American Bankruptcy Institute Update

September 8, 2005

In This Issue

Highlights

Legislative Update

New Bankruptcy Law Could Exact a Toll on Storm Victims

After virtually every major hurricane of the past 25 years, bankruptcy filings have grown significantly faster than usual as victims sought to shake off old debts in order to rebuild their economically ruined lives, the Los Angeles Times reported yesterday. House and Senate Democrats are expected to propose, perhaps as early as today, delaying the effective date for the new bankruptcy measure and easing some of its most stringent requirements. When it passed the bankruptcy overhaul last spring, the Republican-controlled House rejected an exemption for victims of natural disasters. The link between bankruptcies and disasters has long been assumed, but the extent of the tie is only now becoming clear in findings by Robert M. Lawless, a law professor at the University of Nevada, Las Vegas.

Lawless examined the 18 hurricanes and tropical storms since 1980 that the National Oceanic and Atmospheric Administration said caused $1 billion or more in damage in the United States. He studied the pattern of bankruptcy filings in the states where the storms made landfall and compared that with patterns in surrounding states and the rest of the country. He looked at the effects in the first, second and third year after the event. His key finding: that bankruptcy filings, which have been rising nationally for 25 years, climbed in landfall states at more than 1 1/2 times the pace of unaffected states and remained stuck at that rate even three years after the disasters.

Bankruptcy overhaul supporters asserted Tuesday that the law would not impose undue hardship on victims of the Gulf Coast catastrophe. "There's nothing in here that is going to make it more difficult for people to get complete bankruptcy relief," said Jeff Tassey, the Washington lobbyist who headed a group of credit card companies, banks and others at the vanguard of the eight-year fight for the measure. Tassey said that the law included language that would allow bankruptcy judges to take into account "special circumstances" such as the recent hurricane and flood. Read the full story.

Sanders Introduces Credit Card Protection Act

Rep. Bernie Sanders (I-Vt.) on Tuesday announced legislation aimed at ending what he called "some of the most egregious anti-consumer practices of the nation's credit card companies," the Burlington Free Press reported. "Too many Americans have been taken advantage of by the deceptive advertising of the credit card companies," Sanders said in a news release. "Charging economically vulnerable Americans outrageous interest rates and fees is simply not acceptable."  

The Consumer Credit Card Protection Act of 2005 would stop some of the most problematic practices by prohibiting credit card companies from raising consumers' interest rates for events wholly unrelated to the consumer's credit card account. For example, by law, credit card issuers can raise a person's interest rate for a late payment on a telephone bill that occurred before that person applied for, received and potentially transferred a balance to, a so-called "fixed rate" credit card. This bill would prohibit that practice. The proposed bill would also require credit card companies to provide real notice to consumers before raising interest rates or charging fees, and would prohibit credit card issuers from raising interest rates on pre-existing balances for "fixed rate" cards. New terms would apply only to new purchases.

Aid for Asbestos Victims May Stall, Senator Says

Prospects for Senate passage this year of a proposal to compensate asbestos-exposure victims from a $140-billion fund were hurt by a report that the trust may not have enough money to pay all claims, according to Sen. John Cornyn (R-Texas). The Congressional Budget Office said that claims to the fund over a 50-year period would range from $120 billion to $150 billion, according to weekend wire service reports.

The report also warned that revenue that trust fund was to collect from companies "could be significantly less" than the $140 billion proposed in the legislation. The legislation aims to end lawsuits by asbestos-exposure victims that have forced 77 companies into bankruptcy court. Meanwhile, a Senate committee today gave Sens. Arlen Specter (R-Pa.) and Patrick Leahy (D-Vt.) authority to subpoena information from companies facing asbestos lawsuits as lawmakers work on legislation creating the fund. The unanimous voice vote gave Judiciary Committee leaders authority to subpoena information about how much companies would expect to contribute to the privately-financed fund. Specter told members he did not know if subpoenas would be necessary, but he wanted "a little muscle" in case companies continued to resist producing the data. Although the proposed bill has a formula for industry contributions, based on a company's size and prior asbestos expenditures, many companies are reluctant to discuss how it would affect them, saying the information could expose them to more lawsuits.

Santorum Criticizes Latest Daschle Asbestos Proposal

A key Senate Republican leader on Tuesday blasted the most recent proposal on asbestos legislation floated by Minority Leader Tom Daschle (D–S.D.), CongressDaily reported. Although he did not comment on the substance of the Democrat’s proposal, Senate Republican Conference Chairman Rick Santorum (R–Pa.) told reporters that Daschle’s efforts to find a compromise on the bill were disingenuous. “Sen. Daschle has thrown monkey wrench after monkey wrench” into the process, he said. Majority Leader Bill Frist (R–Tenn.) would respond to the asbestos proposal soon, Santorum added.

 

Burden of Student Loans Growing Ever Larger for American Consumers

Almost two-thirds of Americans with outstanding student loans (64 percent) say that these loans prevent them from making other major purchases, such as a house, car or other large-ticket items, according to the Cambridge Consumer Credit Index. Thirty percent of those with the loans say that they are a major burden, up from 26 percent who felt that way last year. Thirty seven percent said that the loans were not a burden, up sharply from 25 percent who said so last year. Twenty-one percent of American households have outstanding student loans, up by two points from a year ago, which is nearly back to the 22 percent level of September 2003.
Read the full report.

Find Disaster Relief Links on ABI’s Katrina Page

A special "Hurricane Katrina" page, accessible from the ABI World homepage, outlines a variety of ways that members can assist victims. Listed are local legal charitable organizations, offers of office space donations, court links and messages from ABI members in the region. The site is updated daily.

Diocesan Bankruptcies Raise Church Ownership Issues

The decision of three U.S. dioceses to seek protection from creditors through the federal bankruptcy courts was always a gamble, according to tomorrow's issue of the National Catholic Reporter. One has already lost the gamble in a first round in court, one has sidestepped the issue, and the third awaits its fate. At the heart of these proceedings is the question appearing with increasing frequency as dioceses face financial crises: Who owns the church?

Facing hundreds of millions of dollars in potential awards to victims of clergy sexual abuse, the bishops of Tucson, Ariz.; Spokane, Wash.; and Portland, Ore. were convinced over the past year that chapter 11 provided the best means to put their dioceses on sound financial footing. Critics say the dioceses hoped to avoid the scrutiny of civil trials. The bishops contend that the relatively orderly bankruptcy process affords the best measure of justice to both abuse victims and innocent parishioners. Everyone agrees, however, that key to the success of the high-stakes strategy was the hope that no court would make all diocesan holdings -- churches and parish halls, schools and cemeteries, social service centers and retreat houses -- part of the pot of available assets that could be sold to pay off creditors. Church lawyers argue that diocesan assets do not extend beyond the central administrative office of the diocese, the chancery. The idea, said Marcie Hamilton, an attorney advising abuse victim claimants, is “to reduce the size of the bankrupt estate so that much less money” is available to creditors.

The Tucson diocese, which filed for bankruptcy a year ago, won its bet. It avoided the question of ownership in a $22.2 million agreement reached earlier this summer with sex abuse victims. Next month, a bankruptcy court will hear arguments in which the Portland archdiocese seeks to limit the reach of creditors. In announcing the bankruptcy filing in July 2004, Portland Archbishop John Vlazny said, “Under canon law, parish assets belong to the parish. I have no authority to seize parish property.” Whether civil law will require him to do just that will be decided by a federal bankruptcy court. Read the full story.

“Best of Central States” Bankruptcy Conference Registration Now Open

The “Best of ABI” Webinar, “Preclusion Issues: Been There, Done That” will be held on September 21, 2005, at 1:00 p.m. Central / 2:00 p.m. Eastern.

Among the featured presenters will be:

  • Hon. Susan Pierson Sonderby
    U.S. Bankruptcy Court
    Northern District of Illinois
    Chicago, Ill.
  • Timothy F. Nixon
    Godfrey & Kahn SC
    Green Bay, Wis.
  • Robert B. Millner
    Sonnenschein Nath & Rosenthal, LLP
    Chicago, Ill.
  • Robert D. Gordon
    Clark Hill, PLC
    Detroit, Mich.

Click here to register!

The “Best of ABI” series brings the highest-rated sessions from each ABI conference right to your office. We provide a special Web interface for this program, allowing participants to interact online with presenters through Q&As, file-sharing and dynamic polling. ABI offers the latest distance learning technology in order to provide you with this innovative learning experience. CLE/CPE credit will be available in certain states.

ABI’s Winter Leadership Conference Now Open for Registration

Join ABI for the 17th Annual Winter Leadership Conference, December 1–3, 2005, in beautiful Indian Wells, Calif. at the Hyatt Grand Champions Resort and Spa, one of the Palm Spring area’s most luxurious hotels.

The program of 14 CLE credit hours (including 3 hours of ethics) features a faculty of renowned scholars, judges and practitioners from across the United States. A wide variety of committee educational sessions will be offered. A variety of timely topics will be covered, all updated with the latest legislative revisions.

This year’s meeting will feature stand-up comedian Steve Bridges (a.k.a. “Mr. President”) and the all-ABI member rock-and-roll band, the Indubitable Equivalents. Optional events will include golf, tennis, The Living Desert, hot air ballooning, a Joshua Tree Jeep Eco-tour, off-road quad tours and a cooking class.

Register here!

Prepare for the Certification Exam

The new bankruptcy law provides that courts will take into account board certification when awarding attorney fees under Section 330. The American Board of Certification is offering its exams several times this fall (2005 exams will cover current law). You can prepare for the exams with a handy and affordable CD-ROM prepared by board-certified ABI members. The CD includes materials on consumer bankruptcy, business bankruptcy, ethics and creditors’ rights. Sample exam questions and answers are also included. Member price is $195. “Buy Now!”

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