All items from Credit Slips

Thanks to all who commented on my earlier post on the interaction of §§ 544(a)(3) and 551 and homeownership in bankruptcy; as hoped, CreditSlip readers helped me frame the questions that I continue to have about Traverse and the larger policy questions it raises. Some readers emphasized the importance of variations in state mortgage law to the trustee’s strong-arm powers; others questioned whether these distinctions should affect the trustee’s power to sell the residence (or the avoided lien) following avoidance.
Clearly, the trustee had the power to avoid the unrecorded mortgage in Traverse; let’s assume for purposes of argument that he also had the power to sell full title to the debtor’s home after avoidance.  For me the more interesting question is whether the trustee should have exercised these powers, and also whether the exercise might be viewed as an abuse of discretion.
Another way to think about this question is from an even broader angle: What position should a trustee play in a individual borrower’s chapter 7 case?  Is a trustee’s role to maximize distributions to unsecured creditors, full stop? Or might the trustee’s fiduciary obligations to the estate sometimes sit in tension with an interest in maximizing creditors’ interests?



Posted 3 weeks 5 hours ago

The U.S. Supreme Court has denied a petition for writ of certiorari in Bank of America v. Sinkfield, an 11th Circuit case raising the issue whether a junior lien wholly unsupported by collateral value can be stripped off in chapter 7. 
The high court's denial of certiorari yesterday (March 31) is a victory not only for the debtor who prevailed in the case below but also for the National Association of Consumer Bankruptcy Attorneys, represented by the National Consumer Bankruptcy Rights Center, which argued in an amicus brief against Supreme Court review on the ground that the case had not been fully litigated below and thus was a poor one for the Supreme Court to take up.   
The creditor in Sinkfield stipulated to the result that strip off was permitted in the case, based on an Eleventh Circuit opinion so holding in another case,  In re McNeal, 735 F.3d 1263 (11th Cir. 2012), one in which en banc rehearing has been sought.



Posted 3 weeks 1 day ago

Word on the street is that the company formerly known as TXU – now known as Energy Future Holdings – is lining up the biggest private DIP loan ever. About $9 billion.
Still substantially less than the $33 billion that GM needed, and that is still much, much less than a global SIFI might need upon failure. A few years ago I suggested that number might be as high as $300 billion.
So why do we continue to pretend that private DIP lending can work in SIFI resolution? Do we really think the DIP loan market will provide more lending than usual during times of financial stress?



Posted 3 weeks 3 days ago

Richard Alderman (Houston Law Center ) and I welcome all of you to beautiful Santa Fe New Mexico on May 30-31,  2014 for the only international conference in the world dedicated to the teaching of consumer law. The conference is sponsored by the Center for Consumer Law at the University of Houston Law Center, in cooperation with the University of New Mexico, and the National Association of Consumer Advocates. This year the theme is “Teaching Consumer Law in a Virtual World.”
More than 25 presenters will discuss issues related to teaching consumer law, establishing a consumer law program, as well as substantive issues regarding U.S. and international consumer law. Some of the topics include: Increasing the Prominence of Consumer Law and Influencing Policy, Debt Collection, What’s New with the FTC and the CFPB?, Economic Justice and Consumer Law. 
Teaching the Financial Crisis through Consumer Law, Virtual Currency, Privacy, Making the Most of Consumer Clinics, Consumer Arbitration , Class Actions, Innovations in Teaching, “Legal” Drug Advertising, Computerized Delivery of Consumer Law, Foreclosure Defense, Online Peer-to-Peer Lending , and Strict Product Liability in South Africa. Click here  to register and here for the brochure. 



Posted 3 weeks 4 days ago

Can’t get a mortgage?  Turns out it’s my fault.  As in mine, personally.  Yup.  That’s the claim in a Housing Wire written by right-wing banking analyst R. Christopher Whalen.  Here is Whalen’s argument in a nutshell:  
Servicing regulations make banks really reluctant to deal with anyone but very good credit borrowers because it takes so long to foreclose on anyone anymore.  Servicing regulations are so onerous because of an article Tara Twomey and I wrote on mortgage servicing that said that servicers were doing bad things. The problem (in Whalen's view) is that Tara and I had it totally wrong.
I'm flattered that Whalen credits the article with having inspired all of the subsequent foreclosure regulation, but it would be nice if Whalen would accurately characterize the article. (Has he even read it?)  It would also be nice if Whalen would acknowledge that servicers have done an awful lot of bad things over the past several years, which might just possibily have something to do with the current regulatory enviornment for servicing. But such an admission that might get in the way of Whalen grinding his political axe (two legs good, regulation ba-a-a-d).



Posted 3 weeks 4 days ago

Two weeks ago, I wrote a post based on Lynn LoPucki's observation that Article 9 of the Uniform Commercial Code (UCC) might be Bitcoin's Achilles heel. From that experience, I learned that the surest way to get attention for a blog post is to put "Bitcoin" in the title. Thus, I am back.
Article 9 governs security interests in property, and its usual rules would seem to mean that a security interest that attaches to a bitcoin forever stays with a bitcoin, substantially dimming their prospects as a mainstream medium of exchange. Article 9 has its own, special definition for "money," but that special definition clearly does not apply to bitcoins. For more detail, see the previous post.
One of my students, Igor Shleypak, and a commenter on the original post, David Patterson, separately suggested that bitcoins might be a "security" under UCC Article 8, which has separate rules for investment securities. If a bitcoin is a "security," then Article 8 would allow the transferee of a bitcoin to take free of prior security interests against the bitcoin. This is a family blog, so I will not go into the technical details of how precisely this result would obtain under Article 8. All we need discuss here is whether a bitcoin is a "security" such that Article 8 would apply.



Posted 3 weeks 5 days ago

This post will be my last one, and I would like to start it thanking Bob and the rest of the Credit Slips team for inviting me again to guest blog. I felt flattered and excited to share my experiences with Spanish insolvency law the first time, and the feeling remained throughout my second blogging stint. The experience has been so interesting (and a bit challenging) that I would not mind returning for a third time in the future.
My previous post covered the basics of the recent amendment of the Spanish Insolvency Law regarding refinancing and restructuring agreements. I left for this final post the analysis of two specific issues: judicial authorization and promotion of debt for equity agreements. The changes introduced by this amendment are, for sure, of great importance.



Posted 3 weeks 5 days ago

The Consumer Financial Protection Bureau's new study (published 3/25/14) regarding payday loans has received substantial press coverage over the past couple days. The study focuses on repeat customers and finds that 80% of payday loans effectively are rolled over--that is, another loan is taken out within 14 days of repayment of the prior loan. (Some states have legislated cooling-off periods for payday loans; in those states, loans cannot be rolled over, but customers are free to come back a few days later.) The study further finds that the loaned amount goes up as loans are rolled over and that nearly 50% of all loans are in a sequence at least 10 loans long. This means that payday loans generally are not used by customers as short-term "stopgap" loans to keep them out of a cycle of debt. Rather, customers are in debt effectively for months, as Credit Slips contributor Nathalie Martin's research previously has suggested.



Posted 3 weeks 6 days ago

Shutterstock_171670922
As I mentioned in my previous post, in the final two posts in my stint as guest blogger detailing the latest amendment of the Spanish Insolvency Law, I’ll take a break from discussing personal insolvency to focus on another current issue in Spain that very recently led to a partial amendment to the Insolvency Law: out of court refinancing and restructuring agreements. I have a personal interest in sharing the situation here in Spain because I am deeply interested in hearing comments on the main issues I identify as regards the amendment. To begin, I will briefly outline the amendment’s main features. I’ll then identify four main issues with the amendment – two in this post and two in my final post.



Posted 3 weeks 6 days ago

The IRS has spoken:  Bitcoins are property, not currency.  This was hardly a surprise, but it has some important implication that tells us a lot about what it takes to make a currency work.  
Satoshi
For a payments geek, the real lesson from the IRS Bitcoin ruling is that for a currency--or any payment system--to work, its units must be completely fungible.  One reason dollars work really well as a currency is that one $20 bill is entirely fungible with another $20 bill.  This means that when I pay, I don't have to make a decision about which $20 bill to use (unless I have some idiosyncratic attachment to the crisp ones or the like). It means that when I accept a payment, I don't care which $20 bill I am given, in part because I know that my ability to spend that $20 bill will not depend on which $20 bill it is.  If payment were in, say, camels, then it would probably matter a great deal which camel were tendered.  Camels aren't fungible. And we know that's not going to make for a very good payment system. 
So what does this have to do with Bitcoin?  



Posted 4 weeks 12 hours ago