Arizona Bankruptcy Attorney Blog

Consumer confidence is at its lowest ebb since the great recession's depths, according to a CNN story by Annalyn Censky.

And why not?

Unemployment is huge, with the official number hovering at 9.1%.

But everyone who has boots on the ground and at least one friend knows perfectly well that the real unemployment numbers are higher (remember, the U-6 Official Measure of Unemployment is 16.8%, which is overwhelming).

And the real unemployment situation is far, far worse than that.

Because the unemployment figures don't reflect the fact that people who were earning a hundred and fifty thousand a year a few years ago are now earning $12 per hour, with no benefits.

And even though the official inflation numbers are quite restrained, if you go into a grocery store you'll figure out that those official numbers are officially...cooked, you know?

Now, I have a lot of respect for the opinions of ordinary people, because I are one.

And if consumer confidence is at the lowest point since the Great Recession, you know this for a fact: there was never a question about a double-dip recession.

It's never gone away.

How do I know?

I just count the people coming into my office, and look at the price of coffee, and then look at the price of a car in a 1975 magazine and compare it to the price today.

Things are bad, and I hope they get better fast.

But any attempt to fool consumers into spending money they don't have to bail out the economy when that's economic suicide for consumers isn't going to work.

Consumers are pretty smart.

Terry Collins wrote a nice article for the Associated Press about Vallejo and it's emergence from Chapter 9 Bankruptcy.

But reading the article did not give me a warm, fuzzy feeling.

There was discussion of a report that was ignored by the City Council, which report predicted the bankruptcy unless Vallejo changed its free-spending ways.

The part of the article that scared me was the wistful way people talked about the free spending past, and the rueful tone addressing the stay-inside-the-budget present.

See, with a governmental entity of any kind, there's just no excuse for needing to file a bankruptcy.

You KNOW in advance what your income is going to be. You KNOW in advance what the costs are going to be, and you KNOW your historic debt.

You OWN a bean-counter or twenty, and their job description certainly ought to include figuring out when you're in the zone of insolvency, and beating the drums and sounding the alarms.

But the seductive power of giving away other people's money is just too much for politicians, apparently.

Now, I'm a lawyer. A bankruptcy lawyer, to be specific.

And lawyers are trained to be able to argue either side of any argument.

So I can make excuses for Vallejo and talk about how nobody expects tax revenues to go down.

Except.

All you have to do when tax revenues go down is to cut spending immediately, and intelligently (for heaven's sake, don't cut cops and firemen and garbagemen and teachers first. That's just stupid).

Ordinary people have to live within their means.

Why not cities?

And while we're at it, why not countries?

p.s. so it'll be harder for Vallejo to borrow in the future? Well, does anybody think that's a bad thing? Really?

Without Steve Jobs, is Apple doomed to insolvency and bankruptcy?

Nope!

Gigantic Corporations that make vast profits and have products that fly off the shelves often do pretty well after a change in leadership.

Will it do exactly as well as if Steve Jobs was still running the company?

Nope. No more than Disney did precisely as well, or precisely the same thing, when it lost Walt.

On the other hand, there will now be both a Steve Jobs deathwatch in the media, and an Apple deathwatch.

My hope is that both are disappointing to reporters for a very, very long time.

And remember; during a depression, Apple made money.

When you're a newspaper publisher and revenues drop like a rock during a depression, you'd naturally expect your bank to work with you, especially if you'd had a long and productive working relationship with that bank.

Wrong, Insolvency Breath!

Robert Chandler, Publisher of the Bend Bulletin, had some cranky things to say when Bank of America talked about how much it had tried to help the newspaper.

One phrase in the article that I particularly liked was ""They tried to work with us all right--by doubling our interest rate."

See, banks don't like defaults. And big banks really don't like defaults, because once they charge off a loan (an internal bank accounting activity), they have to reserve against that bad loan, and they can't loan as much money.

And if a bank loans less money, it makes less interest on that un-loaned money.

And it makes less profit.

And since banks are for-profit institutions, they tend to be real hard drivers in a negotiation, and sometimes seem irrationally aggressive.

Here's why.

Banks don't care.

They don't have emotions.

They don't care if people will lose jobs when a business closes; that's not their problem, mon.

So if you're on the wrong side of a default with a bank, the bank is not going to be warm and fuzzy.

Practice Pointer: a bank starts warm and fuzzy during a negotiation, in order to get more collateral and additional personal guarantees, and a payment plan that starts small and ramps up to an unpayable amount (they've got your records, right? they know what you can pay!) And that means that when the unavoidable default arrives, the bank is holding all the aces.

Just a thought.

p.s. if you hear the words, "We're from the bank and we're here to help you," you will probably not have a very good day.

Let's suppose you're an embezzler.

Well, it stands to reason that you won't be able to scrape off your debts incurred by embezzlement, because consumer bankruptcy under Chapter 7 is designed and intended to provide an honest debtor relief from overwhelming debt.

And so it often goes. As it does in this article about Dawn Solomon, for instance, by Leslie H. Dixon.

Turns out that milking a healthcare system is pretty easy, at least for Dawn; she skedaddled with four million dollars from MaineCare, and was ultimately discovered, and then she was prosecuted, and then she filed bankruptcy.

Her ordinary, garden-variety debts have been discharged; it's a little misleading to suggest that she was "granted" a discharge, because that's a fairly automatic process in the U.S. Bankruptcy System.

And there was unintentional bankruptcy humor in the article, which points out that an Attorney General spokesperson repeatedly declined to answer how the money would be recovered.

Let's think about this for a minute. A currently unemployed health care provider is sitting in a prison cell after filing a bankruptcy. Her real estate holding company is also in Bankruptcy Court.

If you were asked to bid for the restitution judgment against Dawn Soloman, would you pay a lot of dough?

Yeah, me neither.

Unless Dawn Soloman comes out of prison and becomes the world champion Sugar Baby, my guess is that the four million dollars in debt is gone forever.

There are a lot of other debts that will, in most cases, survive the bankruptcy process. They include HOA Fees incurred post-petition, tax debts that aren't quite ripe enough, and student loans unless (in most jurisdictions) you pass the dreaded Brunner Test.

And you really don't want to be so bad off that you pass the Brunner Test.

Here's a short clip discussing ShegdaTech prior to the delisting.

The numbers involved are significant.

ShengdaTech has filed a Chapter 11 Bankruptcy, and it's not your Grandfather's Chapter 11.

A remarkably aggressive initial order right out of the chute is designed to protect the Chief Restructuring Officer and the Special Committee, and "ShengdaTech filed for and was granted a temporary restraining order from the US Bankruptcy Court blocking its shareholders and or member of its board of directors from taking any action that interferes with Kang's activities or those of the company's so-called Special Committee. The restraining order also prevents the appointment of any new person, and one Mr. Gongbo Wang in particular, to ShengdaTech's board of directors."

I don't know much about ShengdaTech. In fact, I only learned about the filing of the Chapter 11 and the unusual preliminary injunction this morning.

But if the SEC is investigating, and KPMG has resigned as the auditor, saying some disturbing things about the financials, one has to wonder if this if a perfect company.

This Chinese company was traded on our stock exchange because of a reverse merger into a publicly traded company.

Here's what I wonder: is this the tip of the iceberg? Are there other Chinese Companies that trade on a different board that also have creative books?

I'll watch that space and let you know if I find out.

Although I suppose that finding out might involve learning Mandarin.

Never mind.

I'll let somebody else find out, and tell you what they have to say!

Some people consider (or commit) suicide when they lose everything.

That's probably a bad idea. Everyone has a purpose, and sometimes it's easier to find that purpose after a failure or two.

Steve Jobs, for instance, was fired from his own company at one point, and that made him sad; actually, he called the experience "devastating".

On the other hand, Steve Jobs was a millionaire as a young man, and today is a billionaire with a "b".

That's a far better "b" than "bankruptcy".

And Apple is an odd duck during this recession. It's a company that actually has a lot of "p", profit!

But on the other hand, Steve Jobs also has a "c"; cancer. And not just any cancer, but the really don't-buy-long-playing-records-kind, pancreatic cancer.

Now, everybody dies sometime. And nobody gets to take it with 'em.

Whether you have a stack of bills, or a stack of billions, when you leave, you leave it behind.

When Steve Jobs finally goes to that computer company in the sky, the world will be a poorer place for the loss of him.

But he created a lot of happiness for a lot of computer geeks, including me, an Apple Fanatic, and he will be remembered with love by the people who saw him as the Gadget Santa Claus, and the people he directed (sometimes harshly) at Apple.

Everybody has failures in life. And everybody passes out of this life.

And some people cry because they're insolvent and have to file a Consumer Bankruptcy, and some are cheerful because they get to save their company with a Chapter 11 Bankruptcy.

But whether you're solvent or insolvent, remember to say "I love you" to the people around you.

Because you can't take the billions, but maybe you can take the love.

I recently read an article about Spa One, and that article told me that the Spa One locations had "suddenly" closed.

I never hope that any business files a bankruptcy, and sometimes it's not a good idea to file a bankruptcy for a business.

Why?

Well, if you file a Chapter 7 Bankruptcy for a business that has a lot of very angry customers, especially customers who paid for something they didn't get, or who were charged for services they didn't get, the bankruptcy case can get interesting.

"Interesting" is a bad, bad word in the context of a bankruptcy of any kind. "Boring" is my favorite word.

Mind you, I am listed in the Guiness Book of World Records as the "World's Most Boring Man", but that's a story for another day.

Today's story, however, has a moral.

If you continue to take money from spa members by automatic withdrawal after you close the doors of a business, whether the closure is temporary or permanent, you get a lot of very cranky customers.

If you file a bankruptcy on a day when your customers are still cranky because they'd paid for something they couldn't use, like a closed spa, your First Meeting of Creditors will have a strong resemblance to a scene from "The Hunchback of Notre Dame", involving people crying, shaking with anger, and screaming "Burn the Witch!".

This applies to 341 Meetings of all sorts, including cases where contractors owe money on houses they didn't finish, wedding planners who didn't plan after they were paid, and caterers who didn't cate.

And while I'm going to hope that the business reopens immediately and makes all the profit in the world, the smart money always bets against that when a business stops responding to complaints from the Better Business Bureau.

SpectraWatt was a one-year wonder, and as a spin-off from Intel, opened like Gangbusters, and quickly hired more than a hundred workers.

Then everything went wrong with the local economy, the State Economy, the U.S. Economy, and the World Economy, and then the specter of competition raised its ugly head.

Seems like there are some countries where solar gets bigger subsidies and there are lower costs of production.

So after getting real big real fast, SpectraWatt hit the wall, and has been trying to find a buyer.

But this is a depression, or something that walks like a depression and quacks like a depression, so no buyer came forth; so a Chapter 11 Bankruptcy became the exit strategy of choice.

"Due to various operational issues, disputes with vendors and others, and most recently, deteriorating market conditions in the solar cell industry, the Debtor has idled its manufacturing facility, closed its operations in Oregon, retained only a skeleton staff, and has been marketing its assets for sale," said CEO and Chief Restructuring Officer Brad Walker.

And while the schedules list about $34 million in assets and more than $38 million in liabilities, my guess is that there was a lot of optimism associated with valuing the assets.

When you buy a horse, it costs a LOT. When you have to sell a horse fast, everybody looks in its mouth, and tells you it's long in the tooth. And it's about half-lame and half-blind. They'll take it off your hands, but only because they like you.

And that's the nature of selling during hard, hard times.

Oh, yeah. The saddest thing is that taxpayers coughed up huge economic inducements. Those appear to be yesterdays news.

You know?

So, you've figured it out, right?

You're never going to get to retire.

There are articles like this one by Rachel Louise Ensign in the Money Section of WSJ which suggest that some seniors may need to keep working.

My scientific analysis of this situation tells me that the actual number is going to be much, much closer to "all" than "some".

And that's because inflation is raging, and jobs are in short supply, which means there are more applicants than jobs, which in turn means that when you do find a job, you'll be working for peanuts.

Don't get me wrong; peanuts are nutritious, and even though they are actually a legume, they're nutritionally similar to tree nuts.

No kidding.

And I'm also not kidding about my entire generation having the privilege of continuing to work for a very long time.

Now, experts in retirement sometimes suggest that you enter into retirement debt-free.

How to do that?

Let's talk.

I have a buddy named Rick Cook, and he wrote an e-book called "Shift Happens".

I was impressed by the book, partly because Rick's discussion of the paradigm shift between old-style publishing and new, instant electronic publishing is a great story, and Rick tells it well.

So, having been impressed as well as inspired, I am announcing that I will, not may, publish my first e-book about bankruptcy on Amazon within thirty days of this announcement.

I'm only doing this to keep me honest.

Because I have a fair number of blogs, ranging from a health and longevity blog, to bankruptcy blogs, to blogs that try to help baby lawyers set up and market their baby practices, there is some chance that if I don't set up a target, and stay on target, that the book-publishing project will take a seat behind the blogs.

But now that I've picked the date, the rest should be easy!

I like all my Arizona Bankruptcy Blogs, but one that I'm very fond of right now is my Bankruptcy Crossroads blog.

It has more topical discussions about news of the world, and municipal insolvency, and how "Sugar Babies" are finding "Sugar Daddies" to help out with non-dischargeable student loans.

I guess it was inevitable that an economic depression would have bad effects, but I was never creative enough to think that anybody would suggest online gambling to fix governmental insolvency, or that pretty young graduates would list themselves on "Seeking Arrangement" to find rich, old guys.

Between the gambling and drug use and what some would describe as prostitution, it seems to me that things are a little darker than I would have imagined a few years ago.

And I've read that Greece was extremely progressive in the area of online gambling.

But it was also addicted to spending, so that didn't, in the end, help either Greece or its citizens.

What do I hope for the rest of the year?

Well, I hope that news in bankruptcy is that we have many fewer consumer bankruptcy cases in Phoenix, and Scottsdale, and Mesa, and Glendale, and Chandler, and all over Arizona.

But I don't think I'm going to get my wish.

Now, you'd think that I'd be delighted with online gambling, because it will lead addicts directly into bankruptcy, and you'd think that I'd be delighted that Sugar Babies will file bankruptcy to discharge their credit card debts so that more of the Sugar goes to student loans, and you'd think that I'd be happy that governments are borrowing and spending at a rate that the next municipal bankruptcy cases will make Central Falls look like a piker.

Faithful readers know that you'd be wrong.

A College Degree: How Much Is It and Is It Really Necessary?: MyFoxPHOENIX.com

I was interviewed last night on topics relating to the value of a four-year college degree and the dischargeability of student loans.

While it was a little late, given my old-guy early bedtime, I enjoyed it.

Every single person I talked to at local Channel 10 was absolutely wonderful!

To say that they are all nice to their guests is a massive understatement; and calling me a bankruptcy expert may have been a bit of an exaggeration, but it certainly made me feel warm and fuzzy.

I love giving TV interviews on bankruptcy topics. Of course, I always worry that I'm going to forget what I was saying, or focus someplace else than the camera.

I periodically get to listen to people talk about their money problems.

But not more than a dozen times a day.

And even though the current economic climate of unemployment and inflation is brutal, it affects different people in different ways.

For instance, some families come apart at the seams. Bankruptcy cases are often associated with divorces, before or after.

I don't handle divorce cases; I'm a bankruptcy lawyer, and have been for thirty years or so.

But I recently read a horrifying statistic: it suggested that in a quarter of suicides, money troubles were the precipitating cause of the suicide.

Now, I know that a change in circumstances is traumatic. In specific, I was interviewed for a television show recently and the guest who was on prior to me ran a job placement business.

He told me that a very few years ago, he was placing people in jobs that paid between a hundred and a hundred and fifty thousand dollars with frequency.

Then there were just no jobs available, period.

Then there were jobs, although not a lot of jobs; but they were all in the 12 dollar an hour range.

That's a pretty brutal drop; and the unemployment statistics don't begin to express the psychological brutality of a shift from a hundred thousand a year job to a 12 dollar an hour job.

Sometimes people have to start over, and they just don't want to do that. Because it looks to them as though there's no way out.

The bankruptcy laws, as amended in 2005, even have a tendency to punish charity, because the means test may make it hard to help support your unemployed, adult kids and yourself, and qualify for bankruptcy. Or not; it depends on the facts of the case.

But this much is true; where there is life, there is hope.

So if there appears to be no way out whatsoever, at least consider how much better you'll feel when you're debt free.

Hopefully, that will lift some of the depression that has caused more deaths than it should have; even one is too many, after all.

Even the sort of famous and the sort of rich can make a bad decision. The recent suicide of Real Housewives Russell Armstrong had an economic component because he was suffering economic hardship.

Remember, people. Suicide is forever. A bankruptcy is a big fat pain in the behind, but it comes, and it goes away, and then you may very well feel better.

Also remember; there are hotlines and other resources if life looks too bleak.

I guess I'm still typing because I'm afraid I've failed to say something that will keep one more person on the right side of the grass.

I'm stopping now; please remember that there are alternatives to ending it all if you're worried about your debt.

When Central Falls filed a Chapter 9 Bankruptcy, the receiver made some hard, and necessary, decisions.

Frankly, it shouldn't have taken a receiver or a Chapter 9 Bankruptcy to figure out that a town of 18,000 people shouldn't take on debt of $80,000,000.

But I digress.

Ultimately, borrowing became an addiction in Central Falls, and a little tiny town can't print money or raise taxes to fix the problem.

That's for two reasons.

One is that if a tiny city prints lots of money, that's counterfeiting. It is punished by law, because printing lots and lots and lots of worthless money harms everyone.

Right?

The reason that Central Falls couldn't raise taxes enough to cover the shortfall is...Oh, come on! Look at the numbers!

If you lived in Central Falls and your city tax bill was high enough to pay your share of $80,000,000, what would you do?

So would I. And that would leave poor Central Falls a ghost town.

So the city didn't try that route.

Creditors wouldn't budge, so Central Falls had one option, which is also the reason there are so many consumer bankruptcy cases these days.

But there are some nice things that have come out of the Central Falls Bankruptcy.

One is a wave of volunteers to help out with the library and similar services.

And that's a good thing.

There are a lot of nice places to live in the United States.

Some of them, like Central Falls, with its overwhelming debt of $80,000,000 in a city of fewer than 20,000, have already filed a Chapter 9 Municipal Bankruptcy.

Some of them, like Jefferson County, have contemplated bankruptcy so much that the locals have bankruptcy fatigue, and don't want to hear about it anymore. I read an unofficial poll that suggested the residents wanted to file, and not talk about it anymore.

But Gilbert, AZ is a lovely city with a growing population and a great credit report, which doesn't look as though it'll be downgraded anytime soon.

Now, that's a good thing, because even though I'm an Arizona Bankruptcy Lawyer, I don't like to see cities and other municipalities need to file bankruptcy cases.

Solon, a manufacturer of solar panels, is closing its Tucson facility.

Sixty more jobs will be lost in Arizona as a result of that closure.

Solon heard that Evergreen Solar, a Mass.-based company, had filed a Chapter 11 Bankruptcy and was planning to sell its assets, after posting a loss of almost five hundred million. And after hearing that, Solon decided that it was time to get out of Dodge.

Or, less metaphorically, Tucson.

Evergreen Solar had received tens of millions of dollars in subsidies and tax breaks, which is itself irritating. And it had earlier this year announced a move to manufacturing in China, which cost 800 U.S. jobs. It plans to continue operations in China, depending on Chinese Investors.

After the Evergreen move to China was announced, I stopped being a member of the cheerleading section, so the Chapter 11 did not cause my tears to flow.

And the fact that Evergreen had possession of technology developed at MIT, and hundreds of millions from U.S. investors and lenders and subsidies and tax breaks, and now China will reap the benefits; yeah, I could get cranky about that if I thought about it.

So I won't think about it!

Student loans have overtaken credit card debt.

'Atsa one spicy meatball of debt!

And a big one.

The trillion dollar student loan bubble has experienced increasing default rates in the years available to review. If you look at 2005, the default rate on student loans was 4.6; if you look at latest year available for review, 2008, you see a default rate of 7%.

Does anybody want to bet that 2009 and 2010 will show horrifically higher default rates?

The Government has taken steps to limit the profits being made by private schools that have a high default rate; it will be interesting to see if it applies the same standards to public schools, which are working the same side of the street.

Now, I have a theory, and it goes like this: you can fool some of the people all of the time, and all of the people some of the time. But you can't fool all of the people all of the time.

Until recently, it looked like going back to school had little opportunity cost associated with it, because there were no jobs to take in any case.

But now, that proposition doesn't look quite so sweet.

Kids coming out of school are increasingly angry that they were sold a bill of goods, and rightly so; I note that law students are suing law schools for providing them with inaccurate data on hiring statistics and income statistics of graduates.

Once kids have a realistic understanding of the way the story ends (being garnished forever from your minimum wage job, and the standard for discharging student loans in bankruptcy out of reach), they may be less interested in the siren song of the expensive four-year university and the useless degree in Interdisciplinary Studies.

And while some commentators believe that a catastrophic (for universities) fall-off in student applications will happen in thirty years, I think information circulates a lot faster today than it did in the good old days (formerly known as "these trying times").

And I expect that we'll see universities closing right, left and sideways, because this is a depression, and kids aren't stupid.

It's entirely possible that SAAB will be the subject of an involuntary bankruptcy.

And if that happens, do you think creditors will get paid more, faster, or less, slower?

My intuition is that creditors who use a threat of involuntary bankruptcy play a dangerous game.

Here in the United States, it's a threat that is seldom-used, because it's...dumb. If a debtor is forced into such an involuntary bankruptcy, the least that happens is that the mind-set of the debtor changes.

Take SAAB, for instance.

Right now SAAB wants to pay its creditors.

That's not easy when it doesn't have all the parts it needs to build cars, of course.

But once it becomes the subject of a reorganization, it may change its plans, because now it has the tools to work with, and the worst that could happen did happen!

And if SAAB believes that it will be the subject of an involuntary bankruptcy in a venue it doesn't like, do you think it'll look around for a debtor-friendly venue and a DIP financing package?

And do you think that irritating creditor will get paid last and least, if SAAB can manage it?

Just a thought.

Here in Arizona, we live according to the Rule of the 9th Circuit; and I just read a nice article that discusses a 9th Circuit Case which analyzes whether a disclaimer of an inheritance is a fraudulent transfer.

The article was written By John T. Brooks, partner, and Samantha E. Weissbluth, senior counsel and Aubrey Refuerzo, summer associate, Foley & Lardner LLP, Chicago.

I think they did a great job!

And here's the text of the case they discussed in their article:

2009 U.S. App. LEXIS 2260,*;555 F.3d 790;
Bankr. L. Rep. (CCH) P81,413;61 Collier Bankr. Cas. 2d (MB) 52

In re: JOHN M. COSTAS and RACHELLE M. COSTAS, Debtors. MAUREEN GAUGHAN, CHAPTER 7 TRUSTEE, Appellant, v. THE EDWARD DITTLOF REVOCABLE TRUST, and RACHELLE M. COSTAS, Appellees.

No. 06-16520

UNITED STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

555 F.3d 790; 2009 U.S. App. LEXIS 2260; Bankr. L. Rep. (CCH) P81,413; 61 Collier Bankr. Cas. 2d (MB) 52

May 15, 2008, Argued and Submitted, San Francisco, California

February 6, 2009, Filed

PRIOR HISTORY: [*1]

Appeal from the Ninth Circuit Bankruptcy Appellate Panel. BAP No. AZ-05-1440. Montali, Smith, and Ahart, Bankruptcy Judges, Presiding.
Gaughan v. Edward Dittlof Revocable Trust (In re Costas), 346 B.R. 198, 2006 Bankr. LEXIS 1514 (B.A.P. 9th Cir., 2006)

COUNSEL: Paul Sala, Allen & Sala, P.L.C., Phoenix, Arizona, for the appellant.

Mark A. Bregman, Bregman & Burt, Scottsdale, Arizona, for the appellees.

JUDGES: Before: Andrew J. Kleinfeld, N. Randy Smith, Circuit Judges, and Richard Mills, District Judge. * Opinion by Judge Mills.
*

The Honorable Richard Mills, United States District Judge for the Central District of Illinois, sitting by designation.

OPINION BY: Richard Mills

OPINION

MILLS, District Judge:

The Bankruptcy Code's federal fraudulent conveyance provision allows a trustee to avoid "any transfer . . . of an interest of the debtor in property" within a two year reach back period where the transfer was actually or constructively fraudulent. 11 U.S.C. § 548(a)(1). The question in this case is whether an Arizona disclaimer qualifies as a "transfer . . . of an interest of the debtor in property." Because we answer this question in the negative, the Bankruptcy Appellate Panel's refusal to avoid the disclaimer under § 548 is affirmed.

I. FACTS

On October 18, 2001, Edward P. Dittlof ("Dittlof") created the Edward Dittlof Revocable Trust ("Trust") [*2] under Arizona law. The Trust provided that upon Dittlof's death, the Trust property would be distributed to several of Dittlof's children, including Rachelle Costas ("Costas"). Should a beneficiary die prior to distribution, the beneficiary's children would take the share.

Dittlof died on February 25, 2002, leaving Costas an interest worth at least $ 34,800. Costas, however, refused to accept it and, on November 7, 2002, executed a disclaimer under Arizona law to relinquish her claims to the Trust property.

Shortly thereafter, on December 3, 2002, Costas filed a voluntary petition for relief under Chapter 7 of the Bankruptcy Code ("the Code"). Maureen Gaughan, the Chapter 7 trustee ("Trustee"), sought to avoid Costas' disclaimer of the Trust property under 11 U.S.C. § 548. Although a previous BAP panel decision had rejected application of § 548 to similar state law disclaimers, Wood v. Bright (In re Bright), 241 B.R. 664 (9th Cir. BAP 1999), the Trustee argued that the ruling had been undermined by the Supreme Court's decision in Drye v. United States, 528 U.S. 49, 120 S. Ct. 474, 145 L. Ed. 2d 466 (1999). The Bankruptcy court, however, found Drye distinguishable. The Trustee appealed and, in a thorough opinion, the BAP [*3] also distinguished Drye and adhered to its prior decision in Bright. Gaughan v. Edward Dittlof Revocable Trust (In re Costas), 346 B.R. 198 (9th Cir. 2006). The Trustee now appeals from this decision.

II. STANDARD OF REVIEW

"On appeal this court reviews decisions of the BAP de novo, and thus reviews the bankruptcy court's decision under the same standards used by the BAP." Sigma Micro Corp. v. Healthcentral.com (In re Healthcentral.com), 504 F.3d 775, 783 (9th Cir. 2007) (citation and internal quotations omitted). Therefore, factual findings are reviewed for clear error and legal conclusions de novo. Id.

III. ANALYSIS

The federal fraudulent conveyance provision of the Code provides that "[t]he trustee may avoid any transfer . . . of an interest of the debtor in property . . . that was made . . . within two years before the date of the filing of the petition . . ." where the transfer involved actual or constructive fraud. 11 U.S.C. § 548(a)(1). n1 The parties dispute whether a disclaimer executed under Arizona law qualifies as a "transfer . . . of an interest of the debtor in property."

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The Code also contains a provision allowing the trustee to "borrow" a state's fraudulent conveyance provision. 11 U.S.C. § 544(b). [*4] Most courts, however, have held that state fraudulent transfer rules do not reach disclaimers that relate back. See, e.g., Essen v. Gilmore, 259 Neb. 55, 607 N.W.2d 829 (2000) ("[I]t is the majority view that a renunciation under the applicable state probate code is not treated as a fraudulent transfer of assets under the [Uniform Fraudulent Transfers Act], and creditors of the person making a renunciation cannot claim any rights to the renounced property in the absence of an express statutory provision to the contrary."); Sara L. Johnson, Annotation, Creditor's right to prevent debtor's renunciation of benefit under will or debtor's election to take under will, 39 A.L.R.4th 633 (1985); see also In re Popkin & Stern, 223 F.3d 764, 768-69 (8th Cir. 2000) (analyzing Missouri law under § 544(b) and concluding that a disclaimer could not be avoided as a fraudulent transfer).
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A. "Property" and Arizona Disclaimer Law

We begin with the two relevant and disputed terms from § 548: "transfer" and "property" (or, more broadly, "an interest . . . in property"). The Code defines "transfer" expansively, reaching "each mode, direct or indirect, absolute or conditional, voluntary or involuntary of disposing [*5] of or parting with -- (i) property; or (ii) an interest in property." 11 U.S.C. § 101(54). Whether a particular action constitutes a "transfer" is a matter of federal law. Walker v. First Security Bank of Idaho, N.A. (In re Walker), 77 F.3d 322, 323 (9th Cir. 1996) (quoting Barnhill v. Johnson, 503 U.S. 393, 397, 112 S. Ct. 1386, 118 L. Ed. 2d 39 (1992)). However, as the definition makes clear, a "transfer" cannot occur without "property" or "an interest in property." See § 101(54). Thus, the key issue in the case is elucidating the meaning of "an interest . . . in property." See Frierdich v. Mottaz, 294 F.3d 864, 867 (7th Cir. 2002) ("Although the definition of transfer is obviously federal, its references to 'property' and 'interests in property' require an analysis of whether a property interest was created under state law.")

The Code does not define "property" or "an interest . . . in property." Rather, "Congress has generally left the determination of property rights in the assets of a bankrupt's estate to state law," Butner v. United States, 440 U.S. 48, 54, 99 S. Ct. 914, 59 L. Ed. 2d 136 (1979), meaning that "[i]n the absence of any controlling federal law, 'property' and 'interests in property' are creatures of state law." Barnhill, 503 U.S. at 398 [*6] (citations omitted). Therefore, to understand the definition and scope of "property," we turn to Arizona law.

Like other states, Arizona allows beneficiaries to renounce their interests in trusts through use of a disclaimer. See Az. Rev. Stat. § 14-2801 (2004) (repealed). n2 A "disclaimer" n3 has been defined as "the refusal to accept an interest in or power over property." Uniform Disclaimer of Property Interests Act § 2(3) (1999). At all relevant times, Arizona law required disclaimers to be filed with the court and a representative or fiduciary of the decedent "not later than nine months" after the effective date of the instrument. Az. Rev. Stat. § 14-2801(B), (C) (testamentary and non-testamentary, respectively). The disclaimer itself also had to "describe the property or interest disclaimed, declare the disclaimer and its extent and be signed by the disclaimant." § 14-2801(F). Where the beneficiary had previously made "[a]n assignment, conveyance, encumbrance, pledge or transfer of the property or interest or a contract" or accepted certain benefits or interests in the property, the right to disclaim was barred. § 14-2801(J), (M). The Trustee concedes the validity of Costas' disclaimer [*7] under Arizona law. Costas, 346 B.R. at 200.

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Effective 2005, Arizona repealed § 14-2801 in favor of a statute based on the Uniform Disclaimer of Property Interest Act (1999) (now incorporated into the Uniform Probate Code as Section 11). Although the Uniform Act dropped the phrase "relation back", it did not discard its application. See Uniform Probate Code § 2-1106, cmt. ("This Act continues the effect of the relation back doctrine, not by using the specific words, but by directly stating what the relation back doctrine has been interpreted to mean.").3

Statutes also frequently refer to a "disclaimer" as a "renunciation." See, e.g., Mapes v. United States, 15 F.3d 138, 140 (9th Cir. 1994), abrogated by Drye v. United States, 528 U.S. 49, 120 S. Ct. 474, 145 L. Ed. 2d 466 (1999) (construing "renunciation" under a prior version of § 14-2801).
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A properly executed disclaimer carries a significant advantage for an insolvent debtor: it shields the disclaimed interest from the disclaimant's creditors. Arizona achieved this protection through § 14-2801(G), which provides that "[a] disclaimer relates back for all purposes to the date of death of the decedent." This relation-back rule, a common feature in many states, is a legal [*8] fiction that retroactively eliminates any property interest that a disclaimant previously held in the disclaimed property. As the Supreme Court has explained, "an effective disclaimer . . . relate[s] back to the moment of the original transfer of the interest being disclaimed, having the effect of canceling the transfer to the disclaimant ab initio and substituting a single transfer from the original donor to the beneficiary of the disclaimer." United States v. Irvine, 511 U.S. 224, 239, 114 S. Ct. 1473, 128 L. Ed. 2d 168 (1994). "An important consequence of treating a disclaimer as an ab initio defeasance is that the disclaimant's creditors are barred from reaching the disclaimed property." Id. at 239-240.

In short, Arizona's relation-back rule says that a disclaimant neither transfers nor possesses an interest in disclaimed property and thus creditors cannot reach the disclaimed interest.

B. State Law Deference

To summarize, section 548 only applies to interests in "property," as defined by state law, and Arizona law says that Costas had no property interest in the disclaimed property. The remaining question, and the problematic one, is how to translate this state law rule back into the bankruptcy context.

Ordinarily, [*9] bankruptcy courts look to Butner to answer this question. There, the Supreme Court addressed a circuit split over the ownership of rents. Butner, 440 U.S. at 51-54. Some circuits followed state law in determining who received post-petition rents, whereas other circuits fashioned a federal rule of equity to allow mortgagees to receive the rents. Id. Ultimately, the Court rejected the federal equity rule, explaining that "Congress has generally left the determination of property rights in the assets of a bankrupt's estate to state law." Id. at 54. Thus, "[u]nless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding." Id. at 55.

Applying the principle of Butner to similar disclaimers, several appellate courts have found § 548 inapplicable. Simpson v. Penner (In re Simpson), 36 F.3d 450 (5th Cir. 1994) (Texas law); Jones v. Atchison (In re Atchison), 925 F.2d 209 (7th Cir. 1991) (Illinois law); Hoecker v. United Bank of Boulder, 476 F.2d 838 (10th Cir. 1973) (concluding that Colorado disclaimer rules preclude use of the fraudulent conveyance provision [*10] contained in § 67(d)(2) of the Bankruptcy Act); see also In re Bright, 241 B.R. 664 (9th Cir. BAP 1999) (Washington law). For example, the Seventh Circuit took a broad view of Butner, explaining that "[a]ll applicable state law must be construed to determine whether a debtor possesses a property interest," including the relation back rule. Atchison, 925 F.2d at 212. The contrary view, the court found, "fail[ed] to give full application to the relation back doctrine under applicable state laws." Id. at 211. Based on this deferential approach to state law, the Atchison court concluded that a disclaimer was not a "transfer of an interest in property" subject to avoidance under § 548(a). Id. at 212.

Though most courts have found that Butner principles preclude avoidance of disclaimers under § 548, this line of authority has been thrown into doubt by Drye v. United States, 528 U.S. 49, 120 S. Ct. 474, 145 L. Ed. 2d 466 (1999). n4 In Drye, a tax debtor inherited his mother's estate after the IRS had obtained a tax lien on all his "property and rights to property." Id. at 52-53. Relying on Arkansas' relation-back disclaimer rule, Drye disclaimed his inheritance and argued that he had no property to which the IRS lien could attach. [*11] Id. at 53. The Supreme Court, however, rejected Drye's theory and held that the tax lien attached to disclaimed property despite state law relation-back rules. Id. at 52. After discussing the breadth of federal tax lien law, the Court described its analysis: "We look initially to state law to determine what rights the taxpayer has in the property the Government seeks to reach, then to federal law to determine whether the taxpayer's state-delineated rights qualify as 'property' or 'rights to property' within the compass of the federal tax lien legislation." Id. at 58. Although Drye asserted that he had nothing but the right to reject a gift, the Supreme Court disagreed, reasoning that a rejected gift returns to the donor, whereas a disclaimer channels the property to another person. Id. Finding this power to channel a sufficient state law interest to constitute "property" under the federal tax lien provisions, the Court held that the lien attached despite Drye's refusal to take the property. Id. at 61.

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We are the first circuit court to address Drye's impact on § 548 avoidance. Lower courts have split on the issue, compare In re Faulk, 281 B.R. 15 (Bankr. W.D. Okla. 2002); In re Nistler, 259 B.R. 723 (Bankr. D. Or. 2001); [*12] In re Kolb, 267 B.R. 861, 866-67 (N.D. Cal. 2001), rev'd on other grounds, 326 F.3d 1030 (9th Cir. 2003) with In re Schmidt, 362 B.R. 318, 322-23 (W.D. Tex. 2007) (suggesting that Simpson may be invalid after Drye); In re Kloubec, 247 B.R. 246 (Bankr. N.D. Iowa 2000), aff'd on other grounds, 268 B.R. 173 (N.D. Iowa 2001), as have commentators, compare David B. Young, The Intersection of Bankruptcy and Probate, 49 S. Tex. L. Rev. 351, 384-88 (2007) (concluding that "[t]ax decisions do not alter the rule that a prepetition disclaimer that is unassailable under state law should not become avoidable once a bankruptcy petition has been filed"); Kevin A. White, A Clash of Expectations: Debtors' Disclaimers of Property in Advance of Bankruptcy, 60 Wash. & Lee L. Rev. 1049, 1085 (2003) (concluding that Drye does not extend to the bankruptcy context), with Jon Finelli, Comment, In re Costas: The Misapplication of Section 548(a) to Disclaimer Law, 14 Am. Bankr. Inst. L. Rev. 567, (2006) (criticizing the BAP's decision in this case); David A. Lander, Does the Supreme Court Decision in Drye Mean that a Disclaimer of Inheritance Is a Fraudulent Conveyance, Norton Bankr. L. Adviser, No. 12 (Dec. 2002) [*13] (suggesting that, after Drye, courts should reassess the majority rule because "state law disclaimers are not the types of state law property rights to which the bankruptcy courts must defer in applying or not applying § 548).
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The Trustee urges us to extend Drye to the bankruptcy context and recognize the "right to channel" as an "interest . . . in property" for purposes of the Code. The Trustee's argument is that Drye recognizes a "right to channel" interest that constitutes "property" not just for tax lien cases, but as a matter of federal law. Further, the Trustee suggests that Drye accords with bankruptcy policy by increasing the size of the debtor's estate. In contrast, Costas requests that we adhere to the more deferential approach of Butner and treat the disclaimer as Arizona would.

The Trustee's argument has some force: if the "right to channel" has been recognized as a "property" interest for one federal statute, why not for the other? Nevertheless, we believe that Drye is distinguishable, both factually and legally, and that its adoption in the bankruptcy context would, in any event, be inappropriate.

First, Drye is distinguishable based on timing issues. Although Drye, like [*14] this case, involved a collision between federal law and state relation back doctrines, the impact between the two occurred at a different time. In Drye, the tax lien was already in place prior to the execution of the disclaimer. Id. at 52-53. Thus, before the taxpayer attempted to execute his disclaimer, the federal government already had an interest in the subject property. Application of the state law fiction would have stripped the government of this interest. Id.

In contrast, the disclaimer here occurred pre-petition, meaning that the retroactive divestment of property interests occurred prior to the bankruptcy estate gaining any interests in the right to disclaim. Therefore, the state law did not operate to defeat any pre-existing interests. Rather, the situation in Drye is more analogous to a post-petition disclaimer, where a debtor invokes the disclaimer protections of state law only after the creation of the bankruptcy estate. In cases of post-petition disclaimers, courts have generally included disclaimed property in the estate, reasoning that the right to disclaim itself belongs to the estate as of the time of filing. See 11 U.S.C. § 541(a)(5)(A); In re Scott, 385 B.R. 709 (Bankr. D. Neb. 2008). [*15] This context mirrors Drye because in both situations full deference to the state's disclaimer rules would strip parties of pre-existing interests. Thus, Drye accords well with the post-petition situation, but not with pre-petition disclaimers where no prior interests exist.

Second, Drye is distinguishable based on its legal context. Indisputably, Drye is, first and foremost, a tax lien case. The Court's language repeatedly stressed this limitation, see Drye, 528 U.S. at 52 ("This case concerns the respective provinces of state and federal law in determining what is property for purposes of federal tax lien legislation."); id. ("the disclaimer did not defeat the federal tax liens) (internal quotations omitted); (explaining the issue as "whether [Drye's] interest in his mother's estate constituted 'property' or 'rights to property' under § 6321"), and the cases cited were tax cases, id. at 59 (collecting tax cases to demonstrate that neither state exemption nor disclaimer rules interfere with tax collection). Indeed, the Court itself even distinguished the case from the closely analogous gift tax regime. Id. at 57 ("The absence of any recognition of disclaimers in §§ 6321, 6322, 6331(a), and [*16] 6334(a) and (c), the relevant tax collection provisions, contrasts with § 2518(a) of the Code, which renders qualifying state-law disclaimers 'with respect to any interest in property' effective for federal wealth-transfer tax purposes and those purposes only."); see also id. at 57 n.3.

Admittedly, similarities exist between the tax lien statute and the Code, as both broadly rely on state law to define "property." Nevertheless, tax lien rules do not translate directly into bankruptcy rules. See, e.g., Musolino v. Sinnreich (In re Sinnreich), 391 F.3d 1295, 1297-99 (11th Cir. 2004) (refusing to apply United States v. Craft, 535 U.S. 274, 122 S. Ct. 1414, 152 L. Ed. 2d 437 (2002), an extension of Drye, in the bankruptcy context). In the tax lien context, collection is the primary focus. United States v. Kimbell Foods, Inc., 440 U.S. 715, 734, 99 S. Ct. 1448, 59 L. Ed. 2d 711 (1979). This vital function often "justifies the extraordinary priority accorded federal tax liens . . . ." Id. Indeed, the Supreme Court has repeatedly construed tax lien provisions to permit the government to reach property beyond the grasp of other creditors. See, e.g., Craft, 535 U.S. at 276 (finding that federal tax lien attached to interest in entireties property under Michigan [*17] law); United States v. Security Trust & Sav. Bank of San Diego, 340 U.S. 47, 51, 71 S. Ct. 111, 95 L. Ed. 53, 1950-2 C.B. 151 (1950) ("[W]e hold that tax liens of the United States are superior to the inchoate attachment lien of [a state law creditor] . . . ." ).

This purpose contrasts sharply with the policy of bankruptcy law, which largely respects substantive state law rights, n5 neither granting a creditor new rights in the debtor's property nor taking any away. Raleigh v. Ill. Dep't of Rev., 530 U.S. 15, 20, 120 S. Ct. 1951, 147 L. Ed. 2d 13 (2000) ("Creditors' entitlements in bankruptcy arise in the first instance from the underlying substantive law creating the debtor's obligation, subject to any qualifying or contrary provisions of the Bankruptcy Code. The 'basic federal rule' in bankruptcy is that state law governs the substance of claims . . . .") (internal citations omitted). Indeed, the Court in Butner expressly invoked this goal of achieving "[u]niform treatment of property interests by both state and federal courts within a State . . . ." Butner, 440 U.S. at 55. By replicating state law rights, the Court hoped to (1) reduce uncertainty, (2) discourage forum shopping, and (3) "prevent a party from receiving 'a windfall merely by reason of the happenstance [*18] of bankruptcy.'" Id. (quoting Lewis v. Mfrs. Nat. Bank, 364 U.S. 603, 81 S. Ct. 347, 5 L. Ed. 2d 323 (1961)). Extending the rule in Drye to the bankruptcy context, however, would undermine all of these goals. Uncertainty would increase because disclaimers, though generally valid, would lose effect in bankruptcy. Second, forum shopping would increase because creditors of disclaimants would have an incentive to push for bankruptcy in order to gain an interest in otherwise protected property. Finally, many creditors, including those in this case, would receive a windfall: although the disclaimed property was absolutely protected under state law, they would receive a share of the property solely because Costas filed for bankruptcy within two years of her disclaimer. Thus, based on the concerns set out in Butner, little justification exists for permitting creditors to reach property that, but for the fortuity of a bankruptcy filing, would remain beyond their grasp.

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For a thorough exploration of the implications of this policy on bankruptcy law, see Thomas H. Jackson, The Logic and Limits of Bankruptcy Law (1986).
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Further, the inappropriateness of extending Drye is reinforced by comparing the Code's treatment of exemptions [*19] to the treatment under the federal tax lien statute. In Drye, the Court stressed the breadth of "property" under § 6331 of the Internal Revenue Code by noting that the tax lien statute recognized only a narrow range of exemptions, none of which mentioned disclaimers. Drye, 528 U.S. at 56-57. On this ground, the Court distinguished the gift tax statute, which explicitly incorporates an exception for disclaimers. Id. n6 While the Code lacks an express exemption for disclaimers like § 2518(a), its exemptions are nonetheless quite broad, allowing a debtor to take advantage of all available state law exemptions. 11 U.S.C. § 522; see also Owen v. Owen, 500 U.S. 305, 308, 111 S. Ct. 1833, 114 L. Ed. 2d 350 (1991). Again, this highlights the key difference between "property" for purposes of tax collection and for bankruptcy: the former largely trumps state law, the other tries to incorporate it.

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The estate tax employs the same exception for qualified disclaimers. See 26 U.S.C. § 2046.
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For these reasons, we find that Drye is distinguishable and we refuse to extend its logic to the bankruptcy context. Instead, we apply the principles of Butner and hold that a disclaimer, properly executed under Arizona law, is not a "transfer . [*20] . . of an interest of the debtor in property" for purposes of § 548.

C. The Existence of a "Federal Interest"

Having determined that Butner controls, we briefly consider the Trustee's arguments that the federal interest exception identified in Butner applies to override the normal rule of state law deference. n7 Butner, 440 U.S. at 55 (explaining that state law controls "[u]nless some federal interest requires a different result"). The Trustee identifies two such "federal interests." First, she proposes an interest in bankruptcy estate augmentation. However, as discussed in greater depth above, recognizing such a generic interest in expanding the debtor's property would, at least in this case, interfere with Butner's three goals of avoiding uncertainty, forum shopping, and windfall recoveries. As such, this interest is insufficient.

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Although Butner, rather than Drye, provides the proper rule for application in the first instance, it should be noted that Drye may still hold relevance in the bankruptcy context. As the Court explained in Butner, deference to a state's definition of "property" may be disregarded when a contrary federal interest exists. Where such an interest is identified, [*21] Butner drops out of the equation; therefore, the logic of Drye would likely control.

This also highlights the conceptual differences between Drye and Butner. In the bankruptcy context, a federal interest will not always exist; in contrast, tax collection is an omnipresent federal interest in the tax lien context.
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Second, the Trustee points out that § 548 is a federal rule of avoidance and, as such, constitutes an interest sufficient to override the normal state definitions of "property." While we agree that Congress certainly could have trumped state law with a specific federal law provision, the use of the general term "property" in § 548 belies any intent to do so. Congress premised § 548's application on the existence of "property" or "an interest . . . in property." Nothing suggests that these terms merit a special gloss simply because they appear in a federal avoidance provision. As such, we decline to depart from the normal interpretive rules of Butner.

IV. CONCLUSION

Applying Butner's deferential approach to state law, rather than the rule of Drye, we hold that a disclaimer, properly executed under Arizona law, does not qualify as the "transfer . . . of an interest of the debtor [*22] in property" for purposes of § 548. Therefore, the Bankruptcy Appellate Panel is affirmed.

Visit msnbc.com for breaking news, world news, and news about the economy

I'm unhappy about the state of the student loan industry.

In general, student loans are foisted on trusting students to the tune of an average of about $29,000 a year, and students are encouraged by the "financial aid counselor" to continue borrowing to get a four or six or nine year degree (at higher numbers) when they will never be able to get a job with that degree.

Like, say, French Grammar.

My champion student loan debtors (I'm a bankruptcy attorney) are in the range of $350,000 in debt from student loans, and those are very, very hard to scrape off in a Chapter 7 Bankruptcy in Arizona, in the Ninth Circuit. The judicially-established standard is just too darn high.

But right now a hot topic on the internet and television (must be sweeps week, right?) is the topic of Sugar Daddies, Sugar Babies, and each of them seeking arrangements to provide sex and companionship and money. In no particular order. To each other.

Since long before "Gentlemen Prefer Blondes", the idea of women looking for money in all the usual places has been a part of every culture; but often it carried a wedding ring as part of the package. Girls were, in the old days, told by their mothers not to give it away, because "why buy the cow if the milk is free?"

Apparently, the old days are now gone forever, and it is now easy for both Sugar Daddies and Sugar Babies to find one another, although I'm unsure whether such arrangements will confer lasting happiness on anybody.

There are multiple articles on the internet about the phenomenon of Sugar Babies and sex for tuition, and this much makes sense to me: somebody who has set up the various websites to help old, rich guys find stunning young, poor women is going to make a heck of a lot of money.

Now, the articles I've read about the websites and the phenomenon itself are examples of multiple personality disorders, no matter who's writing them.

On the one hand, the writers don't want to seem judgmental, and on the other hand, the obvious dangers inherent in trading sex for money, no matter what cute phrases are used for the exchange, have caused even the most exploitative articles to agonize about the risks to the young ladies of selling sex, even on a retail basis.

I have not seen any sites agonizing over the obvious risks to the old geezers who are paying to play, but they're old enough to know better, so too bad for them.

Myself, I'd like it better if student loans were dischargeable in Chapter 7 Bankruptcy Cases routinely in Arizona.

Because encouraging young women into prostitution, while it may sound lovely on the surface, seems like a very bad idea to me; no matter whether you call it prostitution, or any other cute phrase whatsoever.

If you take a look at this analysis of the student loan industry, you'll see something very scary.

Everything.

For instance, the increase in prices in tuition far outstripped the housing industry price increases, pre-bubbleburst.

And there are no jobs that don't involve the phrase, "Would you like fries with that, sir?" waiting for graduates.

The combination of huge price increases for a four-year degree, and no jobs for graduates, leads to the following question: can you fool all the people all the time?

Granted, fooling a poor little college student is a little like shooting fish in a barrel.

But that doesn't make it right.

The Main Street Network appears to agree with the above analysis.

From my perspective as a bankruptcy attorney in Arizona, the only analysis that interests me is whether I can help a kid who can't get a job discharge the $350,000 student loan in a Chapter 7 Bankruptcy.

And given the unrealistically high standard of "undue hardship" in the 9th Circuit, that answer is usually "no".

I've been asked by some Chapter 7 Bankruptcy clients why it's so hard to negotiate with Bank of America.

My guesses in the past have been that it's a little like a brontosaurus; it's so big that if you stomp on it's tail, it notices fifteen minutes later.

But it appears that Bank of America may have bigger problems than your credit card debt, which is why it may have problems directing brain cells to your credit card negotiations.

And that, in turn, is why your offers to Bank of America could be turned down, even if they are profoundly realistic. The Bank just can't pay enough quality attention to figure out that you're offering it a very good deal!

Hence, "bankruptcy clients"!

But wait; there may be other issues affecting Bank of America, as well.

In a well written post called "Bank of America death-watch", Yves Smith suggests that Bank of America is having the same sort of sleepless nights that its borrowers are having.

For the same reason.

Fear of the consequences of insolvency.

Now, I have no way of telling whether Bank of America is insolvent. But apparently, the market is speaking to that issue, and it's being rather loud. And rude. And unpleasant.

I love an innovative solution to economic problems!

After all, if China is actually manufacturing products, then the Chinese will have money!

And then the Chinese can spend that money here in the United States!

But I don't think these innovators go far enough.

We have a lot of opportunities here in the United States to bring over Chinese Tourists.

We can build pole-dancing bars to attract Chinese businessmen!

There's a real opportunity here!

Oh, yeah. Why do we have a shortage of jobs in the United States?

Well, I discuss that issue here.

And then there's excessive government regulation here in the United States, but that's an issue for another day.

The New York Times should not be mocked for stating the obvious.

But I'm a little cranky about the economy, so I'll mock it anyway.

Note that I'm NOT mocking Catherine Rampell, the writer who lucidly explained the leaky rowboat that is the U.S. Economy, because she is ever so smart, and writes ever so well.

I'm just griping about the failure of folks who are running the show to fix things.

Now, other countries have had problems with their economies, and they have fixed those economies.

Canada, for instance, had a problem with excessive government spending, and it took a chain saw to its spending.

The consequence was simple: Canada's Economy became stronger when there were more resources in its private sector, and fewer in its public (government) sector.

There is a fairly easy test for collective wisdom about the economy.

That is the price of gold.

When the U.S. Economy is great, people put their money in stocks, or bonds (if they're risk-averse sissies).

When the U.S. Economy is in the white, swirling waters located next to to the "flush" lever, people stuff their money in gold, and its price goes up.

The price of gold is now gigantic at $1,739 or so, per ounce, and the value of the U.S. Dollar is clearly now approximately zilch.

This is a bad thing for a housewife buying groceries, for instance. Or a househusband. Or a college student. Or a Vampire buying True Blood.

Now, I'm not smart enough to come up with an idea to fix the economy, but I know what won't work very well: following the example of Greece, Italy and Spain, and borrowing until our arms fall off.

The new "austerity measures" in Greece are causing riots in the streets, and the Greeks are now paying the tab for their politicians' debt addition.

As to our politicians debt addiction, I'm starting to find some folks talking about taking a chain-saw to government spending.

And I may start to think they're right, if I ever think about it.

For instance, I have no good idea who Ron Paul and John Stossel are, but when I looked around for plans to fix the overwhelming debt in which the United States is drowning, I ran into those two talking about debt.

And they made some sort of sense to me. Note that insanity is doing the same thing over and over, and expecting a different result.

So here's something different that will get us a better result, if Canada is any gauge.

So here is one approach to the gigantic debt that caused the United States to lose its credit rating, and a fast way to make it go away. It's a little tongue in cheek, but the more serious guys out there appear to be afraid to say this stuff!

Do you speak Mandarin?

Me, neither.

But I was discouraged when I saw that a Chinese Rating Agency (I don't know which one; remember, I don't speak Mandarin!) had downgraded the U.S., in the same way as S&P.

I also watched the video posted above, and even though I don't speak Mandarin, it did not make me feel good.

I'm proud to be a U.S. Citizen, and I don't like it when China is a lender to the U.S. in the first place!

I like it even less when Chinese Videos make fun of the United States!

I hope that Washington can get its act together.

I don't want the United States to go down the same road that Greece has traveled, and wind up with "austerity measures" crammed down its throat by our International Bankers!

On the home front, two more banks just failed.

In an ordinary year, that would have been front-page news.

Now, in a year of bankruptcy and insolvency and debt, it's just business as usual.

There are Chapter 11 Cases all over the country right now, and my guess is that there will soon be many more Chapter 9 Cases like the Municipal Bankruptcy in Central Falls.

But I like cases that save jobs, and I really like cases that save jobs in Arizona.

Remember that businesses generate jobs; all Government can do is take money from somebody and give it to somebody else, and that doesn't generate wealth. Worse, eventually any government runs out of other people's money, and then it collapses (see, for instance, the Soviet Union!) or has to conquer another country and squeeze it dry (see, for instance, Rome! The conquest of Gaul by Julius was motivated by gold mines, after all).

But Danny's was a business empire with many businesses that employed many people in Arizona.

And now Danny Hendon has thrown himself on the bankruptcy grenade, he says, to preserve those jobs for those people.

And who could criticize that?

The State of Arizona, suing Danny for $150,000,000 or so, might take a different view, but I sure hope Danny gets to keep 1,000 people employed; because when a business dies, consumer bankruptcy cases follow.

I get the feeling that Central Falls deserves a medal.

While it took it long years of dithering to get there, it finally filed a Chapter 9 Municipal
Bankruptcy Case to deal with its overwhelming debt: fewer than 20,000 inhabitants, and more than $80,000,000 in liabilities.

And the lesson here should be pretty clear if you are owed money by a city: a Bankruptcy Judge can cut your debt in half, eliminate your contracts, and make vast amounts of your wealth vanish with the stroke of a pen.

In the FIRST HEARING in a case.

Also note; one guy's wealth (a receivable) is another guy's debt. And that wealth can vanish instantly in a bankruptcy of any flavor, whether it's a Chapter 7, Chapter 13, Chapter 11, Chapter 12, or Chapter 9.

There is a tendency to think that things are better somewhere else, perhaps in the Land of Oz.

It certainly isn't any better in Italy.

Italian debt is running at 120% the GDP, and that's far too much for any country, of course.

If it were an individual, I'd say a bankruptcy was a pretty fair prospect.

But Italy is going to keep doing what it's doing; there will be no resignations, and there will be no major changes, because that would make it harder for Italy to keep borrowing.

I'll be interested in seeing exactly what happens when the Eurozone becomes the Insolvency Zone; and it appears to be approaching that right now.

I am entertained about the idea that Italy may become the next European Country to require economic "assistance". My guess is that the Greeks will rue that assistance for the rest of their lives.

And the only assistance that Italy needs right now is some self-control, so it stops spending more than it makes!

The grass is greener in Ireland, of course, because it always is! But its economy is far from the days of the "Celtic Tiger".

Note: when Europe and the EU falls apart, and the Euro is worth only the paper it's written on, wealth will flow to U.S. Markets and it will look as though things are rosy here in the U.S.

This is an interesting video concerning the economic troubles of cities and states; if you have too much month left at the end of your money, bankruptcy will at least cross your mind.

And, apparently, it also crosses the minds of folks who are running cities and other municipal entities.

You'll hear these commentators talking about the fact that bankruptcy for cities and municipalities is "bad", because of the effect that it will have on bondholders.

On the other hand, it seems to me that at the point that the bondholders aren't getting paid, Chapter 9 Bankruptcy Cases will get filed, like the one in Central Falls that was filed yesterday!

It appears that a poster child for Municipal Bankruptcy Cases under Chapter 9 is in play.

"From the ashes of bankruptcy Central Falls will rise again," said the state-appointed receiver for Central Falls, Rhode Island, who caused the bankruptcy filing to occur, as a "last resort".

The little city has only about 19,000 inhabitants, but has unfunded pension liabilities of $80,000,000, and runs a deficit of about $5,000,000 per year.

If it were a business, and I say this as a bankruptcy lawyer with thirty years of experience, I would have suggested that it file a Chapter 7 Liquidation Bankruptcy, because as businesses go, it's a hobby.

After all, if you lived in Central Falls, and you needed to pay your chunk of $80,000,000 unfunded liability in that city, what would you do?

Me?

I'd move.

Fast and far!

p.s. we both know that this isn't the last Chapter for Chapter 9 Municipal Bankruptcy Filings in the United States. The Big Three aren't automakers anymore. They're the municipalities that are so underwater with debt that a bankruptcy looks like the only option, not the best option. And those are Jefferson County, Detroit, and Harrisburg, Pa.

But we have to give plucky little Central Falls an Honorable Mention in the "Spending Other People's Money Like a Drunken Sailor" Competition. With only 19,000 inhabitants, and five million a year negative cash-flow, and EIGHTY MILLION IN UNFUNDED LIABILITIES, brave little Central Falls worked hard to be a contender!

And now maybe it will reinvent itself through bankruptcy so that it learns to live on its income.

That's a pretty good lesson to learn.

p.s. what kinda wacky-tabaccy could possibly cause politicians to spend enough so that each and every citizen of a tiny city of 19,000 people was looking down the barrel of unfunded liabilities of $80,000,000?

Does it seem to you that those politicians were buying votes with other people's money?

Or maybe not; you never know, after all. Maybe they were just generous.

With other people's money.