Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls
description
Transcript of Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls
![Page 2: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/2.jpg)
Irish bill based all but exclusively on E&W model
Unique E&W model likely not best for Ireland
Other models in Europe (and US) enlightening
![Page 3: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/3.jpg)
Expert Recommendations and the Evolution of European Best Practices for the Treatment of Overindebtedness, 1984-2010 (Deventer: Kluwer, 2011), ssrn.com/abstract=1663108
World Bank, Insolvency and Creditor/Debtor Regimes Task Force, Report on the Treatment of the Insolvency of Natural Persons (forthcoming 2012)
![Page 4: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/4.jpg)
Consumer insolvency policy: What goals are we pursuing?
Lessons from empirical observation:
(1) weaknesses of negotiated solutions
(2) negotiating in shadow of key alternative
![Page 5: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/5.jpg)
Why now? Why is IMF interested?
How to evaluate proposed solutions
![Page 6: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/6.jpg)
Pandemic of crushing debt
Structural problem
Allowing this problem to persist unaddressed undermines national economic development, international competitiveness
![Page 7: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/7.jpg)
Tired slogans versus systemic goals
Bi-lateral versus multi-lateral, societal view
Broad benefits of safety release valve versus narrow (illusory) virtues of pacta sunt servanda
![Page 8: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/8.jpg)
The FACT of debtors’ insolvency creates losses, “deprives creditors of their rights”—an insolvency system compels creditors to accept this truth and find a productive way
forward . . .
. . . for themselves and SOCIETY.
![Page 9: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/9.jpg)
Internalizing negative externalities of loose underwriting
![Page 10: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/10.jpg)
Internalizing negative externalities of loose underwriting
Facilitating proper account valuation
![Page 11: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/11.jpg)
Internalizing negative externalities of loose underwriting
Facilitating proper account valuation Reducing waste in fruitless enforcement
![Page 12: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/12.jpg)
Internalizing negative externalities of loose underwriting
Facilitating proper account valuation Reducing waste in fruitless enforcement Reducing costs from illness, crime,
welfare
![Page 13: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/13.jpg)
Internalizing negative externalities of loose underwriting
Facilitating proper account valuation Reducing waste in fruitless enforcement Reducing costs from illness, crime,
welfare Increasing production of taxable income
![Page 14: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/14.jpg)
Internalizing negative externalities of loose underwriting
Facilitating proper account valuation Reducing waste in fruitless enforcement Reducing costs from illness, crime, welfare Increasing production of taxable income Enhancing economic activity,
entrepreneurialism
![Page 15: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/15.jpg)
![Page 16: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/16.jpg)
Insolvency system functions as a backstop, safety net for inevitable
casualties
![Page 17: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/17.jpg)
![Page 18: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/18.jpg)
. . . still chasing chimeras . . .
![Page 19: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/19.jpg)
economic cycles—unemployment
currency swings—asset devaluation
globalization—exported banking risk (RMBS US → Europe)
health, divorce, childbirth . . . life is risky!
![Page 20: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/20.jpg)
Dividing the costs of expected tragedy
Dispersing the burdens of expected tragedy
![Page 21: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/21.jpg)
Insolvency SystemUnfair penalty on “responsible” debtors who would never default?
![Page 22: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/22.jpg)
Insolvency SystemUnfair penalty on “responsible” debtors who would never default?
Auto Insurance SystemUnfair penalty on “safe” drivers?
![Page 23: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/23.jpg)
Insolvency SystemUnfair penalty on “responsible” debtors who would never default?
Auto Insurance SystemUnfair penalty on “safe” drivers?
. . . accidents happen
with and without driver fault . . .
![Page 24: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/24.jpg)
Insolvency SystemUnfair penalty on “responsible” debtors who would never default?
. . . and default occurs
with and without debtor fault . . .
Auto Insurance SystemUnfair penalty on “safe” drivers?
. . . accidents happen
with and without driver fault . . .
![Page 25: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/25.jpg)
Keep egregious credit abusers out of system
Keep egregiously bad drivers off the road
![Page 26: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/26.jpg)
Keep egregious credit abusers out of system
Keep egregiously bad drivers off the road
Over-reaction & over-deterrence
are undesirable in both cases
![Page 27: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/27.jpg)
o Insolvency relief is a trade-offfor deregulation of consumer lending
o Insurance for restoring equilibriumin “open credit society”
o Moral hazard = inevitable slippage
o Don’t sacrifice the many good benefitsfor want of unattainable perfection!
![Page 28: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/28.jpg)
The long, frustrating quest for alternatives to bankruptcy
![Page 29: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/29.jpg)
Business is businessvs.
moralistic judgment
What’s the alternative?
![Page 30: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/30.jpg)
The tri-partite Irish approach in light of comparative experience
PIA PIA DSADSA
BankruptcyBankruptcy
![Page 31: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/31.jpg)
One creditor easily has > 50% secured debt
That creditor thus has absolute veto, with no review for “reasonableness” or “good faith”
No change from status quo: banks CAN agree to voluntary modifications NOW—do they?
US experience reveals inevitable failure
![Page 32: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/32.jpg)
20 years of wrangling with unsecured creditors
E&W, Sweden, France, Germany, Netherlands
![Page 33: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/33.jpg)
20 years of wrangling with unsecured creditors E&W, Sweden, France, Germany, Netherlands
Few assets, limited income, large debts, and moralistic creditor judgments = negotiation proved “pure formality” in all but a few cases
Distracts counseling resources/attention from truly negotiable cases!
Sweden first to scrap mandatory stage in 2007
![Page 34: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/34.jpg)
Trusted intermediaries
![Page 35: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/35.jpg)
France•More than 50% “success,” but trending down•Not just for “insolvent” debtors► more and more “insolvent” Ds = immediate discharge!
•KEY: Banque de France pressure on creditors► rise in plan acceptance from 40% → 65%+
![Page 36: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/36.jpg)
Netherlands•NVVK long history of plan negotiation•Sharp downward trend to 9% after new Wsnp•Reversal, back to ≈ 30%, on 2 NVVK fronts:
![Page 37: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/37.jpg)
Netherlands•NVVK long history of plan negotiation•Sharp downward trend to 9% after new Wsnp•Reversal, back to ≈ 30%, on 2 NVVK fronts:
(1) hopeless cases routed immediately to Wsnp - concentrating resources on good candidates
(2) structural negotiation with key creditors - (CJIB—fines and penalties bureau)
![Page 38: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/38.jpg)
MABS as trusted intermediary?
No compulsion for creditors
The alternative is no “stick behind the door”…
![Page 39: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/39.jpg)
Debtors will agree to unworkable plansthat will eventually fail
![Page 40: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/40.jpg)
Overwhelming majority of Ds will have no realistic option other than bankruptcy► expect cries of debtor “moral hazard” when creditors reject reasonable proposed plans . . .
KEY: reasonable, consistent, uniform application of “income payment orders”► bill’s guidelines seem sensitive, but† 5 years following 3-year “recovery” is too long† “reasonable needs” per court discretion = disaster
![Page 41: Prof. Jason J. Kilborn John Marshall Law School (Chicago) jkilborn@jmls](https://reader036.fdocuments.us/reader036/viewer/2022062423/568144eb550346895db1bd23/html5/thumbnails/41.jpg)
Half-measures ignore societal goals of insolvency
Why parrot unique E&W system?
Why leave public policy to banks—look where that has gotten us.
One portal; one solution, but . . .. . . fool’s errand to expect substantial returns to
creditors—pounds of expense for pennies of gain