Analysis: Discharging Student Debt in Bankruptcy Is Supposed to Be Easier than Before​​​

Unlike credit card, medical and other consumer debts, student loans don’t automatically disappear in bankruptcy. Debtors need to take an extra legal step — both challenging and costly — known as an adversary proceeding. But more people in bankruptcy are beginning to use a legal process introduced in November by the Biden administration that is supposed to make the ordeal easier, fairer and more transparent by establishing clearer legal standards and allowing debtors to present their case on a simplified form, the New York Times reported. “This is a game-changer,” said Latife Neu, a bankruptcy and student loan lawyer in Seattle who has successfully used the new pathway on behalf of clients. “This is a tool that has been missing from my toolbox for the entirety of my career. The new process is less risky and less expensive. We can project whether the borrower has a good chance of success before the case is ever filed.” The longstanding position of prior administrations has been to fight nearly every case in which a borrower was seeking to discharge their debt. The Department of Justice hasn’t entirely backed down, but in coordination with the Education Department, it has provided guidelines to its army of government lawyers on which circumstances would permit a discharge to debtors, who can now detail their financial situation on a 15-page attestation form. Malissa Giles, a consumer bankruptcy lawyer in Roanoke, Va., has filed six attestation forms so far, winning three full discharges and expecting more. She called the turnaround “huge.” But experiences with the application have been somewhat mixed. Some consumer lawyers report that the guidelines are being implemented unevenly, making them feel as if the fate of their cases depends on the government lawyers they are assigned. Others have said they understand that the early days will be bumpy, because all parties are clumsily figuring out how the process works. Read more.

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Colleges Spend Like There’s No Tomorrow: ‘These Places Are Just Devouring Money’​​​

The nation’s best-known public universities have been on an unfettered spending spree. Over the past two decades, they erected new skylines comprising academic buildings and dorms. They poured money into big-time sports programs and hired layers of administrators. Then they passed the bill along to students, the Wall Street Journal reported. The University of Kentucky upgraded its campus to the tune of $805,000 a day for more than a decade. Its freshmen, who come from one of America’s poorest states, paid an average $18,693 to attend in 2021-22. Pennsylvania State University spent so much money that it now has a budget crisis — even though it’s among the most expensive public universities in the U.S. The University of Oklahoma has hit students with some of the biggest tuition increases, while spending millions on projects including acquiring and renovating a 32,000-square-foot Italian monastery for its study-abroad program. The spending is inextricably tied to the nation’s $1.6 trillion federal student debt crisis. Colleges have paid for their sprees in part by raising tuition prices, leaving many students with few options but to take on more debt. (Subscription required.) ​Read more.
 

How to Catch Pandemic Fraud? Prosecutors Try Novel Methods​​​

Federal prosecutors are scrambling to recoup billions of dollars in pandemic aid from people who falsely obtained funds from government programs that were intended to keep the economy afloat during the COVID-19 shutdowns, the New York Times reported. In some districts, prosecutors are screening those suspected of a violent crime for potential involvement in pandemic fraud schemes. Other investigators are putting together “strike force teams” to unravel the most sophisticated enterprises or leaning on local officials to steer them toward potential fraudsters in their areas. The moves come as the federal government looks for novel ways to root out what officials say were an enormous number of fraudulent claims that were submitted and approved during the pandemic. Many of the programs that were set up to dole out relief money required minimal proof from those seeking funds and approved applications quickly in order to pump money into the economy. While the exact amount that was stolen is unknown, the Small Business Administration’s inspector general estimated that more than $200 billion — or at least 17 percent of the roughly $1.2 trillion in pandemic loans the agency doled out — was disbursed to “potentially fraudulent actors.” Nearly $30 billion has been seized or returned to the agency, according to the office. ​Read more.
 

Many Hospitals Posted Record Margins During Pandemic, Study Finds​​​

COVID-19 relief funds helped almost 75% of U.S. hospitals post positive operating income during the height of the pandemic, according to an analysis that questions whether the federal aid was too generous or misdirected, Axios.com reported. Hospital operating margins — the difference between operating revenues and expenses — hit an all-time high during the first two years (2020 and 2021) of the pandemic, per the analysis in JAMA Health Forum. Of the more than 4,223 hospitals analyzed, average operating margins increased from 2.8% before the pandemic to 6.5% from 2020 to 2021. ​Read more.
 

Commentary: Punishing Banks for Regulatory Failure*​​​

Silicon Valley Bank failed owing to rising interest rates and lapses by regulators, not a shortage of capital. Yet regulators are using the spring banking panic to justify cumbersome new capital rules that could make the financial system more vulnerable, according to an editorial in today's Wall Street Journal. The Federal Reserve, the Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency recently proposed a 1,087-page rule that would raise capital requirements on average by 16% for midsize and large banks. Strong capital levels help protect taxpayers, and we favor them when they are clear and simple. But as Fed Chair Jerome Powell noted in a statement, the potential costs of boosting capital requirements at the current moment could exceed the benefits. Some 30 banks with more than $100 billion in assets would be covered by the proposed standards, which effectively nullify Congress’s 2018 bipartisan banking reform that liberated midsize banks from too-big-to-fail rules. That’s the clear political intent of the rule. Flagstar Bank would have to comply with the same capital requirements under the rule as JPMorgan, even though it’s 1/25th the size. Banks would have to hold more capital to account for their “operational” risks such as regulatory penalties, lawsuits and cyber-attacks. The capital charge would be based on a proxy for a bank’s size and past losses from operational problems. Regulators could thus dun banks twice — first with a fine, then by requiring them to hold more capital for future penalties, according to the commentary. (Subscription required.). ​Read more.

*The views expressed in this commentary are from the author/publication cited, are meant for informative purposes only, and are not an official position of ABI.

Survey: Costs from Supply-Chain Disruptions Drop by Over 50%, but Headwinds Remain​​​

Financial losses due to supply-chain disruptions dropped more than 50% on average in 2022 compared with a year earlier, but shortages and delivery delays remain challenges, according to a survey of companies being released today, Reuters reported. Disruptions led to an average $82 million in annual losses per company last year in key industries like aerospace, compared with $182 million in 2021 and $184 million in 2020, supply-chain risk-management company Interos told Reuters ahead of publication. The 2023 report data refers to disruptions from a year earlier, as the survey was conducted in spring 2023 but asked about the preceding 12 months. In this latest report, Interos surveyed 750 companies with annual revenues of between $500 million and $50 billion from energy, financial services, oil and gas, health care, government and aerospace. ​Read more.

Growing Number of Buildings in NYC Worth Less than Debt Owed​​​

New data shows that a growing number of commercial buildings in New York City have more debt on the buildings than they are currently worth, NY1.com reported. It's part of the changes to the commercial real estate market caused by the COVID-19 pandemic altering the way many New Yorkers work. Eventually, property owners will be left asking an important question: Is it worth holding on to their buildings? Real estate analysts told NY1 it is something they are watching, with a lot of commercial real estate loans sunsetting by next year and needing to be refinanced. The problem now is that more than one in five office spaces are sitting empty in New York City, according to a New York University and Columbia University study. So many buildings are bringing in less revenue, while at the same time their commercial loans are due to be refinanced during a time when interest rates are significantly higher. Higher costs and declining revenue will bring some property owners to the point where they may just give up the building and hand the keys back to the lender. "As a rule, properties with loans coming due and significant vacancies are likely candidates," said Jeffrey Gural, chairman of GFP Real Estate. ​Read more.

Nominations Being Accepted for ABI’s International Matter of the Year Award​​​

ABI’s International Committee is accepting nominations for its Second Annual ABI International Matter of the Year Award. For criteria, eligibility and other information on the award, please click here.

Public Notice for Reappointment of Bankruptcy Judge Mildred Cabán​​​

The current term of office of Hon. Mildred Cabán, U.S. Bankruptcy Judge for the District of Puerto Rico, is due to expire on March 16, 2024. The U.S. Court of Appeals for the First Circuit is considering reappointment of Judge Cabán to a new term of office and has determined that she appears to merit reappointment subject to public notice and opportunity for public comment. Members of the bar and the public are invited to submit comments for consideration by the court of appeals regarding the reappointment of Bankruptcy Judge Cabán to a new term of office. All comments will be kept confidential and may be submitted via U.S. Mail to Susan J. Goldberg, Circuit Executive, John Joseph Moakley United States Courthouse, 1 Courthouse Way, Suite 3700, Boston, Massachusetts 02210, or in the form of a PDF letter attached to an email to Susan_Goldberg@ca1.uscourts.gov. The circuit executive will then submit the comments to the court of appeals for its decision. Comments must be received no later than Friday, September 8, 2023. 

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