Business Reorganization

FORECLOSURES FALL IN 62 PERCENT OF U.S. CITIES

RealtyTrac said that foreclosures fell in nearly two-thirds of the nation's largest metro areas during the third quarter, CNNMoney.com reported today. With 62 percent of the nation's 212 largest markets seeing foreclosure activity shrink during the latest quarter, the ongoing decline is yet another sign that the housing market is starting to stabilize, according to RealtyTrac. During September, foreclosure activity in 58 percent of the major metro markets had even dropped below September 2007 levels. Major cities like San Francisco, Detroit, Los Angeles, Phoenix and San Diego saw foreclosures fall by double-digit percentages of 26 percent or more. Of the metro areas with the 20 highest foreclosure rates, all are still in California, Arizona, Nevada and Florida. Read more.

COMMENTARY: STUDENT DEBT DEBACLES

Students who finance their educations through private lenders often wrongly assume that private and federal loans work the same way, according to an editorial in today's New York Times. The problem is serious because private student loans now account for $150 billion of the $1 trillion in total outstanding student loan debt in the country, according to the first annual report from the Consumer Financial Protection Bureau’s student loan ombudsman. The report found that many loan servicers — the companies that collect the payments for the lenders — make it extremely difficult for student borrowers to manage their debts. Borrowers often have difficulty finding out how much they owe or getting information about their payment histories. Some struggling borrowers who need loan modification said that servicers forced them to pay more per month than they could possibly afford, without telling them the payments would not prevent default. The federal government needs to open up refinancing and debt-relief opportunities for these borrowers, according to the editorial, as it did for some mortgage-holders. The bureau should also set national standards for loan servicers to require clear disclosure of conditions, advance notice of any changes in the status of the account and prompt resolution of customer requests for information. Read the full editorial.

ANALYSIS: OUTSIDE LAW FIRMS FOR U.S. REGULATOR TO NET QUARTER OF CREDIT UNION SETTLEMENT

The National Credit Union Administration, the credit union industry's regulator, last year hired outside attorneys to recover between $6 billion and $9 billion in losses incurred by failed credit unions from their purchase of toxic mortgage securities from Wall Street banks before the 2008 financial crisis, according to a Wall Street Journal analysis yesterday. The law firms were hired under a contingency fee arrangement that would give them one-fourth of any judgment or settlement, according to congressional investigators who reviewed the contracts. It could mean a payday of hundreds of millions of dollars for the firms. The amount recovered in securities lawsuits typically falls short of the losses, said an attorney involved in the case. The NCUA filed suits in federal court in Kansas and California last year and this month against seven banks that structured and sold the deals. The NCUA declined to provide details about the lawyers' contract, saying it would compromise litigation and negotiation strategy. The two firms, Kellogg Huber Hansen Todd Evans & Figel PLLC and Korein Tillery LLC, declined to discuss the fee arrangement. House Oversight Committee Chairman Darrell Issa (R-Calif.) asked the inspector general of the NCUA last week to determine whether the agreement was legal. "Contingency fee arrangements impose exorbitant or unnecessary costs on taxpayers who have a right to expect the government to operate transparently and efficiently," Issa said. Read more. (Subscription required.)

JUDGE SAYS VISA, MASTERCARD DEAL APPEARS TO MEET STANDARD

A federal judge said that the proposed settlement of lawsuit brought by merchants over credit card fees that may cost Visa Inc., MasterCard Inc. and banks as much as $7.25 billion is probably worthy of initial approval, Bloomberg News reported today. "I have reviewed the settlement agreement, and at first blush it appears to satisfy the requirements for preliminary approval," U.S. District Judge John Gleeson said in an order yesterday. The order, containing Judge Gleeson's first public comments on the deal since it was unveiled in July, came in response to objections lodged by an expanding group of retailers and trade groups who contend that it is unfair. Judge Gleeson said that he will hear arguments against preliminary approval of the settlement on Nov. 9. He declined a request to form a committee for objecting retailers and said that there would be an opportunity for a more thorough discussion at a later hearing on final approval. Read more.

CFTC SAID TO ALLOW MORE SWAPS TRADING VIA PHONE IN FINAL RULE

The Commodity Futures Trading Commission (CFTC) will allow more swaps to be traded over the phone than initially indicated under proposed Dodd-Frank Act reforms, Bloomberg News reported today. Chairman Gary Gensler outlined the changes on Tuesday with executives of firms that want to create regulated entities allowed to trade swaps, known as swap execution facilities (SEFs). The details of what will be allowed are still being worked out for the final draft rule, which is expected to be shown to the four other CFTC commissioners today. The change in phone trading contrasts with the proposal written in the Federal Register in January 2011, which said that "entities offering the following services do not comply with the statutory definition of a SEF: one-to-one voice services for the execution or trading of swaps (other than for the execution of block trades)." Read more.

LIVE WEBCAST AVAILABLE FOR ABI'S CHAPTER 11 COMMISSION HEARING AT NCBJ'S ANNUAL MEETING TOMORROW!

If you are not able to attend the public hearing of ABI's Chapter 11 Reform Commission tomorrow from 2:30-4:30 p.m. PT (5:30-7:30 p.m. ET) at the 86th Annual NCBJ Annual Conference, there will be a live webcast stream available! To access the live webcast, simply go to the Commission’s website (http://commission.abi.org) and the webcast will appear on the main page when the hearing begins. Prepared witness testimony for the hearing will also be accessible from the webpage.

Additionally, members planning to attend the NCBJ Annual Conference in San Diego will not want to miss the exciting line-up scheduled for the ABI program track tomorrow. In addition to roundtable discussions on the hottest consumer and business bankruptcy topics, ABI will be hosting a ticketed luncheon (tickets can be purchased at the ABI Booth) that will feature the presentation of the 7th Annual Judge William L. Norton, Jr. Judicial Excellence Award and entertainment by Apollo Robbins, a sleight-of hand artist, security consultant and self-described gentleman thief. To view the list of ABI programs tomorrow and the full NCBJ Annual Conference schedule, please click here.

MEMBERS ENCOURAGED TO WEIGH IN ON REAPPOINTMENT OF BANKRUPTCY JUDGE JUDITH WIZMUR

The current 14-year term of office of Judith H. Wizmur, U.S. Bankruptcy Judge for the District of New Jersey at Camden, is due to expire on Sept. 4, 2013. The U.S. Court of Appeals for the Third Circuit is considering the reappointment of the judge to a new 14-year term of office. Members of the bar and the public are invited to submit comments for consideration by the Court of Appeals regarding the reappointment of Bankruptcy Judge Wizmur. All comments should be directed to one of the following addresses: by e-mail at [email protected] or by mail to the Office of the Circuit Executive, 22409 U.S. Courthouse, 601 Market St, Philadelphia, PA 19106-1790. Comments must be received no later than noon on Monday, December 3, 2012.

ABI IN-DEPTH

NEW DIP FINANCING BOOK AVAILABLE FOR PREORDER IN THE ABI BOOKSTORE

The Bankruptcy Code provides a variety of mechanisms designed to facilitate a chapter 11 debtor's access to new credit to fund its reorganization or sale efforts. DIP financing, or credit extended to a chapter 11 debtor, offers unique benefits—and challenges—for those that take on the risk of providing secured credit to troubled businesses. Debtor-in-Possession Financing: Funding a Chapter 11 Case details the real-world application of this part of the Code, particularly § 364, and explains common lending practices, including the critical financial analyses that lenders should complete before entering into a DIP agreement. Concluding with a detailed analysis of a "Model DIP Financing Order," this manual provides practitioners, lenders and debtors with an understanding of the history behind DIP financing and a practical explanation of its often-complex mechanics. (Softbound, 212 pages. Member price: $60. Non-member price: $85. To obtain member pricing, please log in prior to purchase.)

Click here to pre-order your copy today!

LATEST CASE SUMMARY ON VOLO: ANDERSON V. CRANMER (IN RE CRANMER; 10TH CIR.)

Summarized by Adam Kunst

The Tenth Circuit ruled that Social Security income need not be included in the calculation of projected disposable income for a chapter 13 repayment plan. Not including Social Security income in the calculation of projected disposable income in a chapter 13 repayment plan is not a ground for finding that the plan was not proposed in good faith.

There are more than 650 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: BIG BANKS NOW OFFERING PAYDAY LOANS

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post examines how Wells Fargo, First Third Bank and other large banks offer payday-style loans, called direct deposit advances or ready advances. Both the FDIC and the CFPB have taken notice of the loans and are investigating the practices.

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

Section 523(a)(8) should be amended to allow private student loans to be discharged in bankruptcy.

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

HAVE YOU TUNED IN TO BLOOMBERG LAW'S VIDEO PODCASTS?

Bloomberg Law's video podcasts feature top experts speaking about current bankruptcy topics. The podcasts are available via Bloomberg Law's YouTube channel so that you can access the programs from your computer or device of your choice! Click here to view the Bloomberg Law video podcasts.

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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October
- ABI Program at NCBJ's Annual Conference
     October 26, 2012 | San Diego, Calif.
- ABI Endowment Event at Peter Max Gallery
     October 29, 2012 | New York, N.Y.

November
- U.S./Mexico Restructuring Symposium
     November 7, 2012 | Mexico City, Mexico
- Professional Development Program
     November 9, 2012 | New York, N.Y.
- Detroit Consumer Bankruptcy Conference
     November 12, 2012 | Detroit, Mich.
- Winter Leadership Conference
     November 29 - December 1, 2012 | Tucson, Ariz.

December
- Forty-Hour Bankruptcy Mediation Training
     December 4-8, 2012 | New York, N.Y.

2013

January
- Western Consumer Bankruptcy Conference
     January 22, 2013 | Las Vegas, Nev.
- Rocky Mountain Bankruptcy Conference
     January 24-25, 2013 | Denver, Colo.

February
- Caribbean Insolvency Symposium
     February 7-9, 2013 | Miami, Fla.
- Kansas City Advanced Consumer Bankruptcy Practice Institute
     February 17-19, 2013 | Kansas City, Mo.
- VALCON 2013
     February 20-22, 2013 | Las Vegas, Nev.

BIG U.S. BANKS GET THREE-MONTH EXTENSION FOR "LIVING WILLS"

The Federal Reserve and Federal Deposit Insurance Corp. gave large U.S. banks an additional three months to draw up "living wills" to assist regulators in winding them down in case of a future insolvency, Bloomberg News reported yesterday. The agencies also provided new details on what information the living wills should contain, including obstacles that might arise from taking the banks apart safely under the Bankruptcy Code, according to a statement today from the regulators. The documents, originally due July 1, are now due Oct. 1. Institutions with non-bank assets greater than $250 billion had to file their plans last year. Those 11 banks, including JPMorgan Chase & Co., Bank of America Corp. and Goldman Sachs Group Inc., must now provide a second version of the living will, and a group of the next-largest banks must file for the first time. Regulators are looking for more detailed information on "global issues, financial market utility interconnections, and funding and liquidity… to provide analysis to support the strategies and assumptions contained in the firms' resolution plans," according to the statement. Read more.

COMMENTARY: PUBLIC PENSIONS IN BANKRUPTCY COURT

Devastated by the recession, the city of Stockton, Calif., is trying to renegotiate its debts in a bankruptcy case that could set an important precedent on whether courts can forcibly reduce the pensions of government employees, according to a New York Times editorial on Sunday. Even after drastic cuts to city services that have sent the crime rate soaring, the city of 300,000 people about 80 miles east of San Francisco has an annual budget deficit of $26 million. It has laid off a quarter of its police force, which has meant that officers often respond only to crimes in progress. To fix its finances, Stockton is asking the bankruptcy court to restructure debts totaling about $250 million. But the city’s creditors, which include bondholders and insurance companies that have guaranteed some of its bonds, want the city to reduce the $30 million it spends annually on pension benefits for its 2,400 retirees. The California Public Employees’ Retirement System, which manages Stockton’s pensions, argues that the state’s Constitution and court rulings forbid state and local governments from ever lowering the pensions of retirees and current employees. The creditors assert that federal bankruptcy law, which lets judges break contracts, should trump state law. So far, city officials have said they do not intend to trim pensions, though they have reduced health benefits for retirees. Many legal analysts say that the Stockton case could eventually be appealed to the Supreme Court. While a Supreme Court decision would help clarify an important area of the law, a drawn-out court case is the last thing Stockton needs, according to the editorial. The way to get the city back on its feet is for city officials, creditors and retirees to negotiate a fair settlement quickly. Read the full editorial.

AMERICAN DREAM ELUDING THOSE WITH STUDENT DEBT BURDENS

Two-thirds of student loans are held by people under the age of 40, according to the Federal Reserve Bank of New York, blocking millions of them from taking advantage of the most affordable housing market on record, Bloomberg News reported on Saturday. The number of people in that age group who own homes fell by 4.6 percent in the fourth quarter from the third, the biggest drop in records dating to 1982. The issue is being exacerbated by an explosion in the $150 billion private market for student debt, with interest rates for some existing loans surpassing 12 percent. Unlike mortgage-holders, borrowers have little hope of refinancing at lower rates. Interest on some new federal loans is set to double to 6.8 percent in July if Congress does not extend the current rate, as it did last year. Read more.

COMMENTARY: CAN DODD-FRANK FIX MORTGAGE SERVICING IF WE DO NOT KNOW WHAT WENT WRONG?

A new obstacle has arrived for those seeking justice for past wrongdoing in the mortgage-servicing industry and those looking to prevent trouble in the future: federal regulators blocking the release of records they have collected documenting illegal abuses, according to a commentary in the Washington Post on Sunday. A heated exchange broke out at a Senate hearing last week, when Sen. Elizabeth Warren (D-Mass.) asked regulators from the Office of the Comptroller of the Currency (OCC) and the Federal Reserve why they were not sharing the results of their investigations into mortgage-servicing abuses and illegal activities with Congress and the people who were subject to abuses. These investigations began two years ago, after the OCC found that there were "violations of applicable federal and state law" that had "widespread consequences" in the servicer markets at 14 large banks. This Independent Foreclosure Review (IFR) wrapped up suddenly earlier this year, and it is not clear what it found, according to the commentary, although the servicers did manage to spend $2 billion on consultants. According to the latest letter from Warren and Rep. Elijah Cummings (D-Md.), regulators at the Federal Reserve argued that their documents showing illegal behavior are "trade secrets" of mortgage-servicing companies, while the OCC argues that this violates disclosure requirements. Click here to read the full commentary.

RECORD-LOW DEFAULTS MAY NOT BE GOOD NEWS

In December 2008, investors expected a default Armageddon after global "junk" bond yields spiked to over 20 percent, but the last decade has seen the lowest default rate on record in the modern era, according to an analysis by the Wall Street Journal today. The power of central banks and governments lies behind this remarkable turnaround—but it may come with a price. The average annual Moody's default rate since 2003 for single-B rated companies, the largest part of the high-yield market, stands at just 1.6 percent, Deutsche Bank noted. That's the lowest rolling 10-year rate since the market became full-fledged in the early 1980s, and compares with an annual average of 5 percent since 1983. In fact, nine of the past 10 years have seen single-B defaults mostly at below average, with six of them defaults of 1 percent or below—a rate never achieved between 1980 and 2003. The decade falls into two halves: From 2003 to 2007, the credit bubble drove default rates down, but since early 2009, central banks and governments have re-inflated this bubble, pushing down yields and making refinancing possible on easy terms for high-yield companies—despite sharply lower growth and, indeed, a renewed recession in Europe. Read more. (Subscription required.)

LATEST ABI PODCAST EXPLORES THE DEPTHS OF DEEPENING INSOLVENCY

The latest ABI podcast features ABI Resident Scholar Prof. Scott Pryor talking with Prof. Jack Williams and Kathy Phelps, the authors of ABI's publication The Depths of Deepening Insolvency: Damage Exposure for Officers, Directors and Others. Williams and Phelps offer a historical analysis of the “deepening insolvency” principle, its significance in calculating damages in a variety of liability scenarios, and the interplay of the doctrine with the fiduciary duties of company executives. Click here to listen to the podcast.

To order a copy of The Depths of Deepening Insolvency: Damage Exposure for Officers, Directors and Others, click on the banner below:

ASM MOBILE WEB APP NOW AVAILABLE FOR SMARTPHONES AND TABLETS!

The official Annual Spring Meeting mobile web app, sponsored by Diamond McCarthy LLP, is now available for iOS, Android and Blackberry devices! Utilize the app during ASM next week to view your personal schedule, browse what programs are taking place or to search for information related to the meeting. The mobile web app stores the schedule data locally on your phone for offline access too.

To take advantage of the ASM web app, bookmark the following address on your device’s browser: http://31stannualspringmeeting2013.sched.org/mobile

Haven’t registered for next week’s Annual Spring Meeting? Hurry, the hotel block at the Gaylord National Resort and Convention Center in National Harbor, Md., is almost sold out! ASM features a roster of the best national speakers, while the depth and scope of topics offer something for everyone. Specifically, four concurrent workshops will cover various “tracks,” including programs for attorneys in commercial cases, a track for restructuring professionals, a track of professional development programming and a track dealing solely with consumer issues. More than 16 hours of CLE/CPE is offered in some states, along with ethics credit totaling 3 hours, making the cost only about $50 per credit. In addition, committee sessions will drill down on other topics to provide you with the most practical and varied CLE/CPE experience ever. Sessions include:

• 17th Annual Great Debates
• Mediation: An Irrational Approach to a Rational Result
• Creditors’ Committees and the Role of Indenture Trustees and Related Issues
• Current Issues for Financial Advisors in Bankruptcy Cases
• The Individual Conundrum: Chapter 7, 11 or 13?
• The Power to Veto Bankruptcy Sales
• Real Estate Issues in Health Care Restructurings
• How to Be a Successful Expert
• The Ethical Compass: Multiple Ethical Schemes Applicable to Financial Advisors
• Chapter 9s, Nonprofits and Other Nontraditional Restructuring Processes
• And much more!

The Spring Meeting will also feature a field hearing of the ABI Commission to Study the Reform of Chapter 11, a report from the ABI Ethics Task Force, a luncheon panel discussion moderated by Bill Rochelle of Bloomberg News, and a Final Night Gala Dinner featuring a concert by Joan Jett and the Blackhearts!

Make sure to register today!

ABI IN-DEPTH

NEW ABI LIVE WEBINAR ON MAY 29 WILL FOCUS ON CONSUMER CLASS ACTIONS

Class action lawsuits in chapter 13 cases are becoming more prevalent. Are you wondering whether your client's claims would be better pursued in a class action? If your client is a defendant in a consumer class action, do you know what your client's best defenses are against class certification? ABI's panel of experts on May 29 from 1-2:15 p.m. ET will explore the potential benefits and pitfalls of class actions by debtors/trustees against creditors in chapter 13 cases by highlighting two recent appeals court decisions. Special ABI member rate available! Click here to register.

LATEST CASE SUMMARY ON VOLO: STEPHEN V. MAY (IN RE STEPHEN; 9TH CIR.)

Summarized by Emil Khatchatourian of the U.S. Bankruptcy Court for the Eastern District of California

Affirming the bankruptcy court, the Ninth Circuit Bankruptcy Appellate Panel held that the bankruptcy court did not err in dismissing the debtor's case because the debtor did not establish that he was entitled to relief from automatic dismissal for his failure to file a complete list of creditors and schedule of assets and liabilities within 45 days of the filing of his bankruptcy petition.

There are more than 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: SECTION 903 - IN CHAPTER 9, DOES FEDERAL LAW TRUMP STATE LAW, OR VICE VERSA?

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent post examines the fight that is brewing in San Bernardino, Calif., regarding the scope of §903 of the Bankruptcy Code. It stems from the motions filed by the San Bernardino Public Employees Association (SBPEA), the San Bernardino Police Officers Association (SBPOA) and the San Bernardino City Professional Firefighters (SBCPF) in response to the city’s motion to reject collective bargaining agreements with these unions.

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.

TEE OFF ON THE NEW ABI GOLF TOUR!

Starting with the Annual Spring Meeting, ABI will offer conference registrants the option to participate in the ABI Golf Tour. The Tour will take place concurrently with all conference golf tournaments. The Tour is designed to enhance the golfing experience for serious golfers, while still offering a fun networking opportunity for players of any ability. As opposed to the format used at ABI’s regular conference events, Tour participants will "play their own ball." They will be grouped on the golf course separately from other conference golf participants and will typically play ahead of the other participants, expediting Tour play. Tour participants will be randomly grouped in foursomes, unless otherwise requested of the Commissioner in advance of each tournament. Prizes will be awarded for each individual Tour event, which are sponsored by Great American Group. The grand prize is the "Great American Cup," also sponsored by Great American Group, which will be awarded to the top player at the end of the Tour season. Registration is free. Click here for more information and a list of 2013 ABI Golf Tour event venues.

ABI Quick Poll

The scope of protection of "financial contracts" in bankruptcy should be rolled back to what it was before BAPCPA expanded it in 2005.

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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2013

April
- "Nuts and Bolts" Program at ASM
     April 18, 2013 | National Harbor, Md.
- Annual Spring Meeting
     April 18-21, 2013 | National Harbor, Md.

May
- "Nuts and Bolts" Program at NYCBC
     May 15, 2013 | New York, N.Y.
- ABI Endowment Cocktail Reception
     May 15, 2013 | New York, N.Y.
- New York City Bankruptcy Conference
     May 16, 2013 | New York, N.Y.
- Litigation Skills Symposium
     May 21-24, 2013 | Dallas, Texas
- ABI Live Webinar: Consumer Class Actions
     May 29, 2013

June
- Memphis Consumer Bankruptcy Conference
     June 7, 2013 | Memphis, Tenn.
- Central States Bankruptcy Workshop
     June 13-16, 2013 | Grand Traverse, Mich.

July
- Northeast Bankruptcy Conference and Northeast Consumer Forum
     July 11-14, 2013 | Newport, R.I.
- Southeast Bankruptcy Workshop
     July 18-21, 2013 | Amelia Island, Fla.

August
- Mid-Atlantic Bankruptcy Workshop
    August 8-10, 2013 | Hershey, Pa.

SENATE POISED TO END FILIBUSTER ON NOMINEES

Majority Leader Harry Reid announced today his intention to force a vote on Monday to change the Senate’s longstanding rule permitting extended debate on executive branch nominees. The rule change would permit the majority to approve nominations with a simple majority vote. This so-called “nuclear option” would be a profound change in a fundamental Senate rule. Most immediately, the rule change would allow the Senate’s Democratic Majority to confirm Richard Cordray as Director of the Consumer Financial Protection Bureau, along with two nominees to the NLRB. Cordray was renominated after his recess appointment by President Obama was cast into doubt by a D.C. Circuit decision holding that the NLRB Nominees were recess appointed (on the same day in January 2012) in an unconstitutional manner.

HOUSE HEARING EXAMINES IF DODD-FRANK ACT'S "ORDERLY LIQUIDATION AUTHORITY" IS UNCONSTITUTIONAL

Arguing that due process rights “are vaporized” under the Dodd-Frank Act (DFA), witnesses told the House Financial Services Subcommittee on Oversight and Investigations on Tuesday that aspects of the DFA might be unconstitutional, the National Law Journal reported yesterday. Members of the subcommittee focused on the law’s all new—and as yet untested—orderly liquidation authority. Intended as a third way between bankruptcy and bailout, the provision gives the Federal Deposit Insurance Corp. (in conjunction with other regulators) the ability to take over an institution whose failure might pose a risk to the financial stability of the United States. Columbia Law School professor Thomas Merrill testified that DFA raises serious constitutional issues—almost sure to lead to litigaion the first time the provision is invoked, with potentially disastrous consequences. “It’s very likely to cause the whole process to go off the rails and become chaotic,” he said. “My concern is that the constitutional issues will work against the purpose [of the provision]…at a time when it’s least appropriate to bring them to the fore.” But Pepper Hamilton partner Timothy McTaggart argued that the law likely would pass constitutional muster, pointing out that fewer than 170 laws enacted by Congress between 1789 and 2002 were held unconstitutional. “A difference in policy choice as reflected in enacted legislation does not make the legislation unconstitutional,” he said. To date, no court has held Dodd-Frank to be unconstitutional, but a case pending before the U.S. District Court for the District of Columbia, State National Bank of Big Spring v. Lew, may provide the first test. Former White House Counsel C. Boyden Gray is co-counsel in the case, brought by a Texas community bank, the Competitive Enterprise Institute, the 60 Plus Association and several states. He testified before the subcommittee that Dodd-Frank “violates the Constitution’s system of checks and balances” and gives “regulators effectively unlimited power.” Read more.

Click here to read the prepared witness testimony.

COMMENTARY: HOW TO AVOID THE NEXT MF GLOBAL SURPRISE

When MF Global went bankrupt in October 2011, thousands of its customers in the United States discovered that their overseas investments were not as safe or secure as they had assumed—and that they no longer had access to their funds, according to an editorial in yesterday's Wall Street Journal by MF Global Trustee James Giddens. The company faced extraordinary liquidity demands in its final, chaotic days, including margin calls on massive European sovereign-debt bets taken by CEO Jon Corzine and others. Desperate for funds, management improperly raided segregated customer money held by the company's broker-dealer in the U.S., resulting in a $900 million shortfall, according to Giddens. Once MF Global U.K. was put into liquidation, British administrators determined that under U.K. law virtually no money had been actually segregated for customers—which added an additional $700 million shortfall in customers' foreign accounts. Another problem in MF Global—and to some extent in Lehman Brothers—was the company's large, complicated legal structure. The trustee for the MF Global holding company had a different constituency of lenders and general creditors than Giddens did as trustee for the customers and creditors of the U.S. broker-dealer. Trustees with differing priorities led to confusion and further delay. Going forward, Giddens said that there is a need for clear and consistent cross-border rules regarding the protection of money in customer accounts. Clearer rules would pave the way for quicker and more efficient return of customer property when the next MF Global or Lehman occurs. Read more. (Subscription required.)

SENATORS NEAR DEAL ON STUDENT LOAN RATES

Senators are near a deal to provide a long-term fix to student loan rates, but that compromise will likely rest on a score from the Congressional Budget Office (CBO), as well as members' ability to sell the compromise to skeptical members in both parties, The Hill reported today. The potential agreement would look broadly similar to a competing proposal offered by a group of Republicans and Democrats and comes one day after Senate Democrats failed to muster enough support for a one-year freeze of lower interest rates. A bipartisan group of senators pushing a competing student loan proposal met with Senate Majority Whip Dick Durbin (D-Ill.) yesterday, as well as Sens. Tom Harkin (D-Iowa) and Jack Reed (D-R.I.). Harkin and Reed were strong proponents of the one-year freeze, which was broadly rejected by Republicans on the Senate floor on Tuesday. The senators pushing the competing proposal at the meeting were Sens. Joe Manchin (D-W.Va.), Angus King (I-Maine), Lamar Alexander (R-Tenn.) and Richard Burr (R-N.C.). Members at that meeting agreed on a framework of a bill and now are waiting for a CBO score to determine if the measure is close enough to deficit-neutral to assuage Democrats who had blasted the original proposal, which would have reduced the deficit by $1 billion. Read more.

COMMENTARY: GOOD AND BAD BANK CAPITAL

Three years after President Obama signed Dodd-Frank, U.S. financial regulators have taken their first significant step toward protecting taxpayers from giant bank failures, according to an editorial today in the Wall Street Journal. Under a proposal released on Tuesday from the Federal Deposit Insurance Corp., the eight largest U.S. financial houses would be required to hold more capital. Specifically, the FDIC and their regulatory colleagues at the Federal Reserve and Comptroller of the Currency proposed to increase the leverage ratio at giant bank holding companies to 5 percent from 3 percent, and to 6 percent for the insured deposit-taking banks inside these holding companies. The proposal is still a major step toward taxpayer protection, according to the editorial, and might require the giants to increase capital by close to $90 billion by 2018, or to shrink their balance sheets to operate more safely with the level of capital they hold today. Read more. (Subscription required.)

ANALYSIS: HOW STOCKTON’S BANKRUPTCY MAY CHANGE THE WAY WE ANALYZE MUNICIPAL CREDIT RISK

The bankruptcy of Stockton, Calif., and the forthcoming legal battle has the potential to permanently change the way municipal credit risk is viewed both in California and on a national level, according to a recent briefing paper prepared by Thornburg Investment Management. Bankruptcy Judge Christopher M. Klein on April 1 accepted the city of Stockton’s petition to proceed with chapter 9 bankruptcy. The interesting aspect of the Stockton case revolves around the treatment of pension obligations. Pensions are protected by California statute, to the detriment of bondholders. Because of this protection, public employees in Stockton and throughout California have traditionally been unwilling to make material concessions when negotiating with troubled municipalities. In fact, this issue is pervasive across the country. In general, public labor unions have seldom made material concessions because of a perceived protection of future benefits. Unfortunately for the public employees in Stockton and around the country, the bankruptcy case will be heard in federal court and the status of the pensions will play a key role. Should Judge Klein rule in favor of pension holders, protecting their benefits above the claims of bondholders, it would essentially subordinate bondholders to the claims of public workers. A ruling of that type would immediately decrease the credit quality of all municipal bonds. In the future, public employees would have no incentive to negotiate with stressed municipalities, knowing that their benefits are protected. The result could be an increase in chapter 9 filings as municipalities lose the flexibility to control future expenses. On the other hand, should Judge Klein rule that public employees must take a haircut in line with other creditors, municipal bondholders will benefit. Click here to read the full analysis.

COMMENTARY: TO CATCH A CREDITOR

Earlier this year the Federal Trade Commission completed a multiyear study of credit-report errors and found that nearly 20 percent of consumers had errors in at least one of their credit files, and that 13 percent saw an improvement in their scores when the errors were corrected, according to an op-ed in today' New York Times. A 2012 study by The Columbus Dispatch analyzed 30,000 complaints to the FTC; of those, 1,500 people reported that their files included someone else’s information. Nearly a third said that the credit agencies did not correct the errors, despite being asked to do so. Most egregious, almost 200 people said their reports showed them as deceased. While federal law requires credit bureaus to conduct a reasonable investigation of consumer complaints, the marketplace can penalize credit bureaus that investigate too aggressively, according to the op-ed. Credit bureaus are heavily dependent on lenders for both revenue and the information the bureaus package and sell; if a credit bureau presses a lender too hard, the lender could patronize a different bureau and withhold data about its customers. In contrast, consumers have little power over credit-reporting agencies. Consumers cannot, for example, block credit bureaus from obtaining information about their transactions. Read more.

ABILIVE WEBINAR NEXT WEEK TO FOCUS ON THE § 1111(b) ELECTION, PLAN FEASIBILITY AND CRAMDOWN ISSUES

Utilizing a case study, ABI's panel of experts will explore issues surrounding a lender’s decision on whether or not to make an election under § 1111(b), plan feasibility and voting. The abiLIVE panel will also walk attendees through the necessary mathematical analyses used to analyze these issues. The webinar will take place on July 15 from 1-2:15 p.m. ET. Special ABI member rate available! Click here to register.

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 NEXT 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 next 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: PERRY V. KEY AUTO RECOVERY (IN RE PERRY; 9TH CIR.)

Summarized by Hilda Montes de Oca of the U.S. Bankruptcy Court for the Central District of California

Affirming the bankruptcy court, the Ninth Circuit Bankruptcy Appellate Panel (BAP) held that the bankruptcy court did not abuse its discretion when it declined the debtor’s request for a hearing on his second motion for reconsideration and instead entered an order denying the second motion for reconsideration because the debtor did not set the second motion for reconsideration for hearing as required under the Local Bankruptcy Rules for the Central District of California. The BAP also held that the bankruptcy court did not abuse its discretion when it declined to consider the “new evidence” presented by the debtor in support of his second motion for reconsideration because the debtor could have submitted the “new evidence” from 2004 earlier to the bankruptcy court.

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: CORKER-WARNER BILL: A GREAT STARTING POINT IN THE GSE REFORM DEBATE

The Bankruptcy Blog Exchange is a free ABI service that tracks 35 bankruptcy-related blogs. A recent blog post discusses how the Corker-Warner legislation may be a bridge between the advocates of a purely private market and those who favor some role for the federal government in housing.

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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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.

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