Argentina is Not Dancing With the Stars, and Other Tales of Insolvency

By Leon Bayer

Quick story: One fine day in the early 1980′s I was in the Los Angeles courtroom of the Hon. Barry Russell, U.S. Bankruptcy Judge. (Judge Russell is the most senior bankruptcy judge in the U.S. still actively serving.) It was Chapter 13 confirmation day. Elsie Davis, the legendary Chapter 13 trustee in Los Angeles, was asking the Court to dismiss a certain case and do something to stop the debtor from filing any more cases. This debtor was on his 8th Chapter 13 filing. The debtor was present, and the Judge asked him why he had filed so many cases. The man said he filed all of them to save his house. Judge Russell pointed out that if the man had a sincere desire to save his home, maybe he should hire a lawyer. Taking into consideration all the money spent on each filing fee, the man could have already paid for a lawyer to represent him. The debtor replied that he had paid a lawyer to file his first case, which didn’t go so well. He said, “After my first case got dismissed, I decided it was a lot cheaper for me to keep paying filing fees than to keep paying lawyer’s fees.”

The case was dismissed with a bar. But the man did, sort of, have a point.

A Rogues Gallery of Multiple Bankruptcies

Whoever compiles the Rogues Gallery of serial insolvents would be neglectful if that list does not include a certain number of nation states. Nation states do not file “bankruptcy” per se. Rather, they commit what is nicely called, “sovereign default.” But no serious discussion about sovereign default is complete without a discussion of the Argentine Tango.

Mention the tango, and most people think of an exciting, seductive Latin dance. But to me, as a bankruptcy lawyer, I see events through a financial prism. I look at the tango as a struggle between debtors and creditors. One dancer tries to lead (the creditor). The other dancer (the debtor) keeps trying to escape the lead’s grip by using seductive kicks and twirls, only to return again to the clutches of the lead dancer.

To the dismay of international bankers, the Argentines have perfected their national dance at more than one level. That’s because Argentina has defaulted on her debts, again. According to The Economist, this marks the eighth time Argentina has tried to dance her way out of debt.

This latest episode occurred a few days ago. It bears some resemblance to Elsie Davis’s objection over “repeat filing” to that other “ancient” procedure, confirmation. To be precise Argentina is in default on her previous default. This “default in a default” relates back to “claims trading” that took place prior to the last Argentine default in 2001. Some clever claims traders cheaply bought up Argentine debt during the previous default in 2001. Rather than accept a 65% haircut on the 2001 default that was voluntarily accepted by 93% of the debt holders, a few holdout creditors with 7% of the debt never accepted the plan.

Argentina and the 93% accepting creditors danced on, ignoring the claims of the holdouts. All the while the holdouts have been in court trying to get a court order to stop the music. The holdouts just won in U.S. Court. The court enjoined payment of money that was already in the hands of the U.S. bank that administers debt payments for creditors that previously accepted the earlier settlement. Hence, the freezing of Argentina’s payout was the trigger of the most recent default in a default.

debtecuadorThe default of sovereign debts happens all the time. And not just to Argentina. The image to the left (and the others below) are from the Bayer, Wishman & Leotta collection of antique insolvency documents. (Our collection is kind of a carnival freak show of insolvency.)

This certificate entitles the holder to receive payments of principal and interest against Ecuador arising from a sovereign default and a settlement agreement made in 1892.

In the International World Cup of Sovereign Default, Ecuador beat Argentina by a score of 10 times to Argentina’s 8 times. The certificate at left was possibly wiped out by a subsequent default in 1894. I say “possibly” because if any of this debt survived, it surely was wiped out by the next Ecuadorian default in 1900.

indebtnessLocal governments and their agencies are not sovereign states, but they too fall into debt and default. The Chapter 9 cases of Detroit, Michigan, San Bernardino, California, etc. are the structural descendants of an earlier statute. The first valid municipal bankruptcy statute in the U.S. was enacted in 1937 and became Chapter X of the Bankruptcy Act. To the left is a Certificate of Indebtedness. During the Great Depression, cash strapped cities in the State of Ohio could issue these certificates as evidence of small loans received from local citizens. This particular certificate is “blank” and was never issued.


leon bayerLeon Bayer has been practicing bankruptcy law in Los Angeles, California since 1979. His primary focus is on representing individuals and small businesses. He is a founding partner in the law firm of Bayer, Wishman & Leotta and is a Certified Specialist in Bankruptcy Law. You can visit his professional websites at and Mr. Bayer authors the “Ask Leon” series on Nolo’s Bankruptcy, Debt & Foreclosure blog, and writes on bankruptcy topics for Nolo’s website. In addition, Mr. Bayer devotes a significant number of hours to volunteer legal services. The State Bar of California has commended Mr. Bayer for this work every year since 2004. Mr. Bayer’s professional affiliations and leadership roles are many, and include: President of the Los Angeles Bankruptcy Forum (1995-1996), member of the State Bar of California’s Law Advisory Commission on Personal & Small Business Bankruptcy Law (1996-2000), and exam grader and question writer for the State Bar Legal Specialization test on Bankruptcy. Mr. Bayer is a frequent lecturer on bankruptcy law. He has spoken at the former Bridging the Gap program for new lawyers, lectured on bankruptcy case law developments at a number of the State Bar of California Annual Meetings, and has presented bankruptcy law material at many other educational programs. Mr. Bayer’s frequent television appearances include interviews on KCAL9 News and EXTRA (where he weighs in on various celebrity bankruptcies). He has also served as a bankruptcy expert on many different radio shows and news stations, and is a frequent guest on KALW-FM public radio’s Your Legal Rights. Mr. Bayer is currently co authoring a revised edition of Stephen R. Elias’s The New Bankruptcy for Nolo. Other publications include The Essentials of Chapter 13, Daily Journal Report, December 18, 1987, Basic Bankruptcy, California Practice Handbook, Matthew Bender 1992, 1993 (contributing editor), and Personal and Small Business Practice in California, CEB Bankruptcy Practice Guide, 2003 (reviewer and contributing author).

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