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Abstract:
The securitization of mortgage loans and other receivables benefits society and rests on a strong legal foundation. Securitization lowers the financing costs for borrowers and originators of loans by avoiding the costs imposed by the Bankruptcy Code on the secured creditors of operating companies. This article demonstrates how securitization avoids these costs by combining two long recognized legal devices, (1) a true sale of receivables to a buyer (2) that is a separate legal entity whose sole purpose is to finance the receivables. This structure separates the risks associated with the receivables, which creditors can more easily assess, from the murkier risks associated with an operating company.

securitization, bankruptcy, insolvency, efficiency, receivables, secured credit

Abstract:
This article responds to a recent critique that the securitization of receivables is a legally shaky financial product that survives only because it is too big to fail. This critique argues that securitization's success in avoiding the costs that the Bankruptcy Code imposes on secured credit, including a bankruptcy trustee's ability to use the cash collateral from the receivables, is a type of fraud that hinders or delays the creditors of the originators of receivables. The critique, however, fails. The cases cited for the author's fraud analysis do not support its thesis. Further, the critique fails to demonstrate that securitization's avoidance of the "Bankruptcy Tax" on secured credit harms the creditors of an originator. The critique also does not refute the strong doctrinal foundation of securitization that combines the form and substance of two long recognized legal devices-(1) a true sale of property to a buyer (2) that is a separate legal entity.

securitization, secured credit, bankruptcy, fraudulent transfer, substantive consolidation

Abstract:
The purpose of this article is to show how the Bankruptcy Code authorizes the creation of the bankruptcy trust as a legal person. The filing of a petition under the Bankruptcy Code creates an "estate" consisting of enumerated property interests. The Code also provides for the appointment of a trustee-a separate bankruptcy trustee or, in chapter 11 or chapter 12 cases, the debtor in possession-with broad powers to act as the representative of the estate. The Code does not, however, expressly define the status of the estate as a legal entity. Although the Code occasionally speaks of the estate as though it were a legal person, it explicitly defines the estate as a corpus of property interests. Nevertheless, many courts and scholars have characterized the estate as a separate entity or legal person. Other courts and one scholar, however, have rejected the characterization of the estate as a separate entity or legal person.

The conflict about the status of the estate is unnecessary. The treatment by courts and scholars of the bankruptcy estate as a separate entity reflects what is implicit in the Code: The Code provides for the creation of a separate entity-the "bankruptcy trust"-upon the entry of an order for relief. This entity has the essential attributes of an artificial legal person, such as a corporation or a partnership. More particularly, the bankruptcy trust has all of the attributes-and more-of a business trust. American law recognizes the business trust as a legal person. Accordingly, the bankruptcy trust should be recognized as a legal person. Understanding that the bankruptcy trust is a legal person answers important questions. Specifically, the bankruptcy trust is a sufficient federal entity to provide a constitutional basis, as explained by Professor Ralph Brubaker, for giving federal courts jurisdiction over bankruptcy to the same extent that federal courts may constitutionally have jurisdiction over cases involving national banks. This understanding will also bring greater coherence to resolving many other bankruptcy questions. It will focus the court's attention on the most relevant issues and prevent courts from misconstruing the Code. It will also help clarify the confusion of many courts about the status of the debtor in possession as the same entity as the debtor or as a different entity. The debtor in possession is the same person as the debtor, but it serves as, and fully qualifies as, a trustee of the bankruptcy trust.