Consumer Bankruptcy

Job Cuts from Bankruptcies Hit Highest Level Since 2005



Data by global outplacement firm Challenger, Gray & Christmas Inc. found that the number of job cuts announced in 2019 due to companies filing for bankruptcy protection hit the highest level in more than a decade, the Wall Street Journal reported. More than 62,100 job losses have been announced by U.S.-based employers in the past 12 months due to bankruptcy, according to the report. That number is higher than the annual totals for bankruptcy-related job cuts any year since 2005, when 74,200 were announced. Bankruptcy was one of the leading causes of job cuts, along with restructuring, trade difficulties and tariffs, in the past year, Challenger found. Employers said they were going to slash more than 592,500 jobs for various reasons, with the retail industry leading the way with nearly 77,500 cuts. About 10.5 percent of all job cuts announced through year-end 2019 were attributed to bankruptcies. In December alone, there were more than 5,500 job cuts due to bankruptcy, Challenger’s data show. There were more job cuts related to bankruptcy in 2019 than during the recession years. More than 62,100 jobs were affected due to bankruptcy in 2008, while about 50,900 were cut in 2009. (Subscription required.)

Financial Tug-of-War Emerges over Fire Victims' Settlement



A financial tug-of-war is emerging over the $13.5 billion that the nation's largest utility has agreed to pay to victims of recent California wildfires, as government agencies jockey for more than half the money to cover the costs of their response to the catastrophes, the Associated Press reported. Pacific Gas & Electric declared bankruptcy nearly a year ago as it faced about $36 billion in claims from people who lost family members, homes and businesses in devastating wildfires in 2017 and 2018. The utility acknowledged that its power lines ignited some of the fires. Those claims were settled as part of the $13.5 billion deal that PG&E reached last month with lawyers representing uninsured and underinsured victims. Meanwhile, insurers had been threatening to try to recover roughly $20 billion in policyholder claims that they believe they will end up paying for losses from those fires. PG&E settled with the insurers for $11 billion. PG&E must keep working on its broader bankruptcy exit plan to meet the approval of state regulators and a bankruptcy judge by June, as planned. In the meantime, the $13.5 billion settlement leaves open just how much would be used to compensate victims, their lawyers, and federal and state agencies for the money they spent on rescue and recovery operations.

Sales-Tax Ruling Strains Small Online Sellers



Eighteen months after the Supreme Court gave states the green light to tax online transactions, small companies that sell things as diverse as recycled yarn and gold bullion are struggling to adjust, the Wall Street Journal reported. In its June 2018 ruling, the Supreme Court held that states had the authority to make online retailers collect sales taxes even if they didn’t maintain a store, warehouse or other physical presence. Before the decision, consumers were supposed to pay what is known as use tax on out-of-state purchases, but most didn’t. The decision came in a lawsuit filed by South Dakota against home-furnishings retailer Wayfair Inc. and other online sellers. What is taxed and how often those taxes are paid varies from state to state. Some states, such as Colorado, allow localities to administer their own taxes. Some states share definitions and procedures to make it easier for companies to comply, but some of the biggest jurisdictions have their own rules. “Small businesses are definitely the ones that are really adversely affected,” said Clark Calhoun, a state and local tax attorney in Atlanta. “A bigger business is typically going to have more robust sales-tax software,” he said, as well as “a better sense of where their products are going and will be well over the sales thresholds every single year.” Verenda Smith, deputy director of the Federation of Tax Administrators, which represents state taxing authorities, said the state laws were never intended to affect small businesses. But “the fairness issue is equally on the table, and it can be at odds with the burden issue,” she said. Most states have tried to limit the impact on the smallest companies, with many following the lead of South Dakota, which exempted out-of-state sellers with $100,000 or less in sales or fewer than 200 transactions in the state a year. But limits vary, with a threshold of $500,000 in California and none in Kansas. (Subscription required.)

Corporate Debt Issuers to Kick Off Sales with Up to $35 Billion



Sales of U.S. high-grade bonds will total between $30 billion and $35 billion next week, according to an informal survey of dealers at some of Wall Street’s biggest banks, Bloomberg News reported. The market remains inviting for potentially supercharged debt-issuance, with funding costs at the best levels ever for the start of a year and incentive to get ahead of potential U.S. election-induced volatility beginning in March. About $120 billion is forecast for January, an increase of 9 percent from last year. The high-grade bond spread, the added premium over U.S. Treasuries that investors get paid to hold riskier debt, fell to 93 basis points on Tuesday, the tightest level since February 2018. Meanwhile, there is about $78 billion in U.S. high-grade corporate bonds coming due or that may be called in January, according to data compiled by Bloomberg.

Americans Are Taking Cash out of Their Homes — And It Is Costing Them



Many U.S. homeowners who need cash are taking it out of their properties, but the trade-off is higher interest rates, according to a Wall Street Journal analysis. Over the past two years, a big chunk of homeowners took on higher interest rates when they refinanced to tap into their home equity. These cash-out refinancings, as they are known, free up money that homeowners can use to pay down credit card debt, renovate or invest in a new property. Nearly 60 percent of cash-out refinancings in 2018 came with higher interest rates, the biggest share since before the financial crisis, according to Black Knight Inc., a mortgage-data and technology firm. This year, that number fell to around 44 percent of cash-out deals, but it remains at more than three times its average between 2009 and 2017. This corner of the mortgage market illuminates the crosscurrents in the U.S. economy: After roughly a decade of rising home prices, homeowners are flush with record amounts of home equity they can tap. But many Americans remain short on cash and are increasingly relying on debt to fund their lives. “There’s something in their life that is causing them to need money,” said Sam Polland, a mortgage-loan officer at Sandy Spring Bank in Rockville, Md. “They are willing to go up in rate to get the equity out of their house.” (Subscription required.)

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Report: 1 in 4 Rural Hospitals Is Vulnerable to Closure



A new report from the Chartis Center for Rural Health puts the situation in dire terms: 2019 was the worst year for rural hospital closures this decade, with 19 hospitals in rural America shutting their doors, Vox.com reported. Nearly one out of every four open rural hospitals has early warning signs that indicate they are also at risk of closing in the near future. Since 2010, 120 rural hospitals have closed, according to University of North Carolina researchers. And today, 453 of the 1,844 rural hospitals still operating across the country should be considered vulnerable for closure. The Chartis researchers sought to identify key risk factors that precipitated rural hospital closures, then used those indicators to project which hospitals are at risk of closing soon. Some of the criteria were obvious, like changes in revenue or how many beds are occupied on average. But there was one other leading indicator that has an obvious political explanation and that should be entirely avoidable: whether the hospital is in a state that expanded Medicaid under Obamacare. According to Chartis, being in a Medicaid expansion state decreases by 62 percent the likelihood of a rural hospital closing. Conversely, being in a non-expansion state makes it more likely a rural hospital will close. The states that have experienced the most rural hospital closures over the last 10 years (Texas, Tennessee, Oklahoma, Georgia, Alabama and Missouri) have all refused to expand Medicaid through the 2010 health care law, and it seems their rural hospitals are paying the price. Of the 216 hospitals that Chartis says are most vulnerable to closure, 75 percent are in non-expansion states. Those 216 hospitals have an operating margin of negative 8.6 percent.

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Commentary: A $145,000 Surprise Medical Bill and a Glimpse into the American Health Care System



A couple who received a bill for their child’s hospital stay that totaled $145,000 taught them tough lessons about the American health care system, according to a New York Times commentary. The bill in question was for a procedure that had been scheduled months before. The couple had consulted with the provider, who, indeed, was out of network, but the doctors had assured them that the total cost would nevertheless require nothing but a modest co-payment. But it appeared that the doctors were wrong and the couple was looking at a hefty “surprise medical bill.” About 20 percent of Americans receiving elective surgery are now on the receiving end of these bombshells, according to the commentary. The couple contacted the doctor the day after they received the $145,000 bill and was informed that even when procedures are pre-authorized (as the child’s was), insurers often deny them anyway. His understanding was that insurance companies often respond to pre-approved claims with denial and delay, hoping that consumers will somehow just give up. Fortunately for the family, the child’s doctors did not give up, as the bill was fixed, and the family was not financially wiped out. Two pieces of legislation in the House of Representatives have been proposed recently to address crises like the one now facing the family. The Ban Surprise Billing Act, sponsored by Rep. Lloyd Doggett (D-Texas), would require hospitals to notify patients and get consent if they will be receiving any out-of-network treatment. And last week, the Ways and Means Committee sent the Consumer Protections Against Surprise Medical Bills Act to the House floor. This would also flag potential out-of-network costs for patients, and require insurers and providers to settle disputes through arbitration.

Dealerships Give Car Buyers Some Advice: Just Stop Paying Your Loan



Joyce Parks was struggling to afford her Kia Soul when, she says, the dealership where she had bought it pitched her an unconventional idea: Stop making the payments, the Wall Street Journal reported. Parks said that employees told her that she couldn’t trade in the Soul, but that she could buy another car. To get rid of the Soul, the dealership told her, she should have the lender repossess it, Parks said. The trade-in, where a buyer hands a car back to a dealership and uses it as credit toward another one, is often a crucial step in car buying. But some dealerships are instead telling buyers to give their old cars back to their lenders — and selling them new ones — in a practice known as “kicking the trade.” It is difficult to estimate how often this happens. Auto-sales veterans say the practice is an open secret in some showrooms. Broadly, vehicles are getting more expensive and Americans are struggling to afford them. Dealerships now make more money arranging financing than selling vehicles. If a car loan goes bad, it typically isn’t the dealership on the hook — it is the borrower or lender. The National Automobile Dealers Association said there is no evidence to suggest that the practice of “kicking the trade” is prevalent, but consumer lawyers say that they have seen more such cases. Five years ago, “it happened two or three times per year,” said Daniel Blinn, a Connecticut-based attorney who has sued dealerships and auto lenders. “Now, we hear it at least once per month.” Credit-reporting firm TransUnion calculates that nearly 24 million U.S. vehicle loans were originated in 2018. About 300,000 of those vehicles were repossessed within 12 months, up 17 percent from 2014. Such a quick souring of the loan can be a signal of some sort of auto fraud. (Subscription required.)

Analysis: CLOs Seek Flexibility for Distressed Assets Amid Lender Competition



U.S. collateralized loan obligations (CLOs) are increasingly seeking flexibility to provide rescue financing to distressed companies after other lenders have been able to swoop in and offer lifelines to borrowers and often obtain a senior claim on assets in the process, Reuters reported. CLO managers can be prohibited from participating in restructuring or workout scenarios due to constraints in their deal documents, so when sales and marketing firm Acosta reworked its debt late last year, their funds were essentially forced to sit on the sideline. The result could impact returns to CLO investors, especially in the next downturn when recovery rates are already predicted to be more than 20 percent lower than the historical average. In November, some investors agreed to provide $250 million of equity capital to Acosta as part of a restructuring that wiped out about $3 billion of the company’s debt. CLOs, forced to the wings, have started to push for the ability to either provide companies with rescue financing or increased flexibility to receive equity in a workout situation in order to be able to participate in future reorganizations.

Wednesday’s abiLIVE Webinar Explores the HAVEN Act and How to Approach Military or VA Benefits in Bankruptcy



The HAVEN Act was signed into law last year to correct the Code to exclude VA benefits from the current monthly income used in the means test. Members of ABI’s Task Force on Veterans and Servicemembers Affairs worked diligently to have the bill introduced and signed into law to help financially struggling veterans and servicemembers. Find out about the key points of the HAVEN Act, and get pointers on how to approach cases involving military or VA benefits, during a special abiLIVE webinar on February 26. Members of the Task Force, along with top practitioners, will be providing their perspectives. Click here to register for FREE.

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