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Bankruptcy courts are facing a backlash among congressional Democrats over the growing practice of authorizing legal protection to accused wrongdoers who haven’t sought chapter 11 protection themselves, WSJ Pro Bankruptcy reported. While filing for chapter 11 protects a corporation or nonprofit from its creditors, bankruptcy judges often extend those same legal protections to affiliates, owners and other parties with interests at stake. Shielding these third parties from liability, in exchange for settlement payments, has become an increasingly common feature of large chapter 11 cases, according to bankruptcy specialists. Some members of Congress now believe that the practice has gone too far and have proposed forbidding bankruptcy courts from signing away legal claims against third parties, unless every affected creditor agrees. The Democratic legislation on releases would outlaw a critical component of Purdue’s plan while also limiting bankruptcy courts’ power to pause litigation against third parties while a repayment plan is being formulated. The sponsoring lawmakers will face obstacles, including garnering support from Republicans and overcoming concerns that releases can facilitate fair settlements and avoid costly litigation.

The Senate yesterday passed a roughly $1 trillion bipartisan infrastructure deal, a significant win for President Biden and the first step on his top legislative priority, The Hill reported. Senators voted 69-30 on the bill, which was spearheaded by a bipartisan group of senators led by Sens. Kyrsten Sinema (D-Ariz.) and Rob Portman (R-Ohio). Nineteen GOP senators voted with all Democrats to pass the legislation. The bill is now heading to the House, where it faces an uncertain future and skepticism from progressives. Speaker Nancy Pelosi (D-Calif.) has vowed she won’t take it up until the Senate passes the second part of its infrastructure two step, a sweeping $3.5 trillion spending package that includes Democrats’ top priorities. But the Senate’s passage of the bipartisan measure on Tuesday gives a victory for Biden and the centrist-minded group that led the legislation, and placed big bets and months of time on the ability to get a bipartisan deal on infrastructure.

Sens. Dick Durbin (D-Ill.) and John Cornyn (R-Texas) recently introduced a bipartisan bill aimed at restoring the way that student loans are handled in bankruptcy. In contrast to other recent proposals, such as free college and a student loan jubilee, this legislation isn’t a flashy proposition — it’s a great idea, one that enjoys support from both sides of the aisle among policymakers and some experts, according to a commentary in The Hill. Over the past 30 years, a series of policy changes have made it more difficult for borrowers to have their student loans discharged in bankruptcy. These policy changes were driven by the idea that investments in education could not be transferred, because the borrower would always retain the benefits acquired from their education. This would make sense if degrees paid off uniformly with large dividends, but the reality is that some investments in education fall short of that mark — unpredictably offering little or no value to the borrower. Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

The issue of student loan debt and bankruptcy is the first problem addressed in the Final Report of the ABI Commission on Consumer Bankruptcy. Click here to download your copy. 

The Senate is expected today to pass a $1 trillion bipartisan infrastructure package, capping off weeks of intense negotiations and debate over the largest federal investment in the nation’s aging public works system in more than a decade, the New York Times reported. The legislation, which still must pass the House, would touch nearly every facet of the American economy and fortify the nation’s response to the warming of the planet. It would greatly increase funding to modernize the nation’s power grid and finance projects to better manage climate risks, and it would devote hundreds of billions of dollars to repair and replace aging public works projects. The legislation was largely negotiated by a group of 10 Senate Republicans and Democrats and White House officials. Nearly 70 senators from both parties voted to advance the measure over the weekend toward the final vote Tuesday, which is scheduled for 11 a.m. As soon as the bill clears the Senate, Democrats are expected to take up a $3.5 trillion budget blueprint that will unlock their ability to muscle through an expansive social policy package over unanimous Republican objections. Under the fast-track budget reconciliation process, that blueprint, if passed with a simple majority, will dictate the parameters of a transformative package expected to provide funding for health care, climate change, education and child care, and to increase taxes on wealthy people and corporations.

President Joe Biden’s bipartisan infrastructure deal cleared its final serious Senate hurdle Sunday night, putting the legislation on a glide path to passage potentially later today, Politico reported. In a 68-29 vote, the Senate closed down debate on a bill negotiated by a bipartisan group of 10 senators that spends $550 billion in new money on the nation’s physical infrastructure. Sunday’s vote came after senators spent the weekend haggling over amendments and time agreements to consider them. Final passage of the legislation is expected late Monday night, or early Tuesday at the latest, unless a deal is reached among all 100 senators to speed it up. A 50-hour budget debate and an unlimited "vote-a-rama" on nonbinding but politically symbolic topics will follow immediately after. "We will move forward to wrap this up as expeditiously as possible, and then move on to the budget resolution," said Senate Majority Leader Chuck Schumer after the vote. "The two-track process is moving along. It's been a process that has been a very good process. It's taken a while, but it's going to be worth it." A total of 18 Senate Republicans, including Senate Minority Leader Mitch McConnell, joined all 50 Senate Democrats to advance the physical infrastructure bill. Sens. Dan Sullivan (R-Alaska) and Roger Wicker (R-Miss.) supported ending debate, after previously voting against moving forward.

Lawmakers heard arguments on Wednesday in favor of amending laws to limit protections for non-bankrupt individuals through a company’s bankruptcy, a move prompted by concerns that members of the wealthy Sackler family who own Purdue Pharma LP may avoid accountability for their role in promoting opioid sales, Reuters reported. The hearing yesterday before the U.S. House of Representatives’ Judiciary’s Subcommittee on Antitrust, Commercial and Administrative Law came as Sens. Elizabeth Warren (D-Mass.), Dick Durbin (D-Ill.) and Richard Blumenthal (D.-Conn.), as well as Reps. Jerry Nadler (D-N.Y.) and Carolyn Maloney (D-N.Y.), announced legislation in the House and Senate aimed at reforming certain areas of bankruptcy law. The Nondebtor Release Prohibition Act of 2021 would prohibit litigation shields for owners or insiders of bankrupt companies. Though not included in the legislation, Wednesday’s hearing also focused on potential reforms to limit the ability of bankrupt companies to select judges they think will be favorable to them. The issue of so-called third-party or non-debtor releases, has been a hot topic in Purdue’s chapter 11 case. Connecticut Attorney General William Tong testified yesterday’s hearing that legislation is needed to prevent cases like Purdue’s, where Sackler family members are set to receive releases of lawsuits over their role in the national opioid epidemic in exchange for $4.5 billion. The money is being put toward trusts that will distribute the funds to states for opioid abatement programs and to people and entities that brought opioid-related lawsuits. Tong is one of a handful of remaining state attorneys general opposing the Purdue deal. Lawmakers also heard from bankruptcy experts about the ability of lawyers for large companies to select the judge they feel will provide the best results for them. Prof. Adam Levitin of Georgetown University Law School testified that bankruptcies should be randomly assigned to judges within a district without regard to which division they sit in. Read more.
https://www.reuters.com/article/us-bankruptcy-reform-bill-idUSKBN2EY2XO

Click here to view the witness list, prepared testimony and an archive file to watch a replay of the hearing.
https://judiciary.house.gov/calendar/eventsingle.aspx?EventID=4666