Total Bankruptcy Filings Drop 24 Percent in Calendar Year 2021, Commercial Chapter 11s Down 48 Percent​​​​​​

Total bankruptcy filings during calendar year 2021 (Jan. 1-Dec. 31) decreased 24 percent from 2020 amid stabilization measures and lender forbearance in response to the economic challenges resulting from the COVID-19 pandemic. According to data provided by Epiq, total filings fell from 529,106 in 2020 to 401,291 filings during calendar year 2021. Annual bankruptcy filings last registered a similar total in 1984, with 348,521 total filings. Total consumer filings were 378,952 nationwide for calendar year 2021 (Jan. 1-Dec. 31), 24 percent fewer than the 496,589 total filings during 2020. The 2021 consumer filing total is the lowest since the 341,233 filings registered in 1985. Commercial filings also declined, as the 22,339 business filings in calendar year 2021 represented a 31 percent drop from the 32,517 recorded in calendar year 2020. Commercial chapter 11 filings registered the largest percentage decrease during calendar year 2021, as the total of 3,724 was 48 percent less than the 7,129 chapter 11 filings recorded during calendar year 2020.

Analysis: Why Bankruptcies Filed in 2021 Dropped, and Why 2022 Could Be Different​​​​​​

Large bankruptcies — those involving companies with at least $50 million in liabilities — dipped to 121 last year from 245 in 2020, according to data compiled by Bloomberg. That’s below the 10-year annual average of 130. But that could change this year as stimulus money wanes and companies and their creditors try to figure out what to expect, according to a Bloomberg Businessweek analysis. “A lot of people have the view that you’re going to see an uptick in some combination of out-of-court restructurings, certainly by the second half of this year,” says Felicia Gerber Perlman, who heads the restructuring group at law firm McDermott Will & Emery, as lenders try to assess a new normal. Last year’s shutdowns, from elective surgery to Broadway shows, froze the economy, making decisions on lending — or pulling the plug — tough. “It’s hard to determine what the correct capital structure for a company is, hard for a lender to evaluate the business in the midst of the uncertainty that we were facing last year,” Perlman says. Filings were also scarcer last year because 2020’s initial pandemic upheaval sent some already-struggling companies into bankruptcy. So rather than limp along for a year or two, “all the companies on the brink got pushed into 2020” filings, says Michael Eisenband, global co-leader of FTI Consulting’s corporate finance and restructuring unit. For those not on the precipice, stimulus propped up both consumers and companies, the Federal Reserve kept interest rates low, and ample financing was available to businesses that might not have gotten a second look a few years ago. “We have never seen so many triple-C companies get financing,” Eisenband says, referring to the debt-rating category S&P defines as “very weak.” That’s due in part to the growth in the private credit market, which has risen to about $1 trillion. Such lenders, which include standalone funds and credit arms of such buyout fund managers as Blackstone Group Inc. and KKR & Co., are able to provide loans to midsize companies that Wall Street banks shun because, they say, the borrowers already have a lot of debt.

Credit Bureaus Drew More than Half of Consumer Complaints to CFPB in Past Two Years​​​​​​

Hundreds of thousands of Americans are assigning a failing grade to the companies that evaluate their creditworthiness, the Washington Post reported. A new report from the Consumer Financial Protection Bureau reveals that more than half of the complaints the agency has received from the public from January 2020 to September 2021 were directed at Equifax, Experian or TransUnion, the three largest credit-reporting firms. The complaints topped 700,000 during a period that largely overlapped with the coronavirus pandemic and the economic crisis it precipitated. The CFPB said consumers focused their frustration on automated systems that made it difficult to correct faulty information in their reports; an exasperating dispute process; and surprise debts such as medical bills reported to the companies without their knowledge. The agency also found that the credit bureaus provided significantly less help last year when consumers protested, offering relief in just 2 percent of cases, down from 25 percent in 2019.



*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.

Commentary: The CFPB’s Arbitrary Attacks on Payday Loans*​​​​​​

A commentary by Profs. Thomas Miller Jr. of Mississippi State University and Todd Zywicki of George Mason University’s Antonin Scalia Law School outlines their recently completed study questioning the wisdom and legality of the CFPB’s last attempt to regulate payday loans, a rule from 2017. This rule provides the template for efforts to regulate payday loans out of existence, according to the commentary. The rule limited payday-loan customers to no more than six loans a year unless they could meet a rigid government-mandated ability-to-repay standard. Profs. Miller and Zywicki said that their results show that the CFPB’s approach to payday loan regulation is ill-conceived and needs adjustment. They found that the CFPB’s focus on the allowable number of payday loans isn’t a reasonable consumer-protection policy. The professors examined data from 2013 on 15.6 million payday loans, made to 1.8 million unique borrowers, to determine whether the number of loans a consumer takes out in a year is a meaningful assessment of consumer welfare. They examined payday-loan terms and use, and estimated the effects on consumers if they were prohibited from taking out more than six loans in a year. They focused on the interaction of this limitation with two common ways that states regulate payday loans: limits on allowable loan fees and on loan amounts. Contrary to the research cited in the CFPB’s 2017 rule, which claimed that these types of “loans are almost always made at the maximum rate permitted,” Profs. Miller and Zywicki found that neither the fees paid nor the loan amounts inexorably rose to maximum allowable levels when those allowable levels were reasonable. (Subscription required.)


*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.

‘Buy Now, Pay Later’ Loans May Soon Play Bigger Role in Credit Scores​​​​​​

“Buy now, pay later” online loans are getting attention from both regulators and the credit industry as consumers increasingly turn to them, and they may soon play a bigger role in credit scores, the New York Times reported. Loans from financial technology companies, including Affirm, Afterpay and Klarna, offer an updated version of layaway plans, once a common option for shoppers to pay for big-ticket items in installments. The new offerings, widely available online or via mobile apps, are generally used for smaller purchases, like shoes, apparel and concert tickets, and allow the buyer to get the items right away. Shoppers typically apply at checkout and can get approved quickly with a cursory credit check. They then pay for the purchase in four or fewer installments over several weeks. Borrowers usually don’t pay interest, as they would with traditional credit cards, but some lenders may charge fees for late payments. Pay-later loans are attractive because they give people flexibility to pay over time but without any interest. They are most popular with millennials and Gen Z consumers — people now about age 40 or younger — according to a recent report from Fitch Ratings. They also appeal to people who may have lower credit scores or scant credit history, which makes qualifying for traditional loans and credit cards at affordable rates more difficult. For now, many of these smaller, short-term loans aren’t reported in a consistent way to credit bureaus, so borrowers don’t build a formal credit history by using them. But as the loans are becoming more mainstream, that’s changing. The major credit bureaus are working to include more pay-later loans in consumer credit reports. Equifax, for instance, said two weeks ago that it had created formal standards for reporting the loans and expected to begin adding them to its consumer credit files in late February. Experian said that it already includes data on pay-later credit, including short-term loans, in its credit reports and is working to add more. TransUnion is “well on our way” to including such data, said Liz Pagel, senior vice president and consumer lending business leader at the credit-reporting company.

Jobless Claims Tick Up to 207K for Final Week of 2021​​​​​​

New claims for jobless aid ticked higher in the final week of 2021, according to data released Thursday by the Labor Department, The Hill reported. In the week ending Dec. 31, seasonally adjusted new applications for unemployment insurance totaled 207,000, rising by 7,000 from the previous week’s revised total of 200,000 claims. Jobless claims lingered close to 200,000 per week through the final two months of 2021, almost 20,000 applications below pre-pandemic levels, despite the emergence of the omicron variant shortly after Thanksgiving. The new claims data was released a day before the Labor Department is scheduled to publish the December jobs report — a more thorough look into omicron’s early impact on the job market. Economists expect that the U.S. added more than 420,000 jobs last month, though some analysts have boosted their projections after a strong private payrolls employment report and other encouraging private-sector data.

First of Three-Part Webinar Series Sponsored by Reid Collins & Tsai on Litigating Trustee Claims Kicks Off on Wednesday!​​​​​​

ABI and Reid Collins & Tsai LLP have joined together to present a three-part webinar series beginning on January 12, 2022, titled, “Litigating Claims by Trustees: Avoiding Pitfalls at Each Stage of the Bankruptcy Process.” This first webinar in the series will focus on recurring issues that arise in post-bankruptcy litigation involving trustees, and how to set up trustees for success in pursuing litigation claims. Panelists on the session include Aaron Renenger of Milbank LLP, Erin Fay of Bayard, P.A. and Scott Saldaña of Reid Collins & Tsai LLP Moderator: Jeremy Wells of Reid Collins & Tsai LLP.

To register for this session, please click here.

Volunteer Today to Become a Grader or Judge for the Duberstein National Bankruptcy Moot Court Competition!
The Duberstein National Bankruptcy Moot Court Competition will be held in New York Feb. 26-28. The Duberstein Competition, now in its 30th year, is a result of a longstanding partnership between the American Bankruptcy Institute and St. John’s University School of Law. It is widely recognized as one of the nation’s preeminent moot court competitions. After moving to a virtual platform in 2021 due to the COVID-19 pandemic, the Duberstein Competition will return to being an in-person competition in 2022. Forty-six teams from law schools across the country will compete through written briefings and oral arguments. This year’s problem, which was once again developed by Hon. John T. Gregg (U.S. Bankruptcy Court W.D. Mich.; Grand Rapids, Mich.) and Paul R. Hage (Jaffe Raitt Heuer & Weiss; Southfield, Mich.), presents two hotly contested issues for argument: (1) whether a seller of goods is entitled to reduce its preference exposure pursuant to 11 U.S.C. § 547(c)(4) by the value of goods sold, even though the debtor in possession paid for such goods in full pursuant to 11 U.S.C. § 503(b)(9); and (2) whether a trustee must timely perform the obligations of a debtor under 11 U.S.C. § 365(d)(3) by paying rent due prior to the rejection of an unexpired nonresidential real property lease but allocable to the period after the effective date of rejection.

The competition fact pattern is available here.

The Duberstein Competition is looking for volunteer brief-graders and judges for the preliminary rounds on Saturday, Feb. 26, and Sunday, Feb. 27. To volunteer to serve as a brief-grader, please register here. To volunteer to serve as a preliminary-round judge, please register here. For inquiries regarding serving as a brief-grader or a preliminary-round judge, please contact Paul R. Hage.

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