Category: Bankruptcy

Introduction:

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      As tuition rates climb to an all time high, it is not unusual to hear of students leaving college with 40, 50, or even 60 thousand dollars of debt. Many law and medical students are graduating from school with a degree in one hand and 100 thousand dollars in student loans in the other. This continuing increase in tuition has many eager students pursuing community colleges over four year universities. [1] For example, Mott Community College's Michael Kelly states that enrollement has been up 28 percent in the last five years. [2] Kelly says that for some the choice is simple and "[t]he higher the cost is, the more students we get." [3]

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I. Introduction:

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A rose by any other name may still smell as sweet, but execs at Dana
Corp. recently discovered that calling executive compensation by
another name did not pass the smell test in court. S.D.N.Y. Bankruptcy
Judge Burton Lifland recently denied Dana's proposed executive
compensation package as contrary to the provisions of the Bankruptcy
Code. [1]  Nearly one year after BAPCPA, has the Dana case finally ushered in a new approach to evaluating executive compensation plans, as envisioned by Congress?

Executive Compensation After BAPCPA

The Bankruptcy Abuse Prevention and Consumer Protection Act, enacted
last October, added some severe restrictions on the ability of Chapter
11 debtors to adopt so-called "pay to stay" executive compensation
plans. [2]

New Code section 503(c) establishes the guidelines for insider
retention, bonus, and severance plans, also known as KERPS. [3] Under
the new evidentiary standards,the Code bars bonuses to corporate
insiders as an inducement to stay … Read the rest

The negotiation efforts of Delphi Corp.'s union employees took on
new urgency on March 31 as Delphi filed a motion with the U.S.
Bankruptcy Court seeking to reject its collective bargaining agreements
and modify its retiree benefits plans under sections 1113 and 1114 of
the Bankruptcy Code. [1] If Delphi's pension and benefits obligations
are ultimately rejected and then terminated, it will have a profound
effect on the Pension Benefit Guaranty Corp., the federal agency that
insures pension obligations. Already operating at a deficit, PBGC can
ill-afford to take on any of Delphi's estimated $10.7 billion in
under-funded liability for hourly employees' retirement benefits. [2]
In response to the recent distress terminations of pension plans in the
steel and airline industries, Congress has introduced several measure
to bolster the PBGC. As a consequence, Chapter 11 debtors may find it
more difficult to avoid pension liability as part of a reorganization… Read the rest

While bankruptcy judges are obliged to apply and uphold the rule of
law as specifically set out by Congress, some have chosen to publicly
air their misgivings about the lack of discretion left to  judges to
administer bankruptcy cases by the 2005 amendments to the Code. A
recent order by Judge Monroe of the Western District of Texas has
gained widespread attention for its scathing attack on the credit
counseling requirement. [1] It remains to be seen whether bankruptcy
judges and practitioners will be able to prompt review of this
provision, but the frustration evident in Judge Monroe's decision has
sent Congress a clear message.

The
credit counseling prerequisite to filing a bankruptcy petition is just
one example of how the 2005 Bankruptcy Abuse Prevention and Consumer
Protection Act has made bankruptcy relief more expensive, time
consuming, and restrictive than before. One initial study suggests that
the credit counseling industry … Read the rest

On January 23, 2006, the U.S. Supreme Court handed down its decision in Central Virginia Community College v. Katz
[1], holding that a state cannot assert its sovereign immunity as
grounds to block the avoidance of a preferential transfer to a state
agency under § 547(b)
of the Bankruptcy Code [2]. At the heart of the matter was whether
Congress overstepped its constitutional power when it enacted § 106(a) of the Code, which waives state sovereign immunity in bankruptcy.

However fair the outcome may be, the rationale of the Court cannot
be reconciled with its prior decisions addressing Congress's ability to
waive state sovereign immunity under its Article I powers. Indeed the
Court's theory of implied waiver does little to justify why there
should be a "bankruptcy exception" at all. On its face, Katz
may be expected to open the door to broader Congressional abrogation of
state sovereign immunity in … Read the rest

"I don't
think you can make a lawyer honest by an act of legislature. You've got
to work on his conscience. And his lack of conscience is what makes him
a lawyer." [1]

While
the lawyer joke is an art form dating back centuries, it is not
actually the case that firms throughout the country are staffed with
snakes, shysters, and snollygosters. Nor is there much evidence that
attorneys who counsel clients through bankruptcy proceedings are a
particularly shady lot. So it has come as a surprise to many attorneys
that Congress has enacted strict requirements, backed by monetary and
criminal sanctions, for attorneys practicing in consumer bankruptcy.
The burden of personal liability raises fundamental questions about the
role of the attorney and the sanctity of the attorney-client
relationship under the new bankruptcy law.

As
a whole, the Bankruptcy Code as currently in effect reflects an
underlying disapproval of bankruptcy … Read the rest