American Bankruptcy Institute Update

September 29, 2005

In This Issue

Highlights

LEGISLATIVE UPDATE

Roberts Confirmed

The Senate confirmed John Glover Roberts Jr. as chief justice of the United States, replacing the late William H. Rehnquist, the mentor for whom he clerked. The vote was 78-22, the Washington Post reported this afternoon. Read the full story.

Congress Ponders Katrina Bankruptcy Relief

Efforts to provide Hurricane Katrina victims some relief from the new bankruptcy reform law continues with new legislation introduced in the Senate, ConsumerAffairs.com reported yesterday. Senators Mary Landrieu (D-La.) and David Vitter (R-La.) introduced a reconstruction bill (S. 1766) earlier this week that includes rules designed to exclude victims of the disaster from several provisions. The bill is cosponsored by Sen. Charles Grassley (R-Iowa), a key sponsor of the new bankruptcy law. The exemptions include being able to include expenses incurred from Katrina damage as necessary monthly expenditures, for purposes of including them in the new "means test." The bill also allows victims of Katrina to qualify for the "special circumstances" provision, which would enable them to file under chapter 7 more easily. Read the full story.

Business Groups Hope Pension Bill Changes in Conference

The business community yesterday gave a cool reception to the compromise pension bill introduced in the Senate Tuesday, saying it could result in more uncertainty for already- troubled pension plans, CongressDaily reported today. But groups are holding out hope that the bill could be modified more to their liking during a House-Senate conference.

The employers specifically criticized several provisions allowing companies seven years to fully fund their plans, saying that it is not enough. They also objected to the use of companies' credit ratings to trigger tougher pension funding requirements. Credit ratings measure the health of the whole company, not its pension funding status. Lynn Dudley, vice president and senior counsel for the American Benefits Council, said businesses are worried about that provision, since not all companies get credit ratings and credit rating companies often are inconsistent and lag behind firms' performance.

The Senate likely will take up the bill next week, an aide for Majority Leader Bill Frist (R-Tenn.) said, although a firm date has not been set. In the House, sources predicted a vote shortly after the chamber returns from its Columbus Day recess. The House Ways and Means Committee must first take up the bill.

NEW BANKRUPTCY BILL MAY NOT PRODUCE PAYOFFS SOME CREDITORS HOPED

The new bankruptcy law makes it harder for consumer debtors to walk away from credit card debt and other loans. So that means that credit card issuers, banks and other financial service companies, who lobbied hard for the law, will get back more of their money from future bankruptcies, right? Yes, in some cases, but the reality is that in many others, lenders won't be assured of recovering much more money than under the old law. Or they'll have to wait longer to get it, the Associated Press reported today.

The new law has provisions designed to force some debtors into chapter 13. An analysis by the research and consulting firm TowerGroup predicts that a smaller percentage of families will file for bankruptcy and that the share of chapter 7 cases—currently more than 70 percent of personal bankruptcy cases—will decline. TowerGroup also said that credit card issuers will see a modest increase in the amount of money they recover.

But banking consultant Bert Ely of Alexandria, Va., is skeptical that creditors will gain much under the new law."A lot of folks just don't have the income to handle repayment plans, or they'll start out under a plan and a few years down the road, they'll get into some trouble and not be able to complete it as envisioned," he said. In addition, he added, it could be a "win-lose" situation for creditors because higher administrative costs in dealing with long-term collection programs will eat into the money they recover. And, because most chapter 13 users will be put into five-year repayment plans instead of the three-year programs currently in use, it will take longer for lenders to see their money back. Read the full story.

CREDIT CARDS DO AN AIRLINE TANGO – ANALYSIS

As U.S. airlines struggle to recover financially, the credit card industry is playing two contradictory roles: savior and nemesis, the Wall Street Journal reported today. Credit card companies have a stake in airlines’ survival, since they are intertwined with the carriers not only via frequent-flier programs and co-branded credit cards, but also because of the billions of dollars of ticket sales that get charged every year. But they don't want to get stuck with the bill if travelers who have booked flights on distressed airlines start demanding refunds.

As a result, credit card companies are finding themselves giving with one hand and taking with the other. For instance, at the same time that American Express Co. was extending $350 million in financing to keep Delta Air Lines flying after it filed for bankruptcy, the company was also withholding ticket revenue from the airline as a cushion against the possibility that the carrier might stop flying. Also this week, Northwest Airlines asked a bankruptcy judge to force American Express to turn over $63.4 million of airline-ticket revenue charged to its cards.

Credit card companies have long had delicate relationships with the merchants that accept their cards -- and that fragile connection can become even more complicated when the merchant is in a precarious financial position. The relationships are particularly tricky in the airline industry, because consumers typically buy airline tickets well ahead of their flights. If the airline stops flying, the processor could be on the hook for refunding the ticket. The relationships are also extremely important to the airlines. At Delta, credit card sales accounted for $13.7 billion of its $15 billion in revenue in 2004, according to a bankruptcy filing.

The relationship is so critical that American Express last year helped the ailing airline by prepaying $500 million toward its purchase of Delta's frequent-flier rewards miles over a three-year period. It also provided a $100 million loan to Delta as part of a new credit facility that the airline is negotiating with lenders. Read the full story.

CREDIT CARD LOAN DELINQUENCIES HIT RECORD

Credit card loan delinquencies reached a record high of 4.81% percent of accounts in the second quarter of this year, according to the American Bankers Association's Consumer Credit Delinquency Bulletin. The credit card loan delinquency ratio for the first quarter was revised upward to 4.76% of accounts from the previously reported 4.03%, Marketwatch reported yesterday. The survey cited higher gas prices taking chunks out of wallets. Personal loan delinquencies rose to 1.94% from 1.83%. Direct auto loans rose to 2.07% percent from 2.04%. Indirect auto loans rose to 2.08% from 1.87%.

ABIíS WINTER LEADERSHIP CONFERENCE WILL BE BEST EVER!

Join ABI for the 17th Annual Winter Leadership Conference Dec 1-3, 2005 in beautiful Indian Wells, California at the Hyatt Grand Champions Resort and Spa, one of the Palm Spring area’s most luxurious hotels. More than 400 are already registered!

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. Timely topics—all updated with the latest legislative revisions—include:

  • The Year in Review (other than legislation) and Emerging Issues for 2006
  • Solemn Promise or Past Sin? Implications of Pension Terminations
  • Pre-petition Sanctions, Contempt (Civil/Criminal), Penalties and Punitive Damages: Allowability and Enforceability
  • Ten Hints to Surviving the New Consumer Bankruptcy Law
  • A Gift by Any Other Name: Absolute Priority Rule after Armstrong World
  • New Realities for Financial Advisors under the New Law and Other Emerging Problems
  • Right Without a Remedy?: Individual and Small Business Chapter 11 under the New Code
  • Breakfast Educational Program: New Law in Practice
  • Ethics: Swearing Contest—Certifications of Information and Other Ethical Quandaries of the New Law
  • Ethics: Special Conflicts Counsel: Best Practice or Big Case Aberration

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 Today!

DETROIT BANKRUPTCY CONFERENCE PROVIDES INTENSIVE NEW-LAW EDUCATION

ABI’s Detroit Bankruptcy Conference, "Practice Under the New Bankruptcy Law" brings together the area’s top insolvency professionals for one day of intense learning. The event will be held Nov. 11, 2005, at the Novi Sheraton. Topics include:

  • U.S. Trustee Implementation: Entering, Getting Through and Exiting the Process
  • The Means Test: An In-depth Analysis
  • Chapter 13 Changes
  • What Debtors Get to Keep (and Not): Homestead Exemption; Household Goods; Privacy Issues
  • The New Super-creditor: Domestic Support Changes
  • The New World of Chapter 11: Small Business Rules, Strategies in Real Estate Cases, Lease Rules, Preference and Reclamation Issues and Ethics
  • Tax Changes

Register today!

ABI WORLD TUTORIAL HIGHLIGHTS DAILY NEWS AND BANKRUPTCY COURT UPDATES

Do You Know?

A new online tutorials hows you how to find daily news stories, information and bankruptcy opinions on ABI’s comprehensive Web site. The tutorial features a visual demonstration of how to locate these documents quickly and easily, and guides you through the navigation process. This is the fourth in a series of tutorials that will highlight the many resources and services available at ABI World.

PREPARE FOR THE CERTIFICATION EXAM

The new bankruptcy law provides that courts will take into account board certification when awarding attorney fees under §330. The American Board of Certification is offering its exams several times this fall. You can prepare for the exams with a handy and affordable CD-ROM prepared by board-certified ABI members [C.R. (Chip) Bowles, Greenebaum Doll & McDonald; Jason Gold, Wiley, Rein & Fielding; Dennis LeVine, Dennis LeVine & Associates; Gary Marsh, MeKenna Long & Aldridge; Shannon Nagle, Stroock & Stroock & Lavan; Daniel Sklar, Nixon Peabody; Kent Snyder, Snyder & Associates; David Sykes, Duane Morris; Mark P. Williams, Norman, Wood, Kendrick & Turner]. 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!

Latest Job Postings at ABI Career Center

Check out the ABI Career Center. The Center is a one-stop site for job seekers and employers in the insolvency community. Career Center resources are available free to both employers and job seekers. New positions are featured daily. The latest listings include: