Category: Bankruptcy Data

  • Empirical Evidence on Debt Trading

    Posted by

    Bob Lawless

    Katie Porter’s earlier post on debt trading (which has gotten some attention at The Conglomerate) reminded me of some poking around that I had been doing. Trading claims in bankruptcy is huge, in the billions of dollars per year. Although Katie Porter’s post was in the context of consumer bankruptcy, bankruptcy claims trading can have decisive effects in huge corporate reorganizations. A corporate debtor in financial distress may find itself no longer dealing with a lender interested in a long-term relationship but with a so-called "vulture investor" interested only in maximizing short-term profits. Of course, without the ability to resell a loan, the lender might not have made the loan in the first place. None of this is to say that bankruptcy claims trading is either good or bad, but we don’t know much about it.

    I was trying to see if one could get data on bankruptcy claims trading and trading in distressed debt generally. (And by "I," I mean by my extremely capable faculty assistant.) It turns out you can get such data, if you have thousands of dollars to pay for expensive data subscription services. With the other things on my plate, I could not justify the time and money to invest in such a research project, but it strikes me as a fruitful area for investigation. Because we have so few data, it’s an empirical project where the researcher would have something to say no matter what the data showed. Even a paper with descriptive data would make a huge contribution.

  • Bankruptcy Filings and Consumer Behavior

    Posted by

    Melissa Jacoby

    When it comes to the bankruptcy filing rate, fiscal year 2006 (10/1/2005 onward) is turning out to be a very odd period. First, filings surged to historic heights in early October. Then, in the second quarter, filings dropped to the lowest rate since the mid-1980s. An intervening event was the mid-October effective date of an omnibus bankruptcy reform bill, the most extensive changes to the formal bankruptcy law in a generation. Most bankruptcy filers are individuals rather than business entities, so it appears that individuals became sensitive to changes to the Bankruptcy Code and may have altered their plans accordingly. Does this mean that individuals also can be expected to alter their borrowing behavior because of the bankruptcy law changes? Not so fast, say Professors Susan Block-Lieb and Ted Janger in an article just published in volume 84 of the Texas Law Review. 

    Block-Lieb and Janger apply insights from behavioral decision research suggesting that individuals’ cognitive limitations, and not strategic behavior, provide an explanation of consumer overextension that is more consistent with consumer credit data. They also consider the possibility that lenders capitalize on these cognitive limitations. Whatever happens with the official bankruptcy filing rate reported by the government, Block-Lieb and Janger warn in their Texas article that “overleverage is here to stay.”

  • Missing GAO study?

    Posted by

    Katie Porter

    The much-maligned Bankruptcy Abuse Prevention and Consumer Prevention Act (BAPCPA) may have a bright side for a certain subset of consumers–those who want better bankruptcy statistics, including the media, policy wonks, and academics. Much of the recent bankruptcy reform debate was a battle of numbers as illustrated by the debate about the misnamed and miscalculated $400 "bankruptcy tax." In a forthcoming University of Missouri symposium piece entitled "The Bright Side of BAPCPA," I take a look at the potential of the new law to shape the world of bankruptcy data collection and dissemination.

    As part of my research, I learned that the GAO has missed a statutory deadline to produce a research report. Under section 230 of BAPCPA, the GAO was to produce a study on requiring trustees to report debtors to the Office of Child Support Enforcement. The report was due 270 days after BAPCPA’s enactment, yet GAO officials confirmed that the study has not even begun. Has bankruptcy slipped to the bottom of the GAO’s priority list now that Congress has taken it off the top of its agenda?

    Apparently the GAO has made some progress on the reaffirmation study required by BAPCPA. Perhaps the best news in this regard is that they have interviewed Professors Michaela White and Marianne Culhane, authors of the leading academic study on reaffirmation. Hopefully, other government agencies doing post-BAPCPA research will seek collaborations with academics and other researchers. For our part as consumers of bankruptcy data, we should let the GAO and other agencies know that we care about the required reports and expect them to be timely and carefully executed.