The Bankruptcy Venue Reform Act of 2011: Hearing Update
I previously posted on the Bankruptcy Venue Reform Act of 2011 (H.R. 2533), available here, which attempts to prevent Chapter 11 debtors from filing bankruptcy in a debtor-friendly forum where they have no real presence. On September 8, 2011, the Judiciary Committee conducted a hearing and gathered evidence. I previously assumed this bill was dead-on-arrival once the big business lobby sunk its teeth in, but it appears that the legislation is growing bi-partisan support.
By Round-Up: Insolvency in the News
Here are bankruptcy stories from around the web making headlines on 8.26.11:
The Nashville Business Journal provides a sobering update of the Tennessee housing market.
Reuters reports that Lehman Bros. executives have agreed to settle shareholder investment suits for $90 million.
WSJ Bankruptcy Beat: Oregon Newspaper files Chapter 11, but not without a fight; paper goes down swinging against its largest creditor.
Too big to fail? Denmark enacts plan to protect banks from bankruptcy.
And on a historical note, the State of Indiana apparently went bankrupt in 1839. Unless you’re from Indiana, in which case the situation is considered a mere brief unpleasantness.
Discharging Student Loan Debt — Applicable Only to Government Loans?
I had lunch a few days ago with a fellow lawyer and he had some questions about discharging student loan debt in bankruptcy. He heard that only loans through government-sponsored programs were nondischargeable because free market private originators didn’t need protection — after all, they made the business decision to set an interest rate and agree to terms they found acceptable.
He had part of it right. Section 523(a)(8) of the Bankruptcy Code does, indeed, deem that student loans funded in whole or part by the government are excepted from discharge absent an “undue hardship.” But, if you keep reading in this section, it also excepts loans from nonprofit institutions and “any other educational loan that is a qualified educational loan, as defined in section 221(d)(1) of the Internal Revenue Code.” Unfortunately for individual debtors, section 221(d)(1) of the IRC is drafted to include any loans, to include private loans, that pay for tuition, fees, books, and other “costs of attendance.” Through section 523 of the Bankruptcy Code and section 221 of the IRC, Congress has determined that private loans are afforded the same basic exception to discharge as federally backed loans.
As mentioned above, student loans are excepted from discharge absent an undue hardship. This is really tough for a debtor to satisfy, but I thought it’d be worth providing the three-part test (known as the “Brunner Test”) used to determine if undue hardship has been proven:
1. that the debtor cannot maintain, based on current income and expenses, a “minimal” standard of living for [herself] and [her] dependents if forced to repay the loans;
2. that additional circumstances exist indicating that this state of affairs is likely to persist for a significant portion of the repayment period of the student loans; and
3. that the debtor has made good faith efforts to repay the loans.
See Brunner v. New York State Higher Educ. Serv. Corp., 831 F.2d 395 (2d Cir. 1987).
Round-Up: Stern v. Marshall
It’s been nearly two months since the Supreme Court released it’s “bombshell” decision in Stern v. Marshall, which held that bankruptcy courts may not issue final judgments for certain claims traditionally reserved for state or federal district courts. Although the scope of the decision’s impact is still being sorted out, here’s a round-up of recent commentary on the case:
SCOTUSblog’s very comprehensive coverage includes analysis, oral argument recap, merits and amicus briefs, and the opinion and briefs from below.
Our firm’s take, focusing on the impact of the case for litigators is here.
Businessweek notes that arguments over Stern are already hot and heavy in the Lehman Bros. bankruptcy.
Bankruptcy Beat highlights a recent ABI poll showing that 46% of respondents agree (and 46% disagree) with the Court’s decision.
Stern may also have an impact beyond the bankruptcy realm. Credit Slips focuses on how the decision might impact judicial deference to agency expertise.
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