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2. Questions Answers. Is it illegal not to repay a debt?Is it immoral not to repay a debt?. Until recent history, it has beenTo some people, it still is. 3. Italian Bankruptcy History. Early Italians
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1. 1 Bankruptcy History & Law PAR 235 - Bankruptcy Law
Mike Brigner, J.D.
2. 2
3. 3 Italian Bankruptcy History Early Italians
“banka” = bench
“rotta” = break
“banka rotta” = break bench
As a symbol of your financial failure, your creditors would break your bench, if you were a merchant who didn’t pay your debts
4. 4 Better than
5. 5 English Bankruptcy History Early English
“banka rotta” = bankrupt
English didn’t break anything, but they put you in debtor’s prison
Into 1700’s, failure to pay debts was both immoral and illegal
Debtor’s prison conditions varied from apartment-style to filthy wards
6. 6 English Bankruptcy History In London:
1829 -- 7,000 debtors imprisoned
1921 -- 400 debtors imprisoned
Miserable conditions in many debtors prisons lead to reform
Bankruptcy was a creditor’s remedy
Criminal – put debtor in jail
Civil – take all of debtor’s assets
7. 7 English Bankruptcy History 1705: First law that gave any rights to the debtor
Right of discharge – Take all assets, but then legally forgive the rest of the existing debt
Right of exemptions – Debtor can keep some modest assets to live on
8. 8 English Bankruptcy History
1849 law: Discharge based on fault
1st Class: Debtor is without fault
2nd Class: Some fault (carelessness)
3rd Class: At fault (dishonest)
9. 9 American Bankruptcy History Colonies had debtors prisons
60% owed $10 or less
Not as common as in England
Many prominent colonialists, including several signers of the Constitution had serious debt problems!
10. 10 American Bankruptcy History Creditors: this is unconstitutional!!!
No, Article I, Section 8, Clause 4 gives Congress the power to enact uniform bankruptcy laws
Constitution adopted in 1789
First bankruptcy law
enacted in 1800,
applied only to merchants
repealed in 1803, then no law for 38 yrs
11. 11 American Bankruptcy History Bankruptcy Act of 1841 significant:
Allowed the debtor to file bankruptcy
Even the non-merchant debtor!
Allowed exemptions of clothing, furniture, and “necessaries” up to $300 in value
Act was repealed in 1843, then no law for 25 years
12. 12 American Bankruptcy History Bankruptcy Act of 1867
After Civil War, 3rd Act in response to an economic crisis
This Act designed to be permanent
Allowed voluntary and involuntary filing
By merchants, individuals, & corp’ns
Assignee elected by creditors replaced historical creditor-administered estate
13. 13 American Bankruptcy History Bankruptcy Act of 1867
Exemptions now $500, including wearing apparel for debtor, wife & kids
This 3rd BR Act repealed in 1878, then no law for 20 years
14. 14 American Bankruptcy History Bankruptcy Act of 1898
Kept idea of voluntary filing by non-merchant debtor
Also allowed involuntary filing
Eliminated idea that creditor had to consent to discharge
Allowed states to set exemptions
15. 15 American Bankruptcy History Bankruptcy Act of 1898
Created first bankruptcy courts, as part of U.S. District Courts
Judges appointed bankruptcy referees
Trustee now paid from the estate
1898 Act stayed in effect 81 years until replaced by Act of 1978
16. 16 American Bankruptcy History Bankruptcy Act of 1978
Called the Bankruptcy Code
See Text pages 5-6 for 8 Chapters
Amended in 1984, 1986, 1990, 1991, 1994
And in 2005
17. 17 American Bankruptcy History Effective 10/17/05, BAPCPA - Bankruptcy Abuse Prevention and Consumer Protection Act
“. . .doing little more than imposing new costs and paperwork burdens on tens of thousands of already distressed Americans, the vast majority of whom are being forced into bankruptcy due to financial circumstances beyond their control”
National Association of Consumer Bankruptcy Attorneys
18. 18 BAPCPA "I don’t know anybody who practices in the bankruptcy arena, creditor or debtor lawyer, who thinks this is a good law."
Chair, ABA Bankruptcy Committee
19. 19 BAPCPA “The worst piece of national legislation since the Alien & Sedition Act”
Federal Bankruptcy Judge
“. . .consumer organizations overwhelmingly criticized the bill as unfair and harsh toward low-income families forced into bankruptcy by unplanned medical bills, job loss or divorce."
Pittsburgh News Article
20. 20 BAPCPA Requires credit counseling for all debtors before filing bankruptcy, plus a personal financial management course after filing
Makes it harder for debtors to keep cars & homes after filing bankruptcy
Must wait 8 years (up from 7) to file again
Automatic stay can no longer be used to stop or delay evictions, loss of driver's or professional licenses, divorce & domestic violence cases
Increased paperwork burden (!)
21. 21 BAPCPA Imposes a “means test” to see if debtors are poor enough to file a Chapter 7; if not, they must file a Chapter 13 payment plan
BUT two researchers from Creighton Law School conducted a case-by-case analysis to determine whether debtors currently in Chapter 7 could plausibly repay some portion of their debts
They concluded that up to 3.6% of Chap 7 debtors would be candidates for any repayment in Chap 13
Fewer debts can be discharged
Higher priority for child support & alimony (?)
22. 22 BAPCPA & Attorneys Lawyers must certifies the accuracy of debtor’s filings & can be held liable if information is wrong
Requires attorneys to certify a debtor's ability to make payments under a reaffirmation (debt payment) agreement
ALL lawyers who advise clients about bankruptcy (even business lawyers) must identify themselves as "debt relief agencies“
23. 23 Some Key Terms (page 7) Look up in Glossary
Bankruptcy on demand
Insolvent
Voluntary petition
Consumer debts
Motion to dismiss Fresh start
Estate for equitable distribution
Exemptions
Discharge
Nondischargeable
24. 24 What Parties Want Debtor
Discharge debts
Preserve assets
25. 25 What Parties Want Creditor & Trustee
Maximize distribution to creditors
Keep debtor “honest”
Discharge only dischargeable debts
Keep no non-exempt assets
26. 26 What BR Court Wants “Fresh start” for honest debtors
Return to productivity
Free from unmanageable debt
Promote best interests of creditors
Equitable distribution of estate, from debtor’s non-exempt assets
27. 27 The Bankruptcy Code (p. 14-) Chapters 1, 3, 5: Universal chapters
Chapter 7: Liquidation
Chapter 9: Municipalities
Chapter 11: Business reorganization
Chapter 12: Farm debts
Chapter 13: Personal debt adjustment
28. 28 Bankruptcy Procedure Federal Rules of Bankruptcy Procedure
Official Forms
Local Rules
29. 29 Bankruptcy Cases State courts can rule on BR issues
Mostly federal court cases
Bankruptcy reporters (p. 25)
Various levels of appeal, + BAPs
Each issue can have different law in different federal circuits
Research tips (pp. 25-29)
30. 30 Bankruptcy History & Law Concluded Thank You
Mike Brigner, J.D.