With foreclosure imminent, it’s important to know all the tools you can use to stop it. While bankruptcy can stop foreclosure, it matters what chapter debtors file and whether or not they see their cases through to the end. Of the bankruptcy chapters typically filed by consumers in New Jersey, Chapter 13 is the most effective at stopping foreclosure. Rather than requiring debtors to liquidate their assets, Chapter 13 uses a repayment plan that spans a period of three to five years. Any foreclosure proceedings are put on pause after filing, whether the debtor files Chapter 13 or Chapter 7. Unfortunately, Chapter 7 is not as effective at stopping foreclosure indefinitely. While homeowners might get a temporary pause with the automatic stay, lenders might start looking at their major assets for liquidation to get repaid, like their home, which we can help avoid by ensuring you file the appropriate chapter for your situation. Discuss your case for free with our New Jersey bankruptcy lawyers by calling Young, Marr, Mallis & Associates today at (609) 755-3115. Does Chapter 13 Bankruptcy Stop Foreclosure in New Jersey? Homeowners facing foreclosure could avoid it by filing Chapter 13 bankruptcy in New Jersey. Our lawyers can explain how debtors to use this legal process to keep their homes despite falling behind on their mortgages. Chapter 13 bankruptcy is generally the ideal chapter for debtors struggling with secured debts, like mortgage payments, who also want to keep their assets. If your primary lender is your mortgage lender, filing Chapter 13 will let you address your debt with them through a repayment plan. Our attorneys write this plan and submit it for court approval based on your specific financial situation. We will consider your total owed amounts, income, dependents, and expenses so that the resulting repayment plan is feasible for you and allows you to pay both current and past-due amounts. While your bankruptcy case is in progress, the bank cannot continue with any mortgage foreclosure proceedings, even if they have already begun. Your bankruptcy case might trump a foreclosure petition filed by the bank. Many debtors who file for bankruptcy are immediately eligible for an automatic stay. This prevents debt collection tactics, such as harassing phone calls and asset repossession, which extends to foreclosures and sheriff sales. If the focus of your repayment plan is settling mortgage debt, our Passaic, NJ bankruptcy lawyers can write it so that your debts are settled after three to five years of payments under a lower interest rate. We may also be able to use your bankruptcy case as an opportunity to negotiate loan modification to prevent similar situations in the future. Does Chapter 7 Bankruptcy Stop Foreclosure in New Jersey? While homeowners often use Chapter 13 bankruptcy to stop foreclosure, Chapter 7 doesn’t necessarily have the same effect. Though an automatic stay will still kick in during Chapter 7, this is a liquidation bankruptcy, meaning filing it could leave your home at risk. Generally, Chapter 7 is for debtors with dischargeable debts who are okay with potentially liquidating some of their assets to address any secured debts they might have. If your primary goal is saving your home from being foreclosed on and sold at auction, Chapter 7 wouldn’t eliminate that risk. While New Jersey lets bankruptcy petitioners choose federal liquidation exemptions that can help them shield their car or home, liquidating assets is how secured mortgage debts are repaid under Chapter 7. If you do not have any assets you are comfortable parting with, your lender could still seek your home during bankruptcy. So, the automatic stay that comes with bankruptcy might delay foreclosure of your home under Chapter 7, it may not stop it indefinitely if you must liquidate assets to repay your mortgage lender. Because of this, Chapter 7 is typically not the ideal bankruptcy chapter to file if your goal is stopping foreclosure so you can continue owning and living in your home in New Jersey. For How Long Does Bankruptcy Stop Foreclosure in New Jersey? Even though Chapter 13 can be the solution homeowners need to stop foreclosure, they must finish their repayment plans to see the desired results. Otherwise, banks might seek foreclosure approval from judges during bankruptcy cases in New Jersey. It is crucial to stay on top of your new repayment plan, and our lawyers can ensure that it is written so that you can also make current payments. Chapter 13 bankruptcy only stops foreclosure indefinitely once cases are complete. If you fall behind while you trying to follow your repayment plan, your bank could petition the court to let it foreclose or dismiss the bankruptcy case so that it can file a foreclosure complaint against you and restart the process. Our lawyers can help you prepare your bankruptcy petition, put you through the means test to confirm your income supports a Chapter 13 case, handle all necessary filings, and keep you aware of mandatory court appearances. If you have other debt on top of your mortgage debt, we can make sure that is also factored into your repayment plan or gets forgiven if it is dischargeable. While there is nothing preventing homeowners from falling back into mortgage debt after Chapter 13 bankruptcy cases are over, debtors in New Jersey must take credit counseling courses before filing, in which they learn useful money management and budgeting tools they can take with them in the future to avoid getting back into a difficult financial situation. Modifying your previous mortgage contract, such as by extending it in favor of smaller monthly payments, could help you avoid falling behind after completing your repayment plan. Our attorneys may also negotiate this with your bank to reduce the risk of foreclosure in the future. Call Our Attorneys in New Jersey About Your Bankruptcy Case Call the Paterson, NJ bankruptcy lawyers of Young, Marr, Mallis & Associates at (609) 755-3115 for a free case analysis.

Keeping Your House as a Widow Filing Bankruptcy in Virginia One of the tragedies of being a widow is this: You lose the protection for your house that Virginia law gives a married couple filing bankruptcy. After losing her husband, a widow under Virginia law can easily lose her house to her creditors. Bankruptcy is set up by the Federal government, but each state sets its own rules on keeping your house if you file Chapter 7.  Virginia gives great protection for houses owned by a married couple for the debts of only one. That’s called tenants by the entirety. A widow, now single, after losing her spouse, is in danger of losing her house. Virginia law allows a single person to protect $50,000 in real estate equity.  That’s up from $5,000 a few years ago, But it’s still very low compared to most states. It doesn’t go ver far in Northern Virginia. Can Bankruptcy Law Help a Widow Cleasr Her Debts and Keep Her House? I’ve had two different widows contact me in January 2025.  Through creative use of the bankruptcy law, it looks like both will be ok.     The post Keeping Your House as a Widow in Bankruptcy appeared first on Robert Weed Bankruptcy Attorney.

Keeping Your House as a Widow Filing Bankruptcy in Virginia One of the tragedies of being a widow is this: You lose the protection for your house that Virginia law gives a married couple filing bankruptcy. After losing her husband, a widow under Virginia law can easily lose her house to her creditors. Bankruptcy is set up by the Federal government, but each state sets its own rules on keeping your house if you file Chapter 7.  Virginia gives great protection for houses owned by a married couple for the debts of only one. That’s called tenants by the entirety. A widow, now single, after losing her spouse, is in danger of losing her house. Virginia law allows a single person to protect $50,000 in real estate equity.  That’s up from $5,000 a few years ago, But it’s still very low compared to most states. It doesn’t go ver far in Northern Virginia. Can Bankruptcy Law Help a Widow Cleasr Her Debts and Keep Her House? I’ve had two different widows contact me in January 2025.  Through creative use of the bankruptcy law, it looks like both will be ok.     The post Keeping Your House as a Widow in Bankruptcy appeared first on Robert Weed Bankruptcy Attorney.

Bankr. E.D.N.C.: In re Steinke- Death of Debtor and Tenancy by the Entireties Ed Boltz Tue, 01/28/2025 - 00:19 Summary: Married debtors filed for Chapter 13 bankruptcy on February 16, 2024,  with real property owned as Tenants by the Entirety and  valued at $371,000.  Shortly thereafter, Adriana Steinke died and  Peter Steinke became the sole owner of the property.  Harris Ventures, Inc. held a judgment against Peter Steinke but could not attach the lien to the property under tenancy by the entirety laws. The judgment was  to be classified as a general unsecured claim.  Following her death,  Harris objected to the Debtors' amended Chapter 13 plan, arguing it failed to account for the non-exempt equity in the property after the Tenancy by the Entirety ended. The court found that the proposed plan did not satisfy the "liquidation test" under 11 U.S.C. § 1325(a)(4), which ensures creditors receive at least as much under the plan as they would in a Chapter 7 liquidation, by  erroneously treating the property as fully exempt under the terminated tenancy by the entirety status, ignoring the equity available to creditors following Adriana Steinke’s death.    The court held that the effective date for applying the liquidation test is the plan confirmation date, not the petition date, requiring updated valuation and creditor recovery analysis. The request by Harris for relief from the automatic stay to allow its judgment to attach to the property after the Tenancy by the Entirety dissolved,  however, was denied  as the automatic stay under § 362 protects the property and prevented Harris from improving its claim status within the bankruptcy process. Commentary: A key,  but unmentioned, fact in this very sad case may be that Ms. Steinke died 205 days after filing,  which is outside the 180-day window  of 11 U.S.C. §  541(a)(5).  Accordingly,  if this case was converted to Chapter 7,  the bankruptcy estates of both Mr. and Mrs. Steinke would,  unlike  the Chapter 13  estate of Mr.  Steinke,  which pursuant to 11 U.S.C. § 1306,   now holds the entire property in fee simple,   pursuant to 11 U.S.C. § 348 still  hold the property as Tenants by the Entireties. (Additionally,  any life insurance she might have had would also be excluded.)  In order to encourage debtors to first attempt Chapter 13,  the legislative history is clear that Congress included  § 348  as a "way-back machine"  so that debtors  were not harmed by that attempt. Mr.  Steinke could,  if still necessary,  then file a subsequent no-discharge Chapter 13 case to deal with the mortgage and taxes. It is also worth noting that in Hmok,  upon which this case relies,  Judge Byers found the Tenancy by the Entirety was severed by the voluntary transfer in contrasted with an involuntary transfer by a Chapter 7 trustee in Surles,  where Judge Stocks held that did not make the asset available for individual  creditors.   Ms.  Steinke's sudden death,  which does not garner even a note of sympathy in this opinion,  would not seem to be a voluntary act. With proper attribution,  please share this post. To read a copy of the transcript, please see: Blog comments Attachment Document in_re_steinke.pdf (190.56 KB) Category Eastern District

4th Cir.: Smith v. Devine- Sanctions for Discovery Abuses and W.D.N.C.: Smith v. Payne: Temporary Withdrawal of Reference for Pre-Trial Ed Boltz Mon, 01/27/2025 - 01:20 Background: BK Racing, LLC filed for Chapter 11 bankruptcy in 2018. Matthew W. Smith, appointed as trustee and later sole manager of the reorganized debtor, initiated adversary proceedings to recover allegedly fraudulent transfers and address related claims. The complaint included claims such as fraudulent transfers, civil conspiracy, conversion, stay violations, and turnover of property. In a pair of appellate decisions  issued in January and arising from the bankruptcy of BK Racing, L.L.C.,  first the District Court for the Western District of North Carolina first denied the Payne's  motion to withdraw reference of an adversary proceeding from the bankruptcy court under 28 U.S.C. § 157(d).  Shortly thereafter,  the Fourth Circuit Court of Appeals affirmed the entry of default judgment against Ronald C. Devine, Brenda S. Devine, and several related trusts and corporate entities  for discovery abuses and misconduct during bankruptcy and adversary proceeding, including  $31,094,099.89 in damages, costs, and attorneys' fees. Summary of Smith v. Payne: Payne sought to withdraw the reference, citing the need for a jury trial, the non-core nature of the claims, and the bankruptcy court's limited jurisdiction over state law causes of action.  Under 28 U.S.C. § 157(d), in considering whether to withdraw reference to a bankruptcy court “for cause shown”, the district court looks to factors such as whether the proceeding is core or non-core, judicial economy, uniform bankruptcy administration, forum shopping, and the preservation of jury trial rights.  While the claims were primarily state law-based and considered non-core, this factor alone did not justify withdrawal, as  the bankruptcy court, familiar with the long-standing case, was deemed better suited to handle pre-trial proceedings efficiently and uniform administration of the case  Nor did the request for a jury trial  necessitate immediate withdrawal, as the bankruptcy court could oversee pre-trial matters, with the case returning to the district court for the jury trial if necessary.  Accordingly,  the court denied the motion to withdraw reference, allowing the bankruptcy court to manage discovery, pre-trial motions, and related proceedings, with the reference will only be withdrawn when the case is ready for trial. Summary of Smith v. Devine: The Court of Appeals upheld the finding that, despite multiple warnings and court orders,  the Devines  engaged in systematic obstruction, including failing to comply with court orders, providing false or incomplete responses, and withholding critical financial documents.  After applying the Wilson factors,  a default judgment was the only appropriate remedy due to the Devines' bad faith, the significant prejudice caused, the need for deterrence, and the ineffectiveness of lesser sanctions.  That judgment included damages for fraudulent transfers and debt assumption transactions, trebled under North Carolina’s Unfair and Deceptive Trade Practices Act.   Further, the decision to pierce the corporate veil and impose joint and several liability was justified based on evidence of the entities’ lack of independence and improper use as extensions of the Devines. Commentary: See also:   Bankr. W.D.N.C.: Smith v. DeSeveria- Repayment of Short-Term Loans to Insiders was not a Fraudulent Conveyance Bankr. W.D.N.C.: In re BK Racing- With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document smith_v._payne.pdf (152.74 KB) Document smith_v._devine.pdf (213.9 KB) Category 4th Circuit Court of Appeals

Going through bankruptcy is not exactly a pleasant experience. Neither is getting a divorce. Unfortunately, some people end up going through both at the same time. While these are technically separate legal proceedings, your divorce could have implications for your Chapter 13 bankruptcy case, and you should talk to your attorney about it immediately. Chapter 13 bankruptcy is more common in cases where people have a steady income and assets they wish to protect. Generally, people do not lose assets or property if they keep up with a court-approved payment plan. However, the process is long, and some people end up filing for divorce while their bankruptcy case is pending. Divorce can have significant financial ramifications, and your bankruptcy case might be affected. An attorney can help you sever your bankruptcy case from your spouse’s if you filed it jointly. If you can no longer afford your payment plan, your lawyer can help you have it adjusted. In some cases, you might be able to completely change your bankruptcy case to a different chapter. Call (215) 701-6519 and speak to our bankruptcy attorneys with Young, Marr, Mallis & Associates about a free, confidential case evaluation. How Getting Divorced Might Affect Your Chapter 13 Bankruptcy Case Bankruptcy and divorce have a lot in common. They are often unpleasant to go through when they are happening, but you are in a better position to rebuild your life once they are over. However, if your divorce and bankruptcy case overlap, your situation might be a bit more legally complex. Changes in Your Finances It is not uncommon for people to begin Chapter 13 bankruptcy proceedings and then file for divorce shortly after. Chapter 13 bankruptcy often takes a few years to complete, and people sometimes go through a divorce while their bankruptcy case is still pending. Since divorce often impacts finances, it might also impact your bankruptcy proceedings. Bankruptcy proceedings are often dependent on your income, assets, and properties. Our bankruptcy attorneys must provide an accurate accounting of your finances to the court when we file your bankruptcy petition. If you file for divorce after filing for bankruptcy, your assets and finances might change. Your former spouse might take certain assets or accounts with them, essentially removing them from your bankruptcy case. If that happens, we must make sure the court knows what is going on, and we must provide updated information about your assets after the divorce. Your Payment Plan Many people prefer Chapter 13 because it does not involve liquidating assets or properties. Instead, petitioners must develop aggressive yet feasible payment plans that the court must approve. They typically remain on the plan for about 3 to 5 years to bring their finances and debts back under control. If. After your divorce, you owe alimony and child support, you might be unable to keep up with your payment plan. If that happens, speak to your attorney immediately. Courts are often willing to work with Chapter 13 bankruptcy petitioners who experience unexpected changes in their finances. Your payment plan may be adjusted to account for your new expenses, as long as the court and creditors approve. Filing Jointly or Individually A major consideration in this situation is whether you filed for bankruptcy individually or jointly with your former spouse. If you filed individually, your bankruptcy case is yours only, and not much has to change, depending on how the divorce affects your finances. However, if you filed for bankruptcy jointly with your spouse, you might need to separate your finances and bankruptcy cases. This is not an unusual situation, and courts are prepared to deal with situations like this. One possibility is that you and your spouse can sever the case. Instead of just one bankruptcy case for a married couple, the case would be split into two cases, and your spouse’s assets, accounts, and finances would be removed from your bankruptcy case. Debts and income would need to be reallocated. You might end up responsible for a larger or smaller share of the debt. Alternatively, a couple getting divorced might agree to split everything right down the middle. After reallocation, you will almost certainly need to adjust your payment plan. Since the case is severed, the old payment plan will likely be thrown own, and each former spouse would need to develop their own payment plan. What to Do if You Get Divorced in the Middle of Chapter 13 Bankruptcy If you end up going through a divorce after you file for Chapter 13 bankruptcy, speak to your attorney about what steps to take to protect the interests of your bankruptcy case. You might have to make very few changes, but there is also a chance that some big changes must be made. Continue Making Payments Divorce can take a long time, and it might not even be finalized until after your bankruptcy case is complete. If you do not anticipate any major changes to your financial situation while your divorce is pending, you should continue making payments on your Chapter 13 payment plan. However, if the divorce moves quickly and your finances are changed before your bankruptcy case is over, tell your attorney about everything immediately. Sever or Bifurcate Your Case As mentioned before, when a married couple files jointly for Chapter 13 bankruptcy, they can sever the case if they file for divorce. Did you file jointly? If you did not, there is nothing to sever. If you did file jointly, your lawyer can help you file a motion to sever. This would divide the case in two, allowing you and your former spouse to handle the bankruptcy process individually rather than together. However, this is not required. You and your spouse can choose to handle the bankruptcy process together and part ways after it is finished. Convert to Another Chapter People often file for Chapter 13 because they have enough income to keep up with their payment plan. This expendable income often makes people ineligible for Chapter 7 bankruptcy, which is often completed much faster than Chapter 13. If your income changes after the divorce because of court-ordered child support or alimony, you might now qualify for Chapter 7. If you are not worried about protecting assets or property, converting your case to Chapter 7 might help you get through the bankruptcy process faster. Call Our Bankruptcy Lawyers for Assistance with Your Case Today Call (215) 701-6519 and speak to our chapter 13 bankruptcy attorneys with Young, Marr, Mallis & Associates about a free, confidential case evaluation.

E.D.N.C.: Lewis v. Equityexperts.org II- Class Ed Boltz Sun, 01/26/2025 - 01:00 Summary: The District Court addressed motions to certify a class action and to extend deadlines in a lawsuit alleging improper debt collection practices under federal and state law granting,  in part,  class certification for two classes under Rule 23(a) and (b)(3), but denying certification for a third class. Notice of Lien Class: North Carolina homeowners who received a Notice of Lien from the defendant substantially identical to the one sent to the plaintiff and subsequently made a payment to the defendant. Notice of Intent to Foreclose Class: North Carolina homeowners who received a Notice of Intent to Foreclose from the defendant substantially identical to the one sent to the plaintiff and subsequently made a payment to the defendant. Unconscionable Collection Fee Class:  Certification for this class, which would have encompassed all homeowners charged over $1,200 in collection fees, was denied due to insufficient commonality and predominance of common issues across the proposed class. The court limited the certified classes to include only those who made payments following receipt of the notices, addressing standing concerns and ensuring class members suffered a concrete injury. Appointment of Class Representatives and Counsel: This ruling advances the case to the next stages of litigation, focusing on the certified classes and the legal issues central to their claims. Commentary: For summary and commentary on the previous opinion in this case:  E.D.N.C.: Lewis v. EquityExperts.org- Excessive Fees illegal under FDCPA   With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document lewis_v._equityexperts_ii.pdf (833.47 KB) Category Eastern District

For nearly a year, I’ve been hanging out on a Facebook “bankruptcy support” group. It’s a world full of misunderstanding, fear, and anguish. But it’s also clear to me that our profession can learn some things from that stew, both individually and collectively. Represented, sorta The thing that glares at me is the number of […] The post What I Learned About Bankruptcy on Facebook appeared first on Bankruptcy Mastery.

Getting married often means intertwining your finances with your spouses. If you get divorced, does that mean you are responsible for your ex’s debt? You might be responsible for your spouse’s debt after divorce and be named as a co-debtor in a bankruptcy case. Spouses often share credit card and mortgage debt, though any debts solely in their name should be theirs alone to repay. Bankruptcy cases involving ex-spouses can be complicated, depending on the number of creditors involved and the means of repayment. For example, if you still share assets with your ex, they could be at risk of liquidation if Chapter 7 is filed. Alternatively, Chapter 13 could protect shared assets and give both exes time to repay shared debts according to their incomes and expenses. For a free case assessment from Young, Marr, Mallis & Associates, call our bankruptcy lawyers at (215) 701-6519 or (609) 755-3115. Am I Responsible for My Spouse’s Debt After Divorce? Generally speaking, your spouse’s debts are theirs and yours and your own, during or after marriage. So, if you get divorced, you may not be responsible for any debt that is solely in your ex-spouse’s name. There are exceptions to this, such as living in community property states, co-signing loans, or being on joint credit cards with your spouse. If you are tied to the debt in any way, you will still be on the hook for it with your ex, even after divorcing them. Any debt your ex-spouse took on before marrying you may stay theirs to repay, like student loans or personal credit cards. How you manage your finances during marriage, such as keeping separate credit cards, could protect you from a spouse’s spending habits or poor financial decisions, as accruing joint debt could cause additional hardships, such as difficulty being approved for a mortgage or car loan. If you are responsible for a spouse’s debt after divorce, creditors might approach you for repayment. Creditors could send harassing calls or mail, attempt to garnish your wages, or repossess your assets to collect on an ex’s debt you share. Addressing this as soon as possible is crucial so that your credit score does not continue to be affected by an ex. Untangling your debts before separating from your spouse, closing joint accounts and shared credit cards, and itemizing all shared debts is important so that your credit score doesn’t drop without you knowing and you aren’t shocked to be named a co-debtor in a bankruptcy case. Will Your Ex-Spouse Be Part of Your Bankruptcy Case After Divorce? Depending on how debt is accumulated during a marriage, both spouses may be liable for repaying it, even after divorce. For example, if both parties are on the mortgage contract, that is both of their responsibilities to manage, no matter how successful their marriage is. Financial hardships during marriage could require one or both spouses to file bankruptcy. Even if you have since divorced your spouse, they may need to be part of your bankruptcy case if you share debt, as many spouses do. You or your ex could be responsible for one another’s debt because you shared credit cards and bank accounts. Accruing joint debts is common during bankruptcy, and those debts do not just disappear when a marriage dissolves. Creditors may seek repayment until they get it, even filing lawsuits and foreclosure petitions against debtors. In bankruptcy cases involving ex-spouses, our lawyers can review each party’s finances, see how they are intertwined, and confirm their shared debts. We can then identify the appropriate bankruptcy chapter to file and proceed accordingly so that you can address the situation as quickly as possible. Your ex filing for bankruptcy, or your spouse for that matter, does not necessarily affect you if you are not a co-debtor in the case. Even if you are still married, your credit score will not drop if your current spouse files and completes bankruptcy. This is one of the reasons spouses intentionally keep separate credit card accounts after marriage. What to Do if You Are Responsible for a Spouse’s Debt After Divorce Whether you were listed as a co-debtor in your ex’s bankruptcy petition or you are filing a case yourself involving your ex-spouse, our lawyers can help you proceed. A co-debtor’s income doesn’t necessarily affect the bankruptcy chapter the primary debtor can file. So, if your ex’s income alone would place them into Chapter 7, but your income would put them over the threshold to file Chapter 13, the court wouldn’t necessarily consider that. However, avoiding Chapter 7 in these cases might be ideal, as exes could still share assets that neither of them wants to be liquated, which Chapter 7 may require after discharging eligible debts, like credit card debt. What matters is filing the appropriate chapter for the situation, as otherwise, both debtors could be negatively affected. While many exes share dischargeable credit card debt, leading to Chapter 7 filings, others share mortgage debt, which is non-dischargeable. If you are a co-debtor in a case involving your mortgage lender, our bankruptcy lawyers may suggest filing Chapter 13, as that will protect assets from liquidation and give you and your ex several years to repay. Repayment plans for shared debts will consider both debtors’ incomes, and our lawyers can draft these plans for court approval to ensure they are fair. Being responsible for a spouse’s debt without knowing it, like credit card debt, could substantially affect your credit. While being a co-debtor in a bankruptcy case will also make your credit score drop, it will let you address any shared debt head-on and eliminate any remaining financial ties to your ex after divorce. Call Our Lawyers About Your Bankruptcy Case Now For a free case review from Young, Marr, Mallis & Associates, call our Allentown, PA bankruptcy lawyers at (215) 701-6519 or (609) 755-3115.

Law Review: Schwarcz, Steven L., Bankruptcy's Redistributive Policies: Net Value or a "Zero-Sum Game"? (January 01, 2025). Duke Law School Public Law & Legal Theory Series Forthcoming Ed Boltz Thu, 01/09/2025 - 15:41 Available at:  https://ssrn.com/abstract=5079149 Abstract: Although federal bankruptcy law, epitomized by Chapter 11, has a pro-debtor-or at least, anti-liquidation-bias, no scholarship analyzes whether that bias creates net value or merely results in a zero-sum game that redistributes value from creditors to debtors. This Article shows that the bias is due more to accidents of history and self-interested lobbying than to any reasoned analysis of value creation. The bias also is inconsistent with many foreign insolvency laws. The Article analyzes whether bankruptcy law should have such a pro-debtor bias. An empirical analysis of that question is not generally feasible because debtor and creditor costs and benefits in bankruptcy cannot be accurately quantified and compared. The Article therefore engages in a second-best methodology: it builds on the pro-debtor shareholder-primacy model of corporate governance, which is widely viewed as maximizing value, by stressing that model under the circumstances of bankruptcy. This reveals two critical differences. First, creditors become the primary residual claimants of the firm, whereas shareholders are relegated to secondary residual claimant status. This changes the identity of the beneficiary of the "shareholder" primacy model, whose goal is to favor the firm's primary residual claimants. Second, the covenants that normally protect creditors become unenforceable in bankruptcy, suggesting the need for additional creditor protection. Utilizing these differences, the Article proposes and assesses a "creditor-primacy" governance model for debtors in bankruptcy. It also examines how such a model could be applied to maximize bankruptcy value. The Article recommends, for example, a threshold viability test that would require debtors that are unlikely to successfully reorganize, and therefore likely ultimately to liquidate, to be liquidated at the outset of a Chapter 11 case. That would save the considerable expenses of proceeding through bankruptcy, which can severely reduce creditor recovery. Such a test also should reduce agency costs and moral hazard. Furthermore, it should help to avoid the sunk-cost fallacy that leads to a disproportionately high number of supposedly reorganized debtors having to subsequently re-file Chapter 11 cases.  Commentary: It seems a little odd,  given that,  contrasted with  corporate bankruptcies,  not only is consumer bankruptcy the real and most common form of bankruptcy  but as the paper's call for a "threshold viability test"  looks,  with only a little squinting,  not terribly dissimilar to the  means testing and feasibility standards that are incorporated into Chapter 13,  that there is no mention of consumer bankruptcy here.  While  Chapter 13  bankruptcies often seem more foreign to academics focused on corporate bankruptcies  than the European systems actually considered in comparison here.   Empirical research about whether  consumer reorganizations,  which are more common by several orders of magnitude,  could provide greater statistical insight regarding when, whether and to what extent tighter viability standards  result in greater or lesser recoveries for creditors (of all ilks-  secured,  priority and general unsecured) following both successful Chapter 13 cases and also those that fail.  That could then enlighten the discussion and consideration of the costs and benefits similar tightening of access might have on  Chapter 11  cases. With proper attribution,  please share this post.  To read a copy of the transcript, please see: Blog comments Attachment Document bankruptcys_redistributive_policies_net_value_or_a_zero-sum_game.pdf (440.97 KB) Category Law Reviews & Studies