Biden Administration to Make It Easier to Dismiss Student Loans in Bankruptcy​​​

The Biden administration today released new guidelines that will make it easier for economically distressed student loan borrowers to discharge their student debt in bankruptcy proceedings, the Wall Street Journal reported. The long-awaited guidelines from the Justice Department and Education Department set specific requirements for borrowers to prove that they are experiencing economic distress, rather than requiring an arduous legal process where the federal government often delves into borrowers’ financial history to show they haven’t properly demonstrated their economic hardship. Now, the government will calculate whether a debtor’s expenses equal or exceed a debtor’s income, and if they do, the Justice Department will declare that the borrower is unable to pay their debts. The Justice Department will also assess whether a borrower’s present inability to pay will likely persist in the future, taking into account factors like retirement age, disability, long-term unemployment or if the borrower didn’t finish their degree. “Today’s guidance outlines a better, fairer, more transparent process for student loan borrowers in bankruptcy,” said Associate Attorney General Vanita Gupta. The changes come as the Biden administration’s mass student debt-cancellation plan has been blocked by two federal courts. That program, which would cancel up to $20,000 for borrowers who make under $125,000 or $250,000 for a married couple, relies on a different definition of economic hardship — namely, that the negative economic effects of the pandemic allow the administration to forgive debt on a broad scale. A federal judge in Texas has rejected that authority, and the Justice Department has appealed the ruling. Read more.

CEO Overseeing FTX Restructuring Calls It an ‘Unprecedented’ Mess​​​

FTX suffered a “complete failure of corporate controls” that culminated in an “unprecedented” debacle, its new chief executive said, the Wall Street Journal reported. In a filing to federal bankruptcy court, John J. Ray, who has helped oversee some of the biggest bankruptcies ever, including Enron’s, said he’s never seen anything as bad in 40 years of restructuring firms. The filing paints a vivid picture of the chaos that characterized the cryptocurrency company’s finances, accounting and leadership under founder and former CEO Sam Bankman-Fried. It is Mr. Ray’s first detailed description of the state of FTX and related trading firm, Alameda Research, since taking over last Friday. Mr. Ray wrote that the company can’t trust prior financial information produced by Mr. Bankman-Fried. “Never in my career have I seen such a complete failure of corporate controls and such a complete absence of trustworthy financial information as occurred here,” Mr. Ray said in the filing. “From compromised systems integrity and faulty regulatory oversight abroad, to the concentration of control in the hands of a very small group of inexperienced, unsophisticated and potentially compromised individuals, this situation is unprecedented.” The filing was the most explosive development in the FTX bankruptcy case today. In other news, Singapore’s investment company Temasek Holdings said it would write down its full $275 million investment in FTX in light of the crypto exchange’s financial position. Temasek invested $210 million in FTX and $65 million in FTX US across two funding rounds from October 2021 to January this year. “It is apparent from this investment that perhaps our belief in the actions, judgment and leadership of Sam Bankman-Fried, formed from our interactions with him and views expressed in our discussions with others, would appear to have been misplaced,” Temasek said today. Mr. Bankman-Fried today also attempted to walk back on Twitter comments he made that called into question his sincerity about regulators and his view that the company shouldn’t have filed for bankruptcy protection.​​​​​​ Read more.

CPEX22: Register for Online Access for the Next 30 Days​​​

The last day of ABI’s virtual Consumer Practice Extravaganza, the premier consumer debt event of the year,  is tomorrow, but you can still register to have access to ALL session recordings for the next month! Leading practitioners explore the latest in consumer practice, including student loans, post-Covid mortgage issues and more during more than 30 hours of innovative online programming. Five broad session tracks —  Student Loans, Technology and the Future, Subchapter V of Chapter 11, Well-Being and Nontraditional Practice — ensure that there is something for everyone. CPEX22 also features a range of special “demo” sessions that showcase technology and money-saving tools especially designed for consumer practitioners, as well as plenaries focused on issues relevant to the entire consumer bench and bar. The best part? It only costs $100 for all access, including tomorrow’s sessions! Register for only $100! 

Analysis: Why the Crypto Collapse Matters​​​

How could a $32 billion company vaporize overnight? That’s what anyone watching the sudden collapse of FTX, a hot cryptocurrency start-up that plunged into bankruptcy last week, might be puzzling over, according to a New York Times analysis. It will take time — and multiple federal investigations — to fully understand what happened behind the scenes at FTX, a Bahamas-based crypto exchange, but the impact is already becoming clear: Lawmakers are calling for more oversight. Crypto die-hards are trying to distance themselves. Critics of this sector of finance are crowing. And for those of you who had, until now, managed to ignore the rise and rise and rise of crypto as a phenomenon? First of all, good for you. And second, you may want to watch this one play out. But first, here is the simplest explanation of what happened that I can manage: FTX let people and companies buy and sell digital currencies, holding billions of dollars’ worth of customer deposits. FTX’s founder, Sam Bankman-Fried, also created an investment fund that trades cryptocurrencies called Alameda Research. The businesses were supposed to be separate, but this year, Alameda needed cash and apparently dipped into FTX’s customer deposits. Then, this month, FTX customers became worried about their deposits and rushed to withdraw them, setting off a bank run and pushing FTX into bankruptcy. The apparent commingling of funds between Alameda and FTX is highly suspicious and could lead to criminal fraud charges and lawsuits. The Securities and Exchange Commission and Justice Department are investigating. FTX’s bankruptcy filings list more than 1 million creditors. In addition to people who used the platform to store their cryptocurrency investments and investors who backed the company directly, numerous funds and crypto start-ups had assets locked up there. Read more.

Smoked Out: How Those in the Cannabis Industry May Finally Gain Bankruptcy Protection​​​

Could bankruptcy protection be on the horizon for individuals and companies actively involved in the cannabis industry? Potentially yes, following President Biden’s Oct. 6, 2022, request for the Secretary of Health and Human Services to begin the administrative process to review marijuana’s classification as a Schedule I substance under the Controlled Substance Act (CSA), the National Law Review reported. Marijuana is big business. Recreational marijuana use is currently legal in 19 states and the District of Columbia (this number will change following the 2022 U.S. elections). In 2021, there were over 200 cannabis M&A transactions totaling $10.1 billion in value. Even though the cannabis industry has become mainstream, companies and individuals in this industry are often denied the ability to liquidate or restructure their debts through bankruptcy because federal law governs the bankruptcy process. As of Oct. 1, 2022, federal law still prohibits “manufactur[ing], distribut[ing], or dispens[ing], or possess[ing] with an intent to manufacture, distribute, or dispense”  marijuana. One of the leading cases on this issue is Burton, et al. v. Maney, et al. (In re Burton). In Burton, the debtors filed for bankruptcy to reorganize their debts. The assets listed on their bankruptcy schedules included an ownership interest in a business located in Arizona that cultivated and sold marijuana. When the debtors attempted to confirm a plan, one of their creditors filed a motion seeking to convert the case to one under chapter 7, arguing that the debtors’ bankruptcy was filed in bad faith because the debtors owned a business that grew and sold marijuana. While the debtors’ business was legal in Arizona, it was (and still is) illegal under federal law. The bankruptcy court thereafter entered an order to show cause as to why the debtors’ bankruptcy case should not be dismissed based on this issue. Read more.

Opinion: A Divided Government Will Be Disastrous for the U.S. Economy*​​​

The midterm election results are still rolling in, but Republicans have won control of the U.S. House of Representatives, ensuring that we will have a divided government. If history is a guide, this means that the next two years of economic policy will be frustrating, punctuated by legislative logjams and fiscal brinkmanship, according to a CNN opinion. And if the economy suffers a recession, as is widely anticipated, lawmakers won’t step up to cushion the downturn. This will be a big change from the past two years when the Biden administration worked with a Democrat-controlled Congress. The Senate was evenly split between Democrats and Republicans, though, so both Vice President Kamala Harris’ tie-breaking vote and the use of arcane budget rules were often necessary to get economic legislation across the finish line. It wasn’t easy, but a lot got done. The massive American Rescue Plan passed shortly after Biden took office, with only Democratic votes. The government-support package helped the economy navigate the fallout from the pandemic. The Infrastructure Investment and Jobs Act became law late last year, this time with some Republican support, providing investments in roads, bridges, broadband and the electric grid. The CHIPS and Science Act also passed with bipartisan support, shoring up semiconductor manufacturing here at home. The recently passed Inflation Reduction Act, which had no Republican support, addresses the long-term problem of high prescription drug costs and, most significantly, climate change. While the past two years have been a legislative whirlwind for economic policy, the next two will likely be anything but. A Republican-controlled House looks set to follow the playbook of the Republican Congress under former President Barack Obama. That is, it appears ready to focus on the government’s large budget deficits — and use the threat of government shutdowns and a breach of the government’s debt limit in efforts to force the Biden administration to cut government spending, according to the opinion. 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.

Fewer Americans Filed for Jobless Benefits Last Week​​​

The U.S. job market remains healthy as fewer Americans applied for unemployment benefits last week, despite the Federal Reserve’s rapid interest rate hikes this year intended to bring down inflation and tighten the labor market, the Associated Press reported. Applications for jobless claims for the week ending Nov. 12 fell by 4,000 to 222,000 from 226,000 the previous week, the Labor Department reported today. The four-week moving average rose by 2,000 to 221,000. The total number of Americans collecting unemployment aid rose by 13,000 to 1.51 million for the week ending Nov. 5. a seven-month high, but still not a concerning level. Applications for jobless claims, which generally represent layoffs in the U.S., have remained historically low this year, deepening the challenges the Federal Reserve faces as it raises interest rates to try to bring inflation down from near a 40-year high. Steady hiring, solid pay growth and low unemployment have been good for workers, but have contributed to rising prices. The government reported last week that consumer inflation reached 7.7% in October from a year earlier, the smallest year-over-year gain since January. Prices at the wholesale level rose 8% in October from a year ago, the fourth straight decline and the latest sign that inflation pressures in the U.S. are easing. The annual figure is down from 8.4% in September. Read more.

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