Small-Business Bankruptcy Trustees Are Being Left with Unpaid Bills​​​

A relatively new bankruptcy law, frequently used by mom-and-pop businesses during the pandemic, has largely been considered a success — but not always for some of the lawyers supervising these job-saving cases, WSJ Pro Bankruptcy reported. Los Angeles bankruptcy lawyer Susan Seflin has served as a trustee in more than 40 reorganization cases filed under subchapter V, otherwise known as the Small Business Reorganization Act, since it took effect in 2020. Seflin said at a recent virtual public hearing of ABI's Subchapter V Task Force that, in roughly a quarter of those bankruptcies, “I haven’t gotten paid, and I don’t think I will get paid.” Bankruptcy has long been viewed as too expensive a process to be worth it for many small businesses. Subchapter V, which was enacted in 2019 as an amendment to the chapter 11 system, has provided advantages for smaller companies when they want to restructure their finances and get a fresh start. They aren’t required, for example, to foot the legal fees for an official creditors’ committee, which has a big say at the negotiating table in larger cases. More than 6,000 cases have been filed under subchapter V through July, according to the Justice Department, and bankruptcy judges acknowledge that subchapter V trustees have a legitimate beef. “I wouldn’t be telling the truth if I said there isn’t a problem,” Bankruptcy Judge Andrew Altenburg in Camden, N.J., said at another ABI Subchapter V Task Force hearing earlier this month. Although most subchapter V trustees are paid, he said, New Jersey courts are considering some type of compensation structure that improves their chances. Judge Craig Goldblatt in Wilmington, Del., among the nation’s busiest chapter 11 venues, also has expressed concerns about trustees getting paid for their work in subchapter V cases. Some courts have rules requiring the bankrupt business to make regular payments to the subchapter V trustee. Another alternative suggested is that the company’s lawyer set aside some cash for the trustee. Read more.

Average Payments for New Home Loans Rose 46% in 2022, CFPB Finds​​​

The average monthly payment for new mortgages increased 46% in 2022 as interest rate hikes squeezed U.S. home borrowers, according to the Consumer Financial Protection Bureau (CFPB), Bloomberg News reported. Payments on conventional 30-year fixed-rate mortgages increased to $2,045 in December 2022 from $1,400 a year earlier, the CFPB said Wednesday in a report. The consumer watchdog annually collects and analyzes data under the Home Mortgage Disclosure Act (HMDA). The trends are expected to persist this year, “given further increases in interest rates in 2023,” CFPB Director Rohit Chopra said in an accompanying statement. Home purchases and mortgage origination volumes have dropped precipitously in pace with the Federal Reserve’s moves. “The higher-interest-rate environment had profound effects on the mortgage market in 2022, with borrowers paying much more in monthly payments,” Chopra said in the statement. Last week, U.S. mortgage rates jumped to the highest level since 2000, with the contract on a 30-year fixed mortgage rising 10 basis points to 7.41%. Mortgage rates are unlikely to improve in the near future. Fed Chair Jerome Powell stressed last week that the central bank will keep borrowing costs elevated — and could increase them further — if inflation fails to recede back toward its 2% target. Read more.

Virtual Option Available for Tomorrow's ABI's Views from the Bench Program!

Practitioners will not want to miss ABI’s Bankruptcy 2023: Views from the Bench program, taking place tomorrow in the Washington, D.C., offices of Jones Day. The program, featuring both in-person and virtual attendance options, features the views of 20 sitting and retired bankruptcy judges. This year’s program will examine key issues surrounding bankruptcy confirmation, § 363 sales, Supreme Court cases, ethics and much more. The keynote luncheon speaker for the program is Kevyn D. Orr, the partner-in-charge of Jones Day’s U.S. offices. Orr served as the Emergency Manager of the City of Detroit during the city's chapter 9 case, the largest municipal bankruptcy case in U.S. history, and was charged with restructuring the city's finances and operations. Views from the Bench will also feature ABI’s popular Great Debates session, during which judges and experts will square off on issues related to bankruptcy examiners. Attendees have the chance to earn up to 6/7.2 hours of CLE/CPE credit and 1 hour of ethics. Register for the virtual option today!
 

Analysis: Why Now Is a Challenging Time to Refinance Student Loans​​​

With the Federal Reserve pushing interest rates to a multi-decade high and new government programs offering the promise of low payments and possible debt forgiveness, personal-finance experts say that refinancing student loans would benefit only a handful of borrowers, the Wall Street Journal reported. “It doesn’t make any sense to refi that because your costs are going to go up, not down,” said Jack Wallace, director of governmental and lender relations at Yrefy, a private student loan company, speaking about those with undergraduate loans, the majority of student borrowers. Starting in October, tens of millions of student loan borrowers will need to make payments for the first time since the Education Department instituted a pause in March 2020. Because federal student loan payments and interest accruals were paused, few borrowers took advantage of the low rates earlier in the pandemic to refinance their loans, as many mortgage-holders did. Sofi, a refinancing lender, said its volumes fell 90% when interest rates were set at zero. Now that the pause is ending, the window to refinance at low rates has closed. (Subscription required.) Read more.

Report: 60 Percent of U.S. Consumers Across All Income Levels Living Paycheck to Paycheck​​​

About 60 percent of U.S. consumers reported that they are living paycheck to paycheck, according to new research. A new report from Pymnts and LendingClub found that 59.8 percent of U.S. consumers across all income levels reported living paycheck to paycheck in August, a slight downtick from the 61.4 percent who reported the same thing in July, The Hill reported. Those living paycheck to paycheck include 45 percent of high-income consumers — those earning more than $100,000 per year. Sixty-two percent of those making between $50,000 to $100,000 each year reported living paycheck to paycheck this month, and about 76 percent of those making less than $50,000 annually reported the same thing. These numbers are unchanged from August 2022, the report noted. The report also said that nearly 20 percent of consumers who live paycheck to paycheck report issues with paying bills, while nearly 41 percent who live paycheck to paycheck do not have issues paying bills. Read more.

Gen Z Is Poised to Spend More on Debt than Others. It Could Derail Their Retirement​​​

Personal finance experts say that members of Generation Z are struggling to keep up their credit scores because of a combination of higher borrowing costs, slowing wage growth, student loans and other debts, the New York Times reported. The upshot is an economic climate in which young adults are — and will be — paying an increasing amount of their disposable income servicing their debts, more than Americans in other age groups do. It’s a reality that experts worry could derail their intentions to build wealth, buy homes and save money for retirement. Evidence suggests that more young adults are struggling financially today than in the immediate aftermath of the pandemic. Diana Rascon, a senior certified consumer credit counselor at Money Management International, a nonprofit credit counseling organization, said that more young adults, as well as parents reaching out on their children’s behalf, had sought help from her organization to manage growing amounts of debt. Read more.

Analysis: Ending the LTCM Crisis Took Just One Bailout. We Should Be So Lucky Next Time​​​

Twenty-five years ago, the impending collapse of Long-Term Capital Management (LTCM) was so worrying to Wall Street that 14 of the biggest firms collectively coughed up billions of their own cash to rescue it. At the time, the gathering of leading investment bankers at the behest of the Federal Reserve felt like an extraordinary intervention, according to a Wall Street Journal analysis. But looking back a quarter-century, and in light of all that followed, the resolution of the LTCM crisis now seems quaint: All it took was rescuing one firm. What pried open the wallets of Goldman Sachs, J.P. Morgan, Merrill Lynch, UBS and others was fear about the broader fallout its collapse could bring. There was the direct exposure, as LTCM had borrowed from Wall Street to leverage its bets, as well as the indirect risk of what might happen to the broader market in a fire sale. With the enormous growth of the size of banks since then, and reforms to how markets operate in the wake of subsequent crises, the collapse of one hedge fund may on its own be far less likely to cause such a singular crisis. Yet hedge funds collectively still have the power to unnerve the markets and regulators — and that is a much tougher problem to tackle. One remarkable thing about LTCM was its scale relative to Wall Street, according to the analysis. At the end of 1997, LTCM had $129 billion in assets, including what it used leverage to purchase, according to the U.S. Treasury at the time. Investment bank J.P. Morgan back then had roughly $260 billion in total assets. Today, diversified banking giant JPMorgan Chase has almost $3.9 trillion in total assets. (Subscription required.) Read more.

Private Equity’s Slow Carnage Unleashes a Wave of Zombies​​​

Across the $12 trillion industry, hundreds of private-equity firms are lumbering on years after their funds’ intended twilight with no new fundraising in sight — a cohort that investors and regulators have dubbed “zombies,” Bloomberg News reported. Now, a historic shakeup of the industry is threatening to impose the same fate on more fading money managers whose past funds are inching toward limbo. After years of ramping up allocations that helped launch numerous private-equity firms, many pensions have maxed out how much they can devote to the illiquid asset class. Instead, they’re steering cash to investments that are more attractive as interest rates climb. The result: Buyout firms that failed to build fresh war chests during the recent boom years of low interest rates are now finding it difficult to arrange fresh funds. The industry is on track to raise 28% less than last year, according to Bain & Co. At the same time, aging funds are finding it harder to sell out of their remaining holdings as rising borrowing costs sideline potential buyers. Across the nation, public pension funds are stuck with a slew of private-equity holdings that, for a variety of reasons, keep plodding on year after year. Read more.

Where in the World Is Ian Williams? On ABI's Latest "Party in Interest" Podcast!​​​

Ian Williams of Williams Consulting International (London), the program chair of ABI's International Insolvency & Restructuring Symposium, recently joined ABI Executive Director Amy Quackenboss on a “Party in Interest” podcast that was taped live and followed by an ABI Virtual Happy Hour. Williams discusses his growth in ABI from overseas, some of his favorite conference memories, and what he is excited about for this year's International Insolvency & Restructuring Symposium, being held in Lisbon, Portugal, Nov. 2-3. Click here to listen!

For more information and to register for the International Insolvency & Restructuring Symposium, please click here.

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