Consumer Debt

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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IRS Provides Tax Relief for Those with Discharged Student Loans



The IRS and Treasury Department released guidance yesterday that will allow more people with discharged student loans to receive tax relief, The Hill reported. Under the guidance, certain taxpayers with discharged student loans will not have to report the amount of the loan as gross income on their federal tax returns. The guidance applies to taxpayers whose federal loans were discharged by the Department of Education because they were attending a school that closed or because they established that "a school’s actions would give rise to a cause of action against the school under applicable state law," the IRS said. The guidance also applies to taxpayers whose private loans were discharged as a result of legal settlements against colleges and certain private lenders. The new guidance comes after Treasury and the IRS in recent years have provided similar tax relief to taxpayers who took out loans in order to attend schools owned by Corinthian Colleges Inc. or American Career Institutes Inc. — now-defunct for-profit institutions. Treasury and the IRS said in the new guidance that they determined that it's appropriate to extend that tax relief to people who had taken out loans to finance attendance at other schools as well.

New Jersey Could Soon Become First State to Mandate Severance for Employees in Mass Layoffs



New Jersey state lawmakers approved a bill Monday that would compel employers to give more notice and pay severance to laid-off workers, after a public backlash against the treatment of workers who lost their jobs in the retail apocalypse, the Washington Post reported. The bill, which has been called the “Toys ‘R’ Us bill,” after workers of the retail chain that filed for bankruptcy in 2017, requires larger employers to pay workers one week of severance for each year of service. It also gives employees 90 days’ notice, rather than just 60 days, in the event of a mass layoff. It was approved 55-21. “When businesses go bankrupt or close, far too often, workers are given little notice or severance pay. We saw this happen right here in New Jersey last year when Toys “R” Us filed for bankruptcy," lawmaker Annette Quijano (D), a primary sponsor of the bill, said in a statement. "Employees deserve to be treated fairly, especially when they are forced to leave a job due to circumstances beyond their control.” The bill, which only applies to employers with 100 or more full- or part-time workers laying off 50 or more people, was approved by the state’s Senate in December. It now goes to the desk of Gov. Phil Murphy (D).

Consumer Spending Solid at End of Holiday Shopping Season



Consumers headed into 2020 on a solid footing, driving up retail sales in the final month of the holiday season, the Wall Street Journal reported. December retail sales, a measure of purchases at stores, restaurants and online, increased a seasonally adjusted 0.3 percent from a month earlier, the Commerce Department said today. Solid gains in nearly every category offset a drop in motor-vehicle sales, the data showed. Consumer spending has been supported by a strong jobs market and wage gains, as well as diminished tariff uncertainty over the U.S.-China trade dispute. Excluding the volatile categories of autos and gas, retail sales rose 0.5 percent in December, the strongest pace of growth in five months. Still, updated numbers from Commerce showed retail sales outside of motor vehicles and gasoline declined in the prior three months. December department-store sales slipped 0.8 percent from November and declined 5.5 percent from a year earlier. Meanwhile, sales at nonstore retailers, a category that includes internet merchants such as Amazon.com Inc., were up 0.2 percent from November and increased 19.2 percent compared with a year earlier. (Subscription required.)

Banks Reported 2019 Large Profits with the Help of Consumers’ Credit Card Debt



A growing tide of consumer debt helped propel some of the country’s largest banks to major profits last year, the Washington Post reported. JPMorgan Chase, the country’s largest bank, said this week that it earned a record $36 billion profit last year with credit card loans increasing 8 percent. U.S. Bancorp said yesterday that it brought in $7 billion last year with the help of a 7.6 percent increase in its credit card business. Citigroup, which reported a profit of $19 billion last year, said that its branded cards business increased 8 percent in North America last year. Even Wells Fargo, which has been struggling to rebound from scandals, found a bright spot with consumers, reporting that credit card loans were up $2 billion during the fourth quarter. “Even though consumers are confident, people are still carrying significant debt,” said Ted Rossman, an analyst for CreditCards.com. Consumers’ appetite for credit cards has not been dampened by relatively high interest rates. The average rate is 17.3 percent, near a record high, for consumers with a good credit score, according to CreditCards.com, which surveys the country’s 100 most popular cards. The cost is steeper for consumers with lower credit scores, 25.30 percent, according to the site.

Lawmakers Press Rulemaker on Economic Impact of Credit-Loss Standard



The chairman of the Financial Accounting Standards Board on Wednesday faced a barrage of questions from lawmakers seeking to better understand the economic effects of a controversial new rule on credit-loss accounting, the Wall Street Journal reported. During an oversight hearing, members of the House Committee on Financial Services’ Subcommittee on Investor Protection, Entrepreneurship and Capital Markets questioned FASB Chairman Russell Golden, expressing concern that the new accounting rule would negatively affect banks, consumers and the economy at large. Lawmakers cited fears from the banking industry that the rule would curtail credit availability, make credit losses worse in a recession and heighten volatility of bank earnings. “We are setting ourselves up for an even larger problem going forward, caused by accounting,” said Rep. Trey Hollingsworth (R-Ind.). The Current Expected Credit Losses rule (CECL) requires lenders to record expected future losses as soon as loans are issued. The rule was adopted in 2016 and started to go into effect for large public banks on Dec. 15. FASB in October delayed the rule’s effective start date for private and nonprofit lenders until after Dec. 15, 2022. Before CECL, lenders didn’t have to recognize losses until they had evidence the losses had been incurred. FASB, which sets U.S. accounting standards, changed the rule to provide investors with more transparency about the loan-issuing process. (Subscription required.)

2020 Edition of the Mini-Code Now Available for Purchase



Now available for purchase and immediate delivery: The 2020 edition of the Mini-Code (incorporating the Small Business Reorganization Act, the Family Farmer Relief Act, and the HAVEN Act), plus the 2020 edition of the Mini-Rules (including all rules adopted as of Dec. 1, 2019). Order your copies today at store.abi.org!

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Report: U.S., Canadian Oil Company Bankruptcies Surge 50 Percent in 2019



A report released yesterday by Dallas law firm Haynes and Boone said that the number of oil and gas company bankruptcies in the U.S. and Canada increased 50 percent in 2019 over the previous year, and is likely to increase as a slide in energy prices continues to shake producers, Reuters reported. U.S. and Canadian oil and natural gas exploration and production company bankruptcies totaled 42 in 2019, up from 28 in 2018, the law firm said. A total of 208 oil and gas production companies filed for bankruptcy between 2015 and 2019, according to the report. "This increase in year-over-year filings indicates that the reverberations of the 2015 oil price crash will continue to be felt in the industry through at least the first half of 2020," Haynes and Boone said in the report. Oilfield service companies were again hit hard with the number of bankruptcies nearly doubling from 12 in 2018 to 21 in 2019, the largest being the $7.4 billion filing by Weatherford International in July. Midstream companies that provide storage and pipelines to producers fared better, with only two bankruptcies in 2019 out of a total of 28 since the beginning of 2015.

U.S. Regulator to Move on Low-Income Lending Overhaul Without Fed



A top U.S. banking regulator said yesterday that he plans to push ahead with a proposal to overhaul rules governing billions of dollars of lending in low-income neighborhoods despite objections from the Federal Reserve, the Wall Street Journal reported. Comptroller of the Currency Joseph Otting said that he doesn’t see that there is time to compromise with the Fed regarding a December proposal that would update federal regulations under the Community Reinvestment Act. The proposal was crafted jointly by his office and the Federal Deposit Insurance Corp. Otting said that the Office of the Comptroller of the Currency will receive comments on its proposal until March 9 and issue a final rule about 60 days later. The growing rift among federal banking regulators makes it likelier that banks will have to navigate different sets of rules under the community reinvestment law, which was enacted in 1977 to end “redlining” — the practice of avoiding lending in certain areas, often lower-income communities, which served to deepen racial disparities in housing and education. The OCC oversees roughly 70 percent of activity under the rules, and its proposal would apply to some 1,200 banks — including some of the biggest, such as JPMorgan Chase & Co. and Wells Fargo & Co. The Fed oversees about 15 percent of CRA activity. Earlier this month, Fed governor Lael Brainard, who is leading the central bank’s efforts to update the act, criticized the joint proposal by the OCC and FDIC. She said that it could encourage some banks to meet their CRA requirements through a small number of large loans or investments, potentially reducing many poor and middle-class Americans’ access to financing. (Subscription required.)

110 Million Consumers Could See Their Credit Scores Change Under New FICO Scoring



Americans who are struggling to pay off their debt could see lower FICO credit scores in their future, especially if they miss payments, CNBC.com reported. Fair Isaac Corp., the company behind the popular FICO credit score, announced the launch of its latest FICO 10 model today, Jan. 23, that will start incorporating consumers’ debt levels into their scoring model. This comes as total household debt in the U.S. has steadily increased for about two years, and currently sits at about $13.95 trillion as of September 2019, according to the Federal Reserve Bank of New York. That’s higher than the previous high of $12.68 trillion seen right before the 2008 financial crisis. FICO estimates that about 110 million consumers will see a change to their score under the new credit score model, with most people seeing less than a 20-point swing in either direction. Roughly 40 million will see a shift upward over 20 points and another 40 million will see a shift downward, FICO says. The new scoring model will also likely create a wider gap between those who are considered good credit risks and those who are not. Consumers who already have good credit, for example, and who continue to whittle down their existing loans and make on-time payments will see higher scores. But those who score below 600 will see bigger dips in their scores under the new model.

Commentary: Chicago Doubling Down on Dangerous ‘Securitized Bonds'



Chicago's already sold off its share of future sales tax revenue that flows from the state to secure other bonds, and new bondholders will be taking a junior ownership position in that, according to a Crain's Chicago Business commentary. The city indeed will get about $250 million up front, from refunding savings, to put toward this year's budget. The exact numbers on that and some other aspects of the new bond offerings were still pending as this was being written. While chances may be remote that Chicago would go bankrupt, bond buyers are not that optimistic. That's why they want conveyance of full ownership of streams of income to collateralize their loans, called "securitized bonds." Prevailing legal opinion says they are likely, though not entirely certain, to get priority for payment over everything else, even in bankruptcy. The big losers may end up being taxpayers, service recipients, public pensioners and everybody else with a stake in government except the muni bond community: bondholders, underwriters, bankers, lawyers and so on, according to the commentary. Securitized bonds raise the risk of an "assetless bankruptcy," the worst of all outcomes. The debtor then has nothing to work with to get a fresh start, and there's nothing left for unsecured creditors. Those unsecured creditors would include pensioners insofar as pensions are underfunded.

Shadow Banks Come into the Light in Global Lending



According to Bank for International Settlements data released this week, nonbank financial institutions are leading the growth in cross-border lending, with cross-border banking claims in the third quarter up 17 percent from a year earlier. That’s the fastest growth in at least six years, when records began, the Wall Street Journal reported. Banks’ cross-border claims on and liabilities to nonbank financiers have risen by nearly $8 trillion since the end of 2013, while their cross-border exposure to other banks has actually declined slightly under the weight of increasingly stringent regulations. Shadow banks typically include brokers, clearinghouses, funds, investment trusts and structured finance vehicles. While there is nothing inherently wrong about their becoming more important, the shift raises questions among experts about how they’ll behave in a sharp slowdown or financial crisis. (Subscription required.)

First Published Opinion on Retroactive Application of the HAVEN Act References ABI's Veterans Affairs Task Force



Hon. Robert Jones of the U.S. Bankruptcy Court for the Northern District of Texas provides good supporting authority in a Nov. 21, 2019, dicta opinion for the retroactive application of the HAVEN Act to cases that were pending when the President signed the bill into law on Aug. 23, 2019. The In re Price opinion is also notable for its reference to ABI's Veterans Affairs Task Force. See below:

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As Americans Sour on Milk, Could Famous Dairy Brands Disappear?



As consumers increasingly turn to milk alternatives and thousands of dairy farms are collapsing, milk producers are now faltering, too, putting thousands of jobs at risk and threatening their brands, USA Today reported. The recent chapter 11 bankruptcies of two major milk producers, Dean Foods and Borden Dairy, have shown how a sharp decline in milk sales poses an existential threat to leading dairy brands like Land O' Lakes and TruMoo. Consumption of dairy milk fell about 41 percent from 1975 to 2018, dropping from 247 pounds per person annually to 146 pounds, or about 17 gallons, according to the Department of Agriculture’s National Agricultural Statistics Service. The trends have contributed to a financial crisis for dairy farms for years. More than 94,000 family dairy farms shut down from 1992 to 2018, according to the National Farmers Union. Part of the problem is that even as dairy farms disappear, overall milk production has increased — in part due to improved techniques for cow milking — which has flooded the market with milk. Now, after several years of price drops due to excess supply, farmers have boosted milk prices to try to make up for their own losses. In November, the most recent month in which data was available, the price of raw milk was $21 per 100 pounds, up 22 percent from November 2018, according to the USDA.

CFPB Director Assailed Over Restricting Power to Police ‘Abusive’ Conduct



The Consumer Financial Protection Bureau’s leader came under criticism Thursday from U.S. House Democrats over recent enforcement guidance that some critics said would undercut the regulator’s ability to crack down on abusive industry practices, the National Law Journal reported. Appearing before the House Financial Services Committee, CFPB Director Kathy Kraninger was scolded by Democratic lawmakers over the guidance, in which the bureau said that it was aiming to bring clarity to an enforcement area that financial industry advocates have described as poorly defined. Indeed, in the decade since the Dodd-Frank Act created the CFPB, the financial industry has broadly bemoaned the agency’s power to police “abusive” practices, authority that came in addition to long-established standards for pursuing “unfair or deceptive” conduct. U.S. Rep. Maxine Waters (D-Calif.), chairwoman of the House financial services committee, described Kraninger’s leadership of the bureau as “misguided” and said the new guidance “undercuts” its enforcement abilities. Kraninger’s appearance came two weeks after the CFPB released the guidance. The new policy said the agency would only challenge conduct as “abusive” if the harm to consumers outweighed the benefit. The CFPB also said it would generally avoid labeling conduct “abusive” in addition to “deceptive” or “unfair,” instead bringing standalone cases that would more clearly demonstrate how the agency defines “abusive.” The bureau said it would impose fines only in cases where there has been a “lack of a good-faith effort to comply with the law,” although the agency plans to continue seeking restitution for harmed consumers. 

In related news, Kathy Kraninger, director of the Consumer Financial Protection Bureau (CFPB), said today that she asked the Supreme Court to strip her immunity from President Trump to settle “uncertainty” lingering over the agency, The Hill reported. Kraninger said that she is supporting a legal challenge to the bureau before the Supreme Court in order to resolve questions about the agency’s structure. The Supreme Court is set to hear arguments in March on Seila Law vs. CFPB, a lawsuit that accuses the bureau of being unconstitutional because it infringes upon the president's authority. Kraninger and the Trump administration filed a brief in September asking the Supreme Court to strip a provision from the Dodd-Frank Act, which created the CFPB, that protects her from being fired at will by the president. Under Dodd-Frank, the president may only fire the CFPB director “for cause,” which is generally understood to be misconduct or incompetence. “Congress obviously provided a clear mission for this agency, but there are some questions around this and I want the uncertainty to be resolved,” Kraninger said in testimony before the House Financial Services Committee. “I would very much like to see a resolution on this question because it has hampered the CFPB and its ability to carry out its mission virtually since its inception.”

Analysis: How the Risk Profiles of Large U.S. Bank Holding Companies Changed After the Global Financial Crisis



After the global financial crisis, regulatory changes were implemented to support financial stability, with some changes directly addressing capital and liquidity in bank holding companies (BHCs) and others targeting BHC size and complexity. Although the overall size of the largest U.S. BHCs has not decreased since the crisis, the organizational complexity of these same organizations has declined, with less notable changes being observed in their range of businesses and geographic scope, according to an analysis by the Federal Reserve Bank of New York's "Liberty Street Economics" blog. The analysis explores how different types of BHC risks — risks that can influence the probability that a BHC is stressed, as well as the chance of systemic implications — have changed over time. The results are mixed: Levels of most BHC risks tend to be higher than in the years immediately preceding the crisis, but are markedly lower than the levels seen during and immediately following the crisis.

Commentary: Reforms May Be the Downfall of Pension Funds



The shock of U.S. state and local pension fund losses in 2008 led to a flurry of reforms. These may not have actually improved aggregate funding ratios, but they did stop the decline, according to a Bloomberg commentary. In the next potential recession, the reforms of 2008-16 may prove to be the undoing of a system that has staggered along for decades. The next recession could be mild, or perhaps the current system will prove resilient, according to the commentary. It would still be very painful, of course, to public sector workers, government creditors and taxpayers, but alternative ways of resolving underfunded pension funds might be more painful. Much of the focus has been on the funding ratio of pensions, which is the ratio between the value of assets in a fund to the present value of its liabilities. But this is a theoretical calculation that depends on several hard-to-estimate parameters. Moreover, it only tells us that at some point in the future either someone will have to kick in more funds or promised benefits cannot be paid. It doesn’t tell us when that will happen. Funds can survive for decades — perhaps forever — without full funding. Looking at aggregate numbers is misleading, as a crisis will be triggered by the funds in the worst financial shape, not the average fund, according to the commentary. It is possible for an optimist to hope that aggregate pension assets could cover aggregate benefit obligations with perhaps a few only mildly painful adjustments. But even if that’s true in the aggregate, if enough of the 6,300 state and local pension plans fail, it will cause legal and political changes that will likely end the current system of partially funded defined-benefit plans for public sector employees.

Upcoming ABI Webinar and New Website Will Help Practitioners Navigate the Small Business Reorganization Act Before It Takes Effect on Feb. 19



As the Small Business Reorganization Act of 2019 (SBRA) takes effect on February 19, ABI is holding a special webinar next Tuesday with a panel of experts to identify key provisions to be aware of within the new law. ABI also launched the "SBRA Resources" website to help practitioners and struggling small businesses learn about the new law and stay updated on SBRA developments. To register for free for the "What's the Last Word on SBRA?" Webinar on February 11 at 1 p.m. EDT, please click here.

To visit ABI's SBRA Resources site, please click here.

Duberstein Bankruptcy Moot Court Competition – Call for Preliminary Round Judges



Each year, the American Bankruptcy Institute and St. John’s University School of Law co-sponsor the Duberstein Bankruptcy Moot Court Competition, which brings teams from law schools throughout the country to New York to argue two sophisticated bankruptcy issues. This year, 60 teams are participating in the competition in New York, which will be held from Saturday, February 29, through Monday, March 2, 2020. More than a dozen bankruptcy, district and court of appeals judges will judge the advanced oral rounds and attend the Gala Awards Reception at Gotham Hall on March 2. This year’s hypothetical addresses §§ 365(c)(1) and 1129(a)(10) as tied together by a compelling business bankruptcy fact pattern. The hypothetical can be viewed here.

The Duberstein Competition is looking for volunteers to serve as judges for the preliminary rounds of the competition on Saturday, February 29, and/or Sunday, March 1, at St. John’s University’s Queens campus. We have a particular need for judges on Sunday morning. CLE credit is available, and the commitment is only for one half-day (unless you are interested in participating in multiple sessions). To register to serve as a judge for one or more sessions of the preliminary rounds, please complete this Preliminary Judge Form.

If you have any questions about the Duberstein Competition or serving as a preliminary round judge, please do not hesitate to contact Paul R. Hage, co-director of the Duberstein Competition, at (248) 840-9079 or phage@jaffelaw.com.

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CBO: Student Debt Forgiveness in U.S. to Total $207 Billion in Next Decade



The Congressional Budget Office issued a report yesterday that said that the U.S. government will forgive $207.4 billion in student debt for Americans who take out loans over the next decade, the Wall Street Journal reported. The biggest benefits will go to borrowers who attend graduate or professional school. The CBO projects that the government will originate $1.05 trillion in new loans from 2020 to 2029. Much of that will end up in income-driven repayment plans, which set monthly payments as a share of a borrower’s income and then forgive balances that remain after 20 to 25 years, or 10 years for workers in public-sector jobs. The biggest benefits will go to Americans who borrow for graduate school, the CBO said in a report. The government will likely forgive $167.1 billion for such borrowers, or 56 percent of the amount extended. The forgiven amount includes the original loan amounts, or principal, as well as unpaid interest. The government will forgive about $40.3 billion on new loans made for undergraduates over that period, or 21 percent of the original amounts, according to the CBO study, which was ordered in 2018 by Senate Budget Committee Chairman Sen. Mike Enzi (R-Wyo.). The U.S. government is the nation’s primary lender for college and graduate students. About 43 million Americans owe $1.51 trillion in federal student loans. Current law requires that any balances forgiven for private-sector workers will be taxed as ordinary income.

Study: High Child-Care Costs Are a Significant Hurdle for First-Time Home Buyers



The damping effect of student loan debt on home ownership has been much discussed, but another expense may be delaying some from entering the housing market: child-care costs, the Washington Post reported. A recent study by Freddie Mac found that, adjusted for inflation, child care expenses jumped by 49 percent over the past 25 years. During that same period — 1993 to 2018 — housing costs rose by 14 percent when adjusted for inflation. Freddie Mac’s research found that families with child-care expenses had less money to spend on their housing costs. According to Freddie Mac’s research, families spend an average of $715 per month on child care. For families with younger children, the cost averages $948. The percentage of income spent on child care varies but hits lower-income families harder. Researchers found families who earn less than $1,500 per month spend an average of 40 percent of their income on child care. Families with a monthly income of $4,500 and more spend about 7 percent of their income on those costs.

Commentary: Puerto Rico’s Debt Deal Has a $16 Billion Unknown*



General-obligation bondholders reached an agreement in Puerto Rico's bankruptcy, but the case may hinge on the treatment of other debt, according to a Bloomberg commentary. The potential deal would cut Puerto Rico general obligations and debt guaranteed by the commonwealth to $10.7 billion from $17.8 billion, about a 40 percent reduction. The overall plan slashes debt and non-bond claims to $11 billion from $35 billion, a $24 billion reduction. However, one large part of Puerto Rico’s debt stack isn’t getting much attention, even though it’s facing the steepest losses and is a crucial component for making the entire restructuring plan work, according to the commentary. The oversight board’s revised agreement shows $16 billion of debt marked as “ERS, Clawbacks, and Other” that would receive a recovery rate of just 3 percent. The category includes bonds issued by the Puerto Rico Convention Center District Authority, the Infrastructure Financing Authority and the Highways and Transportation Authority, among others. The new proposal is structured such that a huge chunk of debt reduction is coming at the expense of these junior creditors, who notably haven’t agreed to the terms, said Brad Setser, a former U.S. Treasury economist and now a senior fellow at the Council on Foreign Relations. With where things stand on the island, it’s hard to see how junior bondholders could make a case for a better recovery, according to the commentary. The plan has some caveats around that 3 percent rate, noting that it “excludes any potential recoveries from assets currently at ERS (approximately $1.2 billion). Amounts are subject to further diligence and material revision. Assets remain subject to ongoing litigation.”





*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.



Don't miss the ABI Talk, "PROMESA'S Long Road of Good Intentions," by Cate Long of the Puerto Rico Clearinghouse (New York) at this year's Annual Spring Meeting! For more information about the conference and to register, please click here.

U.S. Labor Strikes Increased to 18-Year High in 2019, Led by Teachers



U.S. labor strikes last year increased to their highest level since 2001, with lost work days led by General Motors Co. and Chicago Public Schools, Bloomberg News reported. Total work stoppages involving 1,000 or more workers climbed to 25 in 2019, most of them comprised of education and health workers across the country, according to a Bureau of Labor Statistics report released on Tuesday. The number of strike participants fell from the prior year, but days lost topped 3.2 million — the most since 2004. More than one-third of that total came from autoworkers at GM, whose six-week strike last year was the longest automotive walkout in half a century. Unions have been losing members for decades, with the latest BLS data showing that their ranks fell slightly to 10.3 percent in 2019 from 10.5 percent the prior year. In 1983, one-fifth of workers were represented by organized labor. Overall, the labor market remains tight and employers are desperate for skilled workers, giving workers more bargaining power. Strike activity, though, is far below the levels of the mid-late 20th century. In 1981, for example, there were 145 major strikes, which cost employers about 17 million working days. Levels haven’t topped 100 strikes a year since then. One strike from last year, United Steelworkers working for ASARCO in Arizona and Texas, is ongoing, according to BLS.

Upcoming 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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