Double Standards in Bankruptcies
Developments in the Detroit bankruptcy have exposed a double standard in federal bankruptcy law, an injustice in urgent need of congressional reform.
In Detroit, the judge has ruled that under Chapter 9 of the bankruptcy law, the city’s creditors include even municipal pensioners whose payouts are guaranteed under the Michigan Constitution. Accordingly, the pensioners have reached a tentative deal to reduce retiree benefits; along with concessions made by other creditors, the goal is to help the debtor, the city of Detroit, get a fresh start and move forward.
Contrast that with what happened in the housing bust. The creditors in that fiasco — including powerful banks — did not have to cut deals in court with bankrupt homeowners. Under Chapter 13 of the bankruptcy law, a section heavily influenced by the financial industry, lenders cannot be forced to rework most residential mortgages in bankruptcy.
That is where the legal double standard comes in. In Detroit’s bust, even pensioners have to negotiate new terms; in the housing bust, big banks did not have to negotiate, leaving many homeowners in the dust.
Citigroup, DOJ to discuss mortgage-securities settlement
WASHINGTON — The Justice Department and Citigroup Inc. plan to meet next month in the opening salvo of multibillion-dollar settlement talks aimed at ending probes into how the bank handled shoddy mortgage-backed securities, according to people familiar with the matter.
The scheduled meeting will be the first chance for each side to put a number on a potential settlement, but in the past such numbers have been far apart, representing little more than starting negotiating positions.
Calif. Rips Chase’s Defenses In Abusive Debt-Collection Row
Law360, Los Angeles (April 25, 2014, 10:29 PM ET) — The state of California urged a Los Angeles County judge on Thursday to toss a bevy of equitable defenses JPMorgan Chase & Co. asserted against claims that it abused credit-card customers through shoddy record-keeping and other debt collection practices that have plagued the mortgage servicing industry.
At a hearing Thursday, Deputy Attorney General James Toma asked Superior Court Judge Jane L. Johnson to reconsider her written tentative ruling, which sustained the state’s demurrer on 10 of JPMorgan’s 20 affirmative defenses. Toma said that JPMorgan’s equitable defenses…