American Bankruptcy Institute Update

November 1, 2005

In This Issue

Highlights

Legislation Update

Supreme Court Considers States’ “Sovereign Immunity” in Bankruptcy Cases

The U.S. Supreme Court heard oral argument yesterday in the case of Central Virginia Community College, et al. v. Katz to consider the U.S. Court of Appeals for the Sixth Circuit’s ruling that states are not immune from a suit in bankruptcy court to recover allegedly avoidable preferences and accounts receivable. The court may also consider whether the filing of a proof of claim by one arm of the state waives sovereign immunity for all arms of the same state.

Four institutions of higher learning in the Commonwealth of Virginia (“state institutions”) were sued by Bernard Katz, a liquidating trustee under a chapter 11 plan, for recovery of purported preference payments and accounts receivable. The state institutions sought to dismiss the cases under the Eleventh Amendment to the Constitution, which guarantees sovereign immunity to the states, as well as §106(a) of the Bankruptcy Code, which purports to abrogate state sovereign immunity in bankruptcy. At issue is the “bankruptcy clause” of Article I, §8 of the Constitution, which allows Congress to establish uniform laws with respect to bankruptcies. Read the full article.

Mississippi Foreclosure Moratorium

On October 4, Mississippi Governor Haley Barbour issued a proclamation invoking the provisions of Mississippi State Code §89-1-301, et seq., a 1980 statute that allows property owners to enjoin foreclosures and execution sales for up to two years if they can't pay, haven't been able to refinance a mortgage despite due diligence, and their property has depreciated at least 15 percent due to disaster. The proclamation is posted here.

Nevada Court Upholds Homestead Exemption Cap

The bankruptcy court in Las Vegas ruled yesterday that the $125,000 cap on homestead exemptions imposed by the new bankruptcy law applies in such opt-out states as Nevada, where the debtor acquired the homestead within 1,215 days of filing for bankruptcy. The opinion by Judge Linda B. Riegle in two separate chapter 7 cases disagrees with an opinion from Arizona (In re McNabb), which found that the cap applies only to those living in states that allow debtors to choose between federal and state exemptions. The opinion found support in both the statute as redrafted and in the legislative history behind new §522(d) and (p).

Judge Riegle wrote: “Nowhere is there a suggestion that the $125,000 homestead limitation is applicable to debtors in some states but not to debtors in other states. Rather, it is obvious that Congress intended to eliminate some of the anomalies created by the use of state homestead exemptions and create a more uniform, predictable set of exemptions. Congress wanted to close what it perceived was the abuse of exemptions caused, in part, by the varying state laws and overly generous homesteads. There is no question that the issue of exemptions was on the mind of Congress as well as the public.”

This is the second court to uphold the new exemption cap, following a ruling by a Florida court last month. Read the full opinion.

FED INCREASES FEDERAL FUNDS RATE

The Federal Reserve today boosted to 4 percent the federal funds rate -- interest that banks charge each other -- marking the 12th straight quarter-point increase in the rate and hiking the rate to its highest level in more than four years. At the same time, the Fed, concerned about inflation fears, said that more increases are likely to come.

THE $354 BILLION PENSION PROBLEM

General Motors' pension pain could soon spread to hundreds of other companies, even those offering relatively healthy traditional pension plans, CNN/Money reported late last week. The numbers involved are huge: The Pension Benefit Guaranty Corp. estimates that companies with plans that are underfunded by at least $50 million collectively need another $354 billion to make good on their promises to employees when they retire.

The world's largest automaker says that it has healthy pension plans, estimating that, at the end of last year, its plans had $1.5 billion more than needed to pay promised benefits, despite the company's steep recent losses. Still, investors seem worried that the automaker might not be in as good a position as it claims. And experts say that as more attention is given to the arcane world of accounting for benefits promised to retirees, other companies could also be hit by those doubts. Read the full story.

COMMENTARY: BANKRUPTCY THE LATEST TOOL FOR BREAKING UNIONS

One by one, America's great industrial unions are being defanged. Where once presidents of these unions could march into the White House and leave with a pledge by President Kennedy to end a strike on favorable terms, they are now sitting in federal bankruptcy court watching as unelected judges rip their contracts to shreds, according to a commentary in the Providence Journal last week.

Before Delphi filed for bankruptcy protection, management told the United Auto Workers union (UAW) that it wanted the union's members to accept wage and benefits cuts of 60 percent. The UAW rejected this, as Delphi management knew it would. Now it's up to a bankruptcy court judge. How did we get to the place where labor rights are so unprotected that bankruptcy court judges are the arbiters of wages, benefits and working conditions in what are still some of our most important industries? Read the full commentary.

HOT OFF THE PRESSES: THE CONSUMER BANKRUPTCY MANUAL (SECOND EDITION)

Written by ABI Consumer Bankruptcy Committee Co-chair Thomas Yerbich, the Consumer Bankruptcy: Fundamentals of Chapter 7 and Chapter 13 of the U.S. Bankruptcy Code (Second Edition) provides both new and experienced practitioners with the fundamentals of consumer bankruptcy proceedings under chapter 7 or 13 of the Code. The second edition covers changes made by the new law. Topics covered include how the two statutory schemes work, their differences, the duties of the debtor in the bankruptcy process, the rights and procedures applicable to creditors, discharge ability/discharge, the automatic stay, commonly asked questions and much more. Softbound, 170 pages.

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ABI COMMITTEE PRESENTATIONS AT WINTER LEADERSHIP CONFERENCE

The 17th Annual Winter Leadership Conference, December 1–3, 2005 , in beautiful Indian Wells, California, at the Hyatt Grand Champions Resort & Spa will feature presentations and sessions from ABI’s committees.

The Legislation Committee program will consider the early implementation issues surrounding BAPCPA’s effective date, including the rules process, U.S. Trustee practices and court procedures.

BAPCPA makes important changes to the law of preferences reclamation and other issues. An open forum moderated by the Uniform Commercial Code Committee will discuss observations, problems and other issues concerning the new law.

Watch this space for other ABI Committee presentation descriptions in upcoming ABI Update editions.

Register here!

REGISTER NOW FOR ROCKY MOUNTAIN BANKRUPTCY CONFERENCE AND SAVE!

Please join us for the Eleventh Annual Rocky Mountain Bankruptcy Conference, to be held January 26–28 in beautiful downtown Denver, Colorado.

The educational program will provide attendees with an interactive learning experience led by a faculty of highly regarded bankruptcy judges and experienced practitioners. The roundtable format emphasizes discussion of relevant insolvency issues among the faculty and the participants.

This conference is an educational opportunity not to be missed! Up to 12 hours of CLE credit, including three hours of ethics, can be earned.

Register today!

2005-06 ABI MEMBERSHIP DIRECTORY PRINT EDITION AVAILABLE FOR SALE

The print edition of the 2005-06 ABI Annual Membership Directory is now available. This 21st edition lists more than 11,000 insolvency professionals, more than ever before, and is a symbol of ABI’s sustained membership growth. The Directory is one of the many benefits of ABI membership and is available exclusively to members. An online version of the Directory is available at the ABI World Web site (www.abiworld.org), which is continually updated. All members will receive a complimentary CD-ROM version of the Directory with their November ABI Journal.

The expanded print edition enables you to capitalize on the depth and diversity of our membership. In addition to indexing each member by geographic area, ABI committee, profession and practice area, there are references to firm size and certification to assist you in identifying colleagues for referrals. Included is a “Multiple Members by Firm” section, which permits you to easily locate all members from a particular law, accounting or turnaround firm. Members are also listed under other locations where they have offices, thus enhancing your ability to easily find bankruptcy professionals nationwide. Also included are e-mail addresses and firm Web site listings. The Endowment section includes guidelines for consideration of Endowment Fund grant proposals. The $55 cost of the printed version includes shipping and handling. Visit the ABI bookstore to order.

NEW FAQ ON “DO YOU KNOW THE ABI WORLD WEB SITE?”

Do You Know?ABI's official Web site, ABIWorld.org, provides thousands of bankruptcy-related documents and numerous other services for ABI members. The tutorials for negotiating ABIWorld now include an FAQ section, which will help you to focus your search for information on the site. Check it out today!

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: