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Supreme Court Invalidates Puerto Rico's Debt Restructuring Act

If you want to feel better about your own money troubles, take solace in the woes of Puerto Rico. The Caribbean island, which is an unincorporated US territory, is struggling with its debt and enacted legislation that would allow it to restructure debt similar to entities that do have bankruptcy protection, like states.

But the US Supreme Court just ruled that Puerto Rico cannot be a debtor under bankruptcy law, so local legislation passed to restructure the territory's debt is invalid, pre-empted by the federal bankruptcy code. Technically, this a case about preemption, whose laws rule, federal or state. But Puerto Rico is not a state, so the case really highlights the complicated relationship it has with the US and its law. Let's consider the decision.

Homeowners can no longer void their second mortgage in Chapter 7 bankruptcy.

In a win for banks, the Supreme Court ruled in Bank of America, N.A. v, Caulkett, by a unanimous decision, that struggling homeowners cannot cancel their second mortgage in bankruptcy even when the value of their home is less than their first mortgage.

Here is what you need to know:

Anna Nicole Smith Ruling Cuts Bankruptcy Court Authority, $89M Award

The Supreme Court's bankruptcy court-based decision in Stern v. Marshall has made headlines partially because of the case's major players: Anna Nicole Smith, the now-deceased Playboy Playmate and E. Pierce Marshall, son of the billionaire tycoon she was married to.

But the Supreme Court 5-4 decision also narrows the authority of U.S. bankruptcy courts - state-law based decisions will not be allowed by bankruptcy court judges.

Smith married her late husband, J. Howard Marshall, when she was 26 and he was 89. He died not too long after their nuptials. Smith was then embroiled in a legal battle with E. Pierce Marshall, her late husband's son, for part of the $1.6 billion estate that Howard left behind.

Supreme Court Rules for Debtor in Student Loan Discharge Case

In a narrow decision by the United States Supreme Court on Tuesday, the Court sided against a student-loan company, saying that the company could not collect interest on an erroneous student loan discharge by the Bankruptcy Court.

The student, Francisco Espinosa, had filed bankruptcy several years earlier. At that time, the Bankruptcy Court discharged the $5,000 in interest remaining on the loan, allowing Espinosa to pay back the $13,000 in loan principal. 

During the bankruptcy process, the student loan company, United Student Aid Funds, was given a chance to object to student loan discharge and had been alerted to Espinosa's bankruptcy petition. United, however, came after Espinosa for the interest, claiming that the notice of the bankruptcy petition was not adequate process for the student loan discharge. 

End of the Road for One More Enron Class Action

On Wednesday, U.S. District Court Judge Melinda Harmon ended one more suit which ignited as a result of that atom bomb known to all as Enron. Plaintiffs in the Enron class action suit, Newby, et al v. Enron Corp, et al, were persuing recovery from the banks involved with Enron including among others, B of A's Merrill Lynch unit, Barclays, and Credit Suisse. Defendants in this case also included usual suspects Jeff Skilling, Richard Causey and Mark Koeing. The claims against all parties were dismissed.