Category: Chapter 13

  • Juliet Moringiello – One of the Greats

    Posted by

    Melissa Jacoby

    Juliet Moringiello was an amazing person. Her alchemy of brain and spirit and energy and heart and common sense made a positive difference for so many people, across disparate places and professions. She could teach you how to navigate a commercial law and to downhill ski.

    Testaments from Widener University Commonwealth Law School and professional organizations illustrate how Juliet served academic and legal communities with distinction. Examples include the Uniform Law Commission (including an instrumental role in the development of the 2022 amendments to the Uniform Commercial Code), American Law Institute projects, and as a scholar-in-residence for the American Bankruptcy Institute. Juliet did these things while also serving in critical leadership roles at Widener and offering engaged and committed classroom teaching, including first-year property law and an array of upper level classes and seminars. 

    Chris Odinet's memorial captures beautifully Juliet's commitment to helping others and building communities. As reflected in the mentoring award she recently received from the Commercial and Consumer Law Section of the Association of American Law Schools, Juliet did so much behind the scenes to lift up others and to help them improve their research and analysis. 

    Juliet was ideally positioned for mentoring because her own scholarship was creative and wide-ranging and yet reflected care and attention to detail. She offered important insights on municipal bankruptcy and related state law procedures. Whereas scholars and jurists long have referred to the "Butner principle" in the abstract, Juliet closely studied the case for which the principle is named, which turned out not to match how it was remembered. She explored poorly drafted statutory language that since 2005 has affected the treatment of car loans in Chapter 13 repayment plans for individuals and proposed an analytical framework accordingly. These are just a few of the examples of her writings in which a reader can find careful and sustained attention to the relationship between state and federal law. 

    With respect to state secured transactions law, Juliet comfortably traversed the border between real property and personal property. The problems dwelling from the tangible-intangible divide of personal property particularly attracted her attention. She explored puzzles that arise, for example, when one tries to apply fundamental concepts such as possession to remotely controlled activities.

    And those projects dovetailed with Juliet's longstanding interest in understanding emerging technologies, and her ability to demystify how foundational commercial law concepts can be squared with innovation – from software licensing agreements and electronic contracting, to cyberspace and domain names and Second Life, to non-fungible tokens. As popular subjects for scholarship, writings on hot tech topics risk ephemerality. Juliet's work is built to last. She made these issues accessible while demonstrating how they could and should be situated in broader legal frameworks.

    Of course, these professional interests were part of a rich multi-faceted life of family and friends, of appreciating the sights and nature in Pennsylvania, in Quebec, and anywhere and everywhere she traveled. When there wasn't enough snow for skiis, you might find her on a hike. Or on a bike. Or a paddleboard. 

    Juliet Moringiello offers inspiration to do impactful work, to help others, and to spend time on the the things you love. Deepest condolences to her family. 

  • Postpetition Asset Sales in Chapter 13s–Modification, Not Estate Property

    Posted by

    Bob Lawless

    Debtors selling houses during a chapter 13 continues to cause conceptual problems for the courts. A recent decision, In re Marsh, from Judge Fenimore in Kansas City is an example. (Hat tip to Bill Rochelle for flagging this decision in his DailyWire column from the American Bankruptcy Institute ($). If you are a bankruptcy lawyer and don't get this column in your inbox each morning, you are missing out.) Judge Fennimore's opinion is a good point of departure to discuss why I don't think these conceptual problems are as difficult as lawyers make it out to be.

    In the case at hand, the debtors scheduled the value of their home at $140,000. Between the $125,000 mortgage and a $15,000 homestead exemption, there was no value for unsecured creditors. The debtor confirmed a plan that provided for payment of the mortgage through the trustee, known as a "conduit plan." Although the debtor was below-median income and qualified for a three-year plan, the debtor opted to do a five-year plan, presumably to make it easier to cure the mortgage arrearage. The plan specified that unsecured creditors were to receive no distribution.

    Forty-three months into the case the debtors filed a motion to sell the home for $210,000, which the court approved and which generated about $78,000 in cash after payment of the mortgage and fees. The debtor filed a "motion to retain" the cash. The chapter 13 trustee resisted, noting the cash would pay unsecured creditors in full.

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  • Fake and Real People in Bankruptcy

    Posted by

    Melissa Jacoby

    This draft essay, Fake and Real People in Bankruptcy, just posted on SSRN, is considerably less far along than Unbundling Business Bankruptcy Law, posted last week. Fake and Real starts with a Third Circuit case that tends to be less well known: it upheld the dismissal of an individual bankruptcy filer whose primary asset was a home he had built with his own hands. Perhaps you will find that story relevant to current debates about what is permissible in large chapter 11 cases. Like Unbundling Business Bankruptcy Law, Fake and Real reflects some of my in-depth research on The Weinstein Company.  

    Here is the abstract: 

    This draft essay explores how the bankruptcy system is structurally biased in favor of artificial persons – for-profit companies, non-profit enterprises, and municipalities given independent life by law – relative to humans. The favorable treatment extends to foundational issues such as the scope and timing of permissible debt relief, the conditions to receiving any bankruptcy protections, and the flexibility to depart from the Bankruptcy Code by asserting that doing so will maximize economic value. The system's bias contributes to the "bad-apple-ing" of serious policy problems, running counter to other areas of law have deemed harms like discrimination to be larger institutional phenomena. These features also make bankruptcy a less effective partner in the broader policy project of deterring, remedying, and punishing enterprise misconduct.

  • Bankruptcy on Last Week Tonight with John Oliver

    Posted by

    Pamela Foohey

    Bankruptcy LWT - 1The consumer bankruptcy system has made it to late-night television! The main segment on Last Week Tonight with John Oliver this week focused on bankruptcy. As described: "John Oliver details why people file for bankruptcy, how needlessly difficult the process can be, and the ways we can better serve people struggling with debt." Twenty minutes about consumer bankruptcy!

    Per usual, it's a well-researched, understandable, and fast-moving segment, with dashes of dark humor. My favorite references Julianne Moore's character in Magnolia. To the well-research part: It is supported by a host of papers about consumer bankruptcy, including the work of several current and former Slipsters. Among them is Portraits of Bankruptcy Filers (forthcoming Georgia Law Review), the most recent article based on Consumer Bankruptcy Project (CBP) data, co-authored with Slipster Bob Lawless and former Slipster Debb Thorne. In Portraits, we rely on data from 2013 to 2019 to describe who is using the bankruptcy system, providing the first comprehensive overview of bankruptcy filers in thirty years.   

    Also referenced are Life in the Sweatbox, former Slipster Angela Littwin's The Do-It Yourself Mirage: Complexity in the Bankruptcy System, Slipster Bob Lawless, Jean Braucher, and Dov Cohen's Race, Attorney Influence, and Bankruptcy Chapter Choice, and the ABI Commission on Consumer Bankruptcy's report. The segment closes by highlighting the Consumer Bankruptcy Reform Act of 2020 (and includes a bonus at the end, which you'll have to watch to find out what that's about).

  • Consumer Bankruptcy, Done Correctly, To Help Struggling Americans

    Posted by

    Pamela Foohey

    Today, Senator Elizabeth Warren unveiled her new plan to reform the consumer bankruptcy system. The plan is simple, yet elegant. It is based on actual data and research (including some of my own with Consumer Bankruptcy Project co-investigators Slipster Bob Lawless, former Slipster, now Congresswoman Katie Porter, and former Slipster Debb Thorne). Most importantly, I believe it will make the consumer bankruptcy system work for American families. And, as a bonus, it will tackle the bad behavior that big banks and corporations currently engage in once people file, like trying to collect already discharged debts, and some non-bankruptcy financial issues, such as "zombie" mortgages.

    In short, the plan provides for one chapter that everyone files, combined with a menu of options to respond to each families' particular needs. It undoes some of the most detrimental amendments that came with the 2005 bankruptcy law, including the means test. In doing so, it sets new, undoubtedly more effective rules for the discharge of student loan debt, for modification of home mortgages, and for keeping cars. It also undoes "smaller" amendments that likely went unnoticed, but may have deleterious effects on people's lives. Warren's plan gets rid of the current prohibition on continuing to pay union dues, the payment of which may be critical to allowing people who file bankruptcy to keep their jobs and keep on their feet. Similarly, the plan eliminates problems debtors face paying rent during their bankruptcy cases, which can lead to eviction.

    One chapter that everyone files means that the continued racial disparities in chapter choice my co-authors and I have documented will disappear. No means test, combined with less documentation, as provided by Warren's plan, means that the most time-consuming attorney tasks will go away. Attorney's fees should decrease. Warren's plan also provides for the payment of fees over time. People will not have to put off filing for bankruptcy for years while they struggle in the "sweatbox." Costly "no money down" bankruptcy options should disappear. People will have the chance to enter the bankruptcy system in time to save what little they have, which research has shown is key to people surviving and thriving post-bankruptcy.

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  • Supreme Court Grants Cert To Decide Fate of Repossessed Cars in Bankruptcy

    Posted by

    Pamela Foohey

    Yesterday, the SCOTUS granted certiorari in City of Chicago v. Fulton, 19-357, to resolve a circuit split about whether a creditor's inaction in not returning property repossessed pre-petition can violate the automatic stay. The split arises predominately from chapter 13 cases in which, pre-petition, creditors repossessed or cities impounded debtors' cars. As the petition for cert stated, this issue is of significant practical importance. As Slipster Bob Lawless, former Slipster Debb Thorne, and I set forth in our new paper based on Consumer Bankruptcy Project data, Driven to Bankruptcy (Wake Forest Law Review, forthcoming 2020), bankruptcy courts deal with more than a million cars in every year. Creditors will have repossessed, but not disposed of some of those cars, and cities (for instance, Chicago) and municipalities will have impounded some of those cars.

    In our new paper, we note that bankruptcy seems to be an important tool for some people to keep their cars, including getting their cars back from creditors and impound yards. As will be decided by the Supreme Court in addressing the issues regarding the automatic stay raised by the circuit split, if debtors need to request that bankruptcy courts order creditors or cities to return their cars after they file bankruptcy, the usefulness of filing bankruptcy will decrease, potentially significantly. Stated differently, people need their cars now — to get to work, to get food, to get their kids to daycare, to get to the doctor. For some households, one of the biggest benefits of filing bankruptcy seems to be that their creditors must turn over repossessed and impounded cars as soon as the debtor files . The question now is — is that actually what the Code provides? 

  • Small Biz Reorg Act Sleeper Innovations

    Posted by

    Jason Kilborn

    Two aspects of the Small Business Reorganization Act of 2019 intrigued me as I looked more closely at this important new twist on Chapter 11 for the other 99%.

    First, I thought the new SBRA procedure might be a fairly snooze-worthy Chapter 13 on protein supplements (i.e., not even steroids) because the current Chapter 13 debt limit (aggregate) is $1,677,125, while the new SBRA aggregate debt limit is less than double this, at $2,725,625 [note to the ABI: please update the figures in your online Code for the April 2019 indexation]. A couple of obvious and another non-obvious point cut in opposite directions here, it seems to me. First, Chapter 13 is not available to entities (e.g., LLCs), and for individuals, the Chapter 13 debt limits are broken out into secured and unsecured, while the SBRA figure is not. So the SBRA is significantly more hospitable to any small business debtor with only $500,000 in unsecured debt or, say, $1.5 million in secured debt. Flexibility is a virtue, so maybe the SBRA is just a meaningfully more flexible Chapter 13? No, as Bob's post reminded me. In the "conforming amendments" section at the end of the new law is hidden an important modification to the definition of "small business debtor" in section 101(51D), which will now require that "not less than 50 percent of [the debt] arose from the commercial or business activities of the debtor." So no using the SBRA provisions to deal more flexibly with an individual debtor's $500,000 in unsecured debt or a $1.5 million mortgage or HELOC if it's not related to business activity.

    Second, this last point is the really intriguing aspect of SBRA for me. For the first time in recent memory, we see a crack in the wall that has insulated home mortgages from modification in bankruptcy. Sections 1322(b)(2) and 1123(b)(5) still prohibit the modification of claims secured by the debtor's principal residence, but the SBRA at last provides an exception to this latter provision: An SBRA plan may modify the debtor's home mortgage (including bifurcation into secured and unsecured portions?!) if "the new value received in connection with the granting of the security interest" was not used to acquire the home, but was "used primarily in connection with the small business of the debtor." A small crack it may be, but this sleeper provision strikes me as an important opening for serious discussion of modification of other non-acquisition home mortgage modifications in Chapter 13, for example. This would be a game changer after the HEL and HELOC craze of the earlier 2000s. It will doubtless provide further evidence that the HELOC market will not evaporate or even change appreciably as small business debtors begin to modify their home-secured business loans. Of course, that depends on a robust uptake of the new procedure. We shall see in 2020.

  • There’s Still Time to Register for NCBJ 2019

    Posted by

    Pamela Foohey

    The National Conference of Bankruptcy Judges' annual conference is happening soon – Wednesday, October 30 through Saturday, November 2. I'm delighted to be part of this year's education committee. The 2019 conference features some panels that include Slipsters and touch on Slipsters' research. (If you're thinking of attending, "semi early bird" registration, with its lower costs, ends at the end of September.)

    Particularly noteworthy is the American Bankruptcy Law Journal symposium, "Equitable Powers of the Bankruptcy Court 40 Years After the Enactment of the Bankruptcy Code," which will be framed as a mock-Senate Judiciary Committee hearing during which a panel of experts will discuss and debate bankruptcy courts' equitable powers. The symposium features Slipsters Jay Westbrook and Melissa Jacoby.

    Also worthy of mention are two panels that deal with consumer bankruptcy hot topics, both of which happen to touch on issues that recent papers analyzing Consumer Bankruptcy Project data have considered in depth. First is a panel titled, "Porsches and Clunkers – A Road Trip Through Car Issues." The description for the panel asserts, "many consumers file chapter 13 petition to save their cars, which are essential to maintaining their jobs." In our latest article, Driven to Bankruptcy, Slipster Bob Lawless, past Slipster Debb Thorne, and I rely on Consumer Bankruptcy Project data to assess the veracity of that assertion (among other questions related to cars, car loans, and bankruptcy). As detailed in my recent post about that article, we find a subset of bankruptcy cases that may be labeled "car bankruptcies," in which the debtor owns a car (or cars) and little else. In these cases particularly, debtors may find themselves in chapter 13 to save their cars.

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  • Seventh Circuit Smackdown of City of Chicago

    Posted by

    Jason Kilborn

    The Seventh Circuit Court of Appeals this week released its opinion in In re Fulton, the highly anticipated consolidated appeal of four Chapter 13 cases involving debtors whose cars had been impounded. The City of Chicago had refused to release them to the debtors (exercising the rights of trustee under section 1303) after the petition filings, as clearly required by section 542 and Seventh Circuit precedent, Thompson v. GMAC, 566 F3d 699 (7th Cir. 2009). The Court rejected the City's arguments in favor of repealing Thompson or recognizing a stay/turnover exception for the City to maintain its possessory lien on impounded cars by keeping, well, possession.

    The Court reached the right result here, in my view, and two things really jumped out at me. First, the Court explains several times that the case should be governed by "the purpose of bankruptcy – 'to allow the debtor to regain his financial foothold and repay his creditors.'" The Court's emphasis on the debtor-salutary purpose of bankruptcy is refreshing, even in cases where the repaying-creditors purpose is likely to be largely defeated.

    More striking were the first lines of the portion of the opinion recounting the facts of Fulton's case. She used the car "to commute to work, transport  her young daughter to day care, and care for her elderly parents on weekends." You can already anticipate where the Court is heading in the case, but then it gets better: "On December 24, 2017, three weeks after she purchased a 2015 Kia Soul, the City towed and impounded the vehicle for a prior citation of driving on a suspended license." Really??!! The City towed and impounded her new car on Christmas Eve!!?? It probably still had a temporary plate indicating it was new. And it got towed for what? A prior citation having nothing to do with the car at all. Note to self, City of Chicago: When the Court opens the fact section with a smackdown recounting @$$hole behavior like this, you can just skip to the end. You lose. Three cheers for the Seventh Circuit again!

  • Access to Justice, Consumer Bankruptcy Edition

    Posted by

    Pamela Foohey

    The Great Recession, the CFPB's creation, the rise of debt buying, changes in the debt collection industry, and advances in data collection have encouraged more research recently into issues of access to justice in the context of consumer law and consumer bankruptcy. This spring, the consumer bankruptcy portion of the Emory Bankruptcy Development Journal's annual symposium focused on access to justice and "vindicating the rights of all consumers." Professors Susan Block-Lieb, Kara Bruce, Alexander Sickler, and I spoke at the symposium about how a range of consumer law, finance, and bankruptcy topics converge as issues of access to justice.

    We recently posted our accompanying papers (detailed further below) to SSRN. My essay overviews what we know about the barriers people face entering the consumer bankruptcy system, identifies areas for further research, and proposes a couple ideas for improving access to bankruptcy. Susan Block-Lieb’s essay focuses on how cities can assist people dealing with financial troubles. And Kara Bruce’s and Alex Sickler’s co-authored essay reviews the state of FDCPA litigation in chapter 13 cases in light of Midland Funding v. Johnson and explores alternatives to combat the filing of proofs of claim for stale debts.

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