progressive activists nationwide. The bill has not gotten any Republican support. Read more.

Click here for the bill text.

NEW MORTGAGES TO GET PRICIER NEXT YEAR

Fannie and Freddie, which currently back about two-thirds of new mortgages, are set to charge higher fees, a move that will affect rates for many new borrowers, the Wall Street Journal reported yesterday. The mortgage giants said on Monday that, at the direction of their regulator, they will charge higher fees on loans to borrowers who don't make large down payments or don't have high credit scores -- a group that represents a large share of home buyers. Such fees are typically passed along to borrowers, resulting in higher mortgage rates. Fannie and Freddie, which currently back about two-thirds of new mortgages, don't directly make mortgages but instead buy them from lenders. The changes are aimed at leveling the playing field between the government-owned companies and private providers of capital, who are mostly out of the mortgage market now. Fannie and Freddie were bailed out by the government during the financial crisis but are now highly profitable. The Federal Housing Finance Agency last week signaled the fee increases but didn't provide details. The agency's move came one day before the Senate voted to confirm Rep. Mel Watt (D-N.C.) as its director. Read more. (Subscription required.)

WATCH KEVIN D. WILLIAMSON DELIVER HIS KEYNOTE AT WLC!

Now available in ABI's Newsroom is the keynote address from Kevin D. Williamson, a roving correspondent for National Review and the author of The End Is Near and It's Going to Be Awesome: How Going Broke Will Leave America Richer, Happier and More Secure. To watch the keynote, please click here: http://news.abi.org/videos

MISS THE ABILIVE WEBINAR LOOKING AT HOW TO HIRE THE RIGHT FINANCIAL ADVISORS? VIDEO NOW AVAILABLE!

Did you miss the abiLIVE webinar, "How to Hire the Right Financial Advisors" sponsored by ABI's Financial Advisors & Investment Banking Committee? In need of CLE before the end of the year? Then visit cle.abi.org to watch a video of the webinar and earn CLE! The program provides attendees with an overview and basic understanding of the different types of financial advisors that may be relevant for in- and out-of-court cases. Topics include:

- The different types of financial advisors available;

- The benefits and limitations for each category of advisor; and

- How to select the right advisor for the job.

Speakers on the webinar include:

- Daniel F. Dooley of MorrisAnderson (Chicago)

- Gregory S. Hays of Hays Financial Consulting LLC (Atlanta)

- Ivan Lehon of Ernst & Young (New York)

- Allen Soong of Deloitte CRG (Los Angeles)

- Teri Stratton of Piper Jaffray & Co. (El Segundo, Calif.)

Click here for more information and to purchase the video.

NOW AVAILABLE FOR PRE-ORDER: BEST OF ABI 2013: THE YEAR IN CONSUMER BANKRUPTCY

Now available for pre-order in the ABI Bookstore is Best of ABI 2013: The Year in Consumer Bankruptcy. This must-have reference contains the best ABI Journal articles and papers from ABI's top-rated educational seminars selected by ABI Board Member Alane Becket of Becket & Lee LLP (Malvern, Pa.) to cover the most important developments in consumer bankruptcy for 2013. The book delves into such timely topics as the foreclosure crisis, tax issues, the latest on chapter 13, student loans and much more, and it also features relevant case summaries drawn from ABI's Volo site (volo.abi.org). Make sure to log into www.abi.org to get your discounted ABI member pricing. The book will ship in late December. Click here to order.

RENEW YOUR ABI MEMBERSHIP BY DEC. 31 AND SAVE!

Beginning in January 2014, ABI will institute its first dues increase to the regular dues rate in six years. The $20 increase will ensure that ABI can continue to provide you with the latest and most effective tools available in insolvency information and education. You can lock in 2013 rates, and additional discounts, for up to three years by using a multi-year renewal option (save $75!). You can also save 10 percent on future dues by opting into the automated dues program. To renew your membership and save, please go to renew.abi.org.

ABI LAUNCHES SIXTH ANNUAL WRITING COMPETITION FOR LAW STUDENTS

Law school students are invited to submit a paper between now and March 4, 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.

ABI IN-DEPTH

NEW CASE SUMMARY ON VOLO: BAKER V. TRUSTEE CAGE (IN THE MATTER OF WHITLEY; 5TH CIR.)

Summarized by John Jones of JRJONESLAW PLLC

The Fifth Circuit reversed and remanded an order disgorging two properties transferred from debtor to debtor's counsel and held that while the Bankruptcy Code seeks to protect debtors and their estates from excessive or unnecessary legal fees, §329(b) limits the court to attorney compensation that exceeds the reasonable value of any services.

There are more than 1,000 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: THE SENATE, CHAPTER 14, AND A GENERAL LACK OF SERIOUSNESS

The Bankruptcy Blog Exchange is a free ABI service that tracks more than 80 bankruptcy-related blogs. A recent blog post examines a proposal to add "chapter 14" to the Bankruptcy Code for systemically important financial institutions.

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

Electricity qualifies as a "good" entitled to administrative expense status under § 503(b)(9).

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 43 member associations worldwide with more than 9,000 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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2014

January
- Western Consumer Bankruptcy Conference
    Jan. 20, 2014 | Las Vegas, Nev.
- Rocky Mountain Bankruptcy Conference
    Jan. 23-24, 2014 | Denver, Colo.

February
- Caribbean Insolvency Symposium
    Feb. 6-8, 2014 | San Juan, P.R.
- VALCON14
    Feb. 26-28, 2014 | Las Vegas, Nev.

March
- Bankruptcy Battleground West
    March 11, 2014 | Los Angeles, Calif.
- Alexander L. Paskay Memorial
Bankruptcy Seminar
    March 13-15, 2014 | Tampa, Fla.

April
- Annual Spring Meeting
    April 24-27, 2014 | Washington, D.C.

CORDRAY CONFIRMED BY SENATE TO LEAD THE CFPB

The Senate today confirmed (66-34) Richard Cordray's nomination to become the director of the Consumer Financial Protection Bureau, the Washington Post reported. The vote effectively ends a two-year long process during which Republicans blocked Cordray's nomination over disagreements about the bureau's setup. Cordray was appointed to the Consumer Financial Protection Bureau position during a congressional recess in January 2012 and had been awaiting confirmation. Cordray's recess appointment would expire in January 2014. The vote came as Senate leaders struck a deal to avert Democrats' move to change Senate rules on filibusters of certain nominees. Read more.

COMMENTARY: THE FINANCIAL INSTABILITY COUNCIL

There's finally a healthy discussion in Washington, D.C., about how to end too-big-to-fail banks, but before the government can start getting rid of taxpayer-backed behemoths, it first has to stop creating them, according to an editorial in today's Wall Street Journal. The Dodd-Frank Act classified all banks with more than $50 billion in assets as systemically important, and the federal Financial Stability Oversight Council (FSOC) is considering which non-banks should also be deemed too big to fail. Last year the board of regulators slapped the systemic tag on eight "financial market utilities," including clearinghouses, which means taxpayers now stand behind derivatives trading. Last week the council, chaired by Treasury Secretary Jack Lew, declared that GE Capital, the finance arm of General Electric, and AIG are also officially important. Now the council is trying to designate insurer Prudential as systemic, and perhaps MetLife too. GE Capital was rescued in the 2008 panic and thus deserves the systemic label, according to the editorial. AIG seems to welcome the designation, according to the editorial, perhaps because its current mix of businesses means that it will face a lighter regulatory burden than some competitors. However, Prudential and MetLife are resisting membership in the too-big-to-fail club, according to the editorial, as it would be a giant and counterproductive leap to conclude that the insurance business presents a systemic risk to the financial system. Read more. (Subscription required.)

SUBPRIME BORROWERS WITH BEST CREDIT SCORE STILL DENIED HELP

President Obama to date has failed to win Congressional backing for his proposal to expand eligibility for government-backed refinancing nationally to include subprime mortgages, Bloomberg News reported today. Expanding eligibility for the government's Home Affordable Refinance Program (HARP) is still at the top of the White House's agenda for housing. The effort is dubbed "Where's my refi?" The Treasury Department, which funds the nation's anti-foreclosure efforts, supports the program. Four years after the peak of the foreclosure crisis, Treasury has spent only a fifth of the $38.5 billion of funds from the Troubled Asset Relief Program (TARP) set aside for housing. "This is where you get to the heart of the subprime lending problem -- these expensive private loans where people kept paying," said Diane Swonk, chief economist at Chicago-based Mesirow Financial Inc. "It's easy to forget they are still out there." Borrowers who refinanced through HARP in the first quarter had an average interest-rate reduction of 2.1 percentage points and will save about $4,300 in the first 12 months of the new loan, according to mortgage financier Freddie Mac. But while expanding HARP would benefit homeowners, it wouldn't benefit investors, said Walt Schmidt, a mortgage strategist at FTN Financial. Bondholders in private-label securities would lose a paying loan, and potential buyers of government-backed securities would fear another mid-stream change in eligibility standards, he said. Read more.

COMMENTARY: BANKS DODGE A BULLET WITH DEAL ON SWAPS

A deal between American and European regulators on derivatives has helped banks dodge a bullet, according to a commentary yesterday on the New York Times DealBook blog. Before reaching a compromise on July 11, the Commodity Futures Trading Commission intended to force swaps involving U.S.' counterparties to be cleared in this country. That would have frozen cross-border flows and hammered volumes by creating separate regulatory jurisdictions. For global banks, that situation has been averted as banks will now have the choice of trading and clearing trans-Atlantic swaps in either Europe or the United States. To satisfy the Dodd-Frank Act reforms, the regulatory framework on swaps will be judged as "essentially identical" in each jurisdiction -- although in reality they are nothing of the sort. The two regimes differ in that Europe's swaps reforms are taking longer to implement than America's, but are more stringent on most of the main issues. The European Securities and Markets Authority reckons it will take at least a year, possibly two, before they are in place. The U.S., meanwhile, is ready to implement its rules. Europeans are tougher on data transparency, margin posting and trade reporting, and they also cover foreign-exchange swaps. Read more.

DID YOU MISS MONDAY'S abiLIVE WEBINAR DISCUSSING § 1111(b) ELECTION, PLAN FEASIBILITY AND CRAMDOWN ISSUES? RECORDING IS NOW AVAILABLE!

If you were not able to join Monday's well-attended abiLIVE webinar examining § 1111(b) elections, plan feasibility and voting, a recording of the program is now available for downloading! Utilizing a case study, ABI's panel of experts explored the issues surrounding a lender's decision on whether or not to make an election under § 1111(b), plan feasibility and voting. The abiLIVE panel also walked attendees through the necessary mathematical analyses used to examine these issues. The 90-minute recording is available for the special price of $75 and can be purchased here.

NEW abiLIVE WEBINAR ON AUGUST 20: HOW WILL THE NEW U.S. TRUSTEE FEE GUIDELINES IMPACT YOU?

The new U.S. Trustee Fee Guidelines will affect all attorneys and firms who work on larger chapter 11 cases filed on or after November 1st. ABI's Ethics & Professional Compensation Committee will present a panel of experts, including Cliff White, the Director of the U.S. Trustee Program, to discuss some of the ways the new guidelines may change day-to-day operations in firms, issues relating to the new market rate benchmarks, and how these changes might alter insolvency practice. Register today to hear government, attorney and academic perspectives on this important and timely topic.

ABI GOLF TOUR UNDERWAY; NEXT STOP IS THE SOUTHEAST BANKRUPTCY CONFERENCE THIS WEEK

The next stop for the ABI Golf Tour is the famed Golf Club of Amelia Island course on Amelia Island, Fla., in conjunction with the Southeast Bankruptcy Conference this week. Final scoring to win the Great American Cup—sponsored by Great American Group—is based on your top three scores at seven scheduled ABI events, so play as many as you can before the tour wraps up at the Winter Leadership Conference in December. See the Tour page for details and course descriptions. The ABI Golf Tour combines networking with fun competition, as golfers "play their own ball." Including your handicap means everyone has an equal chance to compete for the glory of being crowned ABI's top golfer of 2013! There's no charge to register or participate in the Tour.

ABI IN-DEPTH

NORTON JUDICIAL EXCELLENCE AWARD NOMINATIONS OPEN

Nominations are now open for the 8th Annual Judge William L. Norton Judicial Excellence Award, to be presented during the ABI luncheon at the annual meeting of the National Conference of Bankruptcy Judges on Nov. 1, 2013. The award is presented by ABI and Thomson Reuters each year to the current or retired bankruptcy judge whose career embodies the same continued dedication and outstanding contributions to the insolvency community as the award’s namesake, Judge Norton. Nominations are considered by a committee made up of representatives from the Norton treatise and past ABI presidents. Nomination forms are available from Clay Mattson at Thomson Reuters ([email protected]) and should be submitted by July 29.

NEW ABI "BANKRUPTCY IN DEPTH" ON-DEMAND CLE PROGRAM LOOKS AT PRINCIPLES OF PROPERTY OF THE ESTATE: DEMYSTIFYING EQUITABLE INTERESTS

In this 90-minute seminar, Profs. Andrew Kull of Boston University School of Law and Scott Pryor of Regent University School of Law provide an in-depth analysis of a legal principle that has become, in their words, "a long-lost area of the law": § 541 of the Bankruptcy Code. Seeking to demystify what is meant by "property of the estate" and, in particular, the distinction between legal or equitable interests of the debtor in property, Kull and Pryor describe the legal entanglements that ensue when legal title belongs to one person but the equitable title belongs to someone else. The cost of the seminar, which includes written materials and qualifies for 1.5 hours of CLE, is $95. To order or to learn more, click here.

ASSOCIATES: ABI'S NUTS & BOLTS ONLINE PROGRAMS HELP YOU HONE YOUR SKILLS WHILE SAVING ON CLE!

Associates looking to sharpen their bankruptcy knowledge should take advantage of ABI's special offer of combining general, business or consumer Nuts & Bolts online programs. Each program features an outstanding faculty of judges and practitioners explaining the fundamentals of bankruptcy, offering procedures and strategies tailored for both consumer and business attorneys. Click here to get the CLE you need at a great low price!

NEW CASE SUMMARY ON VOLO: PALOMAR V. FIRST AMERICAN BANK (7TH CIR.)

Summarized by John Eggum of Foran Glennon Palandech Ponzi & Rudloff

The Seventh Circuit ruled that a chapter 7 debtor cannot strip off a wholly unsecured mortgage. The Seventh Circuit also distinguished the ability to strip off wholly unsecured mortgages in chapter 13 because "[t]he strip-off right in Chapter 13 is a partial offset to the advantages that chapter 13, relative to chapter 7, grants creditors, such as access to a larger pool of assets [created by the commitment of the debtor's disposable income]." Additionally, the strip-off right in chapter 13 is an aspect of a chapter 13 plan, as indicated by § 1322. Nothing in § 506 compelled a different result; chapter 7 debtors cannot rely on § 506 to import a strip-off power into chapter 7.

There are more than 900 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: DELAWARE BANKRUPTCY COURT FINDS NO VALUE IN LITIGATION TRUSTEE'S METHOD OF VALUING GOING CONCERN OF DEBTOR

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. In a post examining Whyte v. C/R Energy Coinvestment II, L.P. (In re SemCrude, L.P.), the U.S. Bankruptcy Court for the District of Delaware dealt with the familiar scenario of a litigation trustee aggressively pursuing fraudulent-transfer claims. Faced with a fight over valuation theories, the court held that using a balance sheet-based test was inappropriate for valuing a debtor as a going concern, where a third-party had prepared a then-current valuation utilizing the discounted cash flow method, notwithstanding the fact that such valuation failed to take into account certain facts that adversely affected the value of the debtors.

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

When will the dowward trend of consumer bankruptcy filings turn around?

Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.

INSOL INTERNATIONAL

INSOL International is a worldwide federation of national associations for accountants and lawyers who specialize in turnaround and insolvency. There are currently 37 member associations worldwide with more than 9,000 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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Join our networks to expand yours.

2013

July
- Northeast Bankruptcy Conference and Northeast Consumer Forum
     July 11-14, 2013 | Newport, R.I.
- abiLIVE Webinar: § 1111(b) Election, Plan Feasibility and Cramdown Issues
     July 15, 2013
- Southeast Bankruptcy Workshop
     July 18-21, 2013 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
    August 8-10, 2013 | Hershey, Pa.
- abiLIVE Webinar: How Will the New U.S. Trustee Fee Guidelines Impact You?
     August 20, 2013
- Southwest Bankruptcy Conference
    August 22-24, 2013 | Incline Village, Nev.

September
- ABI Endowment Golf & Tennis Outing
    Sept. 10, 2013 | Maplewood, N.J.
- ABI Endowment Baseball Game
    Sept. 12, 2013 | Baltimore, Md.
- Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization
    Sept. 18-19, 2013 | New York
- abiLIVE Webinar: Complex Requirements and Ethical Duties of Representing Consumer Debtors
     Sept. 24, 2013
- Bankruptcy 2013: Views from the Bench
    Sept. 27, 2013 | Washington, D.C.

October
- Midwestern Bankruptcy Institute Program and Midwestern Consumer Forum
    Oct. 4, 2013 | Kansas City, Mo.
- ABI Endowment Football Game
    Oct. 6, 2013 | Miami, Fla.
- Professional Development Program
    Oct. 11, 2013 | New York, N.Y.
- Chicago Consumer Bankruptcy Conference
    Oct. 14, 2013 | Chicago, Ill.
- International Insolvency Symposium
    Oct. 25, 2013 | Berlin, Germany

November
- Austin Advanced Consumer Bankruptcy Practice Institute
   Nov. 10-12, 2013 | Austin, Texas
- Detroit Consumer Bankruptcy Conference
   Nov. 11, 2013 | Detroit, Mich.

December
- ABI/St. John’s Bankruptcy Mediation Training
    Dec. 8-12, 2013 | New York