Conflicting Preferences in Business Bankruptcy: The Need for Different Rules in Different Chapters

The law of preferential transfers permits the trustee of a bankruptcy estate to avoid transfers made by the debtor to a creditor on account of a prior debt in the 90 days leading up to the bankruptcy proceeding. The standard for avoiding these preferential transfers is one of strict liability, on the rationale that preference actions exist to ensure that all general creditors of the bankruptcy estate recover the same proportional amount, regardless of the debtor\u27s intent to favor any one creditor or the creditor\u27s intent to be so favored. But preference law also permits certain exceptions to strict preference liability and gives the estate trustee discretion in pursuing preference actions. This undermines the policy of equal distribution by permitting some creditors to fare better than others in the bankruptcy distribution. However, these practices are arguably necessary to promote the conflicting bankruptcy policies that seek to maximize the estate for the benefit of creditors and also encourage the survival of struggling businesses. As a result, the law of preferences is internally inconsistent and controversial, attempting unsuccessfully to serve multiple policy masters simultaneously. Much of the analysis on preferences up to now has proposed amending preference law generally in an attempt to satisfy these often conflicting demands. This Article recommends a more dramatic approach: returning preference law to a mechanism of equal distribution in liquidation proceedings by eliminating true exceptions to the rule, and doing away with preference law in the context of bankruptcy reorganization

Preferences Are Public Rights

In the wake of the Supreme Court’s decision in Stern v. Marshall, there is widespread uncertainty as to what other proceedings may constitutionally fall within a bankruptcy court’s core jurisdiction. Supreme Court jurisprudence has been cryptic regarding the constitutional limitations of non-Article III courts, but the Court has identified a public rights exception to the general rule that the judicial power must be exercised only by judges with life tenure and salary protection. This public rights exception has not yet been explicitly extended to a bankruptcy proceeding, but the reasoning of the Court strongly suggests that a trustee’s motion to avoid preferences would fall under the public rights exception, as a proceeding stemming exclusively from bankruptcy law and necessary to resolve claims against the estate. Accordingly, and contrary to what most scholars have suggested, preference proceedings fit comfortably within the jurisdiction of bankruptcy courts, even after the Supreme Court’s ruling in Stern

Optimal Deterrence and the Preference Gap

This Article is the first of its kind to argue that preference law is ineffective as a deterrent of collection behavior based on empirical evidence, drawn from interviews of actors within the field-debtors, creditors, and the attorneys who represented them in bankruptcy proceedings. This Article reports on interviews of sampled individuals who participated in successful 7 Chapter 11 reorganization cases involving preference actions. The overwhelming and indisputable conclusion from these interviews is that creditors may adjust their behavior in response to preference law, but not in ways that further the purported goal of preference deterrence. Accordingly, if preference law is a law of deterrence, it is wholly ineffectual in its purpose

Relational Preferences in Chapter 11 Proceedings

It is no secret that creditors hate so-called preference actions, which permit a debtor to recover payments made to creditors on the eve of bankruptcy for the benefit of the estate. Nominally, preference actions are intended to equalize the extent to which each unsecured creditor must bear the loss of a bankruptcy discharge, or to discourage creditors from rushing to collect from the debtor in such a way that will push an insolvent debtor into bankruptcy. But empirical evidence strongly suggests that, at least in chapter 11 reorganization proceedings, preference actions do not fulfill either of these stated goals. Interviews with debtors, trade creditors, and attorneys involved in small- and medium-sized chapter 11 bankruptcy cases establish both that creditors are not deterred from collecting by preference actions, and that preference actions are not applied equally in a system where debtors are able to choose which preferential transfers to avoid and how much to accept in settlement of preference actions. Instead, these interviews suggest an alternative justification for preference law in chapter 11, one more consistent with promoting a debtor\u27s ability to exercise strategic leverage over its creditors in an effort to reorganize. In this way, the law of preference avoidance is actually one of preference perpetuation, and is exercised with an eye towards preserving valuable relationships within bankruptcy proceedings

Relational Preferences in Chapter 11 Proceedings

It is no secret that creditors hate so-called preference actions, which permit a debtor to recover payments made to creditors on the eve of bankruptcy for the benefit of the estate. Nominally, preference actions are intended to equalize the extent to which each unsecured creditor must bear the loss of a bankruptcy discharge, or to discourage creditors from rushing to collect from the debtor in such a way that will push an insolvent debtor into bankruptcy. But empirical evidence strongly suggests that, at least in chapter 11 reorganization proceedings, preference actions do not fulfill either of these stated goals. Interviews with debtors, trade creditors, and attorneys involved in small- and medium-sized chapter 11 bankruptcy cases establish both that creditors are not deterred from collecting by preference actions, and that preference actions are not applied equally in a system where debtors are able to choose which preferential transfers to avoid and how much to accept in settlement of preference actions. Instead, these interviews suggest an alternative justification for preference law in chapter 11, one more consistent with promoting a debtor\u27s ability to exercise strategic leverage over its creditors in an effort to reorganize. In this way, the law of preference avoidance is actually one of preference perpetuation, and is exercised with an eye towards preserving valuable relationships within bankruptcy proceedings

Nighttime observations of thunderstorm electrical activity from a high altitude airplane

Nocturnal thunderstorms were observed from above and features of cloud structure and lightning which are not generally visible from the ground are discussed. Most, lightning activity seems to be associated with clouds with strong convective cauliflower tops. In both of the storms lightning channels were visible in the clear air above the cloud. It is shown that substances produced by thunderstorm electrical discharges can be introduced directly into the stratosphere. The cause and nature of the discharges above the cloud are not clear. They may be produced by accumulations of space charge in the clear air above the cloud. The discharges may arise solely because of the intense electric fields produced by charges within the cloud. In the latter case the ions introduced by these discharges will increase the electrical conductivity of the air above the cloud and increase the conduction current that flows from the cloud to the electrosphere. More quantitative data at higher resolution may show significant spectral differences between cloud to ground and intracloud strokes. It is shown that electric field change data taken with an electric field change meter mounted in an airplane provide data on lightning discharges from above that are quite similar to those obtained from the ground in the past. The optical signals from dart leaders, from return strokes, and from continuing currents are recognizable, can be used to provide information on the fine structure of lightning, and can be used to distinguish between cloud to ground and intracloud flashes

Moving beyond Medical Debt

In recent years it has become clear that medical costs are imposing severe financial burdens on American families, sometimes to the point that bankruptcy becomes the only escape from crippling debt. When evaluating the well-established connection between outstanding medical debt and consumer bankruptcy, most existing empirical studies attempt to quantify the percentage of consumer bankruptcies that are caused by unmanageable medical indebtedness. This Article addresses what we believe to be a more significant line of empirical inquiry, namely, the connection between health insurance coverage and consumer bankruptcy as a more precise measurement of how national health insurance programs may or may not affect bankruptcy filing rates. Data from a national longitudinal survey of adults from 2004 through 2014 indicate that the principle predictor of consumer bankruptcy is a lapse in medical insurance coverage, while controlling for socioeconomic variables such as race, marital status, household income, and debt-to-income ratios. Individuals who experienced a gap in coverage over a two-year period were roughly twice as likely to file for bankruptcy as those who retained continuous coverage. These findings contribute to the ongoing debate regarding the Affordable Care Act and the provision of health insurance to low-income Americans, and the role consistent health insurance coverage plays in relation to the consumer bankruptcy system