American Bankruptcy Institute Update

December 6 , 2005

In This Issue

Highlights

KENTUCKY BANKRUPTCY COURT DECLARES “DEBT RELIEF AGENCY” TITLE INAPPLICABLE

The Bankruptcy Court of the Western District of Kentucky yesterday became the second court to issue an order declaring that sections 526, 527 and 528 of BAPCPA, regulating “debt relief agencies,” are inapplicable to members of the bar practicing before that court.  Members of the bar in this district are thus not subject “to the sanctions and discipline applicable to debt relief agencies” set out in the new law.  The order is linked here.  On October 17, the Southern District of Georgia entered a similar motion, sua sponte.

PENSION REFORM

Pension Bill Off Agenda; Interim Law Expires at Year's End

Despite President Bush’s plea (see next story), House Republican leaders have written off action on pension legislation for the year, ensuring that Congress will not enact a pension bill before an interim law expires at the end of December, CongressDaily reported today. House Majority Whip Roy Blunt (R-Mo.) said today that pension legislation will not find a spot on the chamber's agenda in the two weeks remaining in the session. That means that a temporary fix Congress enacted in 2003 will expire, causing companies' pension contributions to spike. The temporary bill changed the formula that companies use to calculate pension contributions, replacing the then-defunct 30-year Treasury rate with a higher corporate bond rate. Absent congressional action, the formula will revert to the Treasury rate, something companies have argued against. But aides and lobbyists contend that Congress actually has until April 15—when companies make their first pension payments of the year—to adopt a permanent fix to the pension formula.

Despite the leadership decision, House Education and the Workforce Chairman John Boehner (R-Ohio) was confident that the bill could muster enough votes to pass.

Bush Calls for Pension Protection

American companies must honor promises to their retired workers, President Bush said yesterday as he urged Congress to pass tough legislation so retirees do not see their pension checks slashed, the Associated Press reported.

With millions of baby boomers approaching retirement age, there is growing anxiety about the security of workers’ pensions and the prospect that taxpayers will get stuck with a massive bill for bailing out failed pension funds in the airline and steel industries. Automakers say that they, too, are being hammered by high labor, pension and health care costs. Bush sought to relieve economic anxieties in a speech at a Deere-Hitachi Construction Machinery plant near Greensboro, N.C. Read the full story.

STUDY: S&P 500 May Drop if Full Pension Debts Disclosed

If the U.S. Congress cuts through a political briar patch and passes a law that forces full disclosure of pension debts, the consequences might be stunning, a Bloomberg editorial said yesterday. Companies with poorly funded pension plans might have to contribute billions of dollars more to their retirement plans and touch off worker demands that employers pony up even more money for their retirement security. Just as surely, investors would punish companies with the highest retirement debt, according to a study by David Zion and Bill Carcache, analysts for New York-based investment bank Credit Suisse First Boston. They examined the effect of fully disclosing and accounting for the pension liabilities of the 374 companies in the Standard & Poor's 500 Index with traditional, defined-benefit plans.

“We estimate that would cause the total shareholder's equity for the companies in the S&P 500 to drop by $255 billion, or 7 percent,” they wrote in their report. The 18 most underfunded companies would fare worse, suffering a 25 percent reduction in shareholder's equity. Read the full story.

EDITORIAL: It's Open Season on Pension Reform

Hunting black bears is not the only blood sport in New Jersey; "gaming" for pensions is a popular political practice. Rather than a bear, the target is the state budget, and it is bleeding profusely. Last week, a state advisory panel appointed by acting Gov. Richard J. Codey issued a scathing report on the state's pension system, NorthJersey.com reported yesterday. It outlined the cause and effects of a $12.1 billion shortfall in the pension fund. The remedies are painful; the time to act is now.

For more than a decade, the state has underfunded its pension system. The fiscal shenanigans span Republican and Democratic administrations. The report said that the state's actions have "led to the erosion of the health of the plan." An understatement if ever there was one. It leaves Gov.-elect Jon Corzine with a whopping problem: where to find more than $12 billion in a budget with a projected deficit of $5 billion. Read the full editorial.

EDITORIAL: WEALTH MISMANAGEMENT: THE NEW BANKRUPTCY LAW

To many hard-hit businesses, the new personal bankruptcy law is doing its job -- reducing personal bankruptcy claims from the thousands to double digits. To some local lawyers, however, the six-week-old law is arguably flawed because they say it puts more financial burden on already broke clients and reduces potential debt repayment to small businesses, the Business Journal of Portland reported last week.

Consumer credit organizations say the new law provides debt-reducing strategies for those considering filing bankruptcy and curbs abuse. What we do know is that the tougher law, touted by credit card, auto and retail companies, has reduced filings locally to a trickle. In the six months leading to the change in law, there was "a massive spike" in the number of people filing for chapter 7 in the U.S. Bankruptcy Court in Portland, Ore. Take the numbers from the two weeks before the law went into effect -- Oct. 1 to Oct. 16. There were 10,200 filings for bankruptcy, compared with the 23,877 total filings in 2004.

As a result, the court has been forced to rent additional hearing room space and extend the hours of its eight chapter 7 trustees, said Charlene Hiss, chief deputy clerk at the federal bankruptcy court. "As these cases move through the system, they create bulges here and there," she said. "Now what's happening is missing documents and having to dismiss cases because of it." Although there are fewer cases, the clerks are facing additional paperwork and monitoring, Hiss said. Read the full story.

ADELPHIA'S BURDEN

A low-profile bondholder dispute involving some of the leading U.S. investment firms is delaying Adelphia Communications' emergence from bankruptcy, possibly imperiling the sale of the company to Time Warner and Comcast next year, Barron’s reported yesterday.

The Adelphia bankruptcy has dragged on far longer than Wall Street expected after the debt-burdened company, the country's fifth-largest cable operator, filed for chapter 11 protection in June 2002, following revelations about financial chicanery by the controlling Rigas family. Since then, John Rigas, Adelphia's 80-year-old founder, and his son, Timothy, have been convicted of federal fraud charges and sentenced to long prison terms. Another poster child of corporate malfeasance from that era, WorldCom, left bankruptcy in early 2004 as MCI and now is part of Verizon Communications. Read the full analysis.

ON ABI’S NEW BAPCPA BLOG: REQUEST TO EXTEND STAY MUST BE SERVED ON AFFECTED CREDITORS

Read David Rosendorf’s discussion of In re Collins, __ B.R. __, 2005 WL 3163962 (Bankr. D. Minn. 11/29/05), on ABI’s New BAPCPA Blog!

ABI World is now home to a blog on the latest case law interpreting the bankruptcy amendments. Created by David L. Rosendorf, ABI member and a shareholder at Miami’s Kozyak Tropin & Throckmorton, P.A., the ABI BAPCPA Blog provides regular commentary, analysis and an opportunity for you to post comments. Recent posts have covered the various homestead opinions, credit counseling, revised automatic stay provisions and the interim rules. Check out the blog here

REGISTER NOW FOR ABI’S CARIBBEAN INSOLVENCY SYMPOSIUM

Join ABI in Miami Beach for the Second Caribbean Insolvency Symposium, to be held Feb. 9 - 10, 2006 at Eden Roc Resort & Spa.
This year’s program brings together top international speakers to discuss up-to-the-minute issues in international insolvency and restructuring. The program features a faculty of outstanding scholars, judges and practitioners from across the United States, the Caribbean and South America. 

Timely topics include:
* CAFTA and new chapter 15: forum-shopping in the Caribbean
* Introduction to the new bankruptcy and restructuring law in Brazil 
* Small business and individual chapter 11 under BAPCPA 
* Tough ethical dilemmas after BAPCPA 
* Dealing with disasters: the new bankruptcy law after a natural disaster
* Views from the bench (featuring judges from Florida and Puerto Rico)

Register today and earn up to 5.25 hours of CLE credit!

2005-06 ABI MEMBERSHIP DIRECTORY PRINT EDITION AVAILABLE FOR PURCHASE

The print edition of the 2005-06 ABI Annual Membership Directory is now available. This 1,000-page edition lists more than 11,000 insolvency professionals. An online version of the Directory is available at the ABI World Web site, which is continually updated. All members received a complimentary CD-ROM version of the Directory with their November ABI Journal.

The $55 cost of the printed version includes shipping and handling. Visit the ABI bookstore to order.

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