| NEWS AND ANALYSIS
SUPREME COURT REJECTS NINTH CIRCUIT'S CREATIVE PUNISHMENT OF DECEPTIVE CHAPTER 7 DEBTOR
The Supreme Court ruled today in the case of Law v. Siegel that a home remains exempt property even if the individual's flagrantly deceptive conduct results in hundreds of thousands of dollars of litigation, according to a SCOTUSBlog analysis today. The case involves a debtor (Law) who tried to keep money from his creditors by claiming that his home was subject to a fictional lien. Law's activity in support of this fiction was remarkable; as the Court's opinion notes, it extended (according to the courts below) to the filing of fictitious pleadings that he forged in the name of the fictitious lienholder. The trustee in the bankruptcy proceeding (Siegel) spent several hundred thousand dollars proving that Law's claim was wholly fabricated. Outraged by the conduct, the bankruptcy court (following established Ninth Circuit precedent) held that the trustee could collect the expenses of that litigation out of the funds Law received from the sale of his homestead. However, on review, the Supreme Court (in a unanimous opinion written by Justice Scalia) pointed to the provision in §522(k) of the Code, which states that exempt assets are "not liable for the payment of any administrative expense." The trustee's litigation costs have to be administrative expenses for bankruptcy purposes, because they were incurred by the trustee litigating on behalf the estate; if they weren't administrative expenses, they wouldn't be reimbursable at all. The suggestion that administrative expenses should have a narrower meaning in §522(k) than in the framework that makes those expenses an obligation of the estate was dismissed out of hand. The Court concluded:
"We acknowledge that our ruling forces Siegel to shoulder a heavy financial burden resulting from Law's egregious misconduct, and that it may produce inequitable results for trustees and creditors in other cases. We have recognized, however, that in crafting the provisions of [the relevant section of the Bankruptcy Code], 'Congress balanced the difficult choices that exemption limits impose on debtors with the economic harm that exemptions visit on creditors.' The same can be said of the limits imposed on recovery of administrative expenses by trustees. For the reasons we have explained, it is not for courts to alter the balance struck by the statute."
Click here to read the Court's opinion in Law v. Siegel.
AHA LOBBIES CONSUMER FINANCIAL PROTECTION BUREAU ON PATIENT DEBT
The American Hospital Association, the nation's largest hospital lobby, wants the Consumer Financial Protection Bureau (CFPB) to consider medical debt as separate from other forms of debt, Fiercehealthfinance.com reported today. The distinction is an important one, as the fledgling agency is in the midst of promulgating regulations as to how to regulate various types of debt. Hospitals have also come under the microscope for debt collection practices in recent years, such as systematically suing patients for nominal amounts that they owe. The American Hospital Association, in a lengthy comment letter sent to the CFPB, asked that the bureau not lump medical debt together with obligations such as credit card debt, which often have hard and fast payment deadlines and agreements as to when an account might become delinquent. "In reality, the bulk of how hospitals actually seek reimbursement as part of the post-visit process is not 'debt collection' in the typical sense of having a debt collector contact a consumer demanding immediate payment, but rather is working through the billing process to submit insurance claims, determine out-of-pocket expenses owed, and work with patients to review their financial responsibility and options for financial assistance," wrote Melinda Hatton, the AHA's general counsel. Read more.
ANALYSIS: STUDENT LOANS ENTICE BORROWERS MORE FOR CASH THAN A DEGREE
Some Americans caught in the weak job market are lining up for federal student aid -- not for education that boosts their employment prospects, but for the chance to take out low-cost loans, sometimes with little intention of getting a degree, the Wall Street Journal reported today. The soft jobs recovery and the emphasis on education have driven people to attain more schooling. But borrowing thousands in low-rate student loans -- which cover tuition, textbooks and a vague category known as living expenses, a figure determined by each individual school -- can also be easier than getting a bank loan, according to the analysis. College officials and federal watchdogs can't say exactly how much of the U.S.'s swelling $1.1 trillion in student-loan debt has gone to living expenses. The Education Department's inspector general warned last month that the rise of online education has led more students to borrow excessively for personal expenses. Its report said that among online programs at eight universities and colleges, non-education expenses such as rent, transportation and "miscellaneous" items made up more than half the costs covered by student aid. Read more. (Subscription required.)
On May 30, ABI will be holding a Student Loan Debt Crisis Symposium at the Georgetown University Law Center featuring academics, consumer bankruptcy practitioners, bankruptcy judges, consumers and policy-makers addressing the causes, consequences and possible reform of the student debt problem. For more information or to register, click here.
For an additional perspective of the student crisis and legislative approaches to addressing the problem, make sure to listen to ABI's podcast featuring Sen. Richard Durbin (D-Ill.). The student debt crisis is also the subject of Graduating with Debt: Student Loans under the Bankruptcy Code, available for purchase in the ABI Bookstore.
MUNICIPAL BONDS REGAIN POPULARITY
Investors are being lured back by relatively high yields, especially after tax breaks on much of the debt issued by states, cities and local-government entities are taken into account, the Wall Street Journal reported yesterday. Amid a selloff in all types of bonds last year, and a corresponding climb in yields, munis were among the worst performers, due partly to Detroit's filing for bankruptcy protection and financial troubles in Puerto Rico. Fears that trouble in some corners would bleed into the broader $3.7 trillion muni market have ebbed, and many investors are taking the opportunity to pick up some bonds on the cheap. Since Jan. 2, investors have poured $925 million into municipal-bond funds focused on debt that is exempt from certain taxes, according to data provider Lipper, based on funds that report weekly. Even bonds from financially stressed municipalities have rallied. The yield premium that investors demand for holding 10-year Illinois debt has shrunk to 1.2 percentage points over the yields on the most highly rated munis, according to Thomson Reuters Municipal Market Data. That is the smallest spread since June 2010 and is down from about 1.7 percentage points in November. Read more. (Subscription required.)
GEORGIA STATE UNIVERSITY COLLEGE OF LAW TAKES TOP HONORS AT 22nd ANNUAL DUBERSTEIN MOOT COURT COMPETITION
Students from Georgia State University College of Law prevailed over more than 60 other student teams to win first place at the 22nd Annual Duberstein National Bankruptcy Moot Court Competition, held March 1-3 in New York City. The competition is co-sponsored by the American Bankruptcy Institute and St. John's University School of Law. First-place winner Georgia State University had previously won the Eleventh Circuit preliminary title at the Cristol Kahn Paskay Cup, held in Miami, Fla. Mississippi College School of Law, which also earned a preliminary title at the Elliott Cup for the Fifth Circuit competition, took second place in the Duberstein Competition. Third-place honors were shared by teams from the Texas Tech University School of Law and the University of Memphis School of Law, which also won the award for the Best Brief of the competition. Jennifer D'Augustinis of the Florida Coastal School of Law was awarded Best Advocate.
About 1,000 members of the New York restructuring community attended the awards dinner last night at the Sheraton New York Times Square Hotel. A ceremony honored the late Judge Burton Lifland of the U.S. Bankruptcy Court for the Southern District and the late Joseph Hurley, Chief Clerk of the Court in the Eastern District of New York.
The competition is directed by Prof. G. Ray Warner, Associate Dean for Bankruptcy Studies at St. John's and a member of ABI's Board of Directors. For more information on ABI's Duberstein Bankruptcy Moot Court Competition, please go to http://www.stjohns.edu/academics/graduate/law/academics/llm/duberstein.
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NEW ABILIVE WEBINAR ON MARCH 20 EXAMINES HOW TO DRAFT LOAN WORKOUT AGREEMENTS
The next abiLIVE webinar will take place on March 20 from 1-2:30 p.m. ET and will examine how to draft loan workout agreements. Learn the purpose and legal underpinnings of the various component parts of frequently used workout documents such as forbearance agreements, intercreditor agreements and restructuring/override agreements. The panel will focus on real-world examples of good and bad provisions of workout documents and will provide drafting tips. Group discounts available! Click here to register.
ABI IN-DEPTH
NEW CASE SUMMARY ON VOLO: KALER V. BALA (IN RE RACING SERVICES INC.; 8TH CIR.)
Summarized by William Wallo of Weld, Riley Prenn & Ricci
The bankruptcy court award of the cash value proceeds of a former employee's life insurance policy to her employer (the debtor) was reversed by the Eighth Circuit on the grounds that the debtor held only a limited right to the funds and the bankruptcy estate did not have control of the policy or its proceeds.
There are more than 1,200 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: SUPREME COURT RULING IN STANFORD FINANCIAL CASE ON SLUSA LEAVES MADOFF VICTIMS WONDERING, "WHY NOT US?"
A recent post looked at the Supreme Court's 7-2 decision in Chadbourne & Park LLP v. Troice allowing lawsuits by a class of victims of R. Allen Stanford and Stanford Financial to proceed against two law firms, an insurance brokerage firm and a financial services firm.
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
The U.S. Trustee should generally appoint a single creditors' committee in jointly administered bankruptcy cases.
Click here to vote on this week's Quick Poll. Click here to view the results of previous Quick Polls.
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