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COMMENTARY: WILL PUERTO RICO'S NEW BANKRUPTCY LAW WITHSTAND CONSTITUTIONAL CHALLENGE?

Despite claiming to be modeled on the U.S. Bankruptcy Code, the Puerto Rico Corporations Debt Enforcement & Recovery Act (the Act) lacks some of the key protections that creditors have come to expect when dealing with the U.S. system, according to a New York Law Journal commentary yesterday. On June 28, 2014, Puerto Rico's Gov. Alejandro Garcia Padilla signed the Act into law. It permits certain public corporations in Puerto Rico to restructure their debt obligations. Within 24 hours, mutual funds investing in Puerto Rico's Power Revenue bonds issued by the Puerto Rico Electric Power Authority (PREPA) challenged the constitutionality of the Act, while rating agencies downgraded PREPA Bonds, sparking numerous reports of PREPA's imminent filing. It is uncertain whether the Act will survive the constitutional challenge or how soon the Act will be invoked by Puerto Rico's public corporations. Puerto Rico has been experiencing a financial crisis for at least the last six years. With its population shrinking, unemployment increasing and economy contracting, Puerto Rico has increasingly relied on the municipal bond market to fund its budget deficits. Puerto Rico's outstanding debt, including the debt of its public corporations, totals approximately $71 billion. As a result of this steady decline, rating agencies downgraded Puerto Rico bonds to non-investment grade in February 2014. Many of Puerto Rico's public services are provided by government-owned public corporations. Like Puerto Rico itself, these public corporations have increasingly relied on the bond market to cover their recurring budget deficits, but unlike the Commonwealth, the commentary said that PREPA and the other public corporations have issued bonds that are secured by the revenues they generate. Before the Act, Puerto Rico and its subdivisions, agencies and instrumentalities had no statutory authority, under any body of law, to seek relief from their creditors and/or restructure their debts. Click here to read the full commentary. (Subscription required.)

For further analysis of the Puerto Rico Corporations Debt Enforcement & Recovery Act and PREPA's situation, be sure to listen to this ABI Podcast.

MILLIONS OF AMERICANS' WAGES SEIZED OVER CREDIT CARD AND MEDICAL DEBT

One in 10 working Americans between the ages of 35 and 44 have their wages garnished, often over an old credit card debt, medical bill or student loan, NPR reported today. At the request of left-leaning investigative news operation ProPublica, ADP, the nation's largest payroll services provider, conducted a study of payroll records for 13 million employees. ADP's report, released Monday, shows that among employees in the prime working ages of 35 to 44 who had their wages garnished in 2013, roughly half owed child support. But a sizable number had their earnings docked for consumer debts, such as credit cards, medical bills and student loans. For workers earning $25,000 to $40,000 a year, more people were garnished for consumer debt than for child support. This marks a dramatic change. In the past, the vast majority of wage garnishments went to secure child support payments or to collect on unpaid taxes. In recent years, though, debt collectors have been filing millions of lawsuits against people for basic consumer debt: medical bills, student loans and credit card debt. Read more.

ANALYSIS: THE NEW RULES OF BORROWING MEAN LENDERS COMPETE FOR BEST CUSTOMERS

Rates on many consumer loans have come down this year as more lenders compete to win over borrowers, the Wall Street Journal reported yesterday. Large mortgages, known as jumbos, have carried lower average fixed interest rates than smaller home loans for five consecutive weeks through Sept. 5 — an anomaly and the longest such stretch for 30-year mortgages since at least 1986, according to mortgage-info data from website HSH.com. A new group of online lenders has entered the car-loan business, many offering zero to 2 percent fixed-interest rates on car loans. And for the first time ever, fixed-rate private student loans can be much cheaper than some popular federal student loans. The terms of most of these loans require consumers to have top credit scores. "If you have very good credit and you're able to [take] on debt, this is the time to borrow," says Joseph Pucella, a vice president and senior credit officer at Moody's Investors Service, a credit-ratings firm based in New York. "Rates are very low still and the banks are competing for that type of customer, so you've got more options." The deals are being offered as banks, hungry for revenue, try to drum up business. The loans are mostly targeted at borrowers with high credit scores, in most cases at least a 720 FICO score on a scale that runs from 300 to 850. Applicants often need to clear several additional hurdles, such as providing income documentation and maintaining a low overall debt load. Borrowers are jumping at the opportunity. Excluding home loans, $390.9 billion in consumer loans — including student loans, car loans and personal loans — was originated in the first five months of 2014, according to the latest data from credit-reporting firm Equifax. That is up 11 percent from the first five months of the year before and the highest for that period since 2007, when lending standards were looser. Read more. (Subscription required.)

COMMENTARY: STUDENT LOANS, MORAL HAZARD AND A LAW SCHOOL MESS

The current system of financing legal education creates moral hazard that has produced — and will continue to produce — law school misbehavior at great expense, according to a commentary by Prof. Steven J. Harper in Friday's American Lawyer. For the class of 2013, 33 of 201 ABA-accredited schools placed fewer than 40 percent of their graduates in long-term full-time J.D.-required employment (excluding law school-funded jobs). Thanks to the moral hazard that the federally backed loan program creates, some schools with the worst employment records for recent graduates have students with the highest levels of law school loan debt. For the class of 2013, three of the top 10 schools with the highest average student loan debt at graduation placed less than one-third of their graduates in full-time, long-term J.D.-required jobs (excluding law school-funded positions). Read the full commentary. (Subscription required.)

For more on student loans and bankruptcy, be sure to pick up a copy of Graduating with Debt: Student Loans under the Bankruptcy Code, available now in the ABI Bookstore.

FALL LINE-UP OF ABI COMMITTEE TELECONFERENCES ALLOW MEMBERS TO DISCUSS TOP ISSUES

Members are encouraged to dial-in and listen or participate on upcoming ABI Committee conference calls. While committee membership is encouraged, it is not required to join the free teleconferences. Upcoming Committee teleconferences include:

• Business Reorganization Committee: Tuesday, September 23; 4 pm ET.
  Topic: "We're Not in Kansas Anymore: Looking at International Insolvency/Restructurings through the Bankruptcy Code and Beyond"
  Speakers: Patrick Mohan (Moderator) of Reorg Research (Columbia, S.C.), Rachel Ehrlich Albanese of Akin Gump Strauss Hauer & Feld LLP (New York), G. Eric Brunstad, Jr. of Dechert LLP (Hartford, Conn.), Nava Hazan of Squire Patton Boggs (New York), Mark Kronfeld of BlueMountain Capital Management, LLC (New York) and Stephen Lerner of Squire Patton Boggs (Cincinnati).
  Members outside the U.S. can listen to the conversation online at: http://www.abiworld.org/webinars/2014/INSOL_RESTRUCTURINGS/live.html
   
• Asset Sales Committee: Thursday, Oct. 2; 4 pm ET
  Topic: Call to cover "the progeny of Fisker," as well as the practical implications of the decisions.
  Speakers: Oscar Pinkas of Dentons (New York) and Justin Paget of Hunton & Williams LLP (Richmond, Va.)
   
• Unsecured Trade Creditors Committee: Wednesday, Oct. 1; 4 pm ET
  Topic: "Tricks of the Trade: New Issues and Strategies in Preference Cases"
  Speakers: Mark Felger of Cozen O'Connor (Wilmington, Del.) and Travis Powers of Buchanan Ingersoll & Rooney PC (Buffalo, N.Y.)

All committee teleconferences will utilize the same dial-in information:
Call in: (712) 432-1500
Participant code: 692933

NEW CASE SUMMARY ON VOLO: RUPANJALI V. CHECK INTO CASH OF WASHINGTON INC. (9TH CIR.)

Summarized by David Hercher of Miller Nash LLP

The Ninth Circuit ruled that for an automatic stay violation the chapter 7 debtor was entitled to receive emotional distress damages, punitive damages, and attorney fees incurred to end the violation, but not fees incurred to recover damages.

There are nearly 1,500 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: SIXTH ANNIVERSARY OF THE BANKRUPTCY FILING OF LEHMAN BROTHERS

A recent post takes a look back at the bankruptcy filing by Lehman Brothers on Sept. 15, 2008, the largest chapter 11 filing in U.S. history.

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

SARE cases should not be allowed in chapter 11.

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

September
- Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization
    Sept. 17-18, 2014 | New York, N.Y.

October
- abiWorkshop: Government Contracting and Bankruptcy
    Oct. 6, 2014 | Alexandria, Va.
- Midwestern Bankruptcy Institute
    Oct. 16-17, 2014 | Kansas City, Mo.
- Views from the Bench
    Oct. 24, 2014 | Washington, D.C.
- Claims-Trading Program
    Oct. 30, 2014 | New York, N.Y.
- International Insolvency & Restructuring Symposium
    Oct. 30-31, 2014 | London
 

November
- Complex Financial Restructuring Program
    Nov. 6, 2014 | Philadelphia
- Corporate Restructuring Competition
    Nov. 6-7, 2014 | Philadelphia
- Chicago Consumer Bankruptcy Conference
    Nov. 11, 2014 | Chicago, Ill.
- Detroit Consumer Bankruptcy Conference
    Nov. 11, 2014 | Troy, Mich.
- Mid-Level Professional Development Program
    Nov. 12, 2014 | Chicago

December
- Winter Leadership Conference
    Dec. 4-6, 2014 | Palm Springs, Calif.
- 40-Hour Mediation Training Program
   Dec. 7-11, 2014 | New York, N.Y.

COURT DATES SET FOR LAWSUIT OVER CONSTITUTIONALITY OF PUERTO RICO DEBT LAW

The judge asked to consider the constitutionality of a new Puerto Rico law that allows government-owned entities to restructure debt outside of federal bankruptcy court wants each side to make its case by October, Bloomberg News reported today. Saying that the new law depressed the value of $1.6 billion in power utility debt they hold, bond funds affiliated with Franklin Resources Inc. and Oppenheimer Rochester Funds sued Puerto Rico in June, contending that the Public Corporation Debt Enforcement and Recovery Act violates the U.S. Constitution. The law would let a commonwealth court restructure debt in processes similar to chapter 9 and chapter 11 of the U.S. Bankruptcy Code. Puerto Rico has asked U.S. District Judge Francisco A. Besosa in San Juan to dismiss the suit and declare the law constitutional. The bond funds filed a summary judgment motion this week, taking the position that undisputed facts require Judge Besosa to declare the law void, regardless of the specific circumstances under which it's applied. The judge told Puerto Rico to file papers by Sept. 12 supporting its claim that the law is constitutional. The bond funds are to file opposing papers by Oct. 6. Read more.

On ABI's latest podcast, ABI Executive Director Sam Gerdano talks with Sonia Colón and Javier Vilariño Santiago of Ferraiuoli LLC in Puerto Rico about the financial distress facing the Puerto Rico Electric Power Authority (Prepa). Puerto Rico's status as a U.S. territory does not permit Prepa to file for chapter 9 municipal bankruptcy or for chapter 11 relief. The Puerto Rican legislature in June passed the Public Corporate Debt Enforcement and Recovery Act as a way to restructure municipal debt outside of federal bankruptcy court. Bond funds of Prepa filed a lawsuit in July against the new law claiming that it is unconstitutional. Looking for a possible remedy on Capitol Hill, Rep. Pedro Pierluisi (D.-P.R.) on July 31 introduced H.R. 5305 to treat Puerto Rico as a state to allow a chapter 9 filing for the adjustment of municipal debt. Colón and Vilariño discuss Puerto Rico's new law, the case filed against it and prospects for passage of H.R. 5305. Click here to listen.

COMMENTARY: BONDS, NOT BAILOUTS, FOR "TOO BIG TO FAIL" BANKS

On Aug. 3 the Portuguese government announced a 4.9 billion Euros ($6.55 billion) bailout for Banco Espirito Santo, another reminder that the "too big to fail" doctrine still prevails six years after the financial crisis, according to a commentary in yesterday's Wall Street Journal. At least in this case, junior bondholders -- those who invested less than a year ago -- and shareholders were forced to take a haircut. That's progress for those who argue that economic recovery is impeded when monetary and fiscal authorities rescue private institutions from the consequences of their decisions. Too big to fail remains unresolved in the U.S. Last week the Federal Reserve and the Federal Deposit Insurance Corp. said that not one of the nation's 11 largest banks could fail without threatening the broader financial system. The news came after regulators reviewed the banks' "living wills," the emergency plans required under the 2010 Dodd-Frank law. Instead of living wills or government bailouts, the commentary proposes that banks issue a class of bonds to privately secure the financial system against a cascade of failures. Called Class R or "Reorganization" bonds, they would function like any other corporate-debt instrument in normal times, meaning that bondholders would have no control over the corporation. In the event of the firm's imminent failure, according to the commentary, Class R bondholders would form a committee to develop contingency plans to appoint a new board of directors and reorganize senior management. In bankruptcy, the existing board of directors would be dismissed, the equity of the firm would be eliminated and the Class R bonds would immediately be converted to equity. The Class R bondholders might take a haircut, but they would also become the owners of the bank, free of claims from prior management or shareholders. Read the full commentary. (Subscription required.)

INVESTORS PROFIT FROM FORECLOSURE RISK ON HOME MORTGAGES

The recovery in housing is fueling a niche market for newly minted bonds that are backed by the most troubled mortgages of them all: those on homes on the verge of foreclosure, the New York Times reported today. Vulture hedge funds are not the only investors swooping in to try to profit from the last remnants of the housing crisis -- mutual funds are as well. And one of the biggest sellers of severely delinquent mortgages to investors is a U.S. government housing agency. So far this year, there have been 28 deals backed by $7 billion worth of nonperforming loans sold to investors, according to Intex Solutions, a structured finance cash-flow modeling firm. Last year, Intex said, there were 72 deals backed by $11.6 billion worth of nonperforming loans. Regulatory records show that over the last two years mutual funds either offered or advised by firms like JPMorgan Chase, SEI Investments, Weitz Investments and Edward Jones have been buying unrated bonds with names like Bayview Opportunity Master Fund IIa Trust NPL, Kondaur Mortgage Asset Trust and Stanwich Mortgage Loan Trust NPL. The catalyst for the emergence of this unusual market was a decision by the Housing and Urban Development Department to begin selling some of the most severely delinquent mortgages guaranteed by the Federal Housing Administration to avoid losses to United States taxpayers. Since 2010, HUD has sold 101,290 soured home loans with a combined unpaid balance of $17.6 billion in more than a dozen auctions, and more distressed sales are planned. Read more.

ANALYSIS: TEN STATES STRUGGLING WITH DELINQUENT DEBT

A recent report from the Urban Institute found that more than one-third of Americans with credit histories faced debt collections in 2013, 247WallSt.com reported yesterday. Nearly 50 percent of Nevadans with a credit history had debt in collections as of 2013, the highest percentage in the nation. On average, these residents had $7,198 of debt in collections, defined as being at least 180 days past due, also the most in the nation. By comparison, 35 percent of Americans nationwide had debt in collection, with an average delinquent debt of $5,178. While high average levels of delinquent debt did not appear to be concentrated in any particular region, southern states were much more likely to have a higher share of people with debt in collections. Eight of the 10 states, according to the analysis, are located in the southern U.S. In all of the states with the highest percentage of residents with delinquent debt, the median household income was below the U.S. median of $51,371. Four of these states -- Alabama, Kentucky, Mississippi, and West Virginia -- were among the five lowest states by median income. Additionally, these states tended to have higher proportions of people who live below the poverty line when compared to the national benchmark. Read more.

For a look at the composition of U.S. household debt, be sure to check out ABI's Chart of the Day.

 

SAN DIEGO PENSION DIALS UP THE RISK TO COMBAT A SHORTFALL

A large California pension manager is using complex derivatives to supercharge its bets as it looks to cover a funding shortfall and diversify its holdings, the Wall Street Journal reported today. The new strategy employed by the San Diego County Employees Retirement Association is complicated and potentially risky, but officials close to the system say it is designed to balance out the fund's holdings and protect it against big losses in the event of a stock-market meltdown. San Diego's approach is one of the most extreme examples yet of a public pension using leverage -- including instruments such as derivatives -- to boost performance. The strategy involves buying futures contracts tied to the performance of stocks, bonds and commodities. That approach allows the fund to experience higher gains -- and potentially bigger losses -- than it would if it owned the assets themselves. The strategy would also reduce the pension's overall exposure to equities and hedge funds. The pension fund manages about $10 billion on behalf of more than 39,000 active or former public employees. Read more. (Subscription required.)

COMMENTARY: WELCOME TO THE WORLD OF "PENSION SMOOTHING"

President Barack Obama on August 8 signed a $10.8 billion transportation bill that extends a "pension-smoothing" provision for another 10 months, according to a commentary in today's Wall Street Journal. In short: companies can delay making mandatory pension contributions, but because those payments are tax-deductible, some businesses will pay slightly higher tax bills, which will help pay for the legislation. Companies with 100 of the country's largest pensions were expected to contribute $44 billion to their plans this year, but that could be slashed by 30 percent next year, estimated John Ehrhardt, an actuary at consulting firm Milliman. The government's moves could undermine its own efforts to shore up the pension system, according to the commentary. Some worry about the strain it could put on the government agency tasked with protecting the retirement of 44 million workers. "To use the federal pension insurance program to pay for wholly unrelated spending initiatives is just bad public policy," said Brad Belt, former executive director of the Pension Benefit Guaranty Corporation, the government's pension insurer. "It has adverse implications for the funding of corporate pension plans." Companies have struggled to keep up with mounting pension bills since 2008. Currently, the largest pensions have a $252 billion funding deficit, which has increased by $66 billion since the beginning of the year, estimated Ehrhardt. Read the full commentary. (Subscription required.)

NEW TO THE LAW PROFESSION? LAW FIRM RECENTLY ADD NEW ASSOCIATES TO THE RANKS? BE SURE TO PRE-ORDER ABI'S SURVIVAL GUIDE FOR THE NEW LAWYER!

Available now for pre-order in ABI's Bookstore is the Survival Guide for the New Lawyer: What They Didn't Teach You in Law School. The Survival Guide provides real-world guidance on the everyday aspects of practicing law, with a special emphasis on bankruptcy law. Full of anecdotal examples and hard-earned advice, this Guide is perfect for the aspiring lawyer fresh out of law school, or for any firm that wants to give its associates a leg up on the competition. Click here to pre-order, and be sure to log in first to obtain the ABI member discount!

GET PUBLISHED IN AN ABI NEWSLETTER! RETOOLED DESIGN RAISES EACH AUTHOR'S PROFILE

Don't miss your chance to be published! In addition to a colorful new design and better mobile integration, ABI newsletters now provide authors with greater exposure through their submissions. The new ABI newsletter design showcases each author's photo and a link to their firm's website. Each article will be promoted via ABI social media networks and will also be available in relevant search results when colleagues are doing their research through search.abi.org. For more information on writing for an ABI newsletter, click here.

NEW CASE SUMMARY ON VOLO: PICARD V. FAIRFIELD GREENWICH; PICARD V. SCHNEIDERMAN (2D CIR.)

Summarized by David Banker of Lowenstein Sandler LLP

The U.S. Court of Appeals for the Second Circuit held that Irving Picard, the trustee for the liquidation of Bernard L. Madoff Investment Securities LLC ("BLMIS") and of the bankruptcy estate of Bernard L. Madoff (the "Madoff Trustee"), was not entitled to declaratory or injunctive relief where he sought to block the settlement of three lawsuits against "feeder funds," none of which involved BLMIS or the Madoff estate as a party. The court of appeals held that declaratory and injunctive relief to stay the settlements involving these "feeder funds," which funds were also defendants in fraudulent conveyance actions commenced by the Madoff Trustee, was not justified where the settlements involved neither suits against BLMIS and the Madoff estate nor estate property within the meaning of the Bankruptcy Code's automatic stay provisions, the SIPA and two district court orders related to the BLMIS and Madoff estates. The Court of Appeals also ruled that injunctive relief under section 105 of the Bankruptcy Code was not warranted on the grounds that Picard could not show that the BLMIS estate was likely to suffer irreparable harm if the settlements went forward as planned.

Don't miss Irving Picard's keynote, "Tales from the Madoff Bankruptcy," at ABI's 34th Annual Midwestern Bankruptcy Institute on Oct. 16-17 in Kansas City, Mo. Click here to register.

There are more than 1,400 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: EFH CREDITORS WANT ANSWERS FROM IRS

A recent blog post reported that creditors threatened with big losses in Energy Future Holdings Corp.'s bankruptcy case are demanding answers about the tax issues that they say are driving the big Dallas power seller's strategy for restructuring its $42 billion debt load.

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

Consumer collateral should be valued at liquidation value in chapter 13 confirmations, even when the debtor retains the property.

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

September
- Southwest Bankruptcy Conference
    Sept. 4-6, 2014 | Las Vegas, Nev.
- abiLIVE Webinar: Understanding Make-Whole and No Call Provisions
    Sept. 9, 2014 |
- Golf & Tennis Outing
    Sept. 9, 2014 | Maplewood, N.J.
- CARE Financial Literacy Conference
    Sept. 11-13, 2014 | Dallas, Texas
- ABI Workshop: Lending to Distressed Companies
    Sept. 15, 2014 | Alexandria, Va.
- Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization
    Sept. 17-18, 2014 | New York, N.Y.

October
- abiWorkshop: Government Contracting and Bankruptcy
    Oct. 6, 2014 | Alexandria, Va.
- Midwestern Bankruptcy Institute
    Oct. 16-17, 2014 | Kansas City, Mo.
 

- Views from the Bench
    Oct. 24, 2014 | Washington, D.C.
- Claims-Trading Program
    Oct. 30, 2014 | New York, N.Y.
- International Insolvency & Restructuring Symposium
    Oct. 30-31, 2014 | London

November
- Complex Financial Restructuring Program
    Nov. 6, 2014 | Philadelphia
- Corporate Restructuring Competition
    Nov. 6-7, 2014 | Philadelphia
- Chicago Consumer Bankruptcy Conference
    Nov. 11, 2014 | Chicago, Ill.
- Detroit Consumer Bankruptcy Conference
    Nov. 11, 2014 | Troy, Mich.

December
- Winter Leadership Conference
    Dec. 4-6, 2014 | Palm Springs, Calif.
- 40-Hour Mediation Training Program
   Dec. 7-11, 2014 | New York, N.Y.

JULY BANKRUPTCY FILINGS DECREASE 12 PERCENT FROM PREVIOUS YEAR, BUSINESS FILINGS DECREASE 21 PERCENT

Total bankruptcy filings in the United States fell by 12 percent in July 2014 over July of last year, according to data provided by Epiq Systems, Inc. Bankruptcy filings totaled 77,469 in July 2014, down from the July 2013 total of 87,746. Consumer filings declined 11 percent to 74,595 from the July 2013 consumer filing total of 84,114. Total commercial filings in July 2014 decreased to 2,874, representing a 21 percent decline from the 3,632 business filings recorded in July 2013. Total commercial chapter 11 filings dipped 34 percent to 357 filings in July 2014 from the 539 commercial chapter 11 filings registered in July 2013. Filings are on track to be the lowest since 2007. Read the full press release.

REPORT: WHY SMALL-BUSINESS LENDING HAS NOT RECOVERED

While lingering cyclical factors from the 2008 financial crisis may still be constraining access to bank credit, there are also structural barriers that seem to be preventing banks, both large and small, from ever fully returning to the small business market, according to a new Harvard Business School study, Forbes.com reported today. In the recent recession, small-business sales were hit hard and may still be soft, undermining their demand for loan capital, according to the study, titled "The State of Small Business Lending: Credit Access during the Recovery and How Technology May Change the Game." Income of the typical household headed by a self-employed person declined 19 percent in real terms between 2007 and 2010, according to the Federal Reserve's Survey of Consumer Finances. And a survey by the National Federation of Independent Businesses (NFIB) noted that small businesses reported sales as their number one problem for four straight years during the crisis and subsequent recovery. In addition, collateral owned by small businesses lost value during the financial crisis, potentially making small business borrowers less creditworthy today -- in fact, small business credit scores are lower now than before the Great Recession, according to the Harvard study. Click here to read the full study.

COMMENTARY: A PUERTO RICAN SOLUTION FOR ILLINOIS

If Puerto Rico Electric Power Authority (Prepa) can restructure its debt, there could be hope for states -- particularly Illinois -- whose own finances are sketchy, according to a commentary in yesterday's Wall Street Journal by Prof. David Skeel of the University of Pennsylvania School of Law. One obvious solution for Prepa might be to file for municipal bankruptcy, as public agencies of a state can do under chapter 9, but the U.S. Congress explicitly excluded Puerto Rico and Washington, D.C., from chapter 9 in the 1980s. Nor can Prepa file for chapter 11, as public corporations and agencies are barred from chapter 11. Mindful of the predicament, Puerto Rican lawmakers in June passed the "Puerto Rico Public Corporation Debt Enforcement and Recovery Act," which gives Prepa and similar entities two restructuring choices. The first suspends a public corporation's obligations for nine months, giving it time to negotiate a debt restructuring to be submitted to creditors for a vote. Under the second, a court can, subject to certain protections for creditors, impose a debt restructuring. Two groups of mutual funds holding $1.7 billion of Prepa's roughly $9 billion debt have sued, asking the federal court in Puerto Rico to declare the law unconstitutional. Their lawsuit argues that only Congress has the power to enact bankruptcy laws under the U.S. Constitution, which also prohibits a state (or commonwealth) from altering the terms of existing contracts. Puerto Rico's debt-restructuring statute will likely withstand this challenge, according to Skeel. The provision in the Bankruptcy Code that invalidates state laws to restructure municipal debt probably does not apply to Puerto Rico -- since its municipalities are not permitted to use chapter 9. Congress could dispel the uncertainty by allowing Puerto Rico's public corporations to file for bankruptcy under chapter 9 -- a solution proposed last Thursday by Democrat Pedro Pierluisi, the commonwealth's nonvoting delegate in Congress. Ideally, Puerto Rico itself, not just its municipalities, could be allowed to file for chapter 9. If the commonwealth can successfully restructure the debt of its public corporations, this will strongly suggest that Congress should provide a mechanism for troubled states to file for bankruptcy. Read the full commentary. (Subscription required.)

The "Puerto Rico Public Corporation Debt Enforcement and Recovery Act" will be the subject of a forthcoming ABI podcast. Stay tuned for details!

SURVEY: FAMILIES BORROWING LESS FOR COLLEGE

American families are relying more on their income and savings -- and less on loans -- to pay for college, according to an annual study by education lender Sallie Mae, the Wall Street Journal reported on Friday. In the 2013-14 academic year just ended, the typical family paid 22 percent of total college costs by borrowing, down from 27 percent in each of the preceding two school years. These families paid 42 percent of college costs by using income or savings from the parents and/or student, vs. 38 percent the year before and 40 percent in 2011-12, according to the Sallie Mae study, conducted by market-research company Ipsos Public Affairs. The average cost of college, $20,882, was relatively stable for the third year in a row after peaking at $24,097 in the 2009-10 year. These figures don't take into account any grants, scholarships or other non-loan aid students might receive. Read more. (Subscription required.)

SMALLER LAW FIRMS GET MORE M&A WORK

A handful of top law firms have been dominating the deals market, but new data released today show that more cost-conscious clients are also giving a lift to smaller firms that offer similar expertise but lower rates, the Wall Street Journal reported today. In 2013, law firms with 501 to 750 lawyers captured the biggest share of legal fees for high-value mergers-and-acquisitions work -- defined as deals that generate more than $1 million in legal bills -- for the second year in a row. The figures are based on an analysis of $15 billion in legal fees by CounselLink, a legal software business in the software division of LexisNexis. The report reviewed billings for 154 U.S. companies with revenues ranging from less than $1 billion to more than $10 billion. Read more. (Subscription required.)

TOMORROW! DISCUSS THIRD-PARTY RELEASES IN CHAPTER 11 ON THE UNSECURED TRADE CREDITORS CONFERENCE CALL -- ALL MEMBERS WELCOME!

The Unsecured Trade Creditors Committee will be holding its bi-monthly committee call tomorrow at 4 pm ET to discuss third-party releases in chapter 11. The call will be moderated by Lisa Gretchko of Howard & Howard Attorneys PLLC in Royal Oak, Mich., and she will be joined by Scott Wolfson of Wolfson Bolton PLLC in Troy, Mich. The UTC Committee has been holding bi-monthly committee calls since 2012 on a wide variety of topics. These bi-monthly committee calls are free and open to all ABI members. Previous call recordings can be found on the committee's website. For more information, please click here.

NEW CASE SUMMARY ON VOLO: VIDOV V. MARSHAK (IN RE VIDOV; 9TH CIR.)

Summarized by Bryan Robinson

In an unpublished opinion, the Ninth Circuit Bankruptcy Appellate Panel affirmed the bankruptcy court's summary judgment ruling. The bankruptcy court ruled that most of the alleged misrepresentations, concealment and other misconduct that the appellant complained about concern claims that the appellant as a matter of law released in the settlement agreement. As the claims had been waived pursuant to the release in the settlement agreement, the bankruptcy court concluded that the appellant would not be able to establish at trial all of the elements for an exception to discharge under either § 523(a)(2) (A) or § 523(a)(6).

There are more than 1,300 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: NINTH CIRCUIT FINDS CONSUMER'S DESCRIPTION OF BAC'S MISLEADING BEHAVIOR SUFFICIENT TO RAISE VALID ALLEGATION

A recent blog post examines the Ninth Circuit Court of Appeals decision in the case of Compton v. Countrywide Financial Corp. in which it reversed the District Court's dismissal, concluding that Compton sufficiently alleged that BAC engaged in an "unfair or deceptive act or practice" for the purpose of withstanding a motion to dismiss.

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

Consumer collateral should be valued at liquidation value in chapter 13 confirmations, even when the debtor retains the property.

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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

August
- ABI Endowment Baseball Event
    Aug. 13, 2014 | Baltimore, Md.
- Fourth Hawai'i Bankruptcy Workshop
    Aug. 13-16, 2014 | Maui, Hawai'i

September
- Southwest Bankruptcy Conference
    Sept. 4-6, 2014 | Las Vegas, Nev.
- abiLIVE Webinar: Understanding Make-Whole and No Call Provisions
    Sept. 9, 2014 |
- Golf & Tennis Outing
    Sept. 9, 2014 | Maplewood, N.J.
- CARE Financial Literacy Conference
    Sept. 11-13, 2014 | Dallas, Texas
- ABI Workshop: Lending to Distressed Companies
    Sept. 15, 2014 | Alexandria, Va.
- Lawrence P. King and Charles Seligson Workshop on Bankruptcy & Business Reorganization
    Sept. 17-18, 2014 | New York, N.Y.
 

October
- abiWorkshop: Government Contracting and Bankruptcy
    Oct. 6, 2014 | Alexandria, Va.
- Midwestern Bankruptcy Institute
    Oct. 16-17, 2014 | Kansas City, Mo.
- Views from the Bench
    Oct. 24, 2014 | Washington, D.C.
- Claims-Trading Program
    Oct. 30, 2014 | New York, N.Y.
- International Insolvency & Restructuring Symposium
    Oct. 30-31, 2014 | London

November
- Complex Financial Restructuring Program
    Nov. 6, 2014 | Philadelphia
- Corporate Restructuring Competition
    Nov. 6-7, 2014 | Philadelphia
- Chicago Consumer Bankruptcy Conference
    Nov. 11, 2014 | Chicago, Ill.
- Detroit Consumer Bankruptcy Conference
    Nov. 11, 2014 | Troy, Mich.