An economic analysis of nontraditional lending in Chapter 12 bankruptcy cases

PurposeNontraditional lenders are important credit providers for farmers. However, previous research has found that farmers who use nontraditional lenders are riskier lending opportunities. Using a unique dataset of Chapter 12 bankruptcy cases, the authors analyze the share of payment that is made or allowed by the courts on debt owed to traditional and nontraditional lenders.Design/methodology/approachThe authors use a Tobit model to calculate parameter estimates and marginal effects of the impact of creditor type (traditional/nontraditional) and debt classification (secured, priority and unsecured) on the proportion of a bankruptcy claim that lenders receive or are expected to receive when a case is discharged.FindingsThe authors find that traditional lenders with secured debt receive a greater repayment than nontraditional lenders. Meanwhile, there are more than twice the number of nontraditional lenders that are owed debt in these bankruptcy claims. While this raises concern for nontraditional lenders, that is mitigated some by the level of debt that is on average about one-sixth the size of the average debt of traditional lenders. Finally, the authors show there are numerous opportunities for future research in this area using case level bankruptcy data.Originality/valueThis paper fills a research gap by focusing on the state of nontraditional lenders in Chapter 12 bankruptcy cases and their treatment in discharged cases.

Bankrupt Innovative Firms

We study how innovative firms manage their innovation portfolios after filing for Chapter 11 reorganization using three decades of data. We find that they sell off core (i.e., technologically critical and valuable), rather than peripheral, patents in bankruptcy. The selling pattern is driven almost entirely by firms with greater use of secured debt, and the mechanism is secured creditors exercising their control rights on collateralized patents. Creditor-driven patent sales in bankruptcy have implications for technology diffusion—the sold patents diffuse more slowly under new ownership and are more likely to be purchased by patent trolls. This paper was accepted by Gustavo Manso, finance.

The Effect of Household Debt and Wealth on Subsequent Housing Tenure Choice

The purchase of a home is the largest investment made by most American families, and home equity is the largest component of family wealth. Scholars have long documented the social and economic merits of homeownership and explored the factors that influence access to it. However, despite the abundance of literature on homeownership and housing tenure choice, we lack a study that focuses on whether and how debt and wealth influence a household’s decision to own or rent a home. Using 2004 and 2008 panel data from the Survey of Income and Program Participation (SIPP), this study attempts to identify the causal effect of household debt and wealth on a household’s decision to change tenure choice by examining what factors influence transition from homeowner to renter or from renter to homeowner. Data analysis shows that household secured debt, household wealth, and household income play a significant role in household’s change in tenure choice. While race is not a significant factor influencing the likelihood of a homeowner transitioning to a renter, it was a significant factor for a renter transitioning to a homeowner. Minority renters are significantly less likely to become homeowners compared with white renters, even when controlling for wealth and debt.

Regspraak: Novasie en delegasie van skuld – hoe raak dit die versekering van die tersake skuld?

Personal rights may be transferred by means of cession, and, in such an instance, the cedent (creditor) does not need the debtor’s permission, but once the debtor has been informed, the debt is redeemed only if he performs against the cessionary. If however, someone owes a debt, he (the debtor) can free himself of the obligation only if he redeems the debt, if he is released, or through the running of prescription. But sometimes it might be necessary that a restructuring of someone’s debts takes place or the debtor may want to be replaced with someone else who is willing to take over his obligation. This can be done only with the cooperation and agreement of the creditor. In such a case the debtor delegates his obligation to another person, who then becomes the new debtor of a new debt – the creditor relinquishes his right against the old debtor and accepts the new debtor and the new debt. The old debt no longer exists. It is also possible to rearrange the debt and create a new obligation which extinguishes the old debt – a novation takes place. This contribution starts with a discussion of these general principles and particularly the role that they (should) play when one is dealing with a secured debt which the debtor wants to delegate or when novation comes into play. This leads into a discussion of Wilke NO v Griekwaland Wes Korporatief Ltd (1327/2019) 2020 ZASCA 182 (23 Dec 2020) and the judgments in the earlier courts in which the supreme court of appeal and the other courts did not consider the implications of delegation and novation on an underlying debt when that debt was secured. Delegation and novation extinguish the underlying debt and any security right fortifying that debt is thereby also extinguished because of the principle of accessority. If the creditor requires the new debt to be secured, a new security right needs to be established by meeting all the requirements for the establishment of such security whether it is a right of suretyship or a real security right. A creditor must carefully consider agreeing to a delegation or novation of a secured debt since the implication is that he loses his secured and preferential position, and, even with the creation of a new security right, he loses the ranking he initially held in the line of secured creditors when a right of mortgage, for example, is at stake – qui prior est tempore potior est iure (D 20 4 11pr).